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[Senate Report 110-190]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 410
110th Congress                                                   Report
                                 SENATE
 1st Session                                                    110-190

======================================================================

 
                 FAIR CONTRACTS FOR GROWERS ACT OF 2007

                                _______
                                

                October 4, 2007.--Ordered to be printed

                                _______
                                

            Mr. Leahy, from the Committee on the Judiciary, 
                        submitted the  following

                              R E P O R T

                             together with

                     ADDITIONAL AND MINORITY VIEWS

                         [To accompany S. 221]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to which was referred the 
bill (S. 221), to provide for greater fairness in the 
arbitration process relating to livestock and poultry 
contracts, having considered the same, reports favorably 
thereon and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
  I. Purpose of the Fair Contracts for Growers Act of 2007............1
 II. History of the Bill and Committee Consideration..................4
III. Section-by-Section Summary of the Bill...........................5
 IV. Cost Estimate....................................................6
  V. Regulatory Impact Evaluation.....................................7
 VI. Conclusion.......................................................7
VII. Additional views of Senators Feingold, Durbin, and Kennedy.......8
VIII.Minority views of Senators Kyl, Specter, and Brownback..........11

 IX. Changes in Existing Law.........................................14

        I. Purpose of the Fair Contracts for Growers Act of 2007

                               A. SUMMARY

    Senators Grassley and Feingold introduced the Fair 
Contracts for Growers Act of 2007 on January 9, 2007. The 
legislation is cosponsored by Chairman Leahy and Senators 
Hagel, Harkin, Kohl, Johnson, and Durbin. It allows the use of 
arbitration to resolve a controversy as provided for under a 
livestock or poultry contract only if, after the controversy 
arises, both parties consent in writing. The legislation also 
directs the arbitrator to provide a written explanation of the 
factual and legal basis for an award. This measure strengthens 
the arbitration process by ensuring that participants are 
entering into the process voluntarily.

                 B. BACKGROUND AND NEED FOR LEGISLATION

    As agricultural production becomes increasingly 
technologically advanced and consolidated under large 
processors, farmers in some segments of agriculture are 
increasingly producing their agricultural products under 
contract with these large processors. Under these contracts, 
farmers do not own the product they produce; instead, they work 
to generate produce or animals for large corporations who then 
process and market what has been grown or raised. This is 
particularly true in the livestock and poultry sector where 
farmers are raising animals for corporations such as Perdue, 
Tyson, and others.
    Accordingly, these individual livestock and poultry growers 
are heavily dependent upon their relationships with their large 
corporate partners. Once in a contractual relationship with one 
of these corporate processors, farmers often make significant 
capital investment to build the facilities needed to raise the 
animals. These facilities and other investments that farmers 
make typically are based on the specified needs and 
requirements of the corporate processor. Moreover, in some 
regions, the industry is already so concentrated that 
logistical issues, such as the distance to the processing 
facility, mean that farmers have few if any viable 
alternatives. As a result, most farmers do not-and often 
cannot- switch between corporate processors from year to year.
    Taking advantage of the dependence of individual livestock 
and poultry growers, corporate processors typically present 
farmers with take-it-or-leave-it contracts, allowing no 
opportunity for negotiation over the terms of that contract. 
These non-negotiated contracts then are automatically renewed 
or extended. During the course of their contractual 
relationship, processors may inform individual farmers that the 
existing contract will be amended, altered, or modified in a 
particular way and that this change is non-negotiable. At no 
point during the various stages of the livestock and poultry 
contracting process are farmers provided a true opportunity to 
negotiate the terms of that contract.
    Utilizing their unique advantage in the contract formation, 
processors often will include provisions that shift risk onto 
farmers or that otherwise insulate processors from 
complications or costs. For example, farmers often are provided 
with young animals, feed, and medicines by processors. If any 
of these are inferior, farmers are still ultimately judged by 
the final results. Thus, even if the materials supplied by 
processors cause mortality or reduced quality, the processors 
may attempt to deny responsibility and instead shift the risk 
of loss onto the farmers. Compounding this frustrating catch-22 
for farmers is the fact that mandatory arbitration clauses are 
now standard in most corporate processor contracts. That means 
that to dispute their responsibility in such a situation, 
farmers must work through arbitration rather than through the 
courts. Indeed, mandatory arbitration clauses force farmers to 
sign away their constitutional right to a jury trial regardless 
of the type of dispute, including allegations of fraud, 
misrepresentation, discrimination, or breach of contract on the 
part of the corporate processor.
    Giving up the protections built into the civil judicial 
system is not the only detriment that farmers face under 
mandatory arbitration clauses. Under the arbitration process, 
farmers must bring their case before a private panel of 
arbitrators, who often demand up-front fees for access to 
arbitration. These initial fees are often more than what 
individual farmers, who struggle to get by from year to year, 
can afford. As Scott Hamilton, a poultry grower from Alabama, 
testified at a hearing held by the Senate Agriculture Committee 
on April 18, 2007, these fees can be as much as $20,000--an 
amount that is sometimes greater than the amount in dispute. 
How truly prohibitive these costs can be was illustrated by Mr. 
Hamilton when he discussed the case of one unfortunate poultry 
grower:
          In a more recent example in Mississippi, 67 year old 
        Gertrude Overstreet, a contract poultry grower since 
        1976, was alleging that her poultry company had 
        violated the terms of their agreement, and she wanted 
        to have her case heard in court. Mrs. Overstreet only 
        had two chicken houses so her income before her 
        termination was minimal as shown in the court record. 
        However the company had previously added an arbitration 
        clause to her contract that would require her to pay 
        over $20,000 in up-front costs before she could get an 
        arbitration hearing.
          In a rare occurrence, the U.S. District Court 
        recognized the injustice of this arbitration clause and 
        ruled that it was unconscionable and therefore 
        unenforceable. The Court reiterated in its opinion that 
        Mrs. Overstreet and her husband's total monthly income, 
        including food stamps was less than $1,000 per month. 
        The Court further stated that Mrs. Overstreet only had 
        a 10th grade education, had no savings or property, 
        real or personal, other than a car and miscellaneous 
        household appliances. Mrs. Overstreet's testimony that 
        no one from the poultry company had ever explained 
        arbitration to her and she had no idea about the cost 
        of arbitration went uncontested by the poultry company. 
        Additionally, the Court's opinion stated that the 
        Oversteets could not even afford to buy their required 
        medications which were prescribed for them by their 
        doctors. Mr. Overstreet has since passed away. The 
        District Judge in his opinion stated simply that ``My 
        conscience is shocked.'' The poultry company appealed 
        the Judge's ruling and amazingly, the 5th Circuit Court 
        of Appeals panel overturned the District Judge's 
        opinion.
    Mr. Hamilton's testimony illustrates how mandatory 
arbitration clauses can be exploited by corporate processors, 
for whom an entry fee of $20,000 does not pose a hardship as it 
does to individual growers, in order to deprive those growers 
of the opportunity to assert their rights in any forum.
    Unfortunately, filing fees are not the only point at which 
the costs of arbitration may stop the fair resolution of 
disputes. Indeed, the fact that additional on-going fees may be 
charged during the arbitration process makes arbitration even 
less accessible. Yet after paying these significant fees, the 
individual farmer is not provided the basic legal protections 
guaranteed in the civil court system. For example, under the 
current system, there is no right to receive a written 
explanation of the arbitrator's decision that includes the 
facts and law that informed that decision.
    The Fair Contracts for Growers Act of 2007 amends the 
Federal Arbitration Act by adding a new provision in Chapter 1 
of Title 9 of the United States Code. This provision sets 
specific guidelines for arbitration in the livestock and 
poultry context. Specifically, the new provision establishes 
that arbitration may be used to settle a controversy under a 
livestock or poultry contract only if both parties consent to 
using arbitration after the controversy arises. In this manner, 
the Act disallows mandatory arbitration clauses to be a 
condition of contracting with corporate processors and allows 
individual farmers the opportunity to choose between the civil 
court system and the arbitration system. The Act also requires 
that arbitrators of a livestock or poultry dispute provide a 
written explanation of the factual and legal basis for their 
decisions.
    The Fair Contracts for Growers Act of 2007 is supported by 
a host of organizations, including the Farm Bureau, the 
National Farmers' Union, the National Contract Poultry Growers 
Association and the Campaign for Contract Agriculture Reform.

          II. History of the Bill and Committee Consideration

    The Fair Contracts for Growers Act of 2007, S. 221, is a 
bipartisan measure introduced on January 9, 2007, by Senators 
Grassley and Feingold. Chairman Leahy and Senators Hagel, 
Harkin, Kohl, Johnson, and Durbin are cosponsors of the bill.
    The bill is based on an amendment offered by Senators 
Feingold, Grassley and Harkin to the Senate version of the 2001 
Farm Bill (S. 1731). The amendment (S. Amdt. 2522) passed the 
Senate on December 13, 2001, by a vote of 64 to 31. Despite its 
strong bipartisan support in the Senate, the amendment was 
taken out of the farm bill in conference.
    In the 107th Congress, Senator Feingold and Senator 
Grassley introduced the Fair Contracts for Growers Act as S. 
2943 on September 17, 2002. Senators Dorgan, Enzi, Harkin, 
Johnson and Leahy joined as cosponsors. It was referred to the 
Judiciary Committee, and no further action was taken.
    In the 108th Congress, Senator Grassley and Senator 
Feingold reintroduced the Fair Contracts for Growers Act as S. 
91 on January 7, 2003. Senators Edwards, Enzi, Hagel, Harkin, 
Johnson, Leahy and Nelson joined as cosponsors. It was referred 
to the Judiciary Committee, and no further action was taken.
    In the 109th Congress, Senator Grassley and Senator 
Feingold reintroduced the Fair Contracts for Growers Act as S. 
2131 on December 16, 2005. Senators Hagel, Harkin, Johnson and 
Kohl joined as cosponsors. It was referred to the Judiciary 
Committee, and no further action was taken.
    The Fair Contracts for Growers Act of 2007 was listed on 
the Judiciary Committee's agenda for the first time on April 
12, 2007. On May 17, 2007, the Committee considered the bill, 
and prior to voting to report it, the Committee defeated two 
amendments offered by Sen. Hatch on behalf of Sen. Kyl.
    The rollcall vote on the amendment, offered by Senator 
Hatch on behalf of Senator Kyl, allowing state law to supersede 
the federal standards established in the bill was as follows:
    Tally: 6 Yes, 11 No, 2 Not Voting.
    Democrats (10): N, Leahy (D-VT); N, Kennedy (D-MA); N, 
Biden (D-DE); N, Kohl (D-WI); N, Feinstein (D-CA); N, Feingold 
(D-WI); N, Schumer (D-NY); N, Durbin (D-IL); N, Cardin (D-MD); 
N, Whitehouse (D-RI).
    Republicans (9): P, Specter (R-PA); Y, Hatch (R-UT); N, 
Grassley (R-IA); Y, Kyl (R-AZ); Y, Sessions (R-AL); NV, Graham 
(R-SC); Y Cornyn (R-TX); Y, Brownback (R-KS); Y, Coburn (R-OK).
    The rollcall vote on the amendment, offered by Senator 
Hatch on behalf of Senator Kyl, allowing mandatory arbitration 
but including some procedural protections during the 
arbitration process was as follows:
    Tally: 6 Yes, 11 No, 2 Not Voting.
    Democrats (10): N, Leahy (D-VT); N, Kennedy (D-MA); N, 
Biden (D-DE); N, Kohl (D-WI); N, Feinstein (D-CA); N, Feingold 
(D-WI); N, Schumer (D-NY); N, Durbin (D-IL); N, Cardin (D-MD); 
N, Whitehouse (D-RI).
    Republicans (9): P, Specter (R-PA); Y, Hatch (R-UT); N, 
Grassley (R-IA); Y, Kyl (R-AZ); Y, Sessions (R-AL); NV, Graham 
(R-SC); Y, Cornyn (R-TX); Y, Brownback (R-KS); Y, Coburn (R-
OK).
    The Committee then ordered the Fair Contracts for Growers 
Act, without amendment, to be reported favorably to the full 
Senate, with a recommendation that the bill do pass. The 
rollcall vote on this proposition was as follows:
    Tally: 11 Yes, 2 No, 6 Not Voting.
    Democrats (10): Y, Leahy (D-VT); Y, Kennedy (D-MA); Y, 
Biden (D-DE); Y, Kohl (D-WI); Y, Feinstein (D-CA); Y, Feingold 
(D-WI); Y, Schumer (D-NY); Y, Durbin (D-IL); Y, Cardin (D-MD); 
Y, Whitehouse (D-RI).
    Republicans (9): P, Specter (R-PA); P, Hatch (R-UT); Y, 
Grassley (R-IA); N, Kyl (R-AZ); P, Sessions (R-AL); P, Graham 
(R-SC); N, Cornyn (R-TX); P, Brownback (R-KS); P, Coburn (R-
OK).

              III. Section-By-Section Summary of the Bill

Sec. 1. Short title

    This section provides that the legislation may be cited as 
the ``Fair Contracts for Growers Act of 2007.''

Sec. 2. Election of arbitration

    This section defines the key terms of the legislation. It 
establishes that both parties to a livestock or poultry 
contract must consent to arbitration after the dispute arises. 
It also requires that an explanation of the basis for any 
awards made through the arbitration process be provided in 
writing and with a discussion of the factual and legal basis 
for that decision.

Sec. 3. Effective date

    This section establishes the effective date of the 
legislation. It specifies that the amendments made by Section 2 
shall apply to a contract entered into, amended, altered, 
modified, renewed, or extended after the date of enactment of 
this Act.

             IV. Congressional Budget Office Cost Estimate

    The Committee sets forth, with respect to the bill, S. 221, 
the following estimate and comparison prepared by the Director 
of the Congressional Budget Office under section 402 of the 
Congressional Budget Act of 1974:

                                                     June 13, 2007.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 221, the Fair 
Contracts for Growers Act of 2007.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Daniel 
Hoople.
            Sincerely,
                                                   Peter R. Orszag.
    Enclosure.

S. 221--Fair Contracts for Growers Act of 2007

    S. 221 would amend federal law governing the use of 
arbitration in certain contracts with poultry and livestock 
growers. Under the bill, any dispute arising from a contract 
involving a livestock or poultry producer that is entered into 
or modified in any way after the date of enactment would be 
subject to arbitration only in situations where all contracting 
parties give written consent to its use. If arbitration is 
elected, the arbitrator would be required to provide a written 
explanation of the factual and legal basis for any award 
determination.
    CBO expects that the number of disputes heard in federal 
and state courts would increase under the bill; however, such 
an increase would likely have an insignificant effect on the 
courts' overall caseload. As such, CBO estimates that 
implementing S. 221 would have no significant cost over the 
next five years. Enacting the bill would have no effect on 
direct spending or revenues.
    S. 221 would impose no intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA) and would 
impose no costs on state, local, or tribal governments.
    S. 221 would impose private-sector mandates, as defined in 
UMRA, on parties involved in livestock or poultry contracts 
that provide for arbitration and on arbitrators elected to 
resolve disputes under those contracts. The bill would impose a 
mandate by requiring such contracts to allow arbitration only 
after both parties in a dispute agree in writing to arbitration 
after the controversy arises. The bill also would require an 
arbitrator elected to resolve a dispute in such cases to 
provide the parties with a written explanation of the factual 
and legal basis for the award. Based on information from 
industry sources, CBO estimates that the direct cost of those 
mandates would fall well below the annual threshold established 
in UMRA ($131 million in 2007, adjusted annually for 
inflation).
    The CBO staff contacts for this estimate are Daniel Hoople 
(for federal costs) and Paige Piper/Bach (for the private-
sector impact). This estimate was approved by Peter H. 
Fontaine, Deputy Assistant Director for Budget Analysis.

                    V. Regulatory Impact Evaluation

    In compliance with rule XXVI of the Standing Rules of the 
Senate, the Committee finds that no significant regulatory 
impact will result from the enactment of S. 221.

                             VI. Conclusion

    Enactment of the Fair Contracts for Growers Act, S. 221, is 
long overdue. This bipartisan legislation will ensure that the 
individual farmers who produce livestock and poultry are able 
to make a meaningful choice between arbitration and civil 
litigation when resolving disputes under their livestock and 
poultry contracts with large corporate processors.

    VII. ADDITIONAL VIEWS OF SENATORS FEINGOLD, DURBIN, AND KENNEDY

    We fully support S. 221 and the committee report. We 
provide these additional views to respond to the minority views 
filed by Senators Kyl, Specter, and Brownback, which primarily 
include criticism of a bill that the committee has not yet 
considered, the Arbitration Fairness Act, S. 1782. We are 
cosponsors of that legislation, which would render 
unenforceable pre-dispute arbitration agreements in consumer, 
employment, and franchise contracts.
    The primary assertion of the minority views is that both S. 
221 and S. 1782 will eliminate the option of arbitration, which 
will cause great economic hardship to defendant companies. They 
assert, for example, that S. 1782 would mean that ``every 
dispute would have to go to court,'' and that:
          [O]nce arbitration agreements are rendered null and 
        void by this Act [S. 221], there will be nothing 
        ``voluntary'' about the litigation that parties will be 
        forced to endure. The bill's assault on ``mandatory'' 
        arbitration is more clearly and accurately described as 
        the creation of mandatory and unavoidable litigation.
    Reading these pronouncements, one might think that the 
bills actually prohibit arbitration. They do not. Under both S. 
221 and S. 1782, parties to a dispute remain free to choose 
arbitration rather than litigation. And we are confident that 
many will. But the very fact that the minority views assume 
that arbitration will never take place if corporations cannot 
force farmers, or consumers, or employees to go to arbitration 
by putting an arbitration clause into a take-it-or-leave-it 
contract speaks volumes. If arbitration is such a wonderfully 
fair and efficient alternative to litigation, why wouldn't a 
consumer or a worker choose it voluntarily?
    The point of S. 221, and of S. 1782, which we hope the 
committee will consider at some point in the future, is to give 
parties who have a dispute a choice, after the dispute arises, 
of how they want to resolve it. If arbitration is as fair and 
cost-efficient as the defenders of mandatory arbitration argue, 
then surely farmers, consumers, and employees will choose it 
when they have the freedom to make a real choice. The problem 
with the current system, as years of experience have shown in 
the area of agricultural contracts, is that arbitration has 
proven very beneficial and efficient for the large repeat 
player, but not so for the individual farmer, grower, consumer 
or employee. Indeed, one effect of S. 221 may be that once the 
farmer has a real choice, arbitration programs will have a much 
greater incentive to make their systems fair if they want to 
stay in business.
    The amendment offered by Senator Kyl during the committee's 
markup of S. 221 to give the parties the right to discovery and 
to a written decision in arbitration was not a serious effort 
to repair an arbitration system that farmers have come to see 
as stacked against them. A bill similar to S. 221 passed the 
Senate by a wide margin as an amendment to the farm bill in 
2002. Between that time and the date of the committee action, 
defenders of the current system made no effort to move 
legislation to improve the arbitration process. Farmers have 
waited long enough for Congress to respond to their grievances. 
Alternative half-measures hastily concocted only when 
legislation designed to help them is finally moving are not 
enough.
    We say half-measures because Senator Kyl's amendment did 
not even come close to rectifying the problems with the current 
arbitration system. For example, there is generally extremely 
limited judicial review of arbitration decisions. Individuals 
who find themselves in mandatory binding arbitration are often 
unable even to challenge the format and procedures that may 
generate an unjust result.
    In addition, farmers have no way of knowing how often the 
arbitrators they must use under the contract have ruled in 
favor of agribusiness in similar cases. Some arbitration 
systems do not even require that the arbitrators follow 
applicable law. Another issue that the amendment did not 
address is the availability and cost of transcripts of the 
arbitration proceedings. The list goes on and on. The defeat of 
Senator Kyl's amendment was not a result of a partisan 
unwillingness to recognize a good faith effort to ``fix'' 
mandatory arbitration. (As the committee report correctly 
notes, a bipartisan majority of the committee voted against 
each of the Kyl amendments.) It was defeated because it was too 
little, too late.
    The minority views reserve their greatest scorn for S. 
1782, which has not yet been considered by the committee. We 
see no reason to respond in detail to the one-sided discussion 
of a supposedly typical employment discrimination case that now 
often must go to arbitration, but could be filed in court under 
that bill. We could easily describe actual employment 
discrimination complaints rejected without analysis or legal 
basis by arbitrators handpicked by employers, and would note 
that Congress passed the Civil Rights Act of 1964 and other 
civil rights statutes to give workers the ability to take their 
grievances to court, not to a biased arbitration panel. In any 
event, we look forward to the committee's future work on our 
bill because mandatory arbitration is just as much of a problem 
for consumers and employees as it is for farmers. We are 
confident that a record will be developed to support our bill, 
and we reject the portrait of exploding, extortionist 
employment litigation that the minority views paint.
    The Federal Arbitration Act of 1925 was passed to allow the 
courts to recognize and enforce alternative dispute resolution. 
But with the help of a few mistaken court decisions, it has 
become a weapon in the hands of big business to avoid the laws 
that Congress and state legislatures pass to protect consumers 
and employees, and yes, farmers. Big companies are making use 
of a parallel but very different legal system and forcing those 
they do business with to participate in it. We make no 
apologies for wanting to reverse the alarming trend of 
mandatory pre-dispute arbitration agreements, and look forward 
to Congress enacting S. 221 and other similar legislation to 
restore the primacy of the rule of law.
                                   Russell D. Feingold.
                                   Richard Durbin.
                                   Edward M. Kennedy.

      VIII. MINORITY VIEWS OF SENATORS KYL, SPECTER, AND BROWNBACK

    With this Act, the Senate Judiciary Committee starts the 
process of repealing the Federal Arbitration Act of 1925. 
Without holding a single hearing on the subject, the committee 
begins to turn back the clock on over 80 years of alternative 
dispute resolution in this country.
    It is bad enough that American families will be forced by 
this legislation to pay more for poultry and other produce so 
that the trial lawyers can get their cut. Unfortunately, 
however, the new Congress's assault on the arbitration system 
is not limited to contracts involving poultry and livestock. 
Already, two majority members of this committee have introduced 
the so-called ``Arbitration Fairness Act of 2007,'' S. 1782, 
which would gut arbitration agreements that cover ``employment, 
consumer, or franchise disputes'' or that involve parties with 
``unequal bargaining power.'' That's pretty much everything, 
folks. No longer would American businesses be able to avoid 
going to court over garden-variety disputes whose amount in 
controversy is overwhelmed by the costs of paying for a lawyer 
and going to trial--the types of disputes whose only reasonable 
method of resolution is arbitration. Instead, every dispute 
would have to go to court--or, more realistically, would be 
settled for a nuisance payment, regardless of the merits of the 
complaint. And to top it all off, the bill's ``unequal 
bargaining power'' exception should ensure enough litigation 
over its meaning to put many a lawyer's children through 
college.
    Allow us to explain why arbitration is necessary--why 
Congress endorsed its use over 80 years ago, and why all of the 
intervening Congresses, mostly under the control of Democratic 
majorities, have been content to preserve this system. The best 
reason for arbitration is that for many disputes, the cost of 
litigating the matter in court grossly exceeds the amount at 
issue. For example, in an employment dispute, if the plaintiff 
raises McDonnell-Douglass ``inference of discrimination'' 
claims, the defendant will be required to produce papers and 
defend depositions regarding not only the work history of the 
plaintiff employee, but also of all similarly situated 
employees. Even if the plaintiff's claims are utterly devoid of 
merit, simply hiring the lawyers and going through discovery, 
depositions, and summary judgment motions can easily cost the 
defendant over $250,000. And of course, most jobs in this 
country pay only a fraction of that amount.
    Think about the position in which Congress would be placing 
a small employer--one whose resources do not permit retention 
of in-house counsel and who lacks a bottomless litigation 
budget. Imagine that this employer has an employee whose 
performance and work habits are substandard, and so he fires 
that employee. The employee then turns around and sues the 
employer, alleging various forms of unlawful discrimination. 
The annual pay for the job in question is only $40,000. But the 
employer must now retain an attorney, and that attorney 
explains to the employer that litigating the case through its 
conclusion will cost over $250,000.
    What do the proponents of this legislation expect such an 
employer to do? Do they think that every employer--regardless 
of its size--should be forced to pay a quarter of a million 
dollars for the privilege of firing a nonperforming employee? 
Surely even U.S. Senators cannot be so unfamiliar with the 
reality of the private economy that they believe that every 
fired employee's legal complaint is meritorious. Do they think 
that fired employees, and especially their lawyers--who will 
need no time at all to appreciate the economic dynamics of this 
new system--will not take advantage of their leverage in such a 
situation?
    What will happen if Congress guts arbitration is this: 
every employer, regardless of its size, will begin to settle 
employment discrimination suits for their nuisance value. 
Private employers are not in business to win employment 
lawsuits. They are in business to make money. And if confronted 
with the alternatives of ``winning'' a lawsuit for $250,000, or 
paying $15,000 and attorney's fees to a nonperforming employee 
in order to make him go away, employers will simply pay the 
ransom. It is the only economically reasonable thing to do. And 
Congress will have been a party to this extortion.
    Allow us to also dispel the notion that this Act is 
intended to ``fix'' arbitration. This Act is not designed to 
fix the system, but to gut it. One of the majority report's 
complaints about poultry-contract arbitration--one of the 
supposed causes for this legislation--is that ``under the 
current system, there is no right to receive a written 
explanation of the arbitrator's decision.'' Yet during the mark 
up of this bill, an amendment was offered on behalf of Sen. Kyl 
that would have done just that--that would have preserved 
arbitration while creating a right to demand that an arbitrator 
explain his decision in writing. The Kyl amendment also would 
have empowered the arbitrator to order the discovery of 
documents. Yet that amendment was defeated on a party-line 
vote. For all of the alleged problems with arbitration that are 
described in the majority report--problems, by the way, that 
were never identified in any hearing before the committee with 
jurisdiction over this bill--the purpose of this bill is not to 
address those problems. The purpose of this bill is to gut 
arbitration.
    Two other aspects of this legislation highlight just how 
extreme the bill is. First, the Act applies retroactively--it 
not only prevents parties from entering into enforceable 
arbitration agreements in the future, it also guts arbitration 
agreements that were made years before this legislation was 
even proposed. It simply takes pre-existing contracts and tears 
them up.
    Second, this bill's violence against private contracts is 
not limited to agreements enforceable under federal law. The 
Act also reaches into state jurisdiction, gutting contracts 
voluntarily entered into between parties who are operating in 
the same state and whose agreements would be enforceable in 
state courts as a matter of state law. This Act preempts the 
laws of all 50 states, preventing any state from preserving 
enforceable arbitration as an alternative to courtroom 
litigation. Again, an amendment was offered in the committee 
that would have limited the damage done by this Act to 
agreements sought to be enforced under federal law, and that 
would have preserved agreements that are enforceable in state 
court pursuant to state law. Again, the amendment was defeated 
on a party-line vote.
    The majority report also cites the high up-front fees 
sometimes charged for poultry arbitrations as a justifying 
cause for this legislation. Again, had this problem even been 
identified in a hearing before this committee prior to the mark 
up of the legislation, surely some agreement could have been 
reached on a standard for limiting such fees. Obviously, it is 
not necessary to retroactively gut both federal and state 
arbitration in order to regulate such fees. Moreover, we find 
it somewhat ironic that the majority expresses such concern 
over a $20,000 fee for conducting an arbitration. If 
arbitration is no longer an enforceable option, the costs 
imposed on defendants both large and small by courtroom 
litigation can be expected to exceed arbitration fees by an 
order of magnitude.
    The majority report and proponents of the bill complain of 
``mandatory'' arbitration. What they really object to is 
enforceable arbitration. The Act prevents private parties from 
entering into any enforceable agreement to arbitrate these 
disputes--even if such an agreement is entirely voluntary. It 
is the bill's ban on arbitration agreements that is properly 
characterized as mandatory. And once arbitration agreements are 
rendered null and void by this Act, there will be nothing 
``voluntary'' about the litigation that parties will be forced 
to endure. The bill's assault on ``mandatory'' arbitration is 
more clearly and accurately described as the creation of 
mandatory and unavoidable litigation.
    Harnessing the ancient political power of farmers to the 
legislative agenda of the Association of Trial Lawyers of 
America, this committee turns back the clock on over 80 years 
of the development of the arbitration system in this country; 
it drives up the costs that Americans will be forced to pay to 
feed their families; and it ensures that the legal system will 
be used to extract nuisance settlements from small businesses 
that will now have no enforceable alternative to the expense of 
courtroom litigation. With regard to this last effect, it is a 
shame that this committee, in particular, would be a party to 
facilitating such abuses. We should never knowingly permit the 
legal system to be used as a vehicle for litigation extortion.
    This is a terrible bill. And it is a bad omen of things to 
come.
                                   Jon Kyl.
                                   Arlen Specter.
                                   Sam Brownback.
                      IX. Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 221, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

9 U.S.C. Sec. 17

Sec. 17. Livestock and Poultry Contracts

    (a) Definitions.--In this section:
          (1) Livestock.--The term ``livestock'' has the 
        meaning given the term in section 2(a) of the Packers 
        and Stockyards Act, 1921 (7 U.S.C. 182(a)).
          (2) Livestock or poultry contract.--The term 
        ``livestock or poultry contract'' means any growout 
        contract, marketing agreement, or other arrangement 
        under which a livestock or poultry grower raises and 
        cares for livestock or poultry.
          (3) Livestock or poultry grower.--The term 
        ``livestock or poultry grower'' means any person 
        engaged in the business of raising and caring for 
        livestock or poultry in accordance with a livestock or 
        poultry contract, whether the livestock or poultry is 
        owned by the person or by another person.
          (4) Poultry.--The term ``poultry'' has the meaning 
        given the term in section 2(a) of the Packers and 
        Stockyards Act, 1921 (7 U.S.C. 182(a)).
    (b) Consent to Arbitration.--If a livestock or poultry 
contract provides for the use of arbitration to resolve a 
controversy under the livestock or poultry contract, 
arbitration may be used to settle the controversy only if, 
after the controversy arises, both parties consent in writing 
to use arbitration to settle the controversy.
    (c) Explanation of Basis for Awards.--If arbitration is 
elected to settle a dispute under a livestock or poultry 
contract, the arbitrator shall provide to the parties to the 
contract a written explanation of the factual and legal basis 
for the award.

                                  
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