S. HRG. 113–373 

THE FEDERAL ARBITRATION ACT AND ACCESS 

TO JUSTICE: WILL RECENT SUPREME COURT 

DECISIONS UNDERMINE THE RIGHTS OF CONSUMERS, WORKERS, AND SMALL BUSINESSES? 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

DECEMBER 17, 2013 

Serial No. J–113–44 

Printed for the use of the Committee on the Judiciary 

( 
THE FEDERAL ARBITRATION ACT AND ACCESS TO JUSTICE: WILL RECENT SUPREME COURT 

DECISIONS UNDERMINE THE RIGHTS OF CONSUMERS, WORKERS, AND SMALL BUSINESSES? 
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89–563 PDF 2014

S. HRG. 113–373 

THE FEDERAL ARBITRATION ACT AND ACCESS 

TO JUSTICE: WILL RECENT SUPREME COURT 

DECISIONS UNDERMINE THE RIGHTS OF CONSUMERS, WORKERS, AND SMALL BUSINESSES? 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

DECEMBER 17, 2013 

Serial No. J–113–44 

Printed for the use of the Committee on the Judiciary 

( 
(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

DIANNE FEINSTEIN, California 

CHUCK SCHUMER, New York 

DICK DURBIN, Illinois 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

AL FRANKEN, Minnesota 

CHRISTOPHER A. COONS, Delaware 

RICHARD BLUMENTHAL, Connecticut 

MAZIE HIRONO, Hawaii 

CHUCK GRASSLEY, Iowa, Ranking Member 

ORRIN G. HATCH, Utah 

JEFF SESSIONS, Alabama 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

MICHAEL S. LEE, Utah 

TED CRUZ, Texas 

JEFF FLAKE, Arizona 

KRISTINE LUCIUS, Chief Counsel and Staff Director 

KOLAN DAVIS, Republican Chief Counsel and Staff Director 
(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Franken, Hon. Al, a U.S. Senator from the State of Minnesota .......................... 1 

Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa ............................ 3 

prepared statement .......................................................................................... 43 

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 3 

prepared statement .......................................................................................... 44 

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

statement .............................................................................................................. 45 

Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode Island, 

prepared statement .............................................................................................. 47 

WITNESSES 

Witness List ............................................................................................................. 41 

Overton, Leslie C., Deputy Assistant Attorney General for Civil Enforcement, 

Antitrust Division, U.S. Department of Justice, Washington, DC ................... 5 

prepared statement .......................................................................................... 49 

Carlson, Alan S., Owner, Italian Colors Restaurant, Oakland, California ......... 13 

prepared statement .......................................................................................... 53 

Gilles, Myriam, Professor of Law, Benjamin N. Cardozo School of Law, Yeshiva University, New York, New York ............................................................. 15 

prepared statement .......................................................................................... 57 

Teske, Vildan A., Partner, Crowder, Teske, Katz & Micko, PLLP, Minneapolis, Minnesota ............................................................................................. 18 

prepared statement .......................................................................................... 66 

Parasharami, Archis A., Partner & Co-Chair, Consumer Litigation and Class 

Actions Practice, Mayer Brown LLP, Washington, DC ..................................... 20 

prepared statement .......................................................................................... 82 

Rutledge, Peter B., Associate Dean for Faculty Development, Herman E. 

Talmadge Chair of Law, University of Georgia School of Law, Athens, 

Georgia .................................................................................................................. 22 

prepared statement .......................................................................................... 134 

QUESTIONS 

Questions submitted by Senator Franken for Myriam Gilles .............................. 201 

Questions submitted by Senator Franken for Vildan Teske ................................ 202 

Questions submitted by Senator Franken for Archis Parasharami .................... 203 

Questions submitted by Senator Grassley for Archis Parasharami .................... 204 

Questions submitted by Senator Grassley for Peter Rutledge ............................. 205 

Questions submitted by Senator Hatch for Myriam Gilles .................................. 206 

Questions submitted by Senator Hatch for Peter Rutledge ................................. 207 

QUESTIONS AND ANSWERS 

Responses of Myriam Gilles to questions submitted by Senators Franken 

and Hatch ............................................................................................................. 209 

Responses of Vildan Teske to questions submitted by Senator Franken ........... 226 

Responses of Archis Parasharami to questions submitted by Senators 

Franken and Grassley ......................................................................................... 232 

Responses of Peter Rutledge to questions submitted by Senators Grassley 

and Hatch ............................................................................................................. 250 
Page

IV 

MISCELLANEOUS SUBMISSIONS FOR THE RECORD 

American Antitrust Institute, Washington, DC, Albert A. Foer, President, 

and Randy M. Stutz, Senior Counsel, December 24, 2013, letter .................... 256 

Amalgamated Bank, Noel Beasley, Chairman, New York, New York, December 19, 2013, letter ............................................................................................... 259 

Civil Justice Through the Courts, Law Student Clinic Members, New York, 

New York, December 17, 2013, letter ................................................................. 261 

Coalition of Organizations, December 16, 2013, letter ......................................... 272 

Constitutional Accountability Center, Douglas T. Kendall, President, Washington, DC, December 16, 2013, letter ............................................................... 276 

COSAL (Committee to Support the Antitrust Laws), statement ......................... 279 

Cox, James D., Professor of Law, Duke Law, Durham, North Carolina, October 30, 2013, letter on behalf of a group of professors from 19 law schools ... 285 

DiNapoli, Thomas P., New York State Comptroller, Albany, New York, December 16, 2013, letter ........................................................................................ 290 

Doss, Jason, President, Public Investors Arbitration Bar Association, statement ...................................................................................................................... 292 

Duran, Bernardita, Client of Legal Services NYC, New York, New York, 

statement .............................................................................................................. 295 

Home Owners for Better Building, Janet Ahmad, National President, San 

Antonio, Texas, December 23, 2013, letter ........................................................ 302 

Kilgore, Matthew, Rohnert Park, California, statement ...................................... 309 

Leadership Conference on Civil and Human Rights, Wade Henderson, President & CEO, Washington, DC, statement ......................................................... 313 

Mahoney, Jeff, General Counsel, Council of Institutional Investors, Washington, DC, December 11, 2013, letter ............................................................... 315 

Non-U.S. Institutional Investors Group, December 17, 2013, letter ................... 319 

Rothman, Mike, Commissioner of the Minnesota Department of Commerce, 

on behalf of the North American Securities Administrators Association 

(NASAA), statement ............................................................................................ 323 

Simpson, Anne, Senior Portfolio Manager, CalPERS, Sacramento, California, 

December 12, 2013, letter .................................................................................... 334 

Sternlight, Jean R., Professor of Law, UNLV, Boyd School of Law, Las Vegas, 

Nevada, statement ............................................................................................... 336 

Szalai, Imre Stephen, Professor, Loyola University of New Orleans College 

of Law, New Orleans, Louisiana, statement ...................................................... 344 

U.S. Institutional Investors Group, December 17, 2013, letter ........................... 353 
(1) 

THE FEDERAL ARBITRATION ACT AND ACCESS TO JUSTICE: WILL RECENT SUPREME 

COURT DECISIONS UNDERMINE THE 

RIGHTS OF CONSUMERS, WORKERS, AND 

SMALL BUSINESSES? 

TUESDAY, DECEMBER 17, 2013 

U.S. SENATE, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to notice, at 2:30 p.m., in Room 

SD–226, Dirksen Senate Office Building, Hon. Al Franken, presiding. 

Present: Senators Franken, Whitehouse, Klobuchar, Blumenthal, 

Hirono, Grassley, Hatch, and Lee. 

OPENING STATEMENT OF HON. AL FRANKEN, A U.S. SENATOR 

FROM THE STATE OF MINNESOTA 

Senator FRANKEN. This hearing will come to order. 

In 1925, Congress passed the Federal Arbitration Act to facilitate 

the use of arbitration as a fair and efficient alternative to litigation 

in appropriate cases, typically those involving competing corporations of equal bargaining power. 

In the hands of today’s Supreme Court, however, the Federal Arbitration Act has been reshaped into something quite different. It 

has become a virtual grant of immunity for large corporations, 

which now can opt out of the criminal justice system. 

I think that Alan Carlson, a small business owner who is with 

us today, puts it really well when he says in his written testimony, 

‘‘In America, I thought we all had the right to pursue justice in 

court, but it turns out that Big Business gets to write its own 

rules.’’ 

This, in my view, has potentially disastrous consequences for 

workers, consumers, small businesses, and for middle-class Americans, and that is the focus of today’s hearing. For me, this is all 

about making sure that there is access to justice when everyday 

people are cheated by giant corporations. 

In 2011, I chaired a hearing on mandatory pre-dispute arbitration. What we learned in that hearing is that corporations make 

consumers and workers sign contracts with mandatory arbitration 

clauses as a condition to getting a product or a service or a job. The 

corporation can write the rules for the arbitration. The arbitrator 

often comes from the same industry as the corporate defendant. 
2 

Everything is done in secret. There are no public rulings and 

precedents like there are in courts. Discovery is limited, if there is 

any at all. So the plaintiff cannot always get the evidence that he 

or she needs to prove her case. And there is no meaningful judicial 

review, so there is not much an individual can do if the arbitrator 

just gets it all wrong. 

But that is not all. My 2011 hearing followed on the heels of 

AT&T v. Concepcion in which the Supreme Court said that corporations can use their arbitration clauses to prohibit class actions, 

even if applicable State law says that these class action waivers 

are unconscionable. So under Concepcion, not only can a corporation force an individual into arbitration with all of its shortcomings, but the corporation can force the individual to go it alone. 

Just the prospect of a class action gives corporations a real incentive to follow the law. They know that there will be real consequences if they do not. Concepcion removed that important check 

on corporate power. 

Not surprisingly, corporations are taking advantage of this new 

rule. Preliminary results from the Consumer Financial Protection 

Bureau’s Arbitration Study indicate that nearly 100 percent of outstanding credit card loans and insured deposits now are subject to 

class action bans. As Mr. Parasharami, one of today’s witnesses 

who is testifying in favor of mandatory pre-dispute arbitration, has 

written, ‘‘In light of Concepcion and subsequent developments in 

law, consumer and employment arbitration agreements are now 

more attractive to businesses than ever.’’ Mr. Parasharami and I 

probably do not agree on much when it comes to arbitration law, 

but I do agree with him on that. 

And just when you thought it could not get any worse, it did 

when the Supreme Court decided American Express v. Italian Colors during its last term. 

Since at least the Mitsubishi Motors case in 1985, we have had 

something called the ‘‘effective vindication rule,’’ which says that 

an arbitration clause is invalid if it is so bad that it prevents an 

individual from enforcing his or her federal rights. In other words, 

the effective vindication rule prevented a corporation from drafting 

its arbitration clause in a way that implicitly forced consumers, 

workers, and small businesses to waive their federal rights. But in 

the recent Italian Colors case, the Court did away with that rule, 

and the Court was not really shy about it either. Justice Scalia 

wrote that, ‘‘The FAA’s command to enforce arbitration agreements 

trumps any interest in ensuring the prosecution of low-value 

claims.’’ 

In other words, in his opinion, corporate arbitration clauses simply are more important than the rights of consumers, workers, and 

small businesses. 

I could not disagree more. The Concepcion and Italian Colors decisions stack the deck in favor of corporations and against consumers and workers, as if the deck were not stacked enough already. Giant corporations now can use arbitration clauses to stifle 

enforcement of federal laws, the antitrust laws, the minimum wage 

laws, the civil rights laws. You name it. 

As the law has gotten worse, the need for reform has become 

more obvious and more urgent. I introduced the Arbitration Fair-
3 

ness Act to undo some of the damage that we have seen to the civil 

justice system, and I would like to invite my colleagues to join me 

in this effort; 24 Members of the Senate and 71 Members of the 

House already have. The Arbitration Fairness Act would amend 

the Federal Arbitration Act to prohibit the use of mandatory predispute arbitration clauses in civil rights, employment, consumer, 

and antitrust cases—cases in which one party has superior bargaining power and where adhesion contracts are common. 

I want to be clear. The bill does not prohibit arbitration. If a consumer or a worker or a small business owner wants to take his 

claim into arbitration, then by all means he or she is free to do so, 

provided the corporation itself is willing to do so. But if the consumer or worker or small business wants to go to court, he or she 

will have that option available again. 

This is not a radical proposal. The bill just restores the Federal 

Arbitration Act to its original purpose and scope. Simply put, this 

is about reopening the courthouse doors to workers, consumers, 

and small businesses because the courthouse doors never should 

have been closed in the first place. 

I would like to thank Chairman Leahy for inviting me to hold 

this hearing. I know that this issue is important to him, and I understand that he has a statement, which I will submit for the 

record. 

[The prepared statement of Chairman Leahy appears as a submission for the record.] 

Senator FRANKEN. Ranking Member Grassley, it is a pleasure to 

serve in this capacity with you, and would you like to give any 

opening remarks. 

OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. 

SENATOR FROM THE STATE OF IOWA 

Senator GRASSLEY. I am just going to refer to a small part of my 

statement and put the whole statement in the record. 

I look forward to hearing from our witnesses today. Particularly 

I look forward to testimony explaining what we can expect following the Supreme Court decision in the American Express case. 

Absent class action provisions, will consumers really lack the ability to have their dispute adjudicated? And, also, what direction will 

we see arbitration clauses move going forward as a result of that 

decision? In the wake of American Express and the AT&T Mobility 

cases, I hope the witnesses can separate myth from reality and give 

us a clear picture of what is next. 

I will put the rest of my statement in the record. 

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

Senator HATCH. Mr. Chairman? Mr. Chairman? 

Senator FRANKEN. Senator Hatch. 

Senator HATCH. I would like to make a short statement. 

Senator FRANKEN. Yes. 

OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. 

SENATOR FROM THE STATE OF UTAH 

Senator HATCH. I have to leave, but I wanted to make just a 

short statement, and I appreciate your graciousness. 
4 

Mr. Chairman, I wish I could stay, but I am unable to. I did 

want to at least briefly stop by to say that this is a very important 

issue and to ask if I could submit written questions to the witnesses. 

Senator FRANKEN. Without objection. 

Senator HATCH. These questions emphasize that litigation is the 

alternative to arbitration. The bill before us would not only prohibit 

arbitration but actually terminate arbitration agreements that parties have already entered into. Before taking a dramatic step like 

that, we must consider whether the alternative of litigation would 

be even worse in various respects than what critics say about arbitration. 

Is the case against arbitration so complete and the alternative of 

litigation so much better that we should prohibit arbitration 

clauses altogether? 

I am very skeptical about the answer, but would want to explore 

that with the witnesses through the written questions I will submit, and I appreciate answers as quickly as you can. 

[The questions and statement of Senator Hatch appear as a submission for the record.] 

Senator HATCH. Thank you, Mr. Chairman. I appreciate you—— 

Senator FRANKEN. You are welcome, Senator Hatch. I have tremendous respect for you. I just want to just make it clear to everyone that there is no intention here to remove all arbitration 

clauses, just mandatory pre-dispute arbitration clauses, which are, 

I feel, in so many cases the cause of adhesion. 

Senator HATCH. I understand. 

Senator FRANKEN. And that is what today’s hearing is about. 

There is no attempt here to ban arbitration at all, as I said in my 

opening. 

Does anybody else want to make an opening statement? Then we 

will go to our first witness. I would ask that Deputy Assistant Attorney General Leslie Overton, who is here with us sitting at the 

witness table, stand and take the oath after I introduce her. So 

stay where you are because I am going to introduce you properly. 

I am pleased that the Deputy Assistant Attorney General is here 

to see us today—Ms. Overton. She has served in her current position since the summer of 2011 following stints as counsel to the Assistant Attorney General and as a partner in Jones Day’s Washington, D.C., office. Deputy Assistant Attorney General Overton 

has received several awards in recognition of her outstanding legal 

talents. She is one of several signatories to the Federal Government’s amicus brief in the Italian Colors case, which we will be discussing today, and I have invited her here to discuss that brief 

with the Committee. 

As is customary at the Senate Judiciary Committee, I will begin 

by administering the oath, so would you mind standing? Do you affirm that the testimony you are about to give the Committee will 

be the truth, the whole truth, and nothing but the truth, so help 

you God? 

Ms. OVERTON. I do. 

Senator FRANKEN. Thank you. Please be seated. 
5 

Deputy Assistant Attorney General Overton, welcome, and thank 

you for being here. I appreciate your taking the time out from your 

very busy schedule. Please go ahead with your opening statement. 

STATEMENT OF LESLIE C. OVERTON, DEPUTY ASSISTANT ATTORNEY GENERAL FOR CIVIL ENFORCEMENT, ANTITRUST 

DIVISION, U.S. DEPARTMENT OF JUSTICE, WASHINGTON, DC 

Ms. OVERTON. Thank you, Chairman. Chairman Franken, Senator Grassley, and distinguished members of the Committee, I appreciate this opportunity to share the United States’ position in its 

amicus brief in the Supreme Court in American Express v. Italian 

Colors Restaurant. 

The United States’ brief reflects its concern that the effect of the 

mandatory arbitration agreement in the facts of that case would 

prevent the respondents, the merchants, from being able to effectively vindicate their rights under the antitrust laws. 

My written testimony discusses the brief in detail, so I will now 

provide background and summarize the points the United States 

made. 

In Italian Colors, the named plaintiffs in a consolidated set of 

putative class actions were merchants who accept American Express cards. The merchants alleged that Amex violated Section 1 

of the Sherman Act by engaging in an unlawful tying arrangement 

using its market power in corporate and personal charge cards to 

compel the merchants to accept Amex’s credit and debit cards at 

elevated merchant fee rates. 

Amex’s standard form contract for merchants governed the relationship. This card agreement required all disputes between the 

parties to be resolved by arbitration, precluded any right or authority for any claims to be arbitrated on a class action basis, barred 

multiple merchants’ claims from being joined in one arbitration 

proceeding, did not permit the prevailing party to shift its costs to 

the other party, and prohibited disclosure of information obtained 

in arbitration. The class action complaints were consolidated, and 

Amex moved to compel arbitration. 

The Federal district court held that the parties’ dispute fell within the scope of the card agreement’s mandatory arbitration clause, 

granted Amex’s motion, and dismissed the suits. 

The court of appeals reversed and remanded. The merchants presented expert evidence demonstrating that they would bear expert 

fees and expenses of at least several hundred thousand dollars and 

possibly more than $1 million. However, the estimated damages for 

the merchant with the largest volume of Amex transactions 

amounted to $12,850, the largest recovery only $38,549 when trebled, as provided under the antitrust laws. 

The court of appeals accordingly concluded that ‘‘the class action 

waiver in the Card Acceptance Agreement cannot be enforced in 

this case because to do so would grant [American Express] de facto 

immunity from antitrust liability by removing [the merchants’] 

only reasonably feasible means of recovery.’’ 

The United States’ brief observed that under the Supreme 

Court’s precedents, agreements to arbitrate federal statutory 

claims are enforceable if, but only if, ‘‘the prospective litigant effec-
6 

tively may vindicate its statutory cause of action in the arbitral 

forum.’’ 

While the Federal Arbitration Act establishes a generally applicable federal policy favoring the creation and enforcement of agreements to arbitrate, the effective vindication rule reconciles this policy with the policies of a wide range of federal statutes that confer 

substantive rights and authorize private suits by aggrieved persons. The rule allows contracting parties to agree that their disputes will be resolved by an alternative adjudicator, while denying 

enforcement of an arbitration agreement in circumstances where 

its function would be, in practical effect, a prospective waiver of 

substantive rights. 

The brief explained that the arbitration agreement in Italian 

Colors effectively precluded the merchants from asserting their 

antitrust claims by making it prohibitively expensive for them to 

do so. No rational actor would attempt to bring a claim when a 

negative recovery is a certainty. Under these circumstances, an 

order compelling arbitration would preclude the merchants from effectively vindicating their federal claims. 

The brief lays out the United States’ concern that companies 

could use a combination of class action and joinder prohibitions, 

confidentiality requirements, and other procedural restrictions to 

increase the likelihood that a plaintiff’s cost of arbitration would 

exceed the projected recovery. Companies could then require acceptance of such unwieldy procedures as a condition of doing business, getting hired, or purchasing products. That would deprive a 

range of federal statutes of their intended deterrent and compensatory effect. 

This concludes my discussion of the United States’ brief. I am 

happy to answer questions. 

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

for the record.] 

Senator FRANKEN. Thank you, Deputy Assistant Attorney General, and thanks again for being here today. 

The members will now have 7 minutes to ask their questions, 

and I will start. 

Deputy Assistant Attorney General Overton, why did the Justice 

Department decide to get involved in the Italian Colors case lawsuit in the first place? What was the public’s interest here? 

Ms. OVERTON. Thank you for your question. Private antitrust actions are a vital supplement to the Government’s civil enforcement 

efforts under the federal competition laws as well as our criminal 

enforcement. They are also an important component of a range of 

other statutory schemes, and the United States filed its brief because of our concern that the effect of the mandatory arbitration 

agreement in the facts of this case would prevent the respondents 

from being able to effectively vindicate their rights under the antitrust laws. And our brief also identifies the United States’ substantial interest in ensuring that arbitration agreements are not used 

in a way to prevent private parties from obtaining relief—— 

Senator FRANKEN. Can you just talk about how the Italian Colors decision undermines enforcement of our Nation’s antitrust 

laws? 
7 

Ms. OVERTON. The concern we expressed in our brief was that 

the incentives of companies could be impacted, that the effective 

vindication rule creates incentives for companies to craft arbitration agreements in a manner that allows realistically for small 

claims to be brought under the federal laws. However, we expressed concern in our brief that, absent that safety valve, companies could have incentives to craft arbitration agreements in a 

manner that effectively serves as a prospective waiver of substantive rights—— 

Senator FRANKEN. By making it so hard to recover, by making 

it so costly to arbitrate, by having to operate alone, that you cannot 

effectively vindicate yourself, you cannot have effective vindication, 

and that is what this is all about. This was overturning—that is 

what Italian Colors is about, overturning the precedent that had 

been in Mitsubishi about effective vindication, right? 

Ms. OVERTON. We cited in our brief that the effective vindication 

rule had been recognized in Mitsubishi almost 30 years ago, in 

1985, and had been reaffirmed by the Court since. 

Senator FRANKEN. So Justice Kagan made the same argument in 

her dissent when she wrote that arbitration could be used to ‘‘block 

the vindication of meritorious federal claims and insulate wrongdoers from liability.’’ 

Can you explain how the Italian Colors decision really just gives 

corporations license to use arbitration clauses to get consumers and 

workers and businesses to essentially waive their rights? 

Ms. OVERTON. Well, the brief lays out our concerns that companies could use a combination of class action and joinder prohibitions, confidentiality requirements, and other procedural restrictions to increase the likelihood that a plaintiff’s cost of arbitration 

would exceed its projected recovery and would function as a prospective waiver, and prospective waivers are generally presumed to 

be invalid. So we were concerned about the incentives that could 

be created, and we noted that the effective vindication rule has created incentives for companies to have arbitration procedures that 

allow plaintiffs to bring—— 

Senator FRANKEN. To deprive the civil—— 

Ms. OVERTON. Exactly, to bring—— 

Senator FRANKEN [continuing]. Lawsuit. Now, which people on 

the other side of this will argue, well, you know, the Government 

can always step in to enforce the law. I think that argument is 

made by some of the witnesses here. But in its brief, the Government wrote, you wrote, ‘‘Private actions are a vital supplement to 

government enforcement not only under the antitrust laws but also 

under a wide range of other federal statutes.’’ Can you just elaborate on this and explain the role that private enforcement plays in 

this? 

Ms. OVERTON. Yes, thank you, Chairman. Private enforcement 

under the antitrust laws as well as under a number of other statutes is a vital supplement to our Government enforcement efforts, 

and the federal antitrust laws are, as you are aware, enforced by 

the Department of Justice Antitrust Division as well as the Federal 

Trade Commission. But private antitrust suits add to the deterrent 

value and provide compensation for aggrieved persons. And we 

noted in our brief that there is a range of other statutes where pri-
8 

vate enforcement is such a vital supplement to government enforcement, and we provided examples such as the Servicemembers Civil 

Relief Act, Title 7 of the Civil Rights Act of 1964, and the Fair 

Labor Standards Act, among others. 

And we noted in our brief that while claims under such statutes 

may generate small damages for any particular plaintiff, these 

statutes offer important protection against practices that are 

broadly harmful. And we also noted in our brief that such statutes 

reflect congressional judgment that such private enforcement is an 

important part of the statutory scheme. 

Senator FRANKEN. Well, that brings me to sort of the activism of 

this Court. This is another 5–4 decision, and this was—you know, 

can you give the Committee an overview of the precedents that establish the effective vindication rule? 

Ms. OVERTON. We noted in our brief that the effective vindication 

rule was set out in the Mitsubishi case in 1985 and has been reaffirmed a number of times since. 

Senator FRANKEN. It seems to me that in this case the Roberts 

Court once again went out of its way to overturn precedent in a 

way that actually benefits large corporations over consumers and 

small businesses and employers, because I am talking about Italian 

Colors here. I do not want you to comment on that. I just want to 

note that that has been a concern of mine since I came to the Senate. 

I would like to thank you again for your service and for your testimony today. I know you have a busy schedule. I would like to 

turn it over to the Ranking Member. 

Senator GRASSLEY. Thank you, Ms. Overton, for your testimony. 

The Department of Justice brief in American Express noted at 

least one positive result from the AT&T Mobility decision. Specifically, companies have modified their agreements, which contain 

class action waivers, in order to encourage consumers to bring lowvalue claims into arbitration. Such modifications include cost and 

fee shifting. Page 29 of that Department brief noted that this 

leaves ‘‘consumers better off under their absolutely agreement than 

they would have been in class litigation.’’ 

Question: Can arbitration be an effective way for individuals to 

have low-value claims adjudicated? 

Ms. OVERTON. Thank you for your question, Senator Grassley. 

Our brief made the point that the effective vindication rule could 

reconcile the policies in a number of federal statutes that confer 

substantive rights and authorize private suits. And we noted that 

the effective vindication rule does create incentives for companies 

to craft arbitration agreements in a manner that allows for lowvalue claims to be brought, for persons to pursue those federal 

rights. 

We expressed concern in our brief that when an arbitration 

agreement forecloses a plaintiff from seeking redress for those violations, the effect of the agreement would not result in arbitration 

pursuant to those procedures but would instead cause the plaintiff 

to abandon the claim. 

Senator GRASSLEY. The Department’s brief in American Express 

argued that the mandatory arbitration agreement prevented the 

plaintiffs from being able to effectively vindicate their rights under 
9 

the antitrust laws. The brief argued that the restrictions contained 

in the arbitration agreement foreclosed alternative mechanisms 

such as cost sharing. As you know, the Court disagreed factually 

whether the American Express agreement prohibited alternative 

mechanisms like cost sharing. 

Two questions. Does the Department agree with a point both the 

majority and the dissent made in the American Express case specifically that a class action is not the only way to vindicate claims; 

in other words, alternatives such as cost sharing can be effective? 

Ms. OVERTON. Senator, in our brief we identified a number of 

mechanisms that in the context of that case might have been used 

by the plaintiffs to pursue their small claims, but our brief notes 

that those options were foreclosed to the plaintiffs. But we identified a number of options, and the card agreement in that case prohibited class action, arbitration, cost sharing, and had confidentiality agreements. 

Senator GRASSLEY. Is it fair to say that at a minimum arbitration clauses prohibiting class actions must contain some mechanism for sharing or shifting costs? And if that is the case, then the 

Department would agree that a claim can be effectively vindicated? 

Ms. OVERTON. Senator Grassley, we took the position in addressing the specific facts that were before us in the case of Italian Colors, and in that situation our concern was that the merchants did 

not have any opportunity before them, they did not have a realistic 

ability given the mandatory arbitration agreement and the procedural restrictions in place, they did not have a reasonable ability 

to pursue their statutory rights because the cost of arbitration 

would far exceed any recovery they could hope to obtain. 

Senator GRASSLEY. I will yield back my time. 

Senator FRANKEN. Thank you. And just in case there is any confusion, Italian Colors and American Express are the same case. It 

was American Express v. Italian Colors or vice versa, and we will 

be hearing from the proprietor, the chef, and owner of Italian Colors in the next panel. 

Senator Whitehouse. 

Senator WHITEHOUSE. Thank you very much, Chairman 

Franken, for holding this hearing. I have a statement. I would like 

to ask unanimous consent to put the whole statement in the record. 

Senator FRANKEN. Absolutely. 

Senator WHITEHOUSE. Thank you. 

[The prepared statement of Senator Whitehouse appears as a 

submission for the record.] 

Senator WHITEHOUSE. The point that it makes is a fairly basic 

one, and it begins with, I think, an uncontroversial proposition that 

the civil jury as an institution was vitally important to the Founding Fathers. It was a core casus belli that led to the revolution 

when the English tried to limit rights to a jury, when the Crown 

tried to limit rights to a jury. And I think it is also noncontroversial that, dating back to William Blackstone, one of the functions 

of the jury, the reason that the Founding Fathers put the jury into 

our system of government as a government institution just like the 

executive branch, judicial branch, and legislative branch separation 

was that it stood as a protection for the individual, not just against 

the Government but also against wealthy and powerful citizens. In-
10 

deed, Blackstone described the civil jury as specifically that, a way 

for people to be protected from the encroachments of wealthy and 

powerful citizens. 

So now in America the most wealthy and powerful citizens are 

corporations, big corporations. And if you are a big corporation, you 

want no part of a jury. You want to go talk to the Governor whose 

campaign you have supported and surrounded by his lobbyists and 

friends. You want to go to Congress where your lobbyists prowl the 

hallways, your super PACs influence policy. The idea of standing 

as a big corporation on equal terms with a regular person in front 

of a civil jury? It is offensive to them. They do not like it. They 

fight back very hard, and there is an entire campaign by corporate 

America to deprecate and degrade the civil jury, and it would astound the Founding Fathers for whom this was such an important 

institution and such an important value. 

I think it is important that we keep these arbitration agreements 

in mind in light of that corporate impulse. They would like very 

much to not ever have to answer to what in the old days would be 

called ‘‘12 good men and true’’ and now are more like ‘‘6 to 12 good 

men and women and true.’’ And the desire to kind of shunt as 

much as they can into arbitration avoids them having to meet the 

civil jury, dodges that institution of government. And in some 

cases, when I was Attorney General, the Attorney Generals went 

after one of the main arbitration organizations, filed an action 

against it because it was so one-sided, so fundamentally crooked, 

that it simply was not giving consumers a fair shake. And there 

are all sorts of problems baked into arbitration in terms of tending 

to be one-sided, tending to have, you know, people from the corporate world who come in every time and who—it was so bad, I 

think if—I am saying this from memory, so do not hold me to it, 

but I think it was so bad that the arbitrators would be stricken 

under the old rule if somebody objected to them. Well, who is going 

to object to an arbitrator? Not somebody who is there once. The 

person who is going to object is the credit card company that is 

there day after day after day after day. So by selectively striking 

arbitrators, they were able to cook up a panel that I think by the 

time the dust settled, 98 percent of the decisions went their way. 

Again, I am making up that number. 

But I am really glad for all of these reasons that Chairman 

Franken has brought this issue to light, and my point is there is 

more here than just an injustice to the consumer. There is a real 

blow to the Constitution and to the constitutional structure that 

our forefathers fought, bled, and died for. And we need to keep that 

in mind. 

So thank you very much, Chairman Franken. 

Senator FRANKEN. Thank you, Senator Whitehouse. 

Senator Lee. 

Senator LEE. Thank you, Mr. Chairman, and thank you, Ms. 

Overton, for joining us today. 

You stated in your written testimony today that the basis for the 

Department’s position in its amicus brief was that the arbitration 

agreements at issue in the Amex case violated the effective vindication rule due to the absence of some mechanism for sharing or 
11 

shifting costs. What do you think such a mechanism might look 

like if we were to put something like that in place? 

Ms. OVERTON. Thank you, Senator. I am not in a position—with 

all due respect, I am not in a position to comment on policy that 

is the purview of Congress, but I would respectfully clarify that in 

our brief we noted a variety of restrictions, and so the contract 

agreement between American Express and its merchants required 

all the disputes to be resolved by arbitration, it precluded any class 

action adjudication, it barred joinder, it did not allow cost shifting, 

and it did not allow sharing of information in an arbitration hearing. 

We identified several that might have potentially provided an opportunity for the merchants to reasonably, feasibly vindicate their 

federal claims had they not been foreclosed. We were concerned 

about the effects of the mandatory arbitration agreement in the 

facts of that case with all of those facts. 

Senator LEE. So is it safe to say that the concerns expressed by 

the Department in the Amex case could perhaps be vindicated by 

a remedy short of just the wholesale invalidation of these kinds of 

agreements? It is theoretically possible, at least, that you could satisfy them by some means other than the wholesale invalidation of 

all such agreements? 

Ms. OVERTON. Again, thank you, Senator. Again, I am not in a 

position to comment on any policy. I can only note, again, what we 

identified in the brief, in the context of that case, our concerns. 

Senator LEE. Okay. To your knowledge, has the U.S. Department 

of Justice in this administration advocated for the validation of predispute arbitration agreements generally? 

Ms. OVERTON. I am not aware—the administration has not taken 

a position on—I am not aware. 

Senator LEE. On what kind of reform might be necessary? 

Ms. OVERTON. I am not aware of a position. Again, I am here testifying about our brief in the context of the antitrust laws and its 

impact and the concerns we expressed, but, of course, we remain 

happy to work with the Congress on issues. 

Senator LEE. Okay. But to your knowledge, the Department of 

Justice has not endorsed any currently pending legislation that 

would limit the effect of these kinds of agreements? 

Ms. OVERTON. I am not aware of such a position, no. 

Senator LEE. Okay. Thank you very much, and thank you, Mr. 

Chairman. 

Senator FRANKEN. I again want to thank you, Ms. Overton. I 

know you have—oh, I am sorry. That is terrible. I am awful. Thank 

you. Senator Hirono, excuse me. I am very sorry. 

Senator HIRONO. Thank you very much, Mr. Chairman. 

The general proposition in our country is that people should have 

the right to access our courts to seek redress and justice. So it is 

not the norm that all of these matters should be handled through 

arbitration clauses that basically head off consumers, head off 

small businesses, head off shareholders, and any other individuals 

or groups from seeking such redress in the courts. And I think the 

American Express case, basically the way I see this case, because 

it really goes far in saying these kinds of arbitration clauses are 

okay, even so far as to, in effect, preempt in this case federal anti-
12 

trust law. Isn’t that what the Court said? A private entity, American Express, can preempt federal law and the provisions in the 

federal law that allowed this small businessperson to seek redress? 

Ms. OVERTON. Thank you. Thank you, Senator. The concerns 

that we expressed in our brief were that, under the circumstances 

of that case, the merchants could not advocate, they could not pursue their rights under the federal antitrust laws because the cost 

of doing so, given the mandatory arbitration agreement and other 

restrictions, would have been prohibitively expensive. It would 

have far exceeded the recovery that they could hope for. 

Senator HIRONO. So, in effect—— 

Ms. OVERTON. The Supreme Court did not adopt our position. 

Senator HIRONO. So, in effect, with this kind of a ruling, private 

entities can trump federal law. And you mentioned some other federal laws where there is a private cause of action alternatives that 

an individual or aggrieved parties could pursue. So you mentioned 

several examples of how other kinds of clauses could be put into 

arbitration clauses that would make it pretty tough for anyone to 

seek redress in our courts, which is, you know, the general proposition in our country, but for decisions like this—which, by the 

way, interpreted federal law, so since there is no constitutional 

right to arbitration, it behooves our Committee and the Congress 

to look at what is going on and making sure that there is a balance 

here. 

I am not against arbitration clauses per se, but when they go 

this far basically to trump federal law, I think that we need to address the situation. 

That was not a question. 

Ms. OVERTON. Okay. 

[Laughter.] 

Senator HIRONO. Thank you, Mr. Chairman. 

Senator FRANKEN. Thank you, Senator Hirono, and that is exactly why we are here today and what we are talking about today. 

In American Express v. Italian Colors, basically what I believe we 

saw was the Court overturned precedent, effective vindication, 

which is that in these mandatory arbitration clauses, when a plaintiff was absolutely by definition of the circumstances unable to recoup anywhere near their expenses because they are prohibited 

from joining with other plaintiffs or they were prevented from class 

action, where the expenses—they proved the expenses were going 

to be so much more than anything they would recoup, so it would 

become irrational to actually go into arbitration that there was no 

effective recourse, no effective vindication. And that is what this 

was. It was an overturning of a precedent. And we as Congress can 

do something about that, and that is what our discussion is about 

here today. 

I want to thank you for your testimony, and the witness is now 

dismissed. Thank you. 

Ms. OVERTON. Thank you. 

Senator FRANKEN. All right. And, again, I apologize, Senator 

Hirono. I really do. 

Senator FRANKEN. I would like to invite the witnesses on our second panel to come forward, and stay standing, I guess, because we 

are going to administer the oath, as is customary. Do you affirm 
13 

that the testimony you are about to give before the Committee will 

be the truth, the whole truth, and nothing but the truth? 

Mr. CARLSON. I do. 

Ms. GILLES. I do. 

Mr. TESKE. I do. 

Mr. PARASHARAMI. I do. 

Mr. RUTLEDGE. I do. 

Senator FRANKEN. Thank you. You may be seated. Welcome to 

each of you. I will introduce the witnesses, all of them, and then 

Mr. Carlson will begin his testimony. 

The first witness is Alan Carlson, the owner of Italian Colors 

Restaurant in Oakland, California. Mr. Carlson has been in the 

restaurant business since he was a teenager when he washed 

dishes at a diner. He graduated from the Culinary Institute of 

America in 1979 and then traveled across the country working with 

chefs. Today Mr. Carlson is not only an outstanding chef, he is also 

a successful businessman operating several restaurants in the Bay 

Area. 

Our next witness is Professor Myriam Gilles from Cardozo Law 

School. Before joining the faculty at Cardozo, Professor Gilles 

taught at Princeton and at the University of Virginia. Professor 

Gilles has written and spoken extensively on the Federal Arbitration Act and access to justice. 

Our next witness is Vildan Teske. Ms. Teske is a partner at 

Crowder, Teske, Katz & Micko, PLLP, a Minneapolis-based law 

firm where she represents consumers and servicemembers. In addition to her duties at the firm, Ms. Teske also serves on the Steering 

Committee of the National Association of Consumer Advocates’ 

Military Consumer Justice Project. Earlier this year, Ms. Teske received the Federal Bar Association’s Robyn J. Spalter Outstanding 

Achievement Award in recognition of her tireless and effective advocacy for consumers. 

Our next witness is Archis Parasharami, the head of the Consumer Litigation and Class Actions practice at Mayer Brown. Mr. 

Parasharami is the co-editor of Class Defense, a blog about key 

issues affecting class action law and policy. He represented AT&T 

in the Concepcion case, and he has received numerous awards for 

his work. 

Our final witness is Professor Peter Rutledge, an associate dean 

and the Herman E. Talmadge Professor at the University of Georgia. Professor Rutledge has authored several books and academic 

articles on arbitration, and he has testified before Congress on arbitration issues before. He also was selected to participate in the 

American Arbitration Association’s delegation to the United Nations Working Group on Arbitration. 

I would like to ask each of you to give 5 minutes of testimony 

to make your opening statements. Your complete written testimony 

will be included in the record. 

Mr. Carlson, we will start with you. 

STATEMENT OF ALAN S. CARLSON, OWNER, ITALIAN COLORS 

RESTAURANT, OAKLAND, CALIFORNIA 

Mr. CARLSON. Thank you, Chairman Franken, distinguished 

Committee members. My name is Alan Carlson. I am the chef and 
14 

owner of Italian Colors Restaurant, a small business located in 

Oakland, California. I was born in a suburban region of Detroit 

and have been working in the restaurant business in one way or 

another since I was 14 years old. 

Twenty years ago I opened Italian Colors Restaurant with my 

wife, Diane Cohen Carlson, and business partner, Steven Montgomery. I am incredibly proud to say that 2 decades later, we are 

still open, serving our community and employing more than 30 people. 

Like most restaurants, our profit margins are razor thin. We survive by fostering client loyalty, keeping prices low, cooking quality 

food, giving great service. We also operate in a credit card-driven 

world and could not survive without accepting credit cards as payment. 

To customers, one form of payment is as good as another, but for 

small businesses, that is far from reality. A significant percentage 

of our earnings comes from customers who use American Express 

cards. American Express imposes special rules on small businesses 

who must accept their cards as payment. For example, in order to 

accept any American Express card, my restaurant has to accept all 

types of American Express cards—even cards that carry rates and 

fees that are higher than other forms of payment. American Express also does not allow me to offer cash discounts or to encourage 

customers to pay with a form of payment that actually works better for my business. I cannot encourage my customers to pay in 

cash or offer discounts or other incentives. 

If I could offer discounts to my customers or be able to say which 

cards make sense for me to accept, without being forced to accept 

all cards, I would increase my earnings and be able to hire more 

employees. Being forced to make a decision that is bad for my business just is not right. After describing my situation to my friend 

and long-time customer and attorney, Edward Zusman, I learned 

that American Express may be violating our country’s antitrust 

laws. When I started with American Express in the early 1990s, 

my first agreement did not have an arbitration clause. To this day, 

I have not actually seen an arbitration agreement, but I have been 

told by my attorney, Edward, that one was included in their contracts in the late 1990s. 

Edward explained that forced arbitration means American Express cannot be held accountable in court and that I will not be 

able to join with other small business owners to help defray the 

costs of enforcing our rights. Instead, if I want to hold American 

Express accountable, I would have to do it in an individual, private 

arbitration designed by American Express. 

Needless to say, I was shocked. And even if I knew the clause 

was in the fine print of the contract, American Express contracts 

are offered on a take-it-or-leave-it basis. 

As we figured out how to move forward, we discovered that the 

cost of individual forced arbitration was so high that even if a 

small business won, it would lose. An expert economist explained 

that it would not be cost-effective for any small business owner in 

the same situation to pursue an individual arbitration claim 

against American Express. In fact, it would cost more to bring their 

claim than they could recover. In short, if I cannot be part of a 
15 

class action to enforce my rights against American Express, I have 

no way of enforcing those rights. I do not have the money to take 

on American Express by myself. 

So you can imagine my disappointment and shock when the U.S. 

Supreme Court issued its decision in favor of American Express 

and forced arbitration. Essentially the Court said it did not matter 

that a small businessman could not pursue important rights 

against a big business. 

Coming here today to testify before the Committee was difficult 

because I just opened a new restaurant 6 weeks ago. And reflecting 

on it, I realized how important it was for me to be here to speak 

on behalf of all small business owners who are struggling to stay 

in business and live the American dream. 

This does not have to be the end of the story. Congress can act 

to help protect small businesses across America and ensure we 

have the same access to the justice system as large corporations. 

Senator Franken’s Arbitration Fairness Act would restore the 

rights of small businesses like mine to enforce our rights. Small 

businesses are the lifeblood of America, and we play an essential 

role in creating good jobs. Small businesses, our customers, and 

really, our neighborhoods and communities are the ones who lose 

when large corporations get to push us around. 

Everyone in D.C. says that small businesses are important, and 

here is a real opportunity for Congress to actually do something to 

protect us. 

Thank you for taking the time to listen to me today, and I look 

forward to answering any questions. 

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

for the record.] 

Senator FRANKEN. Thank you, Mr. Carlson. Thank you for making the trip all the way from Oakland, and good luck in the new 

restaurant. 

Professor Gilles, please. 

STATEMENT OF MYRIAM GILLES, PROFESSOR OF LAW, BENJAMIN N. CARDOZO SCHOOL OF LAW, YESHIVA UNIVERSITY, 

NEW YORK, NEW YORK 

Ms. GILLES. Chairman Franken, other distinguished Members of 

the Senate, thank you so much for inviting me here today to talk 

about this issue that I have spent a lot of time over the past 8 

years thinking and writing about—forced arbitration clauses which 

mandate one-on-one arbitration of all legal disputes and ban multiple claimants from pooling their claims. That is what we are talking about today. 

These arbitration clauses, which we can now find in just about 

every kind of contract you can imagine, prevent consumers, workers, and small businesses from vindicating the rights that are guaranteed to them by the common law and by federal and State law, 

and they immunize companies from accountability for widely dispersed small-dollar injuries that they can inflict on people who 

have no choice, no voice, no bargaining power in the market. 

For a long time, State and federal judges, Democrats and Republicans, in courts all around the country regularly struck down these 

arbitration clauses as unfair, finding them against public policy 
16 

where they prevented people from actually vindicating the rights 

legislatures have given them. But all that changed in 2011 with 

the AT&T decision that we have already talked about, and it has 

only gotten worse this past term with American Express v. Italian 

Colors because the Court there just broadly upheld the use of a 

remedy-stripping arbitration clause, rendering it really beyond 

legal challenge. It simply does not matter, as Justice Scalia wrote 

for the majority in Concepcion, that countless cases will ‘‘slip 

through the legal system.’’ It does not matter. All that matters for 

this very slim majority of the Supreme Court is that a 1925 statute 

is followed, that arbitration clauses are enforced exactly as companies have written them up. 

As Justice Kagan wrote in her blistering dissent in the American 

Express case, the majority’s response to the public policy implications of enforcing these remedy-stripping arbitration clauses, the 

reality that no rational individual small business owner, consumer, 

or employee will ever seek to arbitrate one-on-one claims against 

massive and well-funded corporations, the majority’s response to 

that real-world implication is simply, ‘‘Too darn bad.’’ ‘‘Too darn 

bad.’’ So Congress enacted a remedial statute that gives you rights, 

but you cannot vindicate those rights? ‘‘Too darn bad.’’ That is basically the majority’s response. 

Now, ‘‘too darn bad’’ might be a perfectly fine response for the 

Supreme Court when it is applying legal rules, but this body is 

doing policy. And so ‘‘too darn bad’’ just cannot be this body’s response to this decision. I think this body, this Congress, has already recognized the public policy implications of this debate. Congress has tried to outlaw mandatory arbitration clauses and payday loan and consumer credit contracts with military families and 

in residential mortgage agreements. If these groups deserve protection from mandatory forced arbitration, so do all consumers and 

employees. 

And I think the Supreme Court’s decision has pretty much 

squarely put this issue here before you, before this body. The Court 

has repeatedly made clear they will rigorously enforce these remedy-stripping terms that companies insert into their arbitration 

clauses. Never mind the consequences unless the FAA is overridden by you, by Congress. 

So the time is now, and honestly I cannot think of a better time, 

because these arbitration clauses are proliferating far beyond what 

any of us could have imagined just a few years ago. 

The CFPB Arbitration Study, which was just released last 

Wednesday, makes clear that these clauses have become standard 

in credit card company contracts, checking account contracts, payday lenders use them, and those are just the groups that the CFPB 

studied. I mean, we are seeing these contracts in all sorts of other 

agreements, with insurance companies, airlines, landlords, gyms, 

rental car companies, parking facilities, schools, camps, shippers. 

Even HMOs and nursing homes regularly use these contracts. In 

fact, the nursing home industry is very straightforward about the 

fact that they all use mandatory forced arbitration in their contracts, basically making it impossible for individuals to bring individual claims in court or to band together to hold them responsible 

for systemic harms. 
17 

I think these remedy-stripping clauses are affecting everyone. All 

of us in this room are bound by one or more arbitration clauses 

that we may or may not know anything about. I want to tell you 

about one case. It is in my written testimony, but I wanted to just 

highlight it for you. 

There is a young Florida man named Kevin Ferguson who enrolled in a medical assistant program in Miami, Florida, just trying 

to make his life better, trying to increase his opportunities for getting a job. And he enrolls in this course. It is offered by one of 

these for-profit educational groups, promising him the sun and 

moon and stars but, of course, misrepresented just about everything about the educational program, everything from their graduates’ employment statistics to the ability to get financial aid to 

the actual quality of the program. 

Kevin enrolls. He does really, really well. He graduates with 

great grades, but finds himself unable to get a job. He does some 

more investigation, and he talks to more graduates, and he realizes 

lots of people feel that they have been duped by this for-profit educational organization and that they have engaged in some pretty 

fraudulent recruitment practices over the years. 

Kevin brings a claim, but get this? Kevin is not just suing for 

damages. Kevin is bringing what we call a ‘‘true private attorney 

general claim.’’ He wants to bring a claim to have a court, a public 

court, declare that this educational group has been lying. They 

have been falsely advertising graduation statistics. They have been 

defrauding the public. He wants an injunction, and he wants some 

order stopping this group from continuing to engage in this horrible 

practice. 

But Kevin’s enrollment contract had an arbitration clause in it, 

so the district court, faced with the defendant’s inevitable motion 

to compel arbitration to drag Kevin’s claims out of the public court 

and into the private, sequestered universe of arbitration, the district court said, ‘‘Whoa, whoa, whoa, this is a public injunctive 

claim. So Kevin cannot arbitrate this claim. This claims belongs in 

a public court.’’ Denied the motion to compel arbitration. 

But then Concepcion and American Express were decided, and on 

appeal, the Ninth Circuit felt its hands were tied, and it reversed 

the district court. So now, you know, Kevin cannot get justice, but 

Kevin also cannot prevent injustice to others. 

And so I think this is a really serious problem—— 

Senator FRANKEN. Professor, you are going to have to wrap up. 

Ms. GILLES. Wrap up, I am. I had one paragraph left. 

Senator FRANKEN. Okay. 

Ms. GILLES. So that is just one of many examples. Forced arbitration is literally foreclosing millions of Americans from vindicating their rights. And as the remedial statutes enacted by this 

body and by the legislatures of the 50 States are thwarted, I think 

‘‘too darn bad’’ is just not going to cut it. So I urge this body and 

this Congress to enact the Arbitration Fairness Act. 

Thank you. 

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

for the record.] 
18 

Senator FRANKEN. Thank you, Professor. I noticed you used air 

quotes on ‘‘for profit.’’ The air quotes do not belong around the ‘‘for 

profit.’’ 

Ms. GILLES. ‘‘Educational.’’ 

Senator FRANKEN. Yes. 

[Laughter.] 

Ms. GILLES. You are right. Sorry. 

Senator FRANKEN. They are definitely ‘‘for profit.’’ 

Ms. Teske. 

STATEMENT OF VILDAN A. TESKE, PARTNER, CROWDER, 

TESKE, KATZ & MICKO, PLLP, MINNEAPOLIS, MINNESOTA 

Ms. TESKE. Good afternoon, Chairman Franken, distinguished 

members of the Committee. Thank you for allowing me to testify 

today. I will share with you my perspective as an advocate representing consumers and servicemembers in individual and class 

action cases. 

As a result of the recent Supreme Court decisions in Concepcion 

and Italian Colors, many of my clients are no longer able to bring 

their claims in a court of law using our country’s judicial system 

because of forced arbitration. 

In my practice, I have had the privilege of representing our brave 

military men and women in matters dealing with consumer financial issues. Congress provided important, very strong protections 

for our servicemembers and their families through a federal law 

known as the Servicemembers Civil Relief Act, or SCRA. The explicit purpose of the law was to enable our servicemembers ‘‘to devote their entire energy to the defense needs of the Nation.’’ 

With the large number of deployments over the past decade, the 

financial crisis our country has experienced in the last 6 years, and 

the reckless business practices violating servicemember rights, unfortunately SCRA claims have been more common than in previous 

years. My colleagues and I have brought several SCRA cases as 

class actions on behalf of a number of servicemembers. These 

servicemembers’ rights were violated by the same creditor in the 

same way. 

In the past, we were able to recover millions of dollars for thousands of servicemembers who were able to join together to hold corporations accountable for violating their rights. Many of the hundreds of military class members that we have spoken with did not 

know their rights. The few that knew that their creditor was likely 

breaking the law did not have the time to pursue the claim or the 

resources to hire an attorney to take the case on. 

Unfortunately such cases on behalf of classes of servicemembers 

are now almost impossible to bring due to the Supreme Court’s decisions and because of a number of underlying contracts out there 

that have forced arbitration clauses. 

Consider my recent case representing a servicemember whose 

mortgage lender foreclosed on his home while he was on active 

duty serving our country. The lender held a sheriff’s sale and sold 

our client’s home in Minnesota while he was being deployed to 

Iraq, in violation of the SCRA requirements. Some months later, he 

learned he lost his home, but at the time he did not know he was 

protected by federal law from this unlawful foreclosure. 
19 

While investigating the facts of his case, we found a report that 

said that a review of a sample of foreclosures conducted by this 

same national lender revealed a number of other servicemembers 

that were subject to the protections of the SCRA. So our client 

made the decision to file his case as a class action and as a representative of all the other servicemembers to get justice for himself and the others. 

Much to our client’s surprise, the lender brought a motion to take 

the case out of our judicial system and force him to arbitrate. It 

turned out that in the thick stack of documents at the time of his 

closing years before, there was a forced arbitration clause with a 

class action ban. Based on the Supreme Court’s rulings on arbitration clauses, he lost his right to his day in court, the ability to represent his military brothers and sisters, and his constitutionally 

guaranteed right to present the facts to a jury. One cannot escape 

the irony that while he was serving our country and protecting our 

freedoms, he had lost his freedoms and rights under our Constitution. 

It is not sound public policy to require our armed forces members 

to submit to individual arbitrations that take time away from their 

service to our country and from their families in order to vindicate 

their rights. Yet this is exactly what has to happen when there is 

a class action ban in a consumer contract. Or more likely what 

would happen is that the servicemember has to forgo vindicating 

his rights altogether and the wrongdoer is not brought to justice. 

In fact, a 2006 Department of Defense report to Congress came to 

the same conclusion. In my practice I have seen time and again 

how forced arbitration harms the lives of American families and 

our Nation’s servicemembers. 

Another example is a case in California against a national lender 

that repossessed active-duty servicemembers’ vehicles without 

court order, in direct violation of the SCRA. The National Guard 

sergeant was deployed to Iraq, and when—excuse me—he was in 

Iraq when his car was repossessed. Even after the military legal 

assistance office sent a letter to this lender and asked them to return the car, the lender refused. So he brought a class action on 

his behalf and on behalf of all the other servicemembers that this 

had happened to. But one can guess what happened next. There 

was a forced arbitration clause, and there could be no class action. 

This, of course, meant that hundreds if not thousands of other 

servicemembers had their rights violated potentially, but they were 

left unprotected, and the company got away with breaking the law. 

Unfortunately, with the proliferation of forced arbitration 

clauses, these scenarios will continue to play out for 

servicemembers as well as all other consumers. 

Our servicemembers deserve better. Our American consumers 

deserve better. So do the employees, the investors, the small businesses, and seniors deserve better. They need access to justice in 

our public court system. 

Thank you for inviting me to testify today, and I look forward to 

your questions. 

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

for the record.] 

Senator FRANKEN. Thank you, Ms. Teske. 
20 

Mr. Parasharami. 

STATEMENT OF ARCHIS A. PARASHARAMI, PARTNER & COCHAIR, CONSUMER LITIGATION AND CLASS ACTIONS PRACTICE, MAYER BROWN LLP, WASHINGTON, DC 

Mr. PARASHARAMI. Thank you, Mr. Chairman and distinguished 

members of the Committee. Good afternoon. My name is Archis 

Parasharami, and I am a partner in Mayer Brown LLP, where I 

am co-chair of the Consumer Litigation and Class Actions practice. 

I want to thank the Committee for giving me the opportunity to 

testify today, and I thank the Chairman for making my more extensive written statement part of the record. 

My legal practice involves defending businesses against class action lawsuits in courts around the country. And, in addition, I 

counsel businesses on adopting fair arbitration programs, and I 

represent them in litigating over the enforceability of those arbitration programs. So I have firsthand experience with how arbitration 

agreements work and also how class actions function in reality. 

Based on that experience, my view is that arbitration provides 

consumers and employees with a fair and accessible way of resolving their disputes, and it does so more effectively than litigation in 

court. Those benefits of arbitration, in my view, are the primary 

reason why the Arbitration Fairness Act should not be adopted. 

Despite its title, the bill would effectively eliminate any realistic 

access to arbitration for consumers and employees with modestsized claims. And for the ordinary consumer or employee, the elimination of arbitration will do more harm than good. 

What does the evidence show? Empirical studies have repeatedly 

demonstrated that arbitration is at least as likely, if not more so, 

than litigation in court to bring benefits and more positive outcomes for consumers and employees. It is also more user friendly 

than litigating in court. Access to this fair, inexpensive, and simple 

system of dispute resolution is a significant benefit for consumers 

and employees. 

Now, perhaps the most common objection to arbitration—and I 

think we have heard it from some of my colleagues today—is that 

arbitration typically takes place on an individual basis instead of 

through class actions. But these objections to arbitration rest on inaccurate, theoretical assumptions about how this alternative of 

class actions actually functions. And in reality, the bulk of class actions do not provide benefits for the vast majority of consumers and 

employees. 

My firm recently conducted an empirical study of 148 class actions involving employee class actions and consumer class actions 

filed in federal court, and that is attached to my written testimony 

as Exhibit A. Here is what we learned from that study: 

Most of these class actions were dismissed either by the courts 

or voluntarily by the named plaintiff who had sought to represent 

the class. Of the remainder, the relatively few cases that did settle, 

the available evidence about the distribution of benefits from those 

class actions showed that usually class actions resulted in little to 

no benefit to employee and consumer class members. In other 

words, class actions are not particularly effective at delivering relief. And I think that most people who have received a class action 
21 

notice or a $2 check in the mail have had that experience, that 

they simply have not gotten a lot out of the class action of which 

they were a member. 

By contrast, arbitration does afford consumers and employees an 

opportunity to pursue their claims effectively on an individual 

basis. We were lucky enough to have the Assistant Attorney General testify before, and I think that her testimony about the Government’s brief was illuminating. And Justice Kagan’s dissent in 

the American Express v. Italian Colors case really tracked the Government’s arguments. And what Justice Kagan concluded, while 

disagreeing with the majority, was that still ‘‘non-class options 

abound’’ for pursuing claims in arbitration, pursuing federal antitrust claims in arbitration. 

In addition, arbitration agreements are increasingly becoming 

more favorable to individual consumers and employees. More and 

more companies are paying either all or most of the costs of arbitration. Often a consumer or employee pays nothing to arbitrate. 

Companies routinely select the nonprofit American Arbitration Association to serve as the arbitration administrator, and the AAA 

has set up due process mechanisms to ensure that impartial, unbiased arbitrators serve as the arbitrators and the neutral decisionmakers and that arbitration procedures are simple and easy to use. 

We are now seeing increasing numbers of consumers and employees that are making use of arbitration. 

The Chairman was kind enough to mention an article that I 

wrote at the start of the hearing, and one thing that I would like 

to mention is that that article urges companies, in order to have 

enforceable arbitration agreements, to adopt arbitration agreements that are consumer friendly, to adopt arbitration agreements 

that follow the model of the arbitration agreement considered in 

Concepcion, which the Court described as leaving consumers arguably better off than they would be in class actions. 

Now, especially given these developments, in my view the elimination of arbitration would be bad for individual consumers and 

employees as well as businesses. Consumers and employees would 

be far worse off from losing the ability to pursue claims that they 

would have that are small and individualized, claims that could not 

be pursued in class action, and cannot practically be pursued in 

court because lawyers simply will not take those cases. 

The primary beneficiaries of eliminating arbitration would be 

lawyers—lawyers on the plaintiff side, but also defense lawyers 

like me who receive large legal fees for defending companies in 

class actions. In short, the only clear winners of an increase in 

class action litigation and the elimination of arbitration are the 

lawyers. 

Thank you again for the opportunity to testify before the Committee, and I look forward to answering your questions. 

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

Senator FRANKEN. Thank you. 

Professor Rutledge. 
22 

STATEMENT OF PETER B. RUTLEDGE, ASSOCIATE DEAN FOR 

FACULTY DEVELOPMENT, HERMAN E. TALMADGE CHAIR OF 

LAW, UNIVERSITY OF GEORGIA SCHOOL OF LAW, ATHENS, 

GEORGIA 

Mr. RUTLEDGE. Chairman Franken, Senator Hirono, Senator Lee, 

and members of the Committee, thank you for the opportunity to 

testify today, and thank you, Chairman Franken, for making my 

entire written statement part of the record. 

In an abundance of caution, just to repeat one statement from 

that written remark, the views here expressed today are my own. 

One of my co-authors is a consultant to the Consumer Financial 

Protection Bureau, and it is important to me that everything that 

I say today be imputed only to me and not directly to him or indirectly to the CFPB. 

With my written statement part of the record, let me make two 

brief points in the time that you have given me. 

First, I wish to thank you and your fellow lawmakers for shifting 

the terms of the debate over arbitration away from legislation by 

anecdote and toward policymaking grounded in sound, empirical 

evidence. Earlier iterations of this debate risked reacting to particular cases, irrespective of whether those cases were representative of the system as a whole and irrespective of whether the reforms truly benefited those whom they were designed to protect. 

Now the debate is firmly anchored in empirical research and 

should remain so. 

Just as an example, Chairman Franken, as you know from the 

2011 hearing, one important contribution to that debate was the 

Searle study, with which you are quite familiar, that found, among 

other things, that the consumer win rate in arbitration was over 

50 percent, that the disposition time from filing to conclusion of the 

arbitration was 6 months, a fraction of what it would be in our system of civil litigation, and that prevailing consumers who sought 

attorneys’ fees received them over 60 percent of the time. 

And to Senator Lee’s question earlier, I would draw your attention to an initiative that the State Department has been involved 

in with the Organization for American States which is looking at 

the question of how to resolve cross-border disputes between consumers and businesses, and one of the proposals that is being considered by OAS at the suggestion of the United States is consumer 

arbitration. So the record is there. It is certainly not complete. 

My second point, consistent with my first observation, is to approach with caution claims that in a flight to arbitration will follow 

a particular Supreme Court decision. Empirical research that I and 

others have undertaken does not validate those predictions. To 

elaborate, in working with your staffs, Chairman Franken and others, they asked me to speak, and I have appended to my testimony 

a recent article that I co-authored with Professor Drahozal entitled 

‘‘Sticky Arbitration Clauses,’’ where we tracked in the franchise industry the extent to which there was a flight to arbitration after 

the Concepcion decision. And what we found was that there was 

not. Depending on the relevant metric, the use of arbitration 

clauses has shifted from approximately 40 percent to 45 percent or 

from 62 percent to 63 percent. 
23 

And the recent preliminary results by the CFPB echo our findings. You have referred to them already, Chairman Franken, and 

that is, 17 percent of institutions issuing credit cards are using arbitration clauses, and 3 percent of credit unions are doing so. 

Now, I acknowledge what we are about to talk about, Chairman 

Franken, is that part of the reason why that figure is currently low 

is because there was a period of time where a certain number of 

issuers refrained in using those arbitration clauses as pursuant to 

terms of settlement. That is about to expire. And I would recognize, 

too, that if that settlement were to go away, the number of issuers 

would go up. However, credit unions would continue not to use 

them. 

Now, it is important, of course, to have an apples-to-apples discussion because, in addition, we cannot simply look at the use of 

arbitration clauses with respect to issuers. We can also look to it 

with respect to the amount of credit card debt, and perhaps we can 

elaborate on that in the hearing. 

The last point I wish to make, Chairman Franken, is this: In my 

view, the flight to arbitration often predicted in connection with the 

Supreme Court decisions, including Concepcion, has not come to 

pass. While it is simply too early to predict the effect of the Italian 

Colors case given the recency of the decision, the historical disconnect between the rhetoric and the reality that Senator Grassley 

referred to earlier counsels caution. 

Thank you for the opportunity to testify, Chairman Franken, and 

I would be happy to answer your and any other Committee member’s questions. 

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

Chairman FRANKEN. Thank you all. 

Mr. Carlson, thanks for being here and for sharing your story 

with the Committee. I just want to be clear about something you 

mentioned in your opening statement. Did you have a choice to opt 

out of the arbitration clause that American Express had you sign? 

Mr. CARLSON. No, I did not. I have never signed anything with 

American Express. 

Senator FRANKEN. And did you have any say when it came to the 

rules of the arbitration? 

Mr. CARLSON. No, I did not. 

Senator FRANKEN. And then the Supreme Court concluded that 

you had no right to go to court, that you had no choice but to abide 

by the arbitration agreement, no say over the arbitration procedures, and no right to go to court. Correct? So what did you do 

when the Supreme Court ruled against you? 

Mr. CARLSON. Business as normal, but, you know, I was saddened by it, but there was nothing I could do. 

Senator FRANKEN. You withdrew the case. 

Mr. CARLSON. Oh, yes, I withdrew the case, correct. 

Senator FRANKEN. Right? 

Mr. CARLSON. Right. Correct. 

Senator FRANKEN. And when you say you never—I noticed in 

your testimony you never saw—you had been working with American Express, and they put this mandatory arbitration agreement 

in the contract like 10 years into your contract. 
24 

Mr. CARLSON. Correct. 

Senator FRANKEN. And did they tell you they were doing that? 

Mr. CARLSON. No, they never told me anything. 

Senator FRANKEN. Okay. So you never had a chance to have your 

claims heard either in arbitration or in court. How would things 

have been different if you had the option to go to court, do you believe? 

Mr. CARLSON. I think we could have gotten a group of other restaurateurs that are as unhappy with the situation as I am and gotten a class action together. 

Senator FRANKEN. Okay. Well, that is what this is all about to 

me, is just having access to justice. Basically in this, you know, 

Justice Scalia said that it did not matter that you were not able 

to vindicate your claims, but the most you would have gotten is 

about triple the damages to you, which would have been $30,000. 

But you had to individually arbitrate, which you proved would 

have cost you hundreds of thousands or maybe even a million dollars, right? 

Mr. CARLSON. Correct. 

Senator FRANKEN. Okay. Well, had my bill been law, you could 

have chosen to go to court where you could have joined forces with 

other small businesses, and your case could have been heard, and 

maybe this would be different. 

Ms. Teske, one of the things I found remarkable in your written 

testimony—and you talked about it a little here—was the comparison you made between the way things used to be and the way 

things are now. Years ago you were able to recover millions of dollars for servicemembers whose rights had been violated. Today it 

seems like it is nearly impossible to bring cases to enforce laws 

that protect our men and women in uniform. Can you comment on 

this? 

Ms. TESKE. Absolutely. The majority of the consumer financial 

contracts that servicemembers have entered into in the last few 

years—and I assume that will continue in the next few years— 

have these forced arbitration clauses. We have heard already about 

credit card contracts and the variety of other types of contracts, 

like cell phone services or car loan contracts. Whereas before we 

might have been able to get relief for the class members for violations of the Servicemembers Civil Relief Act as a class action, in 

those situations we are no longer able to. Each servicemember 

would have to file their own individual arbitration. They would, 

first of all, have to know the intricacies of the Servicemembers 

Civil Relief Act and know that there was a violation, then file their 

own individual arbitration, take the time and effort to do that, and 

they would not be able to bring a representative case to represent 

the hundreds if not thousands of other servicemembers that had 

the same thing happen to them. So it is night and day compared 

to before forced arbitration clauses and now. 

Senator FRANKEN. Okay. You told one story in your testimony 

that really illustrates the problem. I went back and looked at some 

of the court documents for that case, and, frankly, I just think it 

shocks the conscience. The Servicemembers Civil Relief Act says, 

among other things, that banks cannot foreclose on servicemembers 

who are on active duty without first getting permission from a 
25 

judge. The idea is that we cannot expect our troops to fight the 

enemy abroad while fighting off bank foreclosures or an eviction 

notice at home. 

I think we can all agree that that is a good law. Literally, we 

can all agree. This law passed by unanimous consent. 

You testified about a soldier from Minnesota, from my State, who 

earned several honors during the course of his service, including 

the Army Commendation Medal. On the same day that this soldier 

was ordered to report for active duty, his lender initiated foreclosure proceedings against him. 

So the soldier goes off to Iraq to serve his country, and meanwhile the bank is trying to take his house away from him without 

first going to a judge for permission. That is a blatant violation of 

law. And it gets worse. 

The lender falsified an affidavit swearing under oath that the 

bank knew that this man was not in military service, which was 

completely untrue. Using that false affidavit, the lender got the 

sheriff to put the soldier’s house up for sale, and the house was 

sold while the owner of the house was in Iraq, in Balad, at Camp 

Anaconda. Right? I have been to Camp Anaconda four times. It was 

called ‘‘Mortaritaville’’ because they got mortared so much. 

Guess who ended up buying that house? The lender. The bank 

that foreclosed. It got a heck of a deal. It paid between a quarter 

and a third of the value of the house for the house that it foreclosed 

on illegally. Great deal for the bank. Not a good deal for our soldier 

in Balad. 

Now, my understanding, Ms. Teske, is that the soldier wanted to 

file a Servicemembers Civil Relief Act case to seek justice not for 

himself but also for other soldiers who had been foreclosed upon by 

the same bank. And it was really important for him to know that 

other soldiers knew that they had legal rights and that those rights 

might have been violated. You mentioned in your testimony that 

there was some indication that your client was not alone, that 

there might have been other victims out there, so the soldier filed 

a case for himself and for other soldiers who had been foreclosed 

upon by this bank. 

What happened next? 

Ms. TESKE. He did not get his day in court. Because of the forced 

arbitration clause, the judge went ahead and ordered arbitration, 

and we ended up settling the case, and he was not able to represent the other servicemembers. So rather than having a class action that could go forward where others and he could get relief in 

our public court system, in the public eye, none of those things 

happened. 

Senator FRANKEN. Okay. I am out of my time. We will come 

back. We are going to have a second round for anyone who wants 

to stick around. But that to me is just an outrage. That is an outrage. 

We will go to Senator Lee. 

Senator LEE. Thank you, Mr. Chairman, and thanks to all of you 

for joining us today. 

Mr. Parasharami, I would like to ask you a couple of questions. 

The CFPB in its preliminary findings notes that it intends to ‘‘as-
26 

sess the possible impact of arbitration clauses on the price of consumer financial products.’’ 

I believe you indicated in your written testimony that consumers 

and employees might well benefit through the systematic reduction 

of litigation-related transaction costs which leads to lower prices 

and higher wages. 

Can you explain for us sort of what you mean by that and where 

that comes from, how you get there? 

Mr. PARASHARAMI. Sure, Senator. So class actions and litigation 

in court are not free. They come with a cost—and, in fact, massive 

costs. The costs of litigation are high. The costs of electronic discovery are high. The costs of paying plaintiff’s lawyers if the case 

settles are high. The costs of paying me and my colleagues and 

other law firms on the defense side to litigate the case, that happens in every case. So there are extraordinary legal costs associated with class actions and litigation in courts. Arbitration is a lot 

cheaper and quicker and more efficient, so the costs are lower. 

Now, where do these costs go? You know, they do not just kind 

of vanish into the ether. A company that experiences these litigation costs in a competitive market will pass them along to consumers or reduce wages for employees or otherwise not hire more 

workers. These costs are passed along in some form or another, and 

typically in a consumer context, it is passed along in the form of— 

if you save those costs, they are passed along in the form of lower 

prices. If you can experience those cost savings, they are passed 

along by lowering prices. 

So the point is that—and let me just say that scholars who have 

looked at this have said that it is simply a matter of basic economics, that cost savings that come from the use of arbitration are 

passed along in competitive markets to consumers. 

Senator LEE. Okay. Another thing that you stated in your written testimony was that businesses are unlikely to offer post-dispute 

arbitration, meaning once the dispute arises, they are not likely to 

raise that as a possibility. 

Why is that the case? Why is it the parties are rarely going to 

be entering into that kind of arrangement? 

Mr. PARASHARAMI. So in the pre-dispute context, pre-dispute arbitration agreements, the ones that would be affected by this proposal, both sides, the consumer or employee and the business, are 

committing in advance to use arbitration. And so when a company 

implements an arbitration program, it commits to taking on a ton 

of incremental costs that it would not bear in court. Under most 

arbitration agreements, such as the ones that are governed by the 

American Arbitration Association’s consumer rules, a business will 

have to cover filing fees, these amount in consumer cases to $1,500. 

And they also agree to pay the arbitrator’s compensation in full. 

And arbitration agreements like the ones that I advise companies 

to adopt often agree that they will pay even more substantial costs. 

Sometimes they will pay the full costs of arbitration. 

The businesses agree to take on these high incremental costs because overall they experience the cost savings from reducing the 

litigation costs associated with class action litigation and litigation 

in court, the costs we just talked about. And because they save primarily on e-discovery costs and lawyer fees, the lawyers like me 
27 

and the lawyers like my colleagues on the other side, it benefits 

them to pay all of these incremental costs for an arbitration program. 

But if you were in a regime where only post-dispute agreements 

were permitted, where either side could choose only after the dispute arises, then companies really would not want to have that 

two-track system because they would have to both pay the cost of 

maintaining an arbitration program as well as all the costs of 

maintaining the litigation system in court. And so they simply will 

not want to pay twice. It will not be realistic. If companies are only 

allowed to have post-dispute arbitration and are required to defend 

claims in court, they simply will not allow for arbitration. And this 

would actually be very detrimental to consumers and employees 

who would not have realistic claims to bring in court because if 

they cannot hire a lawyer because they have a small, individualized claim that will not lead to a class action, they are just out of 

luck. 

Senator LEE. Okay. Mr. Rutledge, in your written testimony, you 

talk about the importance of relying on sound empirical research 

before proceeding with legislation in this area. What are the risks 

involved in legislating in this area without an adequate, robust, 

empirical basis for doing so? 

Mr. RUTLEDGE. Thank you for the question, Senator. I would 

identify two. 

The first would be the lack of a proper apples-to-apples comparison. So, for example, oftentimes arbitration is criticized and then 

the response becomes, ‘‘Compared to what?’’ So, for example, one 

of the frequent dynamics in the debate is that we should not have 

arbitration and in lieu of it should be class actions. And as I indicated in my testimony, a number of individuals have written, including my colleague at the University of Georgia, Jaime Dodge, 

that it is not clear that in the aggregate the class action apple is 

superior to the arbitration apple. For example, the settlement that 

the class action may generate may have a relatively low take rate, 

which is simply the rate at which the members who are brought 

into the class actually redeem the benefit. And at the same time, 

if they do not redeem the benefit, and yet they are bound by the 

decision in the class, they are effectively precluded from bringing 

their own claim at that point. So that would be the first concern. 

The second concern would be that there may be instances in 

which the regulation goes on to harm the very individuals whom 

it is designed to protect. 

So as you may be aware, one of the early iterations of incremental legislation that sought to invalidate pre-dispute arbitration 

agreements concerned contracts between automobile dealers and 

manufacturers. And many of the arguments that you hear today 

were raised in that debate. It turned out that there was one reported instance after that legislation was enacted where the dealer 

wanted to arbitrate and yet the legislation precluded the dealer 

from doing so. 

And so those are the two risks that I would draw to your attention in the time that I have. Thank you. 

Senator LEE. You seem to not believe that it is certain that we 

are going to have a flood of arbitral class waivers, we are not nec-
28 

essarily going to see a mass migration to arbitral class waivers. 

Help us understand what factors influence that thinking. 

Mr. RUTLEDGE. Sure, and I think it is important for me to clarify 

something in my testimony, because this is a complex issue. What 

my testimony is suggesting and what I think the CFPB preliminary report indicates at page 19, for example—excuse me, page 21, 

is that simply because the Supreme Court hands down a decision 

that seems to approve of a particular type of contracting practice 

in a given industry, that firms in that industry will not necessarily 

flock to that practice. In my paper that is attached to my testimony, that is the point we make about franchise contracts and I 

think in the CFPB report, again, taking into account the settlement that Senator Franken and I were sort of exchanging over a 

little while ago, at least at present for the credit card industry. 

Now, I want to differentiate that from a different situation that 

I talk about in my testimony, which is the use of class waivers 

among those entities that do employ arbitration clauses. And here 

I wish to acknowledge that where the empirics lead us is that both 

in the franchise context and in the credit card context, for those 

companies that do use those clauses, that there is an increased incidence in the use of the class waiver. 

My point is simply this: that the debate often occurs on sort of 

homogeneous terms, that industries can be sort of compared and 

that practices of firms within industries can be compared. And 

what I think the empirical research reveals is that is not necessarily true. There are certain industries, to the extent we have 

access to the data, where this is used more frequently than others, 

and there are certain firms within given industries where we have 

access to the data where the use appears more or less likely. And 

my point simply to you and your colleagues is to understand the 

dynamics that are driving those decisions before generalizing from 

a particular case or a particular firm’s activity as to how an industry or how a particular set of firms is behaving. 

Thank you. 

Senator LEE. Thank you. 

Senator FRANKEN. Thank you, Senator Lee. 

I think part of the exchange that we had, which was me smiling 

at something you said, was talking about apples to apples. And I 

thought that when you were talking about some of the CFPB results, you were not comparing apples to apples. When you said 17 

percent, only 17 percent of—I will get to that in some questioning, 

but I think that when we talk about sound empirical research, we 

should—the word ‘‘sound’’ is very important. 

We will go to Senator Whitehouse. 

Senator WHITEHOUSE. Thank you very much. First of all, Mr. 

Carlson, I am sorry for your experience, but I thank you for coming 

here to testify and to share your experience with us. 

It strikes me that if the ability of individual consumers to aggregate their claims is eliminated, and whether that is done by Congress deciding that we are just not going to allow small claims to 

go forward, or whether that is done by the corporate malefactor 

sneaking something into a contract, a consumer contract that prevents them from exercising what would otherwise be their legal 
29 

rights, it strikes me that that creates a zone where fraud is encouraged, where it is basically given a free pass. 

It is interesting that we should be here today, because this very 

morning we had the hearing on the patent troll legislation. In that 

case, in that hearing, the issue was the so-called patent trolls who 

engage in frivolous litigation and threaten companies, and the argument there is that the cost of litigating with the patent troll 

makes it irrational to fight back and so people concede to settlements. And the room was filled. Everybody was excited about that 

notion. And here we have legitimate victims of what somebody has 

found to be wrongful or fraudulent behavior who try to engage in 

legitimate litigation to vindicate their rights against the fraudster, 

and here the cost of litigating would make it irrational to fight 

back. And it is almost the flip side. 

Let me ask you, Professor Gilles, what is your observation about 

what message corporate America would take from the ability to 

have no redress for low-dollar but large-scale frauds that they commit? Let us say that the telephone company figures out a way to 

put a bogus $1 charge on every single bill that you make, and by 

the time you figure it out, you know, maybe for a year they did it, 

so you are owed 12 bucks. They cheat millions of people, so they 

earn millions of dollars. Who is going to stand up for them when 

the only possibility of return is 12 bucks back? 

Ms. GILLES. Thank you for the question, Senator Whitehouse. No 

one is going to stand up for them. 

Senator WHITEHOUSE. Stand up against them. 

Ms. GILLES. Stand up against them. No one can be the voice of 

the consumer who is subject to a hidden cost, a fee that they do 

not even notice, you know, whether it is 1 month in or 12 months 

in, they do not even notice it; and when they do, it is of such a 

small value, such a small amount, that it is not worth it to them 

to arbitrate these claims. 

Senator WHITEHOUSE. So if we allow the corporations themselves 

to put these tricks and traps into their consumer contracts, we are 

basically giving them open season for low-dollar, high-volume fraud 

on consumers. 

Ms. GILLES. We are. That is exactly what we are doing. It is a 

mandate to violate the law, and—— 

Senator WHITEHOUSE. It is not a mandate. A permission. 

Ms. GILLES. A permission, right. The Supreme Court’s decisions 

I think are certainly a mandate. 

And I do want to respond a little bit to what my colleagues at 

the end of the table said just a little bit ago. Mr. Parasharami 

noted, in response to Senator Lee, that the class actions have no 

value. Class actions, let us remember, everyone, that class actions 

desegregated schools. They made workplaces fair and equal. They 

have prohibited problematic police practices. They have uncovered 

and detected all sorts of consumer frauds. Class actions have done 

a tremendous amount of good, and I think that Mr. Parasharami’s 

memo—I would not call it an empirical study because it is just 148 

cherry-picked class actions that Mayer Brown thinks did not provide enough value to consumers. I think that is not a real study. 

The real study we have is the CFPB report, which really takes a 
30 

very good look at the number of arbitration clauses that we are 

seeing in these agreements. 

And just again on Professor Rutledge’s testimony, it is not—first 

of all, I think that 43 and 63 percent are quite high numbers to 

find in franchise agreements. But setting that aside, the CFPB 

finds that we are looking at 9 out of 10 contracts in the consumer 

finance area with these forced arbitration clauses, which means 

that consumers cannot bring these claims because these claims are 

inherently collective claims. So when Alan has a problem because 

he thinks that Amex is charging him too high a rate and he would 

like to get together and pool resources with other restaurateurs 

and small businesses, independent book stores, hardware stores, to 

bring a claim under the Sherman Act against American Express, 

the only way he can do that, the only way he can afford a $1 million expert report on antitrust impact and injury is if he is able to 

bring it as a class. 

So Amex, by putting this class action ban in their card acceptance agreement, is basically ensuring that they will never be held 

accountable under the Sherman Act. And this is really interesting 

for Amex, of course, because just last Friday Judge Gleason in the 

Southern District approved a settlement in a claim against Visa 

and MasterCard, a class action, for exactly the same behavior. So 

Visa and MasterCard are paying $7 billion—so that is worthwhile 

class relief—$7 billion, a record settlement. Amex is getting away 

without anything because they happened to put some magic words 

in their arbitration agreement. I think that is very unfair. 

Senator WHITEHOUSE. As somebody who has now spent a term 

of 6 years in the Senate and begun to observe some of the behavior 

around here, I wonder what the response would be like if corporations in consumer contracts down in the fine print, in tricks and 

traps, instead of taking away consumer rights, particularly consumers’ rights protected by the Seventh Amendment, were, say, 

taking away gun rights protected by the Second Amendment. I 

think you would have a completely different story, and that suggests to me—— 

Ms. GILLES. I think the room would look like it did this morning, 

right? It would be full. 

Senator WHITEHOUSE. It would look very different, and you 

might actually see different positions taken by the different sides. 

I think a lot depends on whose ox is being gored here, and right 

now it is the consumer’s. 

Ms. GILLES. But the truth is that really there is nothing to keep 

a corporation from inserting all sorts of remedy-stripping terms in 

its arbitration provisions. The Supreme Court’s language—— 

Senator WHITEHOUSE. The Supreme Court has announced no 

limit—— 

Ms. GILLES. No limit. 

Senator WHITEHOUSE [continuing]. On what corporations can 

do—— 

Ms. GILLES. The FAA protects everything. It is sacrosanct. So if 

I am a corporation, I am going to put a lot of stuff in there. 

Senator WHITEHOUSE. Go for it. Why not? 

Ms. GILLES. I am going to violate Title VII. I am going to violate 

the ADA. 
31 

Senator WHITEHOUSE. Chairman, my time is—— 

Ms. GILLES. Sorry. 

Senator WHITEHOUSE [continuing]. Concluded, so thank you very 

much. 

Senator FRANKEN. You are doing so well. 

Senator Hirono. 

Senator HIRONO. Thank you, Mr. Chairman. 

My series of questions really related to the extent of these arbitration clauses because they are, I think, becoming more and more 

prevalent, and it seems to me that if you are a corporate lawyer 

or an in-house counsel, it would be practically malpractice not to 

advise your clients, your corporate clients, to have these kinds of 

remedy-stripping clauses in their contracts. Would you agree, Ms. 

Gilles? 

Ms. GILLES. Absolutely, and obviously Mr. Parasharami can 

speak to this more than I can, but I think he—— 

Senator HIRONO. I think I heard him say he advised his clients—— 

Ms. GILLES. Yes, he probably does, and though he tells us in his 

testimony that he advises his clients, which are all, you know, Fortune 500 companies, to put fair, consumer-friendly arbitration 

clauses in their contracts, let us be clear. A class action ban is inherently not consumer friendly, because a consumer cannot bring 

a collective claim when there is a class action waiver. 

So, really, it does not matter how many cost-shifting provisions, 

how many promises to pay a bounty or a premium are put in these 

arbitration provisions. The truth is Alan is not going to go arbitrate 

one on one against Amex. It would just be too expensive no matter 

what the company puts in the agreement. 

So, yes, I think at this point the next interesting case to watch 

is the malpractice claim that is brought against a transactional attorney for failure to put one of these in a clause. 

Senator HIRONO. Mr. Carlson, thank you very much for being 

here because you have been through a lot in pursuing your claims. 

We did hear testimony that arbitration clauses are good because 

they save money and these savings are passed on to consumers. 

But in your case, you wanted to pass on some discounts, et cetera, 

to your customers at your restaurant, but because of this tying arrangement, which is basically practically a per se antitrust violation, you did not have that freedom to do that, so your consumers, 

your customers suffered for that. 

Mr. CARLSON. Was that a question there? 

Senator HIRONO. I guess that may have been a rhetorical question. 

I have another question for Professor Gilles. This bill that we are 

considering, basically, you know, the language says that no pre-dispute arbitration agreement shall be valid or enforceable if it requires arbitration of an employment dispute, a consumer dispute, 

antitrust dispute, or civil rights dispute. 

Now, what about shareholder disputes? Do you think that this 

language covers those kinds of disputes? 

Ms. GILLES. I do. I think that investors are consumers, and I 

think that there is a lot of support out there for providing investors 
32 

with the opportunity to go to court as opposed to going to arbitration. So I think so. 

Senator HIRONO. Well, I would not be so sure that consumers 

could be deemed—that investors could be deemed consumers. Perhaps we need to make sure, because I am holding letters from over 

200 major domestic and foreign institutional investors who are very 

concerned that the SEC has not promulgated a rule that would disallow forced arbitration clauses in shareholder disputes. So perhaps 

we need to make that clear, because these 200 major entities include just about every State’s retirement and pension funds. That 

is a lot of people. We are talking about some collectively managing 

assets that exceed $4.9 trillion, and they are concerned that there 

are these forced arbitration clauses in their contracts with their 

brokers or whoever, and they cannot go to court. 

Ms. GILLES. Well, you know, I think you could certainly clarify 

the language. I think of investors as consumers because when you 

are talking about these sort of public pension funds, you are talking about firefighters and teachers and other ordinary folks who 

look just like a lot of the other consumers that we are talking about 

today. But I applaud the Committee’s effort here, and if you want 

to go further and be clearer that you are also covering investors, 

I think that would probably save a future court a lot of time. 

Senator HIRONO. That would certainly make me feel a lot better 

knowing that there are so many different ways that these arbitration clauses can be written to head people off at the pass. 

Thank you, Mr. Chairman. 

Senator FRANKEN. Thank you, Senator. 

Senator Blumenthal. 

Senator BLUMENTHAL. Thank you, Mr. Chairman. 

As you may have gathered, I think the majority of members of 

this panel who are here today agree that arbitration sometimes violates basic fairness and sometimes even constitutional rights. But 

the members of the panel who are not here might not be part of 

that consensus. And, likewise, Members of the Senate may not be 

in agreement that we need to change the law to restrict arbitration, although I have been a long-time advocate of making sure 

that consumers are protected from arbitration clauses that may not 

be clear or conspicuous, hidden in the fine print, as one of you observed. 

So I think we have political obstacles to overcome here, and not 

the least of them are the interests of corporations that are loathe 

to go to court to be subjected to claims based on liability for violations of law related to financial practices or product defects or a 

range of violations of consumer rights. 

But I think there is one area where there ought to be total and 

complete consensus, and that is that our servicemen and servicewomen should be protected not only in name and rhetoric, but also 

in reality, which, Ms. Teske, your testimony I think powerfully supports. And, in fact, regrettably, going back to reports from the Department of Defense and others since then, many servicemen and 

servicewomen have been victims of violations of rights, whether it 

is in foreclosure of their homes, repossession of vehicles or other 

personal property, protections against judgments, where they may 

not even have appeared, evictions. The whole idea is that when 
33 

they are on active duty they often cannot focus on these areas of 

life, not to mention appear in court or in proceedings preliminary 

to court proceedings or arbitration proceedings. 

So I guess my question is whether there is a way to deal very 

specifically in a focused and targeted way with these violations of 

basic fairness that you outline in your testimony, a targeted way 

through the Servicemembers Civil Relief Act or through some other 

mechanisms, to make sure that we are protecting our men and 

women in uniform. 

Ms. TESKE. Thank you for that question. There is. I mean, certainly there is precedent for that. In the Military Lending Act, 

there is a provision that for a narrow set of contracts you cannot 

have forced arbitration clauses. We could do the same through 

amendment of the Servicemembers Civil Relief Act to make clear 

that they cannot be forced into arbitration and that they do have 

the right to bring class actions in a court of law. And I think that 

would be a great step forward, at least for the servicemembers. 

But one thing that I do want to point out in addition to that is 

that our servicemembers are also consumers, and they have a 

whole host of rights under scores of consumer protection statutes. 

By amending the Servicemembers Civil Relief Act, although that is 

a major step forward, we are still leaving them open to forced arbitration for all the other consumer protection violations that they 

are victims of. 

So I would applaud any effort to provide protections, further protections for servicemembers under the Servicemembers Civil Relief 

Act, but I think we also cannot forget that the 2 million men and 

women that serve in our military are also consumers, and their 

families are consumers, and employees. 

Senator BLUMENTHAL. I accept and I applaud that comment, and 

I agree completely with it that they ought to be viewed as consumers in those other contexts as well. But I am thinking about 

what is achievable strictly in raw political terms, because I have 

not been here as long as Senator Franken or Senator Whitehouse, 

but I do know that often we are frustrated in trying to achieve 

these kinds of reforms. 

Mr. Parasharami, I wonder if I could ask you whether you would 

have the same objections that you have outlined in your testimony 

to that kind of focused and targeted bar on arbitration for our servicemen and servicewomen who may literally, physically, not have 

the ability to make use of these arbitration clauses? 

Mr. PARASHARAMI. I suppose I do not think that it is a good idea, 

and, you know, I should say absolutely I respect our 

servicemembers. You know, what they do is so important, and I 

would not want to take anything away from them. 

If the question is how can they realistically achieve resolution of 

most of the claims that they have, most people have consumer disputes that are small and individualized. Class actions just necessarily cannot help them because if a claim is individualized, it 

cannot be brought on a class basis. 

And so then the question is: Well, which is better: going to court 

or going to arbitration? And it turns out that arbitration is cheaper 

in many instances because companies pay all of the costs of arbitration, and it is more flexible. You do not have to take a day off 
34 

work, and when you are servicemember, a day off work is impossible. You can do it remotely. You can do it by telephone. You can 

do it by mail. And in many cases now, e-mail is the preferred form 

of communication with arbitration organizations. So I think it is actually more realistic to resolve claims on an individual basis 

through arbitration than through court. 

Senator BLUMENTHAL. What would you say to that, Ms. Teske? 

Ms. TESKE. Thank you. I have been listening and just kind of 

shaking my head. It is not reality. It is just not reality to say that 

servicemembers are going to have a better chance going into arbitrating their claims. We have seen time and again that a very, very 

small number of consumers and probably a much smaller number 

of servicemembers are going to go and take their claims to arbitration. What is happening really here is claim suppression. The majority of servicemembers, (A) are not going to know their rights 

under the Servicemembers Civil Relief Act, and (B) they are not 

going to have the time or put forth the effort or the energy to be 

able to bring these individually. 

So, yes, in some cases it is appropriate for an individual court action, and if they want to voluntarily take it to arbitration, I think 

that is great. But it has to be voluntary. 

But in many cases, the corporation that is breaking the law, the 

Servicemembers Civil Relief Act, is doing it on a widespread basis. 

It is a corporate practice. Or they have not put into place procedures to comply with the SCRA protections. And so in those situations, a class action is the best vehicle to go forward, and we have 

seen that in cases already. 

So to say that, no, we should not have the ability to bring class 

actions for our servicemembers and that they should be forced into 

arbitration because that is a better route for them I think is disingenuous. 

Senator BLUMENTHAL. Thank you. My time has expired. I welcome and appreciate all of your testimony. It has been very, very 

helpful and important, and thank you for being here today. 

Thank you, Mr. Chairman. 

Senator FRANKEN. Thank you, Senator Blumenthal. 

I have some more questions I would like to ask the panel, and 

so we will have a second round. 

Professor Gilles, in his written testimony Professor Rutledge argues that we have not seen an explosion of arbitration clauses and 

class action waivers in franchise agreements. Then on page 11 of 

his written testimony, Professor Rutledge says, ‘‘last week’s CFPB 

report of preliminary results told a similar story in several sectors 

of the consumer financial services industry.’’ 

My reading of the CFPB report was nearly the opposite, and I 

think this gets to the apples and oranges, because he was talking 

about 17 percent of, you know, I guess the companies that do this 

using these contracts. But an enormous percentage of the contracts 

have the clauses in actuality. 

So can you speak to—I mean, what is your take on this? My 

reading was that the report indicates that arbitration agreements 

and class action bans are extremely prevalent among outstanding 

credit card loans, insured deposits, and pre-paid cards. When some-
35 

one is saying we have got to compare apples to apples, isn’t it incumbent upon you to do that? And just what is your take on this? 

Ms. GILLES. I read the report the way you do. And I say that not 

just because you are chairing this hearing. I read the report, the 

CFPB report—and it really is the best empirical study we have out 

there. I read it as saying that basically 9 out of 10 companies are 

using these forced arbitration clauses, that we are seeing almost 

100 percent penetration of class action waivers—class action bans 

inserted in arbitration clauses, and I do not think that Professor 

Rutledge is—I do not think his testimony is accurate on that point. 

Now, he did try to clarify in his answer to—or in his opening 

statement that he does agree that we are seeing many more class 

action bans, so maybe we are all on the same page on that, and 

that saves this testimony. 

Look, I think it would be crazy for a company not to insert a 

class ban in its arbitration clauses. I am sure Mr. Parasharami 

tells every client to do so, because to do so is to ensure, unlike what 

Mr. Parasharami has testified to, that they will actually not have 

to be held accountable for any violations of law because very few 

consumers, employees, small businesses will ever bring an arbitration. And certainly there will never be any arbitrations near the 

numbers and near the significance of a class action. And, furthermore, the thing about arbitration, let us just be clear about what 

we are talking about. Arbitrations are private, they are sequestered, they are individual. You can only bring a claim for yourself. 

So maybe you do bring a claim, maybe Alan does decide to bring 

a claim, so he gets some money back from Amex. But, you know, 

Alan will have no power to actually change Amex’s policy vis-a-vis 

every other card acceptance contract. That is what class actions do. 

Senator FRANKEN. Let us talk about just how this affects people’s 

daily lives. Here we have a restaurant, a guy who went to culinary 

school, moves out west, opens a restaurant, has a few in Oakland. 

If I get out to Oakland, I am going to Italian Colors. 

[Laughter.] 

Senator FRANKEN. Because it has been successful a long time, I 

know the food is good there. 

Okay. That is how he is affected by this. He cannot pass on savings to his customers. He is not allowed to tell them, ‘‘I will give 

you a little bit off if you use this card as opposed to this kind of 

American Express card. You can still use an American Express 

card. Just do not use this one that they make us do 5 or 6 percent 

on.’’ 

But let us just talk about everyday people. You, in your testimony, talked about a cable company—I think it was Time Warner—that added a modem—or did not add a modem, the modem 

was there. And suddenly, boom, $4, $3.95 is charged to every customer without any—they just added it. It is like a hidden fee. So 

that is what—you know, a hidden fee. We are talking about how 

this is going to save money. 

Ms. GILLES. The thing that saves money for corporations is liability avoidance, which is what these clauses really result in, complete 

and utter avoidance of liability. So, yes, Time Warner, Comcast, 

Cox Cable, they can put in all sorts of hidden fees, and the consumer cannot do anything about it because the amount that they 
36 

are being overcharged is just so small that it is hardly worth, you 

know, staying on hold with customer service for half an hour, much 

less going into an individual arbitration to prove a claim that actually would be expensive to prove. So the only way these sorts of 

cases would ever get brought is in a class forum. 

But to be honest, what I think your bill would do is it would actually return us to the status quo where corporations do not feel 

that they can engage in these widely dispersed, small-dollar harms 

because the class action threat, the deterrent threat is out there. 

I think that is what your bill would do. 

Senator FRANKEN. And let us say there is actually a lot at stake 

in something. In 2011, I held a hearing on mandatory pre-dispute 

arbitration, and that is what we are talking about here. We are not 

talking about getting rid of arbitration. And I heard testimony from 

a doctor in a gender discrimination claim against her employer, a 

hospital, and the doctor showed—the doctor was forced into arbitration, and she testified how she showed up at the arbitrator’s office for the proceedings and saw shelves upon shelves of binders— 

she was the plaintiff—with the defendant’s name on it, clearly indicating that her arbitrator and the hospital had an ongoing business 

relationship. She lost the arbitration, and she left the proceeding 

feeling like she was not even really heard. She believed that the 

arbitrator was biased and did not give her a fair shake. This whole 

thing really undermined her trust in the system of justice. 

Now, Professor Rutledge, in 2004, before you started working for 

the Chamber of Commerce, you actually wrote a fairly compelling 

argument about this sort of thing. You wrote, ‘‘Just as competition 

in the marketplace may provide some arbitrators independence, it 

may provide other arbitrators incentives to be beholden to particular parties or industries likely to nominate them.’’ You went on 

to say that arbitrators may ‘‘develop reputations with particular 

types of parties. For an example, an arbitrator may be perceived 

as industry friendly.’’ And you continued, ‘‘Through these activities 

designed to enhance their reputations, arbitrators generate business in the form of fees and hopefully future appointments.’’ 

So I am curious. What would you say to that woman whose gender discrimination case was forced into arbitration and she came 

out believing that the fix was in? 

Mr. RUTLEDGE. Senator, thank you for your question. Let me 

first begin by saying I do not know the details of the case that you 

are describing, so I am going to give the best answer that I can 

based on your description. 

Senator FRANKEN. Sure. What would you say to her? I have related to you her testimony. 

Mr. RUTLEDGE. I understand. 

Senator FRANKEN. What would you say to her? That is the question. 

Mr. RUTLEDGE. I understand. 

Senator FRANKEN. What would you say to her? 

Mr. RUTLEDGE. Senator, I think what I would say is that if you 

believed you were wronged and we can generate the evidence to 

demonstrate that you were wronged, we are going to find a way to 

get you relief. There are various ways in which that relief can be 

attained. It can be attained through litigation—— 
37 

Senator FRANKEN. No, well, if you have a mandatory pre-dispute 

arbitration clause in it, no, they cannot. In fact, that is what this 

whole hearing is about. You just summed up the entire hearing. 

She cannot go to court. 

Mr. RUTLEDGE. I understand, Senator. 

Senator FRANKEN. So why did you say she could go to court? Isn’t 

that what this is all about? I mean, isn’t that what we are talking 

about? Isn’t that what we have been doing for the last 21⁄2 hours? 

Mr. RUTLEDGE. Senator—— 

Senator FRANKEN. She cannot go to court. 

Mr. RUTLEDGE. May I answer the question? 

Senator FRANKEN. What would you say to the woman? 

Mr. RUTLEDGE. We may go to litigation, that there are ways 

under current law whereby that arbitration clause can be challenged, and we will attempt to see whether that clause can be challenged. If it cannot be challenged, then we will go to arbitration, 

and there are upsides to arbitration, some of which Mr. 

Parasharami has referred to. And so, therefore, what I am trying 

to say, Senator, and what I tried to say to Senator Lee as well, is 

that, back to the point that you have made—and I agree with 

you—the apples-to-apples comparison is to try to discern which of 

these two systems is going to yield the better result for the aggrieved individual. 

Can I make one other point just to—— 

Senator FRANKEN. Well, after I respond a little bit. 

Mr. RUTLEDGE. Sure. I understand. 

Senator FRANKEN. I asked you what to say to a woman who 

brought a gender discrimination suit to an arbitrator. She went in. 

The arbitrator had the name of the hospital—she was a doctor. No 

woman had been promoted in that practice, and she felt there was 

gender discrimination. She goes in; the guy in his office has folder 

after folder with the name of the hospital. She felt that the guy did 

not hear her. I asked you what you would say to her. The first 

thing you would say to her, ‘‘Well, I would go to court. You can go 

to court.’’ Well, no, you cannot go to court. Then the next thing you 

said, ‘‘Well, then we go to arbitration if we cannot go to court.’’ I 

told you she went to arbitration, and she felt that this guy—that 

the fix was in. And you yourself said—you yourself said in 2004— 

that arbitrators do this to get business. They develop reputations 

as friendly to industry. You said it. This is you. I read you back 

your own quote. 

What would you tell her? ‘‘The fix is in, lady, ma’am. The fix is 

in.’’ And that is not our system of justice. Go ahead. 

Mr. RUTLEDGE. Sure. Senator, there are two points that I am trying to make. One pertains to your question and one pertains to the 

apples-to-apples point from a moment ago. 

What I am trying to say, as to this individual—and I apologize, 

Senator, if I misunderstood your question before. I had understood 

your question to be what I would say to her at the front end of the 

dispute, and I take it your question now concerns—— 

Senator FRANKEN. I asked you what would you say to this 

woman who testified here. 

Mr. RUTLEDGE. I understand. 

Senator FRANKEN. That is what I asked you. 
38 

Mr. RUTLEDGE. I understand, Senator. And I can understand 

that from her perspective that that result would be disappointing. 

And what I am saying, Senator, is that there are instances in 

which the civil litigation leaves people disappointed, too. 

The second point that I just wish to make, Senator, because I am 

very much with you on the apples-to-apples comparison point, and 

I do not know if you have a copy of the CFPB report with you or 

can see it. To be very clear, Senator, if I could direct your attention 

to page 21 of the CFPB report? 

Senator FRANKEN. I am there. 

Mr. RUTLEDGE. This is the pie chart that you see. And what you 

see here in the sentence immediately below the pie chart, ‘‘Of the 

393 credit card issuers, 67 issuers, or 17 percent, included arbitration clauses in their credit card contracts while 326 issuers, or 83 

percent, did not.’’ 

That was the point that I was making about the low incidence 

of the use of arbitration clauses, and—— 

Senator FRANKEN. And my question about apples to apples and 

oranges to oranges was: What percent do those 17 percent have of 

the market? 

Mr. RUTLEDGE. Absolutely, and to that, Senator, they have a 

large portion of the market. That is—— 

Senator FRANKEN. What percent would you say? 

Mr. RUTLEDGE. Senator—— 

Senator FRANKEN. Do you think that is relevant? 

Mr. RUTLEDGE. I understand—— 

Senator FRANKEN. Ms. Gilles, Professor Gilles, what percent of 

the market do they have? 

Mr. RUTLEDGE. Senator, the answer is approximately 94 to 98 

percent. 

Senator FRANKEN. 94 to 98 percent. 

Mr. RUTLEDGE. That is in a 2011 article that I published—— 

Senator FRANKEN. Okay. And you made the point—— 

Mr. RUTLEDGE [continuing]. And that is cited in my testimony. 

Senator FRANKEN. Yes. So you made the point in your testimony 

that we need to compare apples to apples and oranges to oranges. 

And then you say that the CFPB report proves the point you have 

been trying to make today and uses your evidence that only 17 percent of credit card companies use these mandatory arbitration 

agreements without having the honesty, really, to say that, apples 

to apples, oranges to oranges, 94 to 98 percent of the market is 

that way. 

Now, some credit union credit card company is not going to, you 

know, have any power over Mr. Carlson. That is the whole point 

of this. And when you talk about empirical evidence—and sound 

empirical evidence has to be done by objective people. That is what 

is sound empirical evidence. 

By the way, you write in your testimony you cannot—I think I 

have said my piece on this. I just think that it is apples—I want 

to give Mr. Carlson the last word on this. You felt it was important 

enough to come here today across the country. This is a big deal. 

Why is this issue so important to you? 

Mr. CARLSON. I think that is a terrific question. I was not doing 

this for money. I am trying to do it just to level the playing field 
39 

for all small business consumers so that they can make a fair living. You know, I got into this business not—I did not get into the 

restaurant business to get rich. That is not the industry I think 

you throw yourself into to say, ‘‘Oh, wow, I am going to work my 

ass off and make a fortune.’’ You do put in a lot of long hours, but 

for me the love and the passion comes from each guest that is satisfied, that you put a smile on their face. That is why I do it, and 

that is why I came here. I am just fighting for everybody else to 

have the same opportunity that I have been blessed with—that I 

have my own place. And it is not easy to do to try to find money 

to start a business and to grow. As a human, you know, you want 

to challenge yourself, and it is nice when people give you a handout 

and help a little bit, and that is all I am trying to achieve here. 

Thank you very much. 

Senator FRANKEN. Thank you. I would like to thank you, and I 

would really like to thank all the witnesses for their testimony. 

I would also like to submit letters and statements for the record 

from more than a dozen professors, advocates, and interested organizations. I was especially pleased to receive written testimony 

from Mike Rothman, Minnesota’s Commerce Commissioner, who is 

working hard to enforce the law in my State, and I would like to 

thank him for his service to Minnesota. 

[The letters and statements referred to appear as submissions for 

the record.] 

Senator FRANKEN. I think that the case for the Arbitration Fairness Act is pretty clear. I think we saw that when you come down 

to what this is. You cannot go to court. With Concepcion and 

Italian Colors on the books, the Federal Arbitration Act has become 

a tool that the big corporations can use to avoid their obligations 

under the law. As Mr. Carlson put it, we are basically at a point 

where big corporations can write their own rules. We have heard 

today this has had a profound impact on consumers, workers, and 

small businesses, and simply put, it is not fair. It is not fair that 

powerful corporations can cheat consumers out of their hard-earned 

money or that they can withhold wages or turn a blind eye to workplace discrimination and that they can overcharge small businesses, that they can falsify affidavits and foreclose on active-duty 

servicemembers who are overseas, that they can do all of this 

knowing all along that there is little, if anything, that the consumer, worker, small business, or soldier can do to make it right 

for those who have been harmed. 

When I went to Walter Reed the first time and they ask you— 

I do a lot of USO tours, and they ask you to go to Walter Reed, 

and you think, ‘‘How am I going to cheer up somebody who has lost 

legs?’’ The first guy I met was from Anaconda. He lost two legs 

from a mortar. The Arbitration Fairness Act will restore access to 

justice for millions of Americans. I would urge my colleagues to join 

me in that effort. 

We will hold the record open for 1 week for submission of questions for the witnesses and other materials. 

The hearing is adjourned. 

[Whereupon, at 4:45 p.m., the Committee was adjourned.] 

[Questions and answers and submissions for the record follow.] 

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A P P E N D I X 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
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PREPARED STATEMENT OF HON. CHUCK GRASSLEY
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PREPARED STATEMENT OF HON. ORRIN G. HATCH
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PREPARED STATEMENT OF HON. PATRICK LEAHY
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QUESTIONS SUBMITTED BY SENATOR FRANKEN FOR ARCHIS PARASHARAMI
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QUESTIONS SUBMITTED BY SENATOR GRASSLEY FOR ARCHIS PARASHARAMI
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QUESTIONS SUBMITTED BY SENATOR GRASSLEY FOR PETER RUTLEDGE
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QUESTIONS SUBMITTED BY SENATOR HATCH FOR MYRIAM GILLES
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RESPONSES OF ARCHIS PARASHARAMI TO QUESTIONS SUBMITTED BY SENATORS

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