Corporate executives like arbitration when it comes to disputes with the holders of credit cards and with other consumers. As we all know, arbitration is used by Corporate America to bar consumers from going to court in the event of a dispute. That involves a consumer contract of most every sort. This is what more than a dozen business trade groups wrote in a letter to Congress in May about the use of arbitration:

Arbitration is an efficient, effective, and less expensive means of resolving disputes for consumers, employers, investors, employees and franchisees, in addition to the many businesses that use the same system to resolve business disputes.

But, according to a recent study, corporations are far less likely to use arbitration clauses in contracts with each other than they are in contracts with consumers. That surely seems to be inconsistent with what was told to Congress. Theodore Eisenberg, a law professor at Cornell, believes companies use arbitration in disputes with consumers to avoid class action lawsuits. The findings by Professor Eisenberg, whose co-authors on the most recent study are Geoffrey P. Miller of New York University School of Law and Emily Sherwin of Cornell Law School, are not surprising. Their study, which was described in an article this summer in the University of Michigan Journal of Law Reform, included contracts by 21 different telecommunications and financial services companies. The researchers found that companies included mandatory arbitration clauses in 75% of consumer agreements, but in just 24% of contracts over all. Every consumer contract they found with an arbitration clause also waived possible group, or class, arbitration.

In prior studies, it was discovered that companies used arbitration clauses in just 11% of contracts with other companies. Professor Eisenberg asks if arbitration is such “a fair and cost-saving process,” why don’t they (big companies) use it “across the board,” and “why don’t they insist on it when they contract with each other?” My experience has been that unless a large company has the upper hand in a contract – such as in a contract with a consumer – they prefer the courts as the place for their disputes. Hopefully, Congress will act next year to ban mandatory, binding arbitration in all consumer contracts and disputes.

Source: Lawyers USA

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