Subj


Subj:	arbitration
Date:	9/5/2001 11:16:12 AM Pacific Daylight Time
From: Cyrus.Rea@Strasburger.com (Cyrus Rea) To: Kevin4VFT@aol.com

If Microsoft and Hewlett-Packard sign a contract with an arbitration clause giving jurisdiction to the A.A.A. (American Arbitration Association), does Romans 13 bind IBM? Does Romans 13 require MS and HP to take their disputes to the Bush-Clinton regime? The UN? The Hague?

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Unfortunately, the dirty little secret of arbitration is that, at the end of the day, the arbitor's decision is enforceable in court.

Would Microsoft and Hewlett-Packard sign a contract wherein both parties promie to arbitrate any disputes AND promise never to seek relief in any court if the other party does not abide by the arbitor's decision? Of course not.

I've yet to see a contract where both parties essentially 'release' the other for any future breaches, agreeing never to seek redress in a court. I doubt the courts would uphold such a provision... That is, I doubt a court would uphold a challenge to the jurisdiction if a party such a contract nevertheless brought suit.


Subj:	Re: arbitration
Date:	9/5/2001 12:25:46 PM Pacific Daylight Time
From: Cyrus.Rea@Strasburger.com (Cyrus Rea) To: KEVIN4VFT@aol.com

Sure, the temptation is there.

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It's not so much the temptation I'm concerned about as it is the motivation. A client who has suffered a loss wants assurance he can force the other side -- through the literal siezure of assets by Sheriff deputies if necessary -- to pay him if he prevails.

Whether the verdict is rendered by an arbitor or a judge/jury makes little difference. In both cases, the State's thugs will get his money for him -- by force -- if he wins. The decision to opt for the AAA as opposed to a lawsuit has much more to do with legal fees than anything else.

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This still shows that corporations prefer anarchy to judges;
they realize that the State's Courts are
worse than standing in line for Moses.

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But nearly every party to a contract prefers the State's enforcement procedures over the alternatives. (... and there are very few alternatives)

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And if an arbitration decision is challenged in a "court,"
most courts will uphold the arbitration unless it is
patently unreasonable, right?

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Certainly. But binding arbitration is only desirable because the parties know the Sheriff deputies will be there at the end of the day to enforce the decision. It is this reliance on force that is the flaw. Even non-binding mediation is only effective because the parties know that if they can't hammer something out the Sheriff's deputies will do it for them.

I would like to see contracts where both sides disavow any use of the Sheriff's Deputies -- either to enforce an arbitor's decision or a jury's decision. This is feasible in some types of contracts. Security agreements, with provisions allowing one party to sieze the collateral upon default without needing to go to court, come to mind. I can also envision certain escrow arrangements where the parties agree as to the possible damages either could inflict on the other and deposit these funds with a neutral third-party at the inception of the relationship. And, of course, insurance is the most common example of a relationship where there is no need for the Deputies' intervention.

Arbitration doesn't meet the criteria for a "patriarchal" way of resolving disputes so long as the only incentives for abiding by the arbitor's decision are the Deputies.


Subj:	Re: arbitration
Date:	9/6/2001 8:15:45 AM Pacific Daylight Time
From: Cyrus.Rea@Strasburger.com (Cyrus Rea) To: KEVIN4VFT@aol.com

Maybe I don't know what I'm talking about, but it seems to
me (from what I've read) that the State's courts are so clogged
that nobody expects justice from them, so they turn to arbitration.

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Nobody is looking for justice. They are looking for victory. The last thing most of my clients want is a fair impartial judge. ;)

The real reason for arbitration is to screw customers. Seriously. Every State has numerous consumer protection statutes allowing a cheated customer to recover two, three, sometimes four times their damages. Plus penalties.

Businesses avoid these harsh laws by inserting arbitration clauses in their boiler-plate contracts. Any and all disputes arising from the contract -- including the tort suits for fraud, deception, etc. -- then have to go to arbitration. Oftentimes, the customer doesn't get an attorney, thinking the arbitration is some informal type thing he can handle himself. In addition, the rules of evidence do not apply, allowing the business to bring up issues that would never be admissible in court. In short, the customer gets screwed with arbitration. To make matters even worse, Big Business lobbied Congress to passing Federal Statutes saying, basically, an arbitor's decision cannot be appealed.

Business to Business dealings, on the other hand, use arbitration in a more equitable fashion. But, that's nothing new. Businesses have always viewed the courts as the last option.

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This is already writing off SOME of the chances of enforcement.
This is evidence of SOME willingness to assume the good faith
of the other party and the arbitrator. As an optimillennialist I
believe God will bring more and more good faith.

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The chances of enforcement don't change because of arbitration.
Lawsuits are nothing more than an appeal to force; one party is asking the State for use of its thugs to take the other's assets, while the other party is begging the State not to send out its thugs. It makes little difference if an arbitor or a jury renders the decision. The goal of both parties remains the same.

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What is the percentage of arbitrated agreements which require
State enforcement?

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Probably about the same as agreements 'arbitrated' by juries. In both cases, if someone has the money, they will pay. Why? Because if they don't the thugs will come.

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What percentage of the parties to such
contracts actually seek state enforcement if the arbitrated
decision is ignored? Especially in cases where the only alternative
is the State putting someone in jail, which profits nobody.
I don't know. I would like to see these numbers.

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I can't imagine how any civil litigant could ever be threatened with jail-time.
Rather, he'll simply have his assets siezed and his boss will be ordered by the Deputies to garnish his wages until the debt is paid. These mechanisms are how BOTH jury verdicts AND arbitration decisions are enforced -- the only difference is WHO is rendering the decision; a single arbitor, or 12 jurors.

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I don't think the deputies are the "only" incentives.
I've seen numerous articles which indicate a growing
spirit of lex mercatoria: business to business enforcement.

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99% of arbitration clauses involved business-customer relations. Most are in contracts of adhesion and most are deterimental to the customer.

As a practical matter, my clients (big business) ALWAYS want arbitration. We do anything and everything seeking to compel the court to order arbitration. The attorneys reperesenting the plaintiffs -- ordinary Joe Schmoes -- do the opposite: they argue vociferously that the client is entitled to a jury trial. Arbitration clauses are ALWAYS bad for the little guy.

Look, I'll let you in on a secret. What happens is this... Congressman Bob introduces all kinds of legislation making it easier for the 'little guy' to sue Big Business. Lemon Laws, Deceptive Trade Practices Acts, statutory causes of action against mean old HMOs and Insurance companies, laws making it easier to sue Homebuilders, Landlords, Corporations, etc.

Of course, this irritates Big Business. So, Congressman Bob introduces legislation for them as well. He makes it a law that an arbitration clause, no matter how inconspicous or unfair, MUST be enforced. So, as a practical matter, none of the pro-consumer laws will affect Big Business so long as they insert arbitration clauses on every invoice, receipt, contract, bill. "Don't worry about that new Lemon Law I passed, boys" Bob says to the Big Business lobbiests. "Your customer can only use it against you if he can get to court! hehe! And with this new arbitration statute, I guarantee they won't ever see the inside of a courtroom!"


Subj:	Re: arbitration
Date:	9/6/2001 11:49:22 AM Pacific Daylight Time
From: Cyrus.Rea@Strasburger.com (Cyrus Rea) To: KEVIN4VFT@aol.com

To understand why arbitration hurts the little guy, one must keep in mind two things.

First, the rules of procedure and evidence, as well as the many statutory causes of action, are geared towards the little guy. Lemon Laws are a good example. Before the statute, if a car dealership sold you a lemon, you could sue them only under the usual contract and tort theories. The contract route would be foreclosed as dealerships would simply insert "AS-IS" clauses. And, to prevail on a tort theory, the customer would have to show fraud; a very difficult task.
So, in order to protect the customer, the State enacts a "Lemon Law." The statute says a customer -- regarldess of what any contract says -- can sue the dealer for damages if the car is a lemon (the elements and details vary from state to state, of course.) The customer need not prove fraud, or any kind of bad intent. It's sort of a 'strict liability' type of thing.
That's just one example. There are hundreds. Anyway, arbitors are not necessarily bound by these laws or pro-consumer rules of evidence. Without these protections, the forum is far less desirable for the consumer.

Second, arbitors are biased towards businesses. Any given consumer may appear before an arbitor once or twice in his life. Ford Motor Company, on the other hand, will appear before them hundreds of times a year. The arbitors get selected by the parties. Any arbitor who rules against Ford on too many occasions will no longer get selected by Ford (or GM, NISSAN, Chyrsler, etc. --- word gets around.) Over time, the only arbitors left are pro-business. Write the AAA and ask them for a breakdown of decisions -- how many were in favor of the smaller of the two entities before it. They will refuse to disclose this info.

Now, you might say "Ford is before Judges just as often!" But, Ford doesn't select the judges. Besides for campaign contributions and indirect party politics, a judge has no reason to be biased towards a big company.

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Is there a
consumer-favorable alternative arbitration firm?

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Of course not. Each party has the right to refuse a given arbitor. The consumer-favorable ones are excluded from the outset.

The only way to make it fair is for the arbitors to be financed NOT by the parties, but by a neutral third party. When it comes to judges, that 'neutral third party' is the citizenship at large -- everyone is forced to chip in and pay the judge's salary. That does result in less possibility for bias, but once you start down that road, you have a State.

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Corrupt people will corrupt any process.
Arbitration still opens doors toward a non-statist process.

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It serves a purpose in that it weans people off the idea that justice comes only from men in black robes and whigs sitting behind big oaken benches.

That might be a very important purpose.