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S. HRG. 110–396

S. 1782, THE ARBITRATION FAIRNESS ACT OF

2007

HEARING

BEFORE THE

SUBCOMMITTEE ON THE CONSTITUTION

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

DECEMBER 12, 2007

Serial No. J–110–68

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MICHAEL O’NEILL, Republican Chief Counsel and Staff Director 

SUBCOMMITTEE ON THE CONSTITUTION

RUSSELL D. FEINGOLD, Wisconsin, Chairman 

EDWARD M. KENNEDY, Massachusetts 

DIANNE FEINSTEIN, California 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SAM BROWNBACK, Kansas 

ARLEN SPECTER, Pennsylvania 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

ROBERT F. SCHIFF, Chief Counsel 

AJIT PAI, Republican Chief Counsel 

(III)

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS

Page

Brownback, Hon. Sam, a U.S. Senator from the State of Kansas ....................... 3

Feingold, Hon. Russell D., a U.S. Senator from the State of Wisconsin ............. 1

prepared statement .......................................................................................... 107

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, prepared 

statement .............................................................................................................. 118

WITNESSES 

Alderman, Richard M., Associate Dean for Academic Affairs, Director, Center 

for Consumer Law, University of Houston Law Center, Houston, Texas ....... 9

Bland, F. Paul, Jr., Staff Attorney, Public Justice, Washington, D.C. ................ 17

de Bernardo, Mark A., Executive Director and President, Council for Employment Law Equity, Jackson Lewis LLP, Vienna, Virginia ................................. 14

Luke, Fonza, Birmingham, Alabama ..................................................................... 6

Naimark, Richard, Senior Vice President, American Arbitration Association, 

Washington, D.C. ................................................................................................. 11

Rutledge, Peter B., Associate Professor of Law, Columbus School of Law, 

Catholic University of America, Washington, D.C. ........................................... 7

Solov, Tanya, Director, Illinois Securities Department, Illinois Secretary of 

State, Chicago, Illinois ......................................................................................... 13

QUESTIONS AND ANSWERS 

Response of Richard Naimark to a question submitted by Senator Brownback 33

Responses of Peter B. Rutledge to questions submitted by Senator 

Brownback ............................................................................................................ 34

SUBMISSIONS FOR THE RECORD 

ABC News, Dec. 10, 2007, article ........................................................................... 38

Additional views of Senators Feingold, Durbin, and Kennedy ............................ 41

Alderman, Richard M., Associate Dean for Academic Affairs, Director, Center 

for Consumer Law, University of Houston Law Center, Houston, Texas, 

statement .............................................................................................................. 44

Alliance for Justice, Marya Torrez, Center for Responsible Lending, Jilliam 

Aldebron, Consumer Federation of America, Barbara Roper, Consumers 

Union, Sally Greenberg, HomeOwners for Better Building, Janet Ahmad, 

Public Citizen’s Congress Watch, Laura MacCleery, and U.S. Public Interest Research Goup, Edmund Mierzwinski, joint letter ..................................... 48

Bland, F. Paul, Jr., Staff Attorney, Public Justice, Washington, D.C., statement ...................................................................................................................... 50

Coalition to Preserve Arbitration, September 21, 2007, joint letter .................... 87

Cox, Christopher, Chairman, Securities and Exchange Commission, Washington, D.C., letter ............................................................................................... 89

de Bernardo, Mark A., Executive Director and President, Council for Employment Law Equity, Jackson Lewis LLP, Vienna, Virginia, statement ............. 91

Feingold, Hon. Russell D., and Hon. Patrick J. Leahy, joint letter ..................... 109

Financial Services Roundtable, Steve Barlett, President and CEO, Washington, D.C., statement ........................................................................................ 114

International Franchise Assciation (IFA), David French, Vice President, Government Relations, Washington, D.C., letter ..................................................... 116

Luke, Fonza, Birmingham, Alabama, statement .................................................. 119

Minority views of Senators Kyl, Specter, and Brownback ................................... 121

Page

IV

Naimark, Richard, Senior Vice President, American Arbitration Association, 

Washington, D.C., statement and attachments ................................................. 124

National Association of Home Builders (NAHB), Washington, D.C., statement 140

National Employment Lawyers Association (NELA), Washington, D.C., statement and attachments ......................................................................................... 144

Organizations supporting the Arbitration Fairness Act of 2007, joint letter ..... 160

Public Investors Arbitration Bar Association, Laurence Schultz, President, 

Norman, Oklahoma, statement ........................................................................... 163

Rutledge, Peter B., Associate Professor of Law, Columbus School of Law, 

Catholic University of America, Washington, D.C., statement ........................ 180

Securities Industry and Financial Markets Association, Washington, D.C., 

statement and attachments ................................................................................. 208

Solov, Tanya, Director, Illinois Securities Department, Illinois Secretary of 

State, Chicago, Illinois, statement ...................................................................... 214

Wall Street Journal, November 7, 2007, article .................................................... 223

Wireless carriers concerned with the Arbitration Fairness Act of 2007 ............. 225

(1)

S. 1782, THE ARBITRATION FAIRNESS ACT OF 

2007

WEDNESDAY, DECEMBER 12, 2007

U.S. SENATE, SUBCOMMITTEE ON THE CONSTITUTION, COMMITTEE ON THE JUDICIARY, Washington, D.C. 

The Subcommittee met, pursuant to notice, at 9:32 a.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Russell D. Feingold, 

Chairman of the Subcommittee, presiding. 

Present: Senators Feingold and Brownback. 

OPENING STATEMENT OF HON. RUSSELL D. FEINGOLD, A U.S. 

SENATOR FROM THE STATE OF WISCONSIN 

Chairman FEINGOLD. I call the Committee to order, and good 

morning, everybody. Welcome to this hearing of the Subcommittee 

on the Constitution on S. 1782, the Arbitration Fairness Act of 

2007. 

I want to welcome our witnesses and thank them for taking the 

time to join us this morning and give us the benefit of their expertise on this very important topic. I look forward to hearing your 

testimony. 

One of the most fundamental principles of our justice system is 

the right to take a dispute to court. Indeed, all Americans have the 

constitutional right in civil and criminal cases to a trial by jury. 

The right to a jury trial in civil cases in Federal court is contained 

in the Seventh Amendment to the Constitution. Many States provide a similar right to a jury trial in civil matters filed in State 

courts. 

Now, I have been concerned for many years that mandatory arbitration clauses are slowly eroding the legal protections that should 

be available to all Americans. A large and growing number of corporations now require millions of consumers and employees to sign 

contracts that include mandatory arbitration clauses. Most of these 

individuals have little or no meaningful opportunity to negotiate 

the terms of their contracts, and so they find themselves, if they 

even realize that the provision is in the contract, having to choose 

either to accept a mandatory arbitration clause or to forgo securing 

employment or needed goods and services. Perhaps most disturbingly, mandatory arbitration clauses are being used to prevent individuals from trying to vindicate their civil rights under statutes 

specifically passed by Congress to protect them. 

There is a range of ways in which mandatory arbitration can be 

particularly hostile to individuals attempting to assert their rights. 

2

For example, the administrative fees—both to gain access to the arbitration forum and to pay for the ongoing services of the arbitrator 

or arbitrators—can be so high as to act as a de facto bar for many 

individuals who have a claim that requires resolution. In addition, 

arbitration generally lacks discovery proceedings and other civil 

due process protections. Furthermore, under a developing body of 

case law, there is no meaningful judicial review of arbitrators’ decisions. 

Unfortunately, in a variety of contexts—employment agreements, 

credit card agreements, HMO contracts, securities broker contracts, 

and other consumer and franchise agreements—mandatory arbitration is fast becoming the rule rather than the exception. The practice of forcing employees to use arbitration has been on the rise 

since the Supreme Court’s Circuit City decision in 2001. Unless 

Congress acts, the protections it has provided through law for 

American workers, investors, and consumers will slowly, but surely, become irrelevant. 

Just as its name suggests, the Arbitration Fairness Act is designed to return fairness to the arbitration system. Arbitration can 

be a fair and efficient way to settle disputes. I strongly support voluntary alternative dispute resolution methods, and we ought to encourage their use. What this bill does, though, is ensure that citizens once again have a true choice between arbitration and the traditional civil court system by making unenforceable any predispute 

agreement that requires arbitration of a consumer, employment, or 

franchise dispute. The bill does not apply to mandatory arbitration 

systems agreed to in collective bargaining, and it certainly does not 

prohibit arbitration if all parties agree to it after a dispute arises. 

Let me quickly address two questions that have arisen about the 

bill. First, it is intended to cover disputes between investors and 

securities brokers. I believe that such disputes are covered by the 

definition of consumer disputes, but to clear up any uncertainty, we 

will make the intent even clearer when we mark up the bill in committee. 

Second, as I mentioned, the bill covers consumer, employment, 

and franchise disputes, each of which is a defined term. In addition, it covers disputes that arise under civil rights statutes or ‘‘any 

statute intended...to regulate contracts or transactions between 

parties of unequal bargaining power.’’ Now, some opponents of the 

bill have seized on that language and misstated it, saying that the 

bill covers any contract between parties with unequal bargaining 

power. They then say that such a provision is overbroad and very 

vague. I actually agree that such a provision would be problematic, 

but, of course, that is not what the bill says. The provision in question is essentially a savings clause so that a cause of action under 

a civil rights statute or a statute that is specifically designed to address disparities of bargaining power can be brought in court, even 

if the dispute does not meet the definition of a consumer or employment or franchise dispute. So I hope this helps to clear up any misunderstanding about the scope of the bill. 

In our system of Government, Congress and State legislatures 

pass laws and the courts are available to citizens to make sure 

those laws are enforced. But the rule of law means little if the only 

forum available to those who believe they have been wronged is an 

3

alternative, unaccountable system where the law passed by the legislature does not necessarily even apply. This legislation both protects Americans from exploitation and strengthens a valuable alternative method of dispute resolution. So I look forward to exploring 

the implications and the details of this bill with our witnesses. 

[The prepared statement of Senator Feingold appears as a submission for the record.] 

Let me now turn to my friend and Ranking Member, Senator 

Brownback, for any opening remarks he would like to make, and 

I want to thank him and his staff for cooperation in putting this 

hearing together. Senator Brownback? 

STATEMENT OF HON. SAM BROWNBACK, A U.S. SENATOR 

FROM THE STATE OF KANSAS 

Senator BROWNBACK. Thank you very much, Senator Feingold. I 

appreciate that, and I would like to—I have a series of items I 

want to enter into the record about this topic. I would ask that 

they be placed in the record at the end of my statement, if that 

would be possible. 

I want to thank my colleague for holding the hearing. I appreciate the witnesses for being here. It is an important topic. It is one 

that I believe that the statute that is being proposed is overly 

broad and will be subject to an interpretation that goes far beyond 

the intent that has been stated here by the author of the bill. 

In 1925, Congress passed the Federal Arbitration Act. The Act 

embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts. It was 

intended to overcome judicial resistance to arbitration. 

The bill before us today, S. 1782, would decimate many provisions of this and over eight decades of Federal policy favoring arbitration. It would invalidate countless contracts, clogging our court 

system, I believe, with claims and depriving consumers and other 

people with less access to the courts, the so-called, in often cases, 

little guys have their only real chance of meaningful recovery. I am 

hopeful that the author of this legislation can persuade me differently, but I think that is what this will lead us toward. 

Let me develop that. The bill’s supporters claim that it is intended to help people with less influence in the system—powerless 

employees, consumers—avoid contracts of adhesion. Its sweeping 

scope belies, I believe, that purported goal. The bill would render 

unenforceable all—this is a quote—‘‘pre-dispute arbitration agreements in employment, consumer, and franchise contracts.’’ The bill 

does not distinguish between, on the one hand, the so-called fine 

print arbitration agreements that supporters attack as unfair and, 

on the other hand, fully negotiated contracts between sophisticated 

parties. The bill would apply not only to the teenager working at 

a fast-food joint, but to the CEO who brought in his own attorney 

to negotiate a generous employment contract. 

The fact of the matter is that in our system the person, the socalled little guy, is by and large better off in arbitration than trying 

to get to court. Arbitration is cheaper than litigation, and it leads 

to faster results for plaintiffs. Numerous studies also show that arbitration is more favorable to consumers and employees than litigation. 

4

For example, the National Work Rights Institute found that employees were almost 20 percent more likely to win employment 

cases in arbitration than they were to win in court. A California 

study showed that consumers won 65.5 percent of their arbitration 

claims against businesses as opposed to between 60, 61 percent of 

lawsuits nationwide. When you add settlements into the equation, 

the vast majority of consumers who arbitrate against businesses resolve their disputes satisfactorily. 

Moreover, the settlements or awards that plaintiffs receive in arbitration are typically the same as or even larger than court 

awards. Arbitration is also far more accessible to the little guy 

than is the court system. First of all, it generally is not costly, a 

2006 article citing average arbitration fees of only $46.63. Under 

the American Arbitration Association’s consumer procedures, for 

example, consumers cannot be asked to pay more than $125 in arbitration costs. Business defendants shoulder all the remaining 

fees. Second, and more importantly, arbitration doors are always 

open to consumers and employees with small individualized claims. 

Indeed, Justice Breyer has explained that low-value disputes, 

like the typical consumer dispute, are particularly well suited for 

arbitration. Without enforceable arbitration agreements, ‘‘the typical consumer who has only a small damage claim would be left 

without any remedy but a court remedy, the cost and delay of 

which could eat up the value of any eventual small recovery.’’

Cost and fees make the courts inaccessible to most small claims, 

but an even bigger problem for plaintiffs with low-value claims is 

trying to secure the legal representation needed to approach the 

courthouse doors. 

Under the contingency fee systems, plaintiffs’ trial lawyers will 

not look twice at disputes that are too small to net sizable attorneys’ fees and too unique to bundle into a class action. One survey 

of plaintiffs’ attorneys revealed that they agree to represent only 5 

percent of the individuals who seek out their help, and they require 

a minimum of $60,000 in provable damages, ask for a retainer, and 

require payment of a 35-percent contingency fee. 

Another report found that a consumer or employee would need 

to have a claim of at least $75,000 before litigation became costeffective for an attorney. 

Now, the trial bar may point to class actions as a solution for 

small-value disputes. But most consumers and employees will not 

be able to obtain redress in class actions. The vast majority of their 

claims are individualized. My toaster did not work, or my account 

was charged twice, or I was wrongfully denied a promotion. These 

kinds of claims do not meet the Rule 23 Federal standard for class 

actions because common issues of law, in fact, do not predominate. 

Even where claims can be bundled together into a class action, 

though, class members generally receive no real benefit. Congress 

recognized in passing the Class Action Fairness Act of 2005 that, 

‘‘Class members often receive little or no benefit, and they are 

sometimes harmed.’’

The reality in most class actions is that counsel are awarded 

large fees while too often class members with coupons or other 

awards get little or no value. And at times, unjustified awards are 

made to certain plaintiffs at the expense of other class members. 

5

I believe S. 1782 trades a system that works fairly well for the 

vast majority of claimants for a system that leaves more consumers 

and employees without any meaningful chance at recovery. I do not 

think this is the route we want to go. I am certain that is not the 

route that my colleague wants to go. 

I stand open to discussion and dialog of how we can improve the 

current system, but I think both of us in our background and our 

practice would look at if there are ways and places that you can 

take things to arbitration, that is generally a better way to go. It 

gets things done faster. It gets things done with less cost. And it 

gets people a resolution to items. 

So I think this is overly broad. I am willing to look at and to listen to it, but I think we ought to continue with the favor that we 

have put on arbitration since 1925 and not really throw that system out. I look forward to the testimony of the witnesses to further 

illuminate the topic. 

Thanks for holding the hearing. 

Chairman FEINGOLD. Thank you, Senator Brownback, and you 

have well stated the opposite view. But let us be very clear: This 

bill is about mandatory arbitration. So whatever statements you 

use from 1925 about arbitration in general or whatever studies you 

use about arbitration in general does not necessarily relate to this 

bill. And we will be fly specking that as we go through this to make 

sure that the general value of arbitration is not questioned. This 

is only about mandatory arbitration. But I thank the Senator, and, 

of course, he very eloquently articulated a different view. 

Will the witnesses please stand and raise your right hand to be 

sworn in? Do you swear or affirm that the testimony you are about 

to give before the Committee will be the truth, the whole truth, 

and nothing but the truth, so help you God? 

Mrs. LUKE. I do. 

Mr. RUTLEDGE. I do. 

Mr. ALDERMAN. I do. 

Mr. NAIMARK. I do. 

Ms. SOLOV. I do. 

Mr. DE BERNARDO. I do. 

Mr. BLAND. I do. 

Chairman FEINGOLD. Thank you, and you may be seated at this 

point. 

We will proceed in the order that you are seated from my left to 

my right. I would ask each of you to limit your oral presentation 

to 5 minutes so we have ample time for questions and discussion. 

Our first witness is Mrs. Fonza Luke, and I am so glad that she 

is here to tell her story about her experience with mandatory arbitration. Mrs. Luke was a licensed nurse for more than 30 years at 

Baptist Medical Center-Princeton in Birmingham, Alabama, the 

last 5 years of which she spent in the gastrointestinal lab. She was 

trained at Birmingham School of Nursing. Currently, she works 

two jobs—full-time as a night supervisor in an assisted living community, and part-time in the emergency room at Birmingham’s 

Cooper Green Hospital. Mrs. Luke also serves on the board of 

Blessed Sacrament Catholic Church in Birmingham. She has four 

children and six grandchildren, including two under the age of one, 

6

whom she cares for frequently. She has been happily married for 

42 years. 

Thank you for coming here to testify, and you may proceed. 

STATEMENT OF FONZA LUKE, BIRMINGHAM, ALABAMA 

Mrs. LUKE. Chairman Feingold and distinguished members of 

the Subcommittee, thank you for the invitation to testify at this 

hearing about my experience with mandatory arbitration as an employee. I would also like to acknowledge my attorney, Mark Elovitz, 

without whom I would not have the opportunity to be here today. 

I started working as a licensed nurse for BMC Princeton in 1971. 

For almost 30 years, I was a dedicated employee, and I received 

the highest performance ratings from the doctors I worked with 

every day. When the hospital needed me to work extra days and 

hours because of staffing shortages, I came in. Once I worked almost every day of the year to give them the help they needed. 

Whenever the hospital offered new training or skills development, 

I took advantage of it so I could do my job better. 

In November 1997, I was required to attend a meeting of hospital 

employees where I was given a copy of a new ‘‘Dispute Resolution 

Program.’’ The other employees and I were told we would have to 

give up our right to go to court that if we had legal claims against 

BMC, they would have to go to binding arbitration. If we did not 

sign the so-called agreement describing this program, we were told 

we would lose our jobs. I refused to sign this agreement because 

I did not want to give up my rights. I thought it was not right to 

make employees give up their right. I talked to my husband, also 

to my priest about it, and they both agreed that I should not sign. 

About a year later, the hospital again asked me to sign the agreement. Again I refused. In spite of what the hospital said, I was not 

fired for refusing. 

About 3 years later, in early 2001, when I returned from a continuing education class in Atlanta, the hospital’s human resources 

director told me that I was being fired for ‘‘insubordination.’’ I was 

devastated because I never thought I would lose my job after almost 30 years of working at BMC, always with good evaluations. 

I do not think I was insubordinate at all. The only things I did 

they called ‘‘insubordinate’’ were things that younger, white employees did all the time without being fired. At that time, I went 

to see Mr. Elovitz. I believed that BMC fired me because of my race 

and my age. I was 59 years old. I believe that the explanation of 

insubordination was just an excuse. 

With the help of my lawyer, I filed race and age discrimination 

claims with the EEOC, which, after a long investigation, ruled in 

my favor. 

The next step was to file a discrimination case in Federal court, 

which I did. But BMC asked the Federal court to dismiss my case 

because, they said, I had agreed to bring all claims to arbitration. 

I told the Federal court I never signed the arbitration agreement 

and never gave up my right to go to court. But the Federal court 

said that BMC could force me to arbitrate because I kept working 

in my job. I thought this was unfair that I appealed the Federal 

court’s decision, but the Federal court agreed with the lower courts 

7

and ordered me into arbitration. The fact that I specifically refused 

to agree to arbitration twice meant nothing. 

The arbitrator was chosen by process of elimination from a list 

that was composed heavily of defense lawyers. According to my 

lawyer, with that list of arbitrators, it was impossible for me to get 

someone who was even in the middle of the road, much less someone who would be sympathetic with employees. I find it hard to believe this arbitrator, whose time was paid for by BMC, could make 

a fair decision in my case. In the end, my claims of discrimination 

and retaliation were denied. I got nothing, no relief whatsoever. I 

don’t think the arbitrator even looked at my side of the story. 

Today, I have to work two jobs to make as much as I did at 

BMC. I did everything I could to keep my right to go to court, but 

the court doors were closed when I got there. I was not allowed to 

bring the evidence of discrimination before a fair and impartial 

judge or a jury of my peers. Before a judge and jury instead of an 

arbitrator, I believe I would have gotten at least a fair hearing. 

Thank you for listening to my story. 

[The prepared statement of Mrs. Luke appears as a submission 

for the record.] 

Chairman FEINGOLD. Thank you so much, Mrs. Luke. 

Our next witness is Professor Peter B. Rutledge. Professor Rutledge is an Associate Professor of Law at the Columbus School of 

Law, Catholic University of America. He is co-author of the book 

‘‘International Civil Litigation in the United States’’ and the author 

of several articles in the area of arbitration law. 

Thank you for joining us, Professor Rutledge, and you may proceed. 

STATEMENT OF PETER B. RUTLEDGE, ASSOCIATE PROFESSOR 

OF LAW, COLUMBUS SCHOOL OF LAW, CATHOLIC UNIVERSITY OF AMERICA, WASHINGTON, D.C. 

Mr. RUTLEDGE. Thank you, Chairman Feingold and Senator 

Brownback, for the opportunity to testify. I could not agree with 

both of you more that the issues raised by this bill are important, 

and, therefore, my urge to the Subcommittee would be to pay careful attention to the underlying data and to the underlying impact 

of the bill if it were enacted. Allow me briefly to summarize the 

main points of my written testimony. 

First, a thorough understanding of the available data and the 

gaps in the data should drive this policy debate over the future of 

arbitration as a whole. In important respects, that data are inconsistent with several of the premises underlining calls to abolish 

predispute arbitration agreements. 

Second, to the extent that there are particular instances of problematic arbitrations, existing mechanisms are available to filter out 

the unfair ones. 

Third, if Congress were to eliminate predispute arbitration 

agreements, individuals would find it more difficult to obtain a lawyer; they would achieve smaller recoveries; and all of this would 

occur at a slower pace due to our overburdened court system. Companies’ legal costs would rise, and those higher costs ultimately 

would be borne by the very individuals whom this bill is trying to 

8

protect. The only people who, with certainty, are going to benefit 

from this bill are the lawyers. 

Fourth, postdispute arbitration does not present a viable alternative to a system of predispute enforceable agreements. 

In my remaining time, Mr. Chairman, allow me to elaborate 

please on two of these points. 

First, eliminating predispute arbitration agreements would not 

make individuals as a whole better off. Arbitration is often criticized on the grounds that it leaves the party with the inferior bargaining position worse off. In fact, nearly all of the available academic studies, many of which I concede concern employment arbitration, demonstrate precisely the opposite; that is, by various 

measures, individuals achieve either superior or at least comparable outcomes in arbitration compared to litigation. A variety of 

studies have also indicated the difficulty that individuals, particularly low-income ones, encounter in their efforts to find an attorney 

willing to take their case due to the higher expense and greater 

delay in our court system. Ranking Member Brownback has already referred to some of these studies. And, moreover, for those 

individuals who do find a lawyer, studies consistently document 

that it takes far longer for our litigation system to deliver them 

justice than for arbitration. 

For example, a 2004 study of employment disputes found that 

the median time between the filing and the judgment was approximately three times as long in litigation as opposed to arbitration. 

The second point on which I wish to elaborate, Mr. Chairman, is 

this issue of postdispute arbitration, and I understand the appeal 

of the argument that says if arbitration is such a good deal and 

parties are willing to agree to it predispute, surely they would 

agree to it postdispute. And what I would refer to you and your 

staff, Mr. Chairman, is a 2004 study by David Sherwyn, which is 

one of the only studies that I am aware of that is an empirical 

study of postdispute arbitration, looking specifically at the Illinois 

Human Rights Commission’s postdispute arbitration option. Professor Sherwyn surveyed 1,300 cases that were submitted before 

the Illinois Human Rights Commission, and he could not identify 

a single one in which the parties agreed to postdispute arbitration. 

As you know, Mr. Chairman, recently the Congress enacted a bill 

which carved out arbitration agreements between automobile dealers and manufacturers, and I cite in my testimony a recent decision by the Seventh Circuit in which the dealer attempted to propose postdispute arbitration, and the manufacturer resisted it. My 

point is this: I think we should not delude ourselves that post- dispute arbitration is somehow going to capture all the benefits of 

predispute arbitration while eliminating the unfairnesses. I think 

at the end of the day, if Congress were to enact this bill, it would 

be effectively gutting arbitration as an effective system of dispute 

resolution, with deleterious benefits for the very people whom this 

bill is trying to protect. 

Thank you. 

[The prepared statement of Mr. Rutledge appears as a submission for the record.] 

Chairman FEINGOLD. Thank you, Professor. 

9

Our next witness is Richard M. Alderman, who is Associate Dean 

for Academic Affairs and Director of the Center for Consumer Law 

at the University of Houston Law Center. The author of 19 books 

and numerous articles, Dean Alderman is a national and international leader in the field of consumer law. Dean Alderman also 

serves as the editor in chief of the Journal of Consumer and Commercial Law, the official publication of the Consumer and Commercial Law Section of the State Bar of Texas. 

Dean, thank you for agreeing to testify today and for making the 

trip up from Texas, and the floor is yours. 

STATEMENT OF RICHARD M. ALDERMAN, ASSOCIATE DEAN 

FOR ACADEMIC AFFAIRS, DIRECTOR, CENTER FOR CONSUMER LAW, UNIVERSITY OF HOUSTON LAW CENTER, HOUSTON, TEXAS 

Mr. ALDERMAN. Thank you, Chairman Feingold, Ranking Member Brownback. Thank you for the opportunity to discuss the Arbitration Fairness Act of 2007. I appear before you—I did not say 

anything important before. 

[Laughter.] 

Mr. ALDERMAN. I appear before you as someone who has served 

as an arbitrator and who supports arbitration and ADR, but who 

supports our court system more. 

Not long ago, automobile dealers came to Congress to ask for 

help. They asserted they were being denied access to the courts 

through the manufacturers’ use of predispute arbitration provisions. The dealers believed it was unfair for the stronger party to 

unilaterally force the weaker party to give up the right to sue as 

a condition of doing business. In 2002 Congress, with the support 

of 50 cosponsors in the Senate and 252 in the House, passed the 

Motor Vehicle Franchise Fairness Act. I am asking you to provide 

similar protections for consumers. 

As some who has taught consumer law for 35 years, in my opinion this is the most important piece of consumer legislation of the 

last three decades. I say this for one simple reason: Excessive 

predispute mandatory binding arbitration frustrates our system of 

Government by denying courts the ability to play the vital role that 

the founders of this country envisioned. 

You have heard already and will continue to hear about whether 

consumer arbitration is good or bad, whether it is expensive or inexpensive. But no one disputes one issue. It is imposed by the 

stronger party, not voluntarily agreed to. 

Ask any school child and he or she will tell you about our system 

of Government, checks and balances, legislative, judicial, and executive branches of Government. And it is the judicial branch that 

is a uniquely American institution and its role is essential. Our 

civil justice system provides an open, public forum to resolve disputes. It interprets and applies the laws that the legislature enacts, and it creates or modifies the laws through our common law 

system. The current system of arbitration has allowed business to 

effectively ‘‘opt out’’ of our civil justice system and replace it with 

a system of private justice that it controls. Even the supporters of 

consumer arbitration recognize this. 

10

In a recent article written by supporters of consumer arbitration, 

the authors note that the auto and home industry has ‘‘divorced’’ 

themselves from the Alabama justice system because of the fear of 

unfair awards. Instead of working through the legislative process 

to enact change, instead of electing different decisionmakers, car 

dealers and home builders simply included a few sentences in their 

contracts to enact major substantive changes in the application of 

the law. 

And our courts do more than just resolve disputes; they interpret 

statutes and create common law. Through stare decisis and precedent, decisions of higher courts are binding on lower courts, and it 

ensures uniformity of results. For example, in 1995, Congress 

amended the Truth in Lending Act. Unfortunately, the language 

chosen was not the most precise, and courts gave differing interpretations to how the damage cap should be applied. In 2004, the U.S. 

Supreme Court held the damage cap should be applied. That decision is binding on all lower courts, ensuring a uniformity and consistency of application. 

Today, most consumer credit contracts contain an arbitration 

provision. It is unlikely that courts will be given the opportunity 

to review a statute. Instead, we have arbitrators who are not bound 

by precedent, who are not bound by the decisions of other arbitrators, and who have to decide individually how the law will be interpreted and applied. The widespread use of consumer arbitration 

ensures that consumers with identical claims in identical circumstances may be treated differently by arbitrators who have no 

way of establishing the consistency that our system mandates. 

And finally, the common law tradition of this country empowers 

our courts to create and modify legal doctrine. Consumer doctrines 

such as unconscionability, strict products liability, habitability, 

good and workmanlike performance have all been created, modified, extended, and limited by our courts to protect consumers and 

ensure a fair bargain. Arbitrators cannot create the common law; 

arbitrators cannot modify the common law. They are bound by existing legal doctrine. Essentially, we have frozen the law by submitting everything to arbitration, denying the courts the ability to 

develop and adapt the law as society and business changes. 

To me the question is simple. It is not whether arbitration is fair; 

it is not whether it benefits consumers. It is whether the powerful 

party to a bargain should be able to deny the other person access 

to the courts. The answer, as Congress recognized in the case of 

automobile dealers, is clearly no. I encourage you to enact the Arbitration Fairness Act and recognize that sellers and buyers of automobile deals have the same rights. 

Thank you. 

[The prepared statement of Mr. Alderman appears as a submission for the record.] 

Chairman FEINGOLD. Thank you so much, Dean. 

Our next witness is Richard Naimark, Senior Vice President of 

the American Arbitration Association and of the International Center for Dispute Resolution. Mr. Naimark is the founder and former 

Executive Director of the Global Center for Dispute Resolution Research, which conducted research in arbitration and ADR for business disputes in cross-border transactions. Mr. Naimark is an expeVerDate 0ct 09 2002 14:54 Jun 05, 2008 Jkt 042605 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\42605.TXT SJUD1 PsN: CMORC
11

rienced mediator and facilitator, having served as an arbitrator in 

a wide variety of business and organizational settings. His experience includes work with the United Nations, government, universities, corporate, construction, computer, real estate, land use, insurance, and nonprofit subject areas. 

Thank you for joining us, Mr. Naimark, and you may proceed. 

STATEMENT OF RICHARD NAIMARK, SENIOR VICE PRESIDENT, THE AMERICAN ARBITRATION ASSOCIATION, WASHINGTON, D.C. 

Mr. NAIMARK. Thank you, Chairman Feingold, Senator 

Brownback. Thank you for the invitation and the opportunity to 

participate in the hearing today. 

I would like to say at the outset that I am here on behalf of the 

American Arbitration Association, which has over the years pioneered the development of arbitration rules and standards, standards in the form of what we call due process protocols and codes 

of ethics for arbitrators. 

The AAA is a not-for-profit public service organization. We have 

been around for 81 years, shortly after the formation of the Federal 

Arbitration Act, actually. Arbitrators who hear cases that are administered by the AAA are not employees of the AAA. Typically, 

they are practicing attorneys with outside practices, and they will 

from time to time serve as arbitrators. The AAA, I want to say, 

does not represent an industry, does not represent the ADR or arbitration industry, so we are really only speaking out of our own 

position and out of our own experience. 

I would like to say that we should make no mistake about the 

focus of this particular subject matter. The primary issue at hand, 

I believe, is access to justice. 

The reality in this country is that our legal system is very difficult to navigate for most Americans. We have heard before and 

will continue to hear claims with a dollar value somewhere below 

$50,000 to $65,000 have a very difficult time obtaining legal representation, regardless of the validity of the claim. Litigation is an 

exceedingly difficult process for pro se individuals to pursue. Arbitration can, and does, provide ready access to justice if—and I 

would say ‘‘if’’ with capital letters—due process protections are 

built into the process. Otherwise, litigation frequently, unfortunately, is a big money endeavor. 

Arbitration can provide a fair, efficient, and cost—effective mechanism for resolving disputes. 

Recognizing about a decade ago that these issues in the context 

of consumer and employment disputes were going to arise, I am 

going to say the fairly heavy use of consumer and employment arbitration really began to trickle in about 10 years ago. And recognizing that it presented some unique challenges, the AAA organized some work groups, widely diverse groups of advisers from all 

sides of the issue, to try to establish standards of fair play for the 

process that could be applied so that there would be essentially a 

level playing field. The result is what we call the due process protocol. There is one for consumer disputes, there is one for employment disputes, there is one for health care disputes. 

12

Now, the AAA and a few other organizations have implemented 

this protocol, but others have not. In the employment area, as I 

mentioned, also, there is a similar protocol. 

Arbitration between a consumer and a business, or an employee 

and a business, must incorporate these safeguards to ensure a level 

playing field and maintain basic procedural fairness. And we have 

had good results, and the courts have repeatedly referred to the 

protocols as a standard of fair play in this area. 

The protocols do common-sense things. I will give you a little 

sampling. 

For instance, consumers and businesses have a right to independent and impartial neutral administration of their dispute. 

Consumers and employees always have a right to representation. 

Costs of the process must be reasonable. 

Location of the proceeding must be reasonable. 

No party may have a unilateral choice of the arbitrator. 

There shall be—and I think this is very important—full disclosure by arbitrators of any potential conflict or appearance of conflict so that the parties can be assured of having a neutral, independent, and impartial arbitrator. 

Perhaps most important, there shall be no limitation of remedy 

that would otherwise be available in court or administrative proceeding. 

And there are a number of other aspects of the protocols. As I 

say, they are common-sense types of protections that need to be 

built into every arbitration in this context. 

I would say to this Committee and I would say to Congress, you 

have it in your hands to assure access to justice and a level playing 

field for all participants in our legal process, and you can do so by 

passing a requirement that the due process protocols, or something 

very much like them, and codes of ethics for arbitrators are applied 

to all consumer and employment arbitrations in this country. And 

in that way, fairness in consumer and employment arbitration 

would no longer be voluntary. 

Thank you. 

[The prepared statement of Mr. Naimark appears as a submission for the record.] 

Chairman FEINGOLD. Thank you so much, Mr. Naimark. 

Our next witness is Tanya Solov, the Director of the Illinois Securities Department. Ms. Solov began her career with the Securities Department in 1994 as the senior enforcement attorney and 

later served as the Assistant Director for Enforcement until 1999, 

when she was appointed Director by Secretary of State Jesse 

White. Tanya serves on the Corporation, Securities, and Business 

Law Section of the Illinois State Bar Association. She is also actively involved in the North American Securities Administrators 

Association, having served as the past Chair and now a current 

member of the Broker-Dealer Section and a participant in the Arbitration Legal Services and Financial Intermediaries Project Group. 

So, Ms. Solov, thank you for coming all this way to testify, and 

the floor is yours. 

13

STATEMENT OF TANYA SOLOV, DIRECTOR, ILLINOIS SECURITIES DEPARTMENT, ILLINOIS SECRETARY OF STATE, CHICAGO, ILLINOIS 

Ms. SOLOV. Thank you. Chairman Feingold and Ranking Member 

Brownback, I am Tanya Solov, and I am honored to convey 

NASAA’s support for the Arbitration Fairness Act of 2007. This is 

an important issue for investors and State securities regulators. 

The constitutional right of investors to have their day in court 

was rendered meaningless after the U.S. Supreme Court in 

McMahon held that predispute arbitration clauses were enforceable 

in the securities context. The impact of that decision is more profound today because roughly half of all U.S. households rely on securities markets to plan and prepare for their financial futures, 

and that number is growing. 

Twenty years ago, investors had a choice of investing with a firm 

that required arbitration or one that recognized a judicial forum. 

Today, almost every broker-dealer includes in their customer agreements a predispute arbitration provision that forces investors to 

submit all disputes to a single securities arbitration forum run by 

the securities industry. 

It is not surprising that many investors view industry arbitration 

as biased and unfair. An investor’s chance of winning an arbitration award has declined from approximately 60 percent in 1989–90 

to about 43 percent by 2006. It is also noteworthy that a ‘‘win’’ in 

arbitration often amounts to recovery of only a fraction of the 

losses incurred by the investor. Sometimes the sum awarded is less 

than the costs and fees the investor paid to obtain some reimbursement for the broker’s wrongdoing. 

When arbitration is inadequate to protect the substantive rights 

of investors, an independent judicial forum must be an option. Arbitration may be desirable and appropriate if both parties knowingly and voluntarily agree to arbitrate at the time the dispute 

arises. If arbitration really is fair, inexpensive, and quick, then 

these benefits will prompt investors to choose arbitration. 

However, even if arbitration is cheaper and faster, in many 

cases, especially where investors lose their life savings, a fair 

forum with appellate review is more important than cheap, fast, 

and unfair. 

In the securities context, the investor and the brokerage firms 

are not on equal footing. Brokerage firms have significantly more 

resources to fight investor claims, and they currently have the benefit of arbitrating in their own industry forum with an industry 

member hearing the case. The option to litigate in an independent 

judicial forum would go a long way toward bringing balance to the 

process. 

Until mandatory securities arbitration is a thing of the past, 

NASAA will continue to work to eliminate the inherent industry 

bias in the existing system. The consolidation of the NASD and the 

NYSE into FINRA has effectively resulted in a single industry 

forum run by the industry. 

Securities arbitration cases are heard by a three-member panel 

that includes one securities member. Many have justified mandatory industry participation based on the industry’s role as an educator of the other panelists. The industry arbitrator is acceptable 

14

only if all parties in the case voluntarily agree that an industry expert is needed. Otherwise, expert witnesses ably serve the purpose 

of educating the arbitrators. 

Industry arbitrators bring their particular experiences, based on 

their firm’s training, policies, and procedures, to the decisionmaking process. As evidenced by industry scandals and regulatory 

enforcement actions, the industry’s way of doing things is not always in conformance with the law. Even if the industry arbitrator 

has no preconceived notions, the industry arbitrator creates a presumption of bias that is contrary to the principles of fair play and 

substantial justice. 

It is also disconcerting that the industry believes that the public 

arbitrators are not capable of understanding a case and rendering 

a decision without industry influence. If that is indeed true, investors should not be forced to bring their case in such a forum. 

NASAA believes that the securities arbitration system should be 

truly voluntary; arbitration panels should be unbiased; arbitrators 

should be better screened and trained; and meaningful and accurate statistics concerning arbitration outcomes should be compiled 

and disseminated. 

As long as securities arbitration remains mandatory, investors 

will continue to face a system that is not fair and transparent to 

all. For this reason, NASAA supports the passage of the Arbitration Fairness Act of 2007. 

Thank you. 

[The prepared statement of Ms. Solov appears as a submission 

for the record.] 

Chairman FEINGOLD. Thank you very much, Ms. Solov. 

Our next witness is Mark A. de Bernardo. Mr. de Bernardo is a 

partner in the Washington, D.C., regional office of Jackson Lewis, 

where he concentrates his practice on employment litigation in 

counseling and workplace drug- testing issues. He is the author of 

four State drug-testing laws and 18 books on employment and 

labor law topics and has testified more than 40 times before Congress and various Federal and State regulatory committees on employment and labor law issues. Mr. de Bernardo is a graduate of 

the Georgetown University Law Center and Marquette University, 

which we, of course, approve of. 

Mr. de Bernardo. In Wisconsin, yes. 

Chairman FEINGOLD. Thank you for joining us today, sir, and 

you may proceed. 

STATEMENT OF MARK A. DE BERNARDO, EXECUTIVE DIRECTOR AND PRESIDENT, COUNCIL FOR EMPLOYMENT LAW EQUITY, JACKSON LEWIS LLP, VIENNA, VIRGINIA 

Mr. DE BERNARDO. It was quite a win over the University of Wisconsin on Saturday, was it not? 

[Laughter.] 

Senator BROWNBACK. Hear, hear. 

Chairman FEINGOLD. Out of order. 

[Laughter.] 

Mr. DE BERNARDO. Can I have my 8 seconds back, Mr. Chairman? 

15

Chairman Feingold, Mr. Brownback, Senator Brownback, I appreciate this opportunity on behalf of the Council for Employment 

Law Equity to testify in support of ADR, in support of mediation 

and arbitration as an alternative to litigation, and in opposition to 

S. 1782. 

I have been a labor lawyer for nearly 30 years. If you want justice, I firmly believe you are more likely to get justice in arbitration 

than you are in litigation. Arbitration is going to be much more 

predictably balanced, neutral, and fair. It is quicker. And as we 

have seen and as is included in my statement and statements of 

some of the other witnesses, all of the empirical evidence, all of the 

evidence that is out there shows that, in fact, individuals that are 

going to arbitration, mandatory binding arbitration, fare better. 

They are more likely to prevail, 63 percent to 43 percent over litigation. They do not have their cases dismissed, which 60 percent 

of the employment cases—if we look at just employment cases, we 

prevail, we, the management community, prevail on 60 percent of 

those cases on dismissals—motions to dismiss, motions for summary judgment. So only 40 percent of those cases go on. 

There is much more access to our judicial system through arbitration than there is through litigation. A survey of plaintiffs bar 

found that only 5 percent of plaintiffs’ attorneys agreed to provide 

representation—I am sorry. They provide representation of only 5 

percent of the individuals who seek out their help. In addition, plaintiffs’ attorneys require a minimum of $60,000 

provable damages. They commonly request a retainer up front. 

They typically require a payment of a contingency fee of between 

33 and 40 percent. 

In fact, when you take a look at the studies, the average award—

the median award provided to individuals in arbitration is, according to Lewis Maltby of the National Work Rights Institute in 

Princeton, formerly of the American Civil Liberties Union, higher 

for individuals who are pressing their claims in arbitration than it 

is for litigation. In another study, the difference was de minimis. 

It was between $68,000 and $64,000. But when you factor in attorneys’ fees and costs, the people pressing this claim in arbitration 

are actually faring better financially. 

So you have more access to the judicial system. You have more 

likelihood of redress of the complaints. And, frankly, arbitration in 

America makes employers better employers because more issues 

are addressed, they are address earlier, there is a quicker fix. 

You mentioned, Chairman Feingold, my background in terms of 

drug-testing issues. One of the things we know in drug testing is 

earlier intervention in substance abuse is going to be more successful. Well, you know, that is true in workplace problems of all 

kinds—earlier intervention. And what arbitration provides is a 

mechanism by which problems are identified early. There is intervention early. Things are corrected. There are many, many, many 

more employee concerns and complaints that are addressed. 

If you just take a look at the plaintiffs’ bar and the survey that 

I talked about, only 5 percent of those people seeking help from the 

plaintiffs’ bar, representation from the plaintiffs’ bar in employment matters; 95 percent of them have the door slammed on them. 

And if we do not have arbitration as an alternative, 95 percent of 

16

those people that—some high portion of them will have no other 

legal recourse. 

I do believe that this bill would be a death blow to arbitration 

in America. As a practical matter, there are hundreds of thousands 

of arbitrations every year. The vast, overwhelming majority are 

what is referred to in the legislation as ‘‘predispute’’ and what I 

refer to as ‘‘mandatory binding arbitration.’’ There are very, very 

few postdispute arbitrations in America. In fact, an American Bar 

Association survey found that 86 percent of lawyers, both plaintiff 

and defense lawyers, said that they would not recommend 

postdispute arbitration to their clients. So as a practical matter, 

this bill, if it were enacted, would impose a death sentence in terms 

of ADR in America. 

I do not know how we can do that. I do not know how, when 

there are hundreds of thousands of arbitrations per year, when 

there are hundreds of thousands of individuals who have access 

and recourse, legal recourse to our system to redress their concerns, how we can cast those people out and close the door in terms 

of their pressing their claims forward. 

In terms of the advantages for employees, I will just mention 

briefly they get a faster resolution of the problems; a simpler, more 

focused, more confidential, and more dignified process; less disruption to career. Arbitration is a job saver. Litigation is a job destroyer. Once we are in litigation, the employee does not want to 

work for us; we do not want them in our workplace. With arbitration, you have that possibility of preserving the job. You have peace 

of mind because it diffuses employee issues and concerns; they do 

not come to a boil on the stove; it is not simmering, you know, 

these issues that are of concern to the employees. 

You have the same range of remedies. As I mentioned earlier, 

you have higher awards. You have the same decisionmaking process, and you have a better chance of prevailing. 

I appreciate this opportunity to testify, and I pledge my cooperation as we move forward. 

[The prepared statement of Mr. de Bernardo appears as a submission for the record.] 

Chairman FEINGOLD. Thank you very much, sir. 

Our final witness, F. Paul Bland, Jr., is a staff attorney for Public Justice, which was formerly Trial Lawyers for Public Justice, 

where he handles precedent-setting, complex civil litigation. He is 

the co-author of the book entitled ‘‘Consumer Arbitration Agreements: Enforceability and Other Issues’’ and numerous articles. For 

3 years, he was the co-chair of the National Association of Consumer Advocates. He was named the San Francisco Trial Lawyer 

of the Year in 2002 and the Maryland Trial Lawyer of the Year in 

2001 for his role in two cases challenging abuse of mandatory arbitration clauses. In the late 1980’s, he was chief nominations counsel to the U.S. Senate Judiciary Committee under then-Chairman 

Biden. He graduated from Harvard Law School in 1986 and 

Georgetown University in 1983, and we welcome you back to the 

Judiciary Committee, Mr. Bland. Thank you for joining us today. 

The floor is yours. 

17

STATEMENT OF F. PAUL BLAND, JR., STAFF ATTORNEY, 

PUBLIC JUSTICE, WASHINGTON, D.C. 

Mr. BLAND. Thank you so much for the invitation to come here, 

Senator Feingold, Mr. Chairman, and also thank you, Senator 

Brownback. 

Senator Feingold, you are a hero to a lot of people in the consumer and the civil rights community for your work on this issue, 

and it has been incredibly important. We are really grateful for it. 

Rather than trying to summarize my lengthy written statement, 

I would like to sort of respond to some of the things that have been 

going on here, because there are some just outlandish comments 

being made, frankly. 

Rather than looking at the principles here, is it a better system 

to let the stronger party to a dispute pick who the judge is? Is it 

a better system to have human beings who make decisions have 

their decisions be essentially unreviewable, where errors of law, errors of fact cannot be looked at? Is it a better system to have a secret system? 

Rather than looking at the big picture and the principles here, 

what we get from the professor and what we get from Mr. de 

Bernardo is let’s look at studies, let’s look at data, let’s break this 

down into which side has been able to pay for studies that will be 

more on their side. And let’s look at what that data is. The data 

is unbelievably handpicked and selective, and the reason is because 

arbitration is so secretive in every place in the United States except for the State of California. Everywhere else there are secrecy 

provisions; there are rules—AAA’s rules, there are rules in the National Arbitration Forum rules that keep all the data secret. 

So the studies that have been done have been very careful about 

what samples they use. For example, the Bankers’ Association paid 

Ernst & Young to do a study, which Professor Rutledge likes to 

talk about. The Ernst & Young study selected one case out of every 

1,000 consumer cases that have been handled by the National Arbitration Forum in order to come up with the results that supposedly 

show that consumers win more often. And when they decided how 

a consumer wins, if a consumer lost their home due to a predatory 

practice or deceptive practice, and they brought a case for $100,000 

and they got $1, Ernst & Young, paid for by the Bankers Association, said, ‘‘well, that is a win for the consumer, they got $1 ’’. That 

kind of study does not get you very far. 

There has been a lot of talk about the National Work Rights Institute. What is the institute? The institute is one guy—it is Mr. 

Maltby—and a secretary. It is not a big institute in a broader 

sense. Mr. Maltby is generously funded by the American Arbitration Association. That is where he gets most of his money. He is 

on their board. He does a huge amount of AAA arbitration work. 

And there are real selection samples with his studies. What he 

does is he tends not to consider cases in which people were forced 

into arbitration by a court or ordered in. He takes all those cases 

and puts those to the side when he selects what his sample is. 

So what is the one place in the country where there is data that 

is not hand-picked, that is not cherry-picked by one side? That is 

California, because California passed a statute that said in consumer and employment arbitrations, the arbitration companies 

18

have to post all the data—all the data, not just the data that Ernst 

& Young and the Bankers Association have picked, but all the data 

on their websites. 

Now, this was passed over the strong lobbying opposition of the 

American Arbitration Association, but it went through. What does 

that data show? 

Now, we just heard a statement from Mr. de Bernardo that every 

study shows that individuals do better in arbitration. That statement is outlandishly untrue. In my statement, at page 16, I quote 

from Alexander Colvin, a professor at Penn State, who just did a 

study of the California data, which is not cherry-picked. And what 

he finds is that employee win rates and damage awards are much 

worse for the individual in arbitration. 

There is another study that came out in California in the HMO 

setting where arbitrators were handling HMO cases. And what the 

HMO study found was that, first of all, every single time that an 

arbitrator gave a large award to an individual, the arbitrator was 

blackballed and they never heard another arbitration involving an 

HMO. They also found worse win rates and much lower awards. 

I can tell you what my own experience is, and from talking to 

tons of consumer lawyers and employment lawyers around the 

country, is where you go into litigation, if you beat the arbitration 

clause—there is a drafting error, there is a flaw, there is something 

they did wrong, and you are able to knock it out—the settlement 

value of the case doubles. I have had a series of cases where my 

client has gotten past the arbitration clause and the value of the 

case goes way up. So the idea that arbitration is a great thing that 

employees and consumers are loving is crazy. 

With respect to the American Arbitration Association, do their 

due process protocols solve everything? Well, first of all, the American Arbitration Association is being undersold by the National Arbitration Forum, which sends out these advertisements to banks 

and gives speeches at bankers associations conferences and so 

forth, where they basically say, look, the AAA in States in which 

it is illegal to have a ban on class actions, the AAA will actually 

allow a class action to go forward and follow State law. We at the 

NAF have never had a class action in front of our organization. 

The NAF advertises that there are some settings in which the 

AAA will give consumers discovery. We do not allow discovery except in rare circumstances with us. 

What is the result? I follow a lot of arbitration clauses, particularly for big companies. I collect them for the book that I write. The 

AAA is being written out of more and more clauses, and the National Arbitration Forum is being written in. Since the stronger 

party gets the right to draft the contract, it is a race to the bottom. 

But even with the AAA, there are a lot of times that they have 

broken promises. For example, they talked about the due process 

protocols, and Mr. Naimark talked about how AAA said, well, you 

cannot strip people of remedies, corporations cannot say ‘‘not only 

does the consumer have to go from court to arbitration, but she 

also loses her rights under various consumer protection statutes’’. 

Prior to 2001, AAA had never enforced that. There was case after 

case in which a company would have an arbitration clause that 

stripped people of remedies and they would not enforce that. It was 

19

only when we brought this to the attention of a Federal judge in 

San Francisco, who threw out an AAA arbitration clause as unconscionable, that we finally got a change that went the other way 

where AAA finally started to enforce their protocols in some cases. 

But, similarly, the AAA has as one of the due protocols that says 

we will only have a reasonable cost, we will not have very expensive arbitration clauses. But there are more than half a dozen Federal court cases that are reported in which courts have found that 

their costs of arbitration are so high as to be unconscionable under 

the law. 

AAA says that one of the due process protocols is you will always 

get a neutral arbitrator. But when you get a list of who is going 

to be on your panel, there are seven names on the list. The vast 

majority of the time, every one of those names is a lawyer who specializes in defending that industry. So, for example, right now there 

is someone who has got a case against Duke Hospital. Well, AAA 

promised in press releases all over their website that they would 

not handle mandatory arbitration of health cases, but they are 

doing them for Duke Hospital. But who shows up on the list? They 

are all medical malpractice defense lawyers. 

This is what happened to Mrs. Luke. Mrs. Luke has an employment discrimination claim. Does she get a jury? Does she get people who are just out of the community? No. She gets a lawyer 

whose job it is to defend similar companies, and if the lawyer rules 

against the corporation and gives a big award to the employee or 

the consumer, they are never going to get another job as an arbitrator. That is a lousy system. 

[The prepared statement of Mr. Bland appears as a submission 

for the record.] 

Chairman FEINGOLD. Thank you, Mr. Bland, very much for your 

testimony. I want to thank the entire panel. It was a very good 

panel, and I look forward to our chance, Senator Brownback and 

I, to ask some questions. 

First, though, at this time, without objection, I will place in the 

record the statement of Laurence Schultz, President of Public Investors Arbitration Bar Association. 

I understand that Mr. Schultz is here today. Would you please 

stand? Thank you very much, sir. Without objection, that is entered 

into the record. 

Without objection, I will put in the record a copy of the letter 

Chairman Leahy and I sent to SEC Chairman Christopher Cox requesting that the SEC promulgate rules prohibiting broker-dealers 

from requiring investors to accept mandatory arbitration clauses. 

I will also put in the record a copy of the letter to the SEC from 

seven consumer, homeowners, and civil rights groups supporting 

our request. And, without objection, I will put in the record a copy 

of Chairman Cox’s reply. 

Without objection, I will place in the record a letter from 36 consumer, civil rights, homeowners, and employees rights groups in 

support of the Arbitration Fairness Act. 

All right. We will start the questions, do a 7-minute round to 

begin with. I will kick it off by asking Mrs. Luke some things. 

I want to thank you again for being here and telling your story. 

One of the most amazing things to me is that you actually refused 

20

to sign a mandatory arbitration agreement when your employer 

was telling you you had to sign it. I think it is fair to say that most 

people would not be able to withstand that kind of pressure in that 

situation. 

Can you tell us more about why you did not want to sign the arbitration agreement? 

Mrs. LUKE. Well, I did not want to sign it because, first of all, 

the way they explained it, I would be signing away my rights. I 

would not be able to go to court if anything happened. I had been 

with Baptist Medical Center Princeton for 30-plus years, and I was 

looking forward to retiring from the company. And I did not want 

to sign that because I felt like if I did sign it and something did 

come up, they could terminate me and I would not have a leg to 

stand on. 

Chairman FEINGOLD. And you had been working for your employer for many years already when you were asked to sign the arbitration agreement. Did the employer offer you anything in return 

for giving up your rights to go to court? 

Mrs. LUKE. They offered me nothing for giving up my rights, but 

they offered to terminate my position if I did not sign it. 

Chairman FEINGOLD. Some offer. You said you thought you 

would have had a fairer hearing on your case in a court of law than 

you did in arbitration. Why do you think that? 

Mrs. LUKE. Well, because the arbitrator was paid by Baptist 

Medical Center Princeton, and I was not allowed to bring any of 

the evidence I had. I first went to the EEOC, who investigated for 

months and ruled in my favor. The arbitrator told me I could not 

bring this up, nor could I bring any evidence from this. And I felt 

that that was unfair, that if I had gone to court, I would have been 

able to use all of this information, and that they would have looked 

at it objectively and possibly ruled in my favor. 

Chairman FEINGOLD. Thank you so much. 

Mr. Bland, thank you for your extensive written testimony. It 

will be very helpful to the Committee. 

There was a shocking report on the ABC News website yesterday 

about a Houston woman employed by Halliburton KBR in Baghdad 

who alleged she was raped by coworkers. She said that she was 

placed under guard by her employer for 24 hours without food and 

water and told not to leave Iraq for medical treatment or she would 

be fired. She has filed suit against Halliburton in Federal court. 

The company is saying that under her employment contract she 

must go to arbitration. 

I have a copy of the ABC News story that I will put in the record 

at this time, without objection. 

What is wrong with deciding a case like this in arbitration, if 

that is what the contract provides? 

Mr. BLAND. Senator, there is an unbelievable irony that we have 

someone who is overseas fighting to defend our freedoms, fighting 

to defend our system, and when she comes back here she is told 

‘‘you have no constitutional rights, you have to go into a secret, 

privatized tribunal that is picked by the company’’. I mean, that 

irony is amazing. 

You spoke in your opening statement about the Seventh Amendment of the Constitution. You know, the right to a jury trial is not 

21

just in the Constitution. It is the central reason why this country 

became independent. In the Declaration of Independence, they not 

only talk about the jury trial, but there is actually a clause in 

which one of the colonists’ principal complaints is that the King 

was picking the judges and that the judges depended for their job 

and their salary upon the King picking them. Well, does that sound 

familiar? Because the arbitrators depend on the King, being Halliburton, to get the work and to get paid. 

Now, first of all, it is obvious why Halliburton wants this. It is 

a secret system. They can cover up the facts. There is a gag order 

there. None of the facts about what is going on in that situation 

will come out if it is done in arbitration as opposed to the open 

court system. 

The second obvious problem is that what she is likely to end up 

with is an arbitrator who is a lawyer whose principal job is defending companies like Halliburton against employment claims instead 

of having a jury. And that is an incredibly unfair thing particularly 

to do to someone who is so horribly, grievously injured. It is an extremely unfair system to have an arbitrator who knows that they 

are going to be blackballed if they rule for the employee. 

And if you look at the data under the California disclosure rules 

at AAA, Halliburton wins the vast majority of the employment 

cases that they face. It is something like 85% of the cases have 

gone for Halliburton. Only a handful of cases have gone for the employee. 

And then the final thing is suppose you have an arbitrator who 

is still doing their best but they make a mistake and they get it 

wrong and they rule against this woman where the law, in fact, 

would have favored the woman? She will have no appeal. 

Now, in court, she would have an appeal. But in arbitration the 

Seventh Circuit said last year that a wacky decision of law by an 

arbitrator is not grounds for overturning a decision. The Third Circuit said 2 years ago that a glaring error of law by an arbitrator 

is not grounds for overturning a decision. The U.S. Supreme Court 

said in a case which Justice O’Connor wrote that even if the arbitrator’s decisions are silly—involve silly fact finding, that is not 

grounds for overturning it. 

So the arbitrator has a motive to rule for Halliburton, so that 

they will keep getting the work, and they have the opportunity to 

do it because there is no review at all. The review is meaningless. 

Mr. Naimark in a House hearing a couple of weeks ago agreed that 

the judicial review of arbitrators’ decisions is meaningless. 

Chairman FEINGOLD. Thank you very much, Mr. Bland. 

Professor Alderman, some of my colleagues on the Republican 

side argue that we should not get rid of mandatory arbitration but 

develop legislation to reform arbitration in order to ensure its fairness. Of course, they never pushed these kinds of ideas during the 

long period that they controlled the Senate. Perhaps if significant 

reforms had been made a decade ago, we would not be in the place 

we are now. But at this point, do you think procedural reforms 

such as ensuring that there is a neutral arbitrator, better discovery, a written decision, et cetera, will actually fix the problem 

of mandatory binding arbitration? 

22

Mr. ALDERMAN. I think that will guarantee we have the worst of 

both worlds, and let me emphasize one point that I think is really 

important. You are considering this because of the fact that arbitration is imposed unilaterally by one side that can do whatever it 

wants, and that is just absolutely inconsistent with ADR and arbitration. 

I support arbitration, I favor ADR, and it works because of its 

informality, because of its simplicity, because different people can 

serve as arbitrators, because it is not a court. To try and make arbitration more like a court will not work, and the question is very 

simply: Should consumers be forced into arbitration? Should consumers be forced to forfeit their right to sue as a condition of obtaining the necessities of life? 

Chairman FEINGOLD. Thank you, sir. 

Ms. Solov, thank you for coming today. I found your testimony 

very useful because the State agencies that NASAA represents are 

charged with protecting the investing public. Does NASAA have a 

position on whether the SEC can and should act by regulation on 

this question? 

Ms. SOLOV. The SEC does have oversight responsibility over the 

arbitration process and certainly should exercise that oversight. 

NASAA does support the letter, Chairman Feingold, that you sent 

to SEC Chairman Cox where you noted the problems of arbitration 

and the responsibility for oversight. So we do think that the SEC 

should exercise oversight. 

However, our position is that investors must be given a choice. 

They should not be forced to sign a mandatory arbitration agreement when they open a brokerage account. As you indicated in that 

letter, there are many problems with arbitration. State law is often 

not followed. And we at NASAA reviewed many years of awards 

and found that often investors are getting just a small percentage 

of their losses. And I know much has been said today about data 

and statistics and comparisons, but since the McMahon decision, 

really, investors have not been able to pursue their cases in court. 

They have not been able to bring a case where a broker has 

churned their accounts or there was unsuitable trading. So, really, 

there are no meaningful numbers, statistics, or data to draw a comparison. All we know is from hearing the stories of investors and 

from actually looking at arbitration awards that investors are not 

getting a fair shake in the system. 

Chairman FEINGOLD. Thank you, Ms. Solov. 

Now I will turn to Senator Brownback for his first round. 

Senator BROWNBACK. Thanks, Mr. Chairman. 

This to me—and I appreciate the hearing and I appreciate the 

panel—is kind of one of these ‘‘where the rubber meets the road’’ 

hearing because this is a lot of issues and where people finally get 

some access to redress on something that has really been problematic and difficult for them. I see what the Chairman is trying to 

drive at. I appreciate it. We both practiced law before coming here. 

Mine was a much more pedestrian law practice than Mr. Feingold’s 

was, and I am the Kansas—

Chairman FEINGOLD. I am not sure you know what my law practice was. 

[Laughter.] 

23

Senator BROWNBACK. Well, I know you do not know what mine 

is, and I was the Kansas expert on fence law, so you can go—I 

guess you could Google ‘‘fence law in Kansas,’’ and my name will 

show up. That is not why I won my seat to the U.S. Senate, but 

my point in saying that is that we had this arbitration provision 

in Kansas fence law, and we did it because these are really lowvalue cases by the most part. Now, sometimes you get a prize bull 

into a great cow’s pasture, and Russ and I being from agricultural 

States, we know things happen then, and things of value sometimes happen then. So we would have these series of cases, and 

even cases where a guy would loosen his fence wire so the prize 

bull could get over into the next pasture. 

My point in saying this is you would involve—the county commissioners would come out and would appraise whose fence—who 

needs to build the fence up. And this was binding in the system, 

and these articles I would write on fence law would get read by a 

lot of people because the cases just had low value. They could not 

get settled. And the only way for one to really get settled would be 

the county commissioners were coming out as people were paid $7 

a day as arbitrators to come out and arbitrate the fence law case 

and justice was served rather than in the past people pulled guns 

on each other and said this is the way justice will be served. And 

it is an old, historic legacy, but it tended to work, and the areas 

of law did not mature. 

Maybe, Mr. Alderman, as to your point—which I think is an interesting point that you bring forward on that, and that is why I 

say this is one of those cases where the rubber meets the road. 

This is where people really live and they have real disputes, and 

a lot of times they cannot get access to courts because it is just too 

expensive for them to get access to courts or lawyers hired in this 

type of case. 

I would note for the record, Mr. Chairman—and you can correct 

me, and I hope your lawyers will. But according to the Supreme 

Court case—I want to cite this—in the case of EEOC v. Waffle 

House, it is a 2002 case. The Supreme Court has ruled that the 

EEOC can bring claims on behalf of employees, despite any arbitration agreement. Now, if that proves to be different, then I want 

that corrected. but I just want to say when you have that category 

of case, then the EEOC can say arbitration is out on this, and so 

there is access here. 

Mr. Naimark, you mentioned, I thought, some interesting points 

about you like arbitration, but you would like more due process 

built into it, if I am hearing you correctly. How would you do that? 

Mr. NAIMARK. Well, you might easily start with the existing models. The due process protocols were not developed by the AAA per 

se. They were developed by a diverse committee of people representing interests typical of people on this panel, widely divergent. 

And the search was for common ground. What are principles we 

can agree on that provide due process for everybody, that are 

unarguably——

Senator BROWNBACK. Would you build that into a statute? Would 

you pass that? Would you amend the Federal Arbitration Act? How 

would you do that? 

24

Mr. NAIMARK. I would not amend the Federal Arbitration Act for 

other reasons. I would build a piece of companion legislation and 

require that all arbitrations in this area where you are trying to 

protect the little guy, so-called, that the due process protocols, or 

something like them, be applied, yes. 

Senator BROWNBACK. Because the Federal Arbitration Act has 

had a number of judicial reviews, and so it has had—it is refined 

by the courts to a point that people feel like it is working better 

than if you went in and tried to really gut the law itself? 

Mr. NAIMARK. Yes. The arbitration activity in this country and 

around the world is much, much bigger than the area we are talking about here. There is a lot of business- to-business. There is actually a lot of Government access of arbitration process, both in 

this country and abroad. And the FAA has become a foundation 

really built by the judiciary over the years. If you look at the FAA, 

it is very brief. But over the last 82 years, the courts have defined 

the contours of the arbitration process. So I think the danger of 

monkeying with that and perhaps dismantling some of the 82 years 

of judicial wisdom is not worth it, and I would have a companion 

piece of legislation. 

Senator BROWNBACK. Mr. Rutledge, you view this proposed piece 

of legislation—I am sure put forward with all good intents—as 

overly broad and gutting the Federal Arbitration Act? 

Mr. RUTLEDGE. Yes, Senator, I do. And I guess I would like to 

pick up on something that I believe the representative—well, I 

would like to make two points. One goes back to my earlier testimony. 

One of my concerns about this legislation, Senator, and Chairman Feingold, with respect, is that it lumps together employment, 

consumer, franchise, and now apparently securities arbitration. 

What I can say to you is that the state of the data as to how those 

different arbitration systems function is very different. 

And that takes me to my second point. The representative from 

the securities enforcers indicated that one of the things that she 

would like to see is more data, and I would encourage you to make 

sure that you have the data that you need before you decide what 

to do rather than adopt a piece of legislation that is going to throw 

this whole system overboard. And if I could just—

Senator BROWNBACK. That is an interesting thought about trying 

to get more data, because there seems to be some dispute about 

data issues here. 

Mr. RUTLEDGE. And one other thought that I would like to respond to, Senator Brownback, in response to Mr. Bland, Mr. 

Bland—and I do not mean to quote him inaccurately—I believe accused a professor on this panel of making outlandish comments. 

And Professor Alderman and I were sort of sitting here and conferring exactly whom he was referring to, but I am going to venture 

a guess that it probably was not Professor Alderman. 

And lest my sort of outlandish comments and the studies that I 

am referring to be taken out of context, let me be perfectly clear 

with your staff. As to employment arbitration, I believe that the 

best, most accurate data that you can look at at this point are the 

Hill and Eisenberg studies cited in my testimony. As to consumer 

arbitration, I believe that the best and most accurate studies that 

25

you can look at are the Demaine and Hensler study and the California Dispute Resolution Institute’s study cited in my testimony. 

And as to franchise arbitration, as to which, admittedly, we probably have the least data, the best and most accurate study to which 

I can refer you are the Drahozal and Hylton studies. 

I simply offer those to you, Chairman Feingold and Senator 

Brownback, both to respond to the claim that I made—or apparently I made an outlandish remark and to ensure that you have access to the best, most available accurate data before you make your 

decision and determine whether you need more data before you decide what to do. 

Thank you. 

Senator BROWNBACK. Chairman, if I could, I have a series of 

eight items I would like to enter into the record, and there are various statements and testimony and articles. 

Chairman FEINGOLD. Without objection. 

I will start the second round. Mr. Bland, I believe Senator 

Brownback is correct that the EEOC can bring a case in court despite a mandatory arbitration provision. But the EEOC, of course, 

can only bring a small number of cases itself. Can you clarify this 

for us? And Mrs. Luke said that the EEOC had found in her favor, 

but that did not allow her to bring her case in court, did it? 

Mr. BLAND. No. The EEOC v. Waffle House case was described 

correctly by Senator Brownback. It is a case where a guy was hired 

as a short-order cook. He had an epileptic fit. They fired him. He 

said under the Americans with Disabilities Act a company is supposed to do something before it just fires someone for having epilepsy. They stood by their position. 

The arbitration clause blocked the individual from bringing a 

case on his own behalf for money to cover himself. The EEOC was 

allowed to go forward. The EEOC principally pursues injunctive relief, like an order saying to Waffle House the next time you have 

someone with epilepsy, see if you can get medicine or something 

before you fire them. But the EEOC handles, less than 1 percent 

of all cases that are brought in front of it. EEOC’s staff has remained fairly constant for 25 years, but the number of claims going 

into it is gigantic. 

So I do think Senator Brownback described the case correctly. It 

was a 6–3 decision written by Justice Stevens. My firm filed an 

amicus brief, and they followed the side that we supported. So I am 

a big fan of the case. 

Chairman FEINGOLD. Thank you. 

Ms. Solov, I mentioned the testimony from Mr. Schultz from 

PIABA. When you hear that the group that represents claimants 

in security arbitrations believes that the system is stacked against 

investors, does that give you any concern that this issue could end 

up affecting investor confidence in the securities markets and in 

the brokers they must use to invest? 

Ms. SOLOV. Yes, Chairman Feingold. It can and it has. And as 

a State securities regulator, I am hearing more and more from investors who have had bad experiences in arbitration. And, in fact, 

I think that as word gets out—for example, this hearing and this 

proposed bill—investors will start taking a stronger stance because 

they do not want to risk their life savings and then have to arbiVerDate 0ct 09 2002 14:54 Jun 05, 2008 Jkt 042605 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\42605.TXT SJUD1 PsN: CMORC
26

trate in an industry forum with an industry arbitrator on industry 

terms. 

I also would like to just respond briefly with regard to the data. 

The data has shown that since the McMahon decision in the securities industry, investors’ wins have gone down significantly. The 

data that NASAA was referring to that we would like FINRA to 

provide is what, in fact, constitutes a win, because we know from 

looking at arbitration statistics that investors are winning just 

small percentages of their claims currently, and those are, in fact, 

counted as wins. 

So, to clarify, that is what we are referring to. But I think that 

there is enough data and there is enough hard evidence out there 

to currently change this system. 

Chairman FEINGOLD. Thank you. I have to say, you know, that 

I have been working on this issue for 13 years, but I have been 

amazed in the last few months at the number of people all over 

Wisconsin and all over the country who come up to me and just 

mention this legislation. And, Professor Alderman, those of us concerned by the growing prevalence of mandatory arbitration clauses 

often focus on the fairness of the proceedings to individual claimants. But I was struck by your testimony concerning the effect of 

this growing private system of justice on the law as a whole and, 

therefore, on society at large. I would like you to say a little more 

about that. What do we lose as a Nation when disputes are resolved in secret proceedings where the law is not necessarily applied consistently? 

Mr. ALDERMAN. First, I think it is important to emphasize consumer law is different. Consumer law is not a statute. It does not 

have the various agencies enforcing it to the extent of the other 

areas. It is Federal and State legislation. It is common law. It is 

complex. 

More importantly, I have been doing a lot internationally. I 

taught in half a dozen countries in the last few years. I host a conference on international consumer law every other year that we 

have 60 or 70 professors at. The United States is different in how 

we regulate, protect consumers, and deal with the marketplace. We 

use private litigation. Our statutes are enacted on the assumption 

that lawyers will bring the lawsuits. Most of them provide for attorneys’ fees so you do not need a minimum of $60,000 to obtain 

an attorney. And it is this public resolution of disputes that keeps 

the marketplace, I think, on guard. It keeps consumers informed. 

And when you take that secret, you are losing one of the biggest 

benefits of our open court system. I noticed many members—and 

I did not check all, but all that I checked, many members of this 

Committee very clearly somewhere on their website, you see reference to the importance of an open court system. And we are talking about completely closing and privatizing that court system 

when it comes to consumers—consumers again, who, in my opinion, 

comparing car dealers—and let me point out I did not follow all of 

the hearings, but I do not recall any discussion of the need for all 

of the data to see whether car dealers were being treated fairly by 

manufacturers or not. The issue was they were being forced to do 

something by manufacturers. And I think with consumers it is so 

much more important. These are the necessities of life. This is your 

27

house. This is the nursing home. This is the automobile. If you do 

not have a way to publicly access what is going on, to know what 

is going on, you cannot protect yourself. 

Chairman FEINGOLD. Thank you. 

Mr. Bland, in his testimony Mr. de Bernardo calls S. 1782 a 

‘‘mandatory litigation bill’’ and says that it would effectively end 

arbitration in America. I assume that he realizes that S. 1782 

would not prohibit arbitration if both parties agree to it after a dispute arises. Much of his argument deals with employment arbitration, so I will ask you first, but I would also like to hear from Professor Alderman: Do you agree that this argument seems to assume 

that no rational employee would ever choose arbitration voluntarily 

or that, when they do, employers would refuse to agree to arbitration? And if that is so, isn’t that a pretty scathing indictment of 

the fairness of the current arbitration system? 

Mr. BLAND. It certainly is. I mean, it is a pretty grim idea that 

the only way you can have arbitration is if you force people into 

it and that they would never choose it on their own. 

But, you know, another thing is that the idea that this bill is a 

dramatic change in the landscape in consumer cases is a little 

crazy because the idea of mandatory arbitration in consumer cases 

is very recent. 

In 1995, almost no banks in America had arbitration clauses. In 

2000, almost no car dealers had arbitration clauses. All of these 

clauses have been adopted just in the last couple of years. It is a 

very recent phenomenon that they have happened. 

But, also, there are almost no consumers choosing arbitration 

today. If you looked at the Public Citizen report that came out a 

few weeks ago, they looked at 34,000 cases that arbitrators decided 

in California. Of those cases, only 118 were brought by the consumer. All the other cases were cases brought by businesses 

against consumers for collections cases. 

There was some data that came out of a lawsuit in Alabama that 

involved First USA Bank. They found that there were 20,000 cases 

that had been resolved in arbitration. Of the 20,000 cases, 4—only 

4—were brought by consumers. The idea that, well, this is this 

really valuable alternative, that consumers are out there rushing 

to join and thriving in arbitration and that if this bill passes, consumers will lose these things that all these people value—it is 118 

people in California in 3 years chose to do this. No one else. This 

is not something consumers are seeking. There are not consumers 

out there who are going to be going home at night crying if they 

lose this opportunity. It is not something they use. It is something 

that is forced on them. 

Chairman FEINGOLD. Thank you, Mr. Bland. 

Now it is Senator Brownback’s turn for a second round. 

Senator BROWNBACK. The fence law expert is back here. 

Mr. de—

Mr. DE BERNARDO. De Bernardo. 

Senator BROWNBACK. Excuse me. Thank you. And congratulations on the Marquette win. 

[Laughter.] 

Senator BROWNBACK. As somebody from a State where basketball 

is serious business, this is important when that happens. 

28

Mr. DE BERNARDO. It was no surprise, Senator. 

Senator BROWNBACK. There was no arbitrator there. 

Why is it that there are so few post-arbitration dispute resolutions? You mentioned that in your statement, that if you do not do 

it on a required basis, on a post basis, it is like 95 percent, I believe 

is your number, don’t go with a post-arbitration dispute mechanism? 

Mr. DE BERNARDO. Well, the 95 percent was referring to the 

plaintiffs’ bar and that only 5 percent of those who seek representation from the plaintiffs’ bar on employment issues are actually 

represented by the plaintiffs’ bar. So they are going to say no to 

95 percent of the people who feel they have a grievance in the employment area. For those people, without arbitration there is no 

legal recourse. So my point is that arbitration—and when you have 

an arbitration system at a company, which a growing number of 

companies have—

Senator BROWNBACK. You actually have a recourse. 

Mr. DE BERNARDO. Yes. 

Senator BROWNBACK. Whereas there is not a recourse otherwise. 

Mr. DE BERNARDO. Sure. 

Senator BROWNBACK. Why is there not more postdispute arbitration taking place? 

Mr. DE BERNARDO. Well, because once you have the dispute, 

what you have is representation by the plaintiffs’ bar, you know, 

the cases—the individual fact patterns that could have been resolved or were earlier—I talked earlier about early intervention 

into a problem. So, you know, my secretary feels—is offended because I use the ‘‘F’’ word in the office, OK? I do not know. It is 

careless on my part. It is bad. It is a bad idea. But, you know, I 

do not know that. If somebody came to me and said, ‘‘You know 

what? Your secretary feels offended by the fact that you’’—gee, I 

would apologize. I would say I will try never to use it again. I did 

not realize that. That is a small adjustment. 

But, you know, what happens is we are employment lawyers, we 

have 425 employment lawyers representing management. Most of 

these cases, it is cumulative. It is not one incident. It is over the 

years, a series of things, a series of petty grievances, maybe not so 

petty grievances that grow. And what you have is this hostile and 

offensive environment. 

And so what happens is what you have with arbitration is this 

intervention so that you are correcting the action, making for better workplaces. So now once you get to the point where litigation 

has been filed, you have the plaintiffs’ bar involved. They seek recovery. They want attorneys’ fees. They have identified this case 

from among the 5 percent that they accept that are coming to 

them. It is a declaration of war. 

At that point, it is very, very unlikely—as I pointed out, this 

ABA survey found that 86 percent of lawyers would not—both defense and plaintiffs’ lawyers said that they would not recommend 

postdispute arbitration to their clients. And, frankly, I would not 

either. 

Senator BROWNBACK. Mr. Alderman, I appreciate your testimony, 

and I appreciate your expertise in this area. It is very good. A couple of quick things for you, though, if I could. 

29

One point that you made is that we have frozen consumer law, 

if I hear you, and that kind of intrigued me from the standpoint 

of I can see what you are pointing to with that. And then you talk 

about the secretiveness of this. 

Is there another way to get at those desires on your part where 

you represent a broad desire to have a better set of consumer laws 

for the United States that you work on here and with other countries than what I perceive as really going at the heart of the Federal Arbitration Act and changing a fundamental basis of law? Is 

there a different way to go at that? 

Mr. ALDERMAN. I do not see a way that you can deal with the 

consumer law in this country and take the courts out of the picture, and I will use Texas as an example. 

In the 1970’s, Texas enacted—and this is in one of the articles 

of mine that I cite. The Texas Supreme Court established a doctrine of good and workmanlike performance. It was a time in the 

heyday of consumerism. It was a court that was considered very 

liberal. Between 1973 or 1974 and 1995, the Texas Supreme Court 

and lower courts dealt with that doctrine about 180 times. By the 

early 1990’s, the Texas Supreme Court had decided we went too 

far. We gave consumers too many rights. We actually have to back 

off a little bit. And they modified it. 

There have not been any cases in the last 5 or 6 years dealing 

with this doctrine. In my opinion, had arbitration occurred to the 

same extent it does now 8 years ago, arbitrators would be applying 

a law that, had the Texas Supreme Court been given an opportunity to review it, they actually would have made it more favorable to businesses. 

But to me, the common law is the value of this country. It is the 

court’s ability to modify the law. 

Senator BROWNBACK. And that is where you see we are not getting the common law development. 

Mr. ALDERMAN. And we do not get the interpretation of statutes. 

I wish that I could say every statute passed was perfectly worded 

and had no ambiguities, but it does not. And arbitrators cannot resolve that, except individually in the case before them. 

Senator BROWNBACK. Just it would be much more interesting to 

me, as one that looks at arbitration—and I think you do have to 

go at it in various categories—as being something that makes the 

system much more accessible to a lot more people. And that is 

something I am interested in, but I am also interested in the development of consumer law, and—

Mr. ALDERMAN. If I may make one more—

Senator BROWNBACK. Let me just finish this point, and I would 

be happy to hear back from you. I do not want to just throw out 

something that makes the system somewhat work. I mean, maybe 

we could have more TV shows that have these disputes go on. That 

is one way we could get more access to it. But this is a way that 

can get things resolved for most people—not everybody, but I am 

sympathetic to your point of further development of the law. It is 

just I would like to look at it in some other setting other than going 

right at this Federal Arbitration Act statute. 

Mr. ALDERMAN. I simply do not believe that the increases use of 

arbitration, that these entities are looking out for my rights and 

30

they are trying to force me into something that is better for me. 

This is substance. And let me give you one quick example, and I 

think your example is something that I would favor, and I would 

tell everybody to take advantage of: a county commissioner that 

heard disputes. I do not have problems with bias, I do not have 

problems with cost. I think that is a wonderful idea. And the Better Business Bureau had something like that. 

Senator BROWNBACK. May I go on to your point just real quickly 

in my remaining time. So yours is really the selection of the arbitrator. 

Mr. ALDERMAN. It is the fact that only one side, and nothing will 

change it, controls the entire process. In Texas, if you are a member of the Better Business Bureau, you must use Better Business 

Bureau arbitration, regardless of what entity your contract says. 

Many consumers—and I advise them to use Better Business Bureau arbitration. It was inexpensive. It was held at reasonable 

times. It was very fair. After they ruled against one of the home 

builders in Houston, the home builder and other home builders 

withdrew from the Better Business Bureau, imposing arbitration 

under one of the national associations. I think this is being done 

for one reason. It gives business control, and there is nothing we 

can do with the procedures that will eliminate that control, and it 

is about substance, not procedure. 

Senator BROWNBACK. Thank you. 

Chairman FEINGOLD. Thank you. I appreciate the Ranking Member’s comments about the way in which arbitration provides access. 

But access inherently is about something you choose to access. It 

is not about something you are forced to access. It is like saying 

jails give access to prisoners. They do not have a choice. So we 

have to, again, make sure that this topic is about mandatory arbitration, not arbitration in general. 

Mr. Bland, do you want to say something about Mr. de 

Bernardo’s claim that employment lawyers accept only 5 percent of 

the cases that come to them? 

Mr. BLAND. Yes. When I saw this testimony last night—I got it 

at about 9 o’clock—and I read this Footnote 14, I was really curious 

about it because I had never heard that before. And I contacted a 

number of civil rights lawyers and said this guy is saying essentially that 95 percent of plaintiffs’ lawyers would turn down employment cases, but that a much higher percentage of them would 

take them if they could do them in arbitration. And that is not the 

comparison. It is not even—

Mr. DE BERNARDO. That is not what I said. 

Chairman FEINGOLD. You will get a chance to respond. 

Mr. BLAND. It is not even apples and oranges. It is more like 

frogs and ball bearings, they are so far apart. 

What the study says is that if people come in and say, ‘‘I think 

I was fired wrongly and I want to be able to sue my employer,’’ because of the at-will doctrine in America, generally most people in 

America can be fired at the employer’s choice unless there is something like racism or sexism going on, that 95 percent of plaintiffs’ 

lawyers will advise the person not to sue. An employee comes in 

and says, ‘‘I want to sue,’’ and the lawyer says, ‘‘You don’t have a 

suit.’’ That is good advice. For most people, you don’t have a suit. 

31

Most people who are fired, there is nothing they can do about it. 

The courts do not go around reinstating everybody who is fired in 

America. Nineteen out of 20 times, the good advice is just go away, 

there is nothing you can do about it, move on with your life. 

The comparison that is relevant here is are people more likely to 

go into arbitration when they do have a valid claim, they do have 

a race discrimination claim that is real or a gender discrimination 

claim that is real, or are they more likely to go into court? And the 

data that I have seen—and also what virtually every civil rights 

lawyer I know says—is that they are more likely to go to court 

than arbitration because in arbitration it is very common to have 

a ‘‘loser pays’’ rule. 

The U.S. Supreme Court said in the Christiansburg Garment

case that if a civil rights claim, like a Title VII case, like Mrs. 

Luke’s case, saying I have been fired because of my age or because 

of my race, that you cannot be hit with the other side’s attorneys’ 

fees unless your claim is frivolous. 

In arbitration, it is very different. It is very common for arbitrations to have ‘‘loser pays’’ rules. I have seen a number of cases in 

which arbitrators have given the complete attorneys’ fees to the defendant, even bankrupted people bringing sexual harassment cases. 

One of the arbitration firms, the National Arbitration Forum, advertises in speeches and articles written for banking audiences that 

they have a ‘‘loser pays’’ rule to discourage cases—not just frivolous 

cases. A ‘‘loser pays’’ rule for anyone who loses a case. 

For my clients, that is a deal breaker. No one walks in my door 

and says, ‘‘I was cheated. I was fired improperly.’’ And I said, ‘‘I 

will tell you what. We will take your case. If you win, you will get 

your back pay. If you lose, you will bankrupted.’’ OK? People walk 

from that. 

Chairman FEINGOLD. I want to give Mr. de Bernardo a quick 

chance to respond. 

Mr. DE BERNARDO. I am sorry? 

Chairman FEINGOLD. I want to give you a quick chance to respond if you would like. You looked like you wanted to. 

Mr. DE BERNARDO. Well, that is simply a misstatement of what 

is in the testimony, and I would urge you, Mr. Chairman, to read 

the testimony in that regard. 

Chairman FEINGOLD. Thank you. Sam, did you want to ask anything else? 

Senator BROWNBACK. No. We just would note the citation here 

that he has got at the bottom, so I would ask that be noted for the 

record. I think it is well noted. 

Chairman FEINGOLD. Without objection. 

I want to thank—

Mr. RUTLEDGE. Senator? 

Chairman FEINGOLD. Very quickly. 

Mr. RUTLEDGE. Very quickly, Senator, just to Mr. Bland’s point 

about ‘‘loser pays’’ rules, if I could refer your staff to the 2003 study 

by Elizabeth Hill and to the 2004 study by Demaine and Hensler, 

both of those show that as an empirical matter, this notion that 

loser pays is being applied as a routine matter just is not correct. 

Chairman FEINGOLD. Thank you, sir. Well, I want to thank everybody. I think this is exactly what a hearing should be, a fair 

32

hearing of the issue. From my point of view, the more I hear about 

this, the more I am stunned by how central this issue is to our 

economy, to our consumers, and to our society. This is a big deal. 

And listening to you today, I am even more motivated to try to do 

something fundamental about this mandatory arbitration issue. 

So I want to thank Senator Brownback for his participation and 

thank our witnesses. The record will remain open for 1 week for 

any further written materials that you or anyone else wants to submit. In addition, Senators may submit followup written questions 

for you during that same 1-week period, and I would ask that you 

attempt to send in your answers to those questions as soon as you 

can so we can complete the record. 

The hearing is adjourned. 

[Whereupon, at 11:10 a.m., the Subcommittee was adjourned.] 

[Questions and answers and submissions for the record follow.]

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