ARBITRATION FAIRNESS ACT OF 2007 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

ON

H.R. 3010 

OCTOBER 25, 2007 

Serial No. 110–163 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

ARBITRATION FAIRNESS ACT OF 2007 

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

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38–510 PDF 2009

ARBITRATION FAIRNESS ACT OF 2007 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

ON

H.R. 3010 

OCTOBER 25, 2007 

Serial No. 110–163 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

BETTY SUTTON, Ohio 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

PERRY APELBAUM, Staff Director and Chief Counsel 

JOSEPH GIBSON, Minority Chief Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

LINDA T. SA ́ NCHEZ, California, Chairwoman 

JOHN CONYERS, JR., Michigan 

HANK JOHNSON, Georgia 

ZOE LOFGREN, California 

WILLIAM D. DELAHUNT, Massachusetts 

MELVIN L. WATT, North Carolina 

STEVE COHEN, Tennessee 

CHRIS CANNON, Utah 

JIM JORDAN, Ohio 

RIC KELLER, Florida 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III) 

C O N T E N T S 

OCTOBER 25, 2007 

Page 

THE BILL 

H.R. 3810, the ‘‘Arbitration Fairness Act of 2007’’ ............................................... 2 

OPENING STATEMENTS 

The Honorable Linda T. Sa ́nchez, a Representative in Congress from the 

State of California, and Chairwoman, Subcommittee on Commercial and 

Administrative Law ............................................................................................. 1 

The Honorable Chris Cannon, a Representative in Congress from the State 

of Utah, and Ranking Member, Subcommittee on Commercial and Administrative Law ........................................................................................................... 9 

The Honorable Hank Johnson, a Representative in Congress from the State 

of Georgia, and Member, Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 11 

WITNESSES 

Laura MacCleery, Esq., Director, Public Citizen’s Congress Watch Division, 

Washington, DC 

Oral Testimony ..................................................................................................... 14 

Prepared Statement ............................................................................................. 17 

Mr. Richard Naimark, Senior Vice President, American Arbitration Association, Washington, DC 

Oral Testimony ..................................................................................................... 29 

Prepared Statement ............................................................................................. 31 

The Honorable Roy E. Barnes, The Barnes Law Group, LLC, Marietta, GA 

Oral Testimony ..................................................................................................... 48 

Kenneth L. Connor, Esq., Wilkes and McHugh, P.A., Washington, DC 

Oral Testimony ..................................................................................................... 49 

Prepared Statement ............................................................................................. 51 

Ms. Deborah Williams, Annapolis, MD 

Oral Testimony ..................................................................................................... 61 

Prepared Statement ............................................................................................. 63 

Cathy Ventrell-Monsees, Esq., Law Offices of Cathy Ventrell-Monsees, Chevy 

Chase, MD, on behalf of the National Employment Lawyers Association 

Oral Testimony ..................................................................................................... 64 

Prepared Statement ............................................................................................. 67 

Peter B. Rutledge, Esq., The Catholic University of America, Columbus School 

of Law, Washington, DC 

Oral Testimony ..................................................................................................... 93 

Prepared Statement ............................................................................................. 95 

Theodore G. Eppenstein, Esq., Eppenstein and Eppenstein, New York, NY 

Oral Testimony ..................................................................................................... 113 

Prepared Statement ............................................................................................. 115 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Steve Cohen, a Representative in Congress from the State of Tennessee, and Member, Subcommittee on Commercial and Administrative Law ............................................................................... 12 

Page

IV 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Material submitted by the Honorable Chris Cannon, a Representative in 

Congress from the State of Utah, and Ranking Member, Subcommittee 

on Commercial and Administrative Law ........................................................... 211 

Response to Post-Hearing Questions from Laura MacCleery, Esq., Director, 

Public Citizen’s Congress Watch Division, Washington, DC ............................ 296 

Response to Post-Hearing Questions from Richard Naimark, Senior Vice 

President, American Arbitration Association, Washington, DC ....................... 361 

Post-Hearing Questions submitted to the Honorable Roy E. Barnes, The 

Barnes Law Group, LLC, Marietta, GA ............................................................. 367 

Response to Post-Hearing Questions from Ken Connor, Esq., Wilkes and 

McHugh, P.A., Washington, DC .......................................................................... 369 

Response to Post-Hearing Questions from Deborah Williams, Annapolis, MD .. 376 

Response to Post-Hearing Questions from Cathy Ventrell-Monsees, Esq., Law 

Offices of Cathy Ventrell-Monsees, Chevy Chase, MD, on behalf of the 

National Employment Lawyers Association ...................................................... 379 

Response to Post-Hearing Questions from Peter Rutledge, Esq., The Catholic 

University of America, Columbus School of Law, Washington, DC ................. 385 

Response to Post-Hearing Questions from Theodore G. Eppenstein, Esq., 

Eppenstein and Eppenstein, New York, NY ...................................................... 392 

(1) 

ARBITRATION FAIRNESS ACT OF 2007 

THURSDAY, OCTOBER 25, 2007 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:41 p.m., in room 

2141, Rayburn House Office Building, the Honorable Linda 

Sa ́nchez (Chairwoman of the Subcommittee) presiding. 

Present: Representatives Sa ́nchez, Johnson, Lofgren, Cohen, and 

Cannon. 

Staff present: Norberto Salinas, Majority Counsel; Daniel Flores, 

Minority Counsel; and Adam Russell, Professional Staff Member. 

Ms. SA ́ NCHEZ. This hearing of the Committee on the Judiciary, 

Subcommittee on Commercial and Administrative Law will now 

come to order. 

I will recognize myself for a short statement. 

Several months ago, this Subcommittee held an oversight hearing on the Federal Arbitration Act. At our hearing, we learned 

through testimony about the history of arbitration and the reasons 

that Congress felt it wise to promote it through the FAA. Congress 

wanted to free-up the courts from an increasingly heavy docket, to 

place arbitration agreements on the same footing as contracts, and 

to encourage arbitration between businesses possessing equal bargaining powers. 

We learned how the use of arbitration has evolved since 1925, 

and how its use has expanded today. We also learned from the testimony that although arbitration may offer some benefits for parties to a dispute, an increasing number of businesses and employers have begun to utilize arbitration to their advantage, and thus 

to the distinct disadvantage of consumers, employees and others. 

Now, several months later, we hold this legislative hearing on 

H.R. 3010, the ‘‘Arbitration Fairness Act of 2007,’’ which my esteemed colleague from Georgia, Representative Hank Johnson, introduced shortly after our June hearing. H.R. 3010 seeks to amend 

the Federal Arbitration Act to require that agreements to arbitrate 

employment, consumer, franchise or civil rights disputes may be 

valid and enforceable only if they were made voluntarily and after 

the dispute had arisen. 

[The bill, H.R. 3010, follows:] 

2 


3010-1.eps
3 


3010-2.eps
4 


3010-3.eps
5 


3010-4.eps
6 


3010-5.eps
7 


3010-6.eps
8 


3010-7.eps
9 

Ms. SA ́ NCHEZ. Arbitration was never intended as a tool to advantage one side over the other in a dispute. To be a respected and 

reasonable alternative to the courts, arbitration must provide a 

level and fair playing field. But since our June hearing, several reports have been issued revealing how arbitration favors businesses, 

employers and securities firms. These reports do not paint a rosy 

picture for fairness in arbitration. However, we hope to elicit more 

testimony today on the accuracy of these reports to help us determine whether H.R. 3010 is needed legislation. 

Finally, during our June hearing on this issue, the Ranking 

Member on the Subcommittee, Mr. Cannon, stated that we should 

review proposals to restrict the freedom of contract cautiously. I 

concur with Mr. Cannon’s statement, but also firmly believe that 

we should thoroughly review any process such as arbitration that 

may restrict constitutional and statutory rights and that may cement any unfair advantages at the expense of consumers, and particularly employees. 

Today, we gather to hear testimony from several individuals with 

knowledge of the arbitration process. I want to emphasize that today’s testimony is very important for our understanding of the legislation. Accordingly, I look forward to hearing today’s testimony 

and welcome a thorough discussion of the issues and legislation. 

I would now like to recognize my colleague, Mr. Cannon, the distinguished Ranking Member of the Subcommittee, for his opening 

remarks. 

Mr. CANNON. Thank you, Madam Chair. 

I would like to welcome our witnesses today. I got to shake some 

hands down there. I apologize, Ms. MacCleery, we didn’t have a 

chance to shake hands. I will step down after the hearing. 

Arbitration is an important subject, and I am glad that we are 

having this hearing to help us sort out some of the serious issues 

and consequences of H.R. 3010. In June, we held a hearing on 

mandatory binding arbitration clauses in consumer contracts. 

These clauses have become more and more common over the years. 

What we found, as I recall the hearing, was this. It appears that 

those clauses are fair. Results for consumers in arbitration tend to 

be somewhat better than in court, costs tend to be lower, and consumers tend to be happier with the results. 

If an individual is told that arbitration is mandatory, the general 

reaction from most, including me, is one of concerned skepticism. 

But when one looks at the facts, one can see that arbitration on 

the whole is a good deal, and year by year becomes better and better as consumer-friendly procedures like due process clauses and 

opt-outs and off-ramps to small claims court and fee-shifting become more and more common in mandatory binding arbitration 

clauses. 

Arbitration is cheaper, simpler, faster and more effective than 

litigation, and makes sure the consumer’s complaint is heard. Arbitration is a process that provides protection to consumers because 

there are few consumers who have the deep pockets of a large corporation if the dispute heads to litigation. 

All these facts came out at our hearing, and so when the hearing 

was concluded, I expected that we wouldn’t be entertaining legislation to roll back mandatory binding arbitration clauses in consumer 

10 

contracts. I was surprised to read the extent of H.R. 3010. Not only 

does it propose to prohibit mandatory binding arbitration clauses 

in consumer contracts, it reaches back and proposes to render null 

and void all such clauses in existing contracts, something that 

would undo bargains struck in probably millions of contracts over 

the years. 

It also proposes to prohibit mandatory binding arbitration in 

franchise and employment contracts. It even proposes to rule out 

and undo mandatory binding arbitration clauses in any setting in 

which the contracting parties had unequal bargaining power. I suspect that could even apply to disputes between groups or companies like Citibank and Chase Manhattan, as I am certain that one 

of them has more money than the other. 

Not one of these areas was considered in our hearing in June. 

The breadth of this bill is so great, the sectors affected so varied, 

and the potential solutions to any problems that do exist so many 

that we cannot possibly sort that out all today, even with two panels of witnesses. 

So my strong suspicion is that were we to get the real facts on 

the fairness of arbitration in all these settings, we would find the 

same thing we did with arbitration in consumer contracts—that arbitration is a good deal. That is why Congress and the courts have 

so strongly supported it for so long through so many acts and decisions. 

I appreciate the interest of my colleague from Georgia, Mr. Johnson, in arbitration, and I appreciate the interest reflected in the 

title of his bill, that arbitration be fair. As I said, our earlier hearing already showed arbitration, including mandatory binding arbitration, to be generally fair. I am not aware of any other proceeding 

of the Committee that has given us a reason to believe that mandatory binding arbitration isn’t delivering similarly fair results in all 

of these sectors. 

I am left to wonder who really benefits from this proposed legislation. Would it be consumers and companies large and small that 

are vital to our economy? Would they really benefit if we took a 

widespread effective arbitration option off the table? We know from 

basic economics that when you artificially limit available services 

you can bank on driving up the cost and driving down the quality 

of the services that remain. 

So how will it benefit consumers—the little guy, the working 

man—to take an arbitration option off the table? Or would the only 

ones guaranteed to be helped be the ones who lost business to arbitration? Would the only ones guaranteed to benefit be the trial lawyers? I venture a yes. Common sense and the laws of economics 

suggest that if this bill were to pass, trial lawyers would be the 

largest beneficiaries. 

I expect that today’s testimony will help us sort that out. I am 

interested in hearing from today’s panel of witnesses. I am particularly interested in the testimony of Professor Rutledge, who has 

dedicated serious academic study to this issue. I am also interested 

in the testimony of Mr. Naimark of the American Arbitration Association. No one at the witness table can offer us anything near the 

association’s hands-on familiarity with arbitration, all of its feaVerDate Aug 31 2005 10:40 Apr 29, 2009 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6601 H:\WORK\COMM\102507\38510.000 HJUD1 PsN: 38510
11 

tures, fine points and foibles, and with all of the efforts over the 

years to assure that it does indeed deliver fairness. 

Thank you, Madam Chair. I look forward to the testimony of the 

witnesses, and yield back the balance of my time. 

Ms. SA ́ NCHEZ. I want to thank the gentleman for his statement. 

I would also like to recognize Mr. Johnson, a distinguished Member of this Subcommittee and the author of the bill that we are examining today, for an opening statement. 

Mr. JOHNSON. Madam Chair, thank you. I appreciate your holding this hearing. 

This Subcommittee is holding its second hearing on the troubling 

trend toward binding arbitration clauses becoming ubiquitous in 

consumer, employment and franchise agreements. Most people 

would think twice before they signed away their right to free 

speech, their freedom to worship, or their right to vote. But every 

day, people are forced by stronger parties to give up their constitutional right to a jury trial, often unknowingly, and compelled to 

agree to pre-dispute mandatory binding arbitration. 

The result? Well, businesses will say that they are a good thing. 

Consumers fare well under these agreements. They enjoy a fast economical and efficient means to settle their disputes through a 

neutral third party arbitrator. But what do consumers have to say 

about that? The reality is quite different. As a witness in previous 

hearings stated, arbitration hearings are neither economical nor 

neutral. Rather, pre-dispute binding arbitration strips consumers of 

a number of rights and procedural protections designed to produce 

impartial and fair justice. 

Arbitration sessions are largely conducted in secret, with limits 

on discovery and the appealability of decisions rendered, which limits the ability of consumers to sometimes bring class action suits 

and often saddles consumers with high administrative fees. Historically, the Federal Arbitration Act was enacted as an alternative 

dispute resolution process for resolving disputes voluntarily between businesses on equal footing. It was not enacted to force parties of unequal bargaining power into arbitration, but to enforce 

voluntary arbitration agreements between parties of equal bargaining strength. 

During floor debate on the Federal Arbitration Act in 1924, Representative George Graham, who chaired the House Judiciary Committee, clearly stated, ‘‘This bill provides for one thing, and that is 

to give an opportunity to enforce an agreement in a commercial 

contract, when voluntarily placed in the document by the parties 

to it.’’ 

Rather than upholding the spirit of that law, big businesses have 

turned that law on its head and have made alternative dispute resolution a trap for the unwary, locking consumers into a process 

that is neither consumer-friendly nor fair. The arbitration companies that are supposed to administer this type of justice are neither 

unbiased nor neutral. Arbitration is a lucrative business. Although 

advocates say arbitration is much more economical than court action, the truth is consumers are often saddled with fees that they 

would not be charged with if they went to court. 

For example, the National Arbitration Forum’s fee schedule published in August of this year, if a consumer files a claim, the filing 

12 

fee can range anywhere from $25 to $240, depending on the size 

of the claim. Administrative fees start at $200 and a participatory 

hearing session fee starts at $150. If you or I have a claim for 

under $2,500, we could face a $325 filing fee just to get the case 

into the arbitration process. 

To some, that doesn’t seem like a lot, but in life there are always 

unexpected events. So if you need to expedite the hearing, that is 

an extra $500. You need an extension? $50; What about a discovery 

order? $250; a request to open or reconsider? $250 for the fee. As 

I said, arbitration is a lucrative business not only through fees generated by the cases, but also through repeat business. 

The danger to consumers is obvious—a system where the arbitrator has a financial interest to reach an outcome favorable to the 

commercial interest which his company receives its referrals from 

is no longer a fair process of resulting disputes. The current system 

is flawed as it grants stronger commercial interests the upper hand 

against consumers. 

That is why I, along with my colleague, Senator Feingold, introduced the Arbitration Fairness Act of 2007, which has of today enjoys bipartisan support of over 35 members. This bill does not 

eliminate arbitration agreements as a means to settle a dispute. It 

would simply return the Federal Arbitration Act to its original intent and render unenforceable pre-dispute mandatory binding arbitration clauses in consumer, medical and franchise agreements. 

I think all of us can agree, a fundamental feature of a fair justice 

system is that both sides to a dispute have a fair system of resolving the dispute. This legislation will ensure that citizens have a 

fair choice between arbitration and the civil court system to which 

they are entitled by the seventh amendment of the Constitution of 

the United States of America. 

I yield back. 

Ms. SA ́ NCHEZ. I thank the gentleman for his statement. 

We are joined also by the gentleman from Tennessee, Mr. Cohen, 

and without objection, other Members’ opening statements will be 

included in the record. 

[The prepared statement of Mr. Cohen follows:] 

PREPARED STATEMENT OF THE HONORABLE STEVE COHEN, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TENNESSEE, AND MEMBER, SUBCOMMITTEE ON

COMMERCIAL AND ADMINISTRATIVE LAW

I am of the firm belief that consumer protection must be among the foremost considerations for Congress when it considers legislation affecting commerce. That is 

why I am a cosponsor of H.R. 3010, the Arbitration Fairness Act of 2007. I do not 

oppose arbitration in principle. Anecdotal evidence, however, suggests that companies’ use of mandatory pre-dispute arbitration clauses in consumer, employment, 

and other contracts may be unfairly stacking the arbitration system against the interests of consumers, employees, and others with relatively less bargaining power. 

While parties are certainly free to agree to arbitrate a dispute, consumers and employees are unable to negotiate away the mandatory arbitration clauses that I referred to because of the unequal bargaining power between them and the corporations with which they are conducting the transaction. The result, I fear, is that people are giving up their right to have their disputes heard in court without any 

meaningful choice in the matter. H.R. 3010 is one way to address this imbalance. 

Ms. SA ́ NCHEZ. Without objection, the Chair will be authorized to 

declare a recess of the hearing at any point. 

13 

I am now pleased to introduce the witnesses on our first panel 

for today’s hearing. Our first witness is Ms. Laura MacCleery. Ms. 

MacCleery is director of Public Citizen’s Congress Watch Division. 

She works to promote public access to civil justice and a more ethical and sound government with public financing of elections. Prior 

to joining Congress Watch, Ms. MacCleery was deputy director of 

Public Citizen’s Auto Safety Program. She has worked for the general counsel of the Federal Trade Commission, the Office of the 

Federal Public Defender in San Francisco, California, and at the 

Legal Aid Society Federal Defender Division in New York City. 

Our second witness of our first panel is Richard Naimark. Mr. 

Naimark is the senior vice president of American Arbitration Association at the International Center for Dispute Resolution. He is 

the founder and former executive director of the Global Center for 

Dispute Resolution Research, which conducted research on arbitration and ADR for business disputes in cross-border transactions. 

Mr. Naimark is an experienced mediator and facilitator, having 

served in a wide variety of business and organizational settings. 

Since joining the association in 1975, Mr. Naimark has conducted 

hundreds of seminars and training programs on dispute resolution 

and published several articles on alternative dispute resolution. We 

welcome you. 

Our third witness is Governor Roy Barnes. I would like to hand 

the honor of introducing him over to my distinguished colleague 

from Georgia, Mr. Johnson. 

Mr. JOHNSON. Thank you, Madam Chair. 

Roy Barnes won a seat in the state of Georgia Senate and became one of the youngest legislators in the State. As the chair of 

the State Senate Judiciary Committee, he used his legal talents to 

rewrite the Georgia constitution. He served in the Senate for a 

number of years before running for governor unsuccessfully. 

Thereupon, he returned to the House of Representatives of the 

Georgia legislature, where he again was assigned to the House Judiciary Committee, and distinguished himself. He later ran for governor and won, but while serving as a legislator, he, as an attorney, scored a number of tremendous legal victories on behalf of consumers, most notably a victory against Fleet Finance, which had 

been involved in predatory lending activities in Georgia. He held 

them accountable and forced them to exit that business. 

When Governor Barnes became Governor of Georgia, among his 

many accomplishments was a tough, probably the toughest, antipredatory lending ordinance or statute in the country that was 

passed. It was later watered down, but if that legislation had been 

in effect over the last 4 years, Georgia would not be facing the extent of the foreclosure crisis that it now faces. 

One of the things that Governor Barnes will always be remembered for in Georgia is his courageous act in removing the Confederate battle flag from the state of Georgia flag. For that, he won 

the Profiles in Courage Award from the JFK Library Foundation. 

After leaving office as governor, Governor Barnes lended his legal 

talents to the Atlanta Legal Aid, where he practiced for free, representing indigent men and women in need of legal services. He did 

that for 6 months before going back into private practice at his 

14 

hometown in Marietta, Georgia, where he practices law with his 

daughter and son-in-law. 

So Governor Barnes, we are pleased to have you here with us 

today. 

Ms. SA ́ NCHEZ. Thank you for joining us. 

Our final witness of the first panel is Mr. Ken Connor. Mr. Connor co-founded the Center for a Just Society in 2005, and serves 

as the organization’s chairman and one of its principal spokesmen. 

Affiliated with the law firm of Wilkes and McHugh, Mr. Connor recently served as counsel to Governor Jeb Bush in Bush v. Schiavo, the matter involving Terri Schiavo, and the court order to remove 

her feeding tube. 

Mr. Connor is also an advocate on behalf of nursing home residents, and was appointed to Florida’s Task Force on the Availability and Affordability of Long-Term Care. He has served as 

chairman of the state of Florida Commission on Ethics, and as a 

member of the state Constitution Revision Commission. 

I want to thank you all for your willingness to participate in today’s hearing. Without objection, your written statements will be 

placed into the record in their entirety, and we are going to ask 

that you limit your oral testimony to 5 minutes. We have a lighting 

system that will turn green when you are recognized. After 4 minutes, it turns yellow as a warning that you have 1 minute left, and 

then it will turn red at 5 minutes. If your light turns red, please 

quickly try to summarize your last and final thought so that we 

can move on to all of the witnesses. 

After each witness has presented his or her testimony, Subcommittee Members will be permitted to ask questions subject to 

the 5-minute limit. 

Now that we have all the rules out of the way, I am going to invite Ms. MacCleery to please proceed with her testimony. 

TESTIMONY OF LAURA MacCLEERY, ESQ., DIRECTOR, PUBLIC 

CITIZEN’S CONGRESS WATCH DIVISION, WASHINGTON, DC 

Ms. MACCLEERY. Madam Chairwoman, Congressman Cannon, 

Representative Johnson, who is the sponsor of the Arbitration Fairness Act, and honorable Members of the Committee, good afternoon. Thank you very much for the opportunity to provide this testimony. My name is Laura MacCleery. I am the director of Public 

Citizen’s Congress Watch Division. 

We oppose the use of pre-dispute binding mandatory arbitration 

for three main reasons. First, it is imposed on consumers and is 

mandatory, rather than voluntary. Second, proceedings and decisions are shrouded in secrecy. And third, it utterly lacks due process and impartiality. 

For example, there are only very limited grounds for appeal of 

a decision. Under current case law, decisions which are, in the 

words of the courts, ‘‘silly,’’ ‘‘wacky,’’ or ‘‘contrary to law,’’ are routinely allowed to stand. Moreover, binding mandatory arbitration is 

poisoned by the fact that arbitrators and their firms have a direct 

financial stake in business-friendly outcomes. 

The framers of our Constitution sought to create the public 

courts and to enshrine due process in our laws because they understood that secrecy is anathema to democracy and that unfettered 

15 

power of any kind will become abuse. Binding mandatory arbitration, or BMA, in contrast, disregards fundamental notions of fairness. It is wrong by design. 

BMA is imposed on consumers in millions of take-or-leave-it contracts of adhesion for routine matters, often without signers’ full or 

even partial understanding of the consequences. It lacks basic 

mechanisms for transparency and accountability and threatens 

hundreds of hard-won State and Federal consumer protection statutes with legal irrelevance. 

We recently concluded an 8-month investigation of 34,000 cases 

in binding mandatory arbitration used by credit card companies 

and other firms that buy credit card debts. Only one State in the 

country, California, requires any public disclosure whatsoever of 

these decisions. We used the data from reports made public under 

California’s law by the National Arbitration Forum, NAF. In the 

approximately 19,000 cases in which an arbitrator was appointed, 

we found that consumers lost a shocking 94 percent of the time and 

prevailed only 4 percent. Ninety percent of the cases were handled 

by a small cadre of 28 arbitrators, and the busiest arbitrators processed as many as 68 cases in a single day, or one case every 7 minutes. 

Other findings are in our report, a copy of which is submitted for 

the record. 

We also found arbitrators decided more than 83 percent of the 

cases based entirely on documents supplied by companies making 

the claims, without a hearing or any consumer involvement. In this 

large subset of cases, arbitrators ruled for business a stunning 99 

percent of the time, and for consumers only twice out of 16,000 

cases. 

Our research shows that consumers often either do not receive 

notice of arbitration or do not understand the notice when they do 

receive them. Ronald Kahn, an NAF California arbitrator, who has 

decided 820 cases, recently discussed his work. Mr. Kahn’s comments confirm that NAF arbitrators routinely rubber-stamp company requests in violation of its own procedural rules. ‘‘Because 

they are defaults,’’ Kahn said, ‘‘the power of an arbitrator is such 

that you have no choice as long as the parties have been informed. 

There is no one there to argue due process.’’ Kahn’s decisions show 

his lopsided record. He decided 96 percent of cases in favor of business, and 1.7 percent of the time for consumers. 

Yet, NAF’s own procedural rule 36(b) provides that if a party 

does not respond to a claim, the arbitrator will review the merits. 

And NAF’s rule 36(E) provides that no award or order shall be 

issued against a party solely because of a failure to respond, appear 

or defend. 

So a consumer’s failure to respond should not mean that NAF arbitrators would award a bank or other claimant every penny of the 

amount requested without further review of the merits. But several 

consumers interviewed for our reports told us that arbitrators confirmed awards where there was no evidence that an account even 

existed beyond the credit card company’s bald assertions. And one 

victim, Troy Cornock, in fact told us that even after he repeatedly 

protested that he had never signed up for that account, he was still 

pursued for the debt. 

16 

Of the nearly 34,000 consumer arbitrations that NAF identified 

in California, 99 percent were collections cases, and more than half 

involved the cardholders of MBNA. If arbitration firms are acting 

as part of a debt collections mill, they are in effect circumventing 

Federal regulations that protect consumers under the Fair Debt 

Collection Practices Act and other statutes. While default rates for 

collection cases in small claims court may be high, in any court 

there are far more assurances of due process, including notice to 

consumers through service of process, than in binding mandatory 

arbitration. 

Indeed, it is an open question whether arbitrators are making 

awards on the basis of records far too spotty or poorly maintained 

to support the same claim in court. BMA may be an elaborate shell 

game set up to hide the fact that companies are seeking to collect 

on debts that have long since run past their expiration date, or are 

otherwise uncollectible under prevailing law. Congress should investigate whether arbitrators are being used as a scrim to conceal 

these legally dubious practices. 

Ms. SA ́ NCHEZ. Ms. MacCleery, your time has expired. Could you 

just finish your final thought? 

Ms. MACCLEERY. Absolutely. 

The fundamental thought is that arbitration runs contrary to 

constitutional rights that are core notions of fairness, and that 

Congress should enact the Arbitration Fairness Act. 

Thank you very much. 

[The prepared statement of Ms. MacCleery follows:] 

17 

PREPARED STATEMENT OF LAURA MACCLEERY


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Ms. SA ́ NCHEZ. Thank you very much for your testimony. 

I would invite Mr. Naimark to begin his testimony. 

TESTIMONY OF RICHARD NAIMARK, SENIOR VICE PRESIDENT, 

AMERICAN ARBITRATION ASSOCIATION, WASHINGTON, DC 

Mr. NAIMARK. Thank you. Good afternoon, Madam Chair, Congressman Cannon, Congressman Johnson. Thank you for the invitation, spending your time and attention with us this morning. 

I would like to say at the outset the AAA is a not-for-profit service organization with an 81-year history in the administration of 

justice. AAA does not represent the ADR industry or other arbitral 

institutions. We feel as a result of our unique position, we have 

something valuable to add to the proceedings today. 

I want to say at the outset that the public policy in the United 

States on consumer and employment arbitration is something that 

could use some fixing, could use some balancing. We would like to 

discuss briefly with you here about how Congress might accomplish 

that. 

About a decade ago, before there was any turmoil and controversy about consumer cases, AAA recognized that when you 

looked at the horizon, that these issues would begin to arise. So we 

assembled a group which is in Annex A of our submission if you 

get a chance to look at it, a very broad coalition of people from all 

different diverse interest groups to work on what we call the due 

process protocol for mediation and arbitration of consumer disputes. 

These protocols provide for rules of fair play in the arbitration 

process and were the best consensus thinking at that time and currently for what provides for fair play in the arbitration process that 

applies to consumer disputes. 

To date, the AAA and a few other organizations have implemented this protocol, but others have not. By the way, in the employment arena, we have a similar task force which developed due 

process protocols for employment cases and as a result there has 

been fairly broad recognition by the courts of these protocols as the 

standard of fair play all the way up to Supreme Court justices citing them, at least in oral commentary, as the standard of fair play 

for employment disputes. 

A couple of highlights in the due process protocols. They do common sense things. They, for instance, provide that consumers and 

employees always have a right to representation; that the costs of 

the process must be reasonable; that the location of the proceedings 

should be reasonably accessible; that no party should have a unilateral choice of arbitrator; that there shall be full disclosure by arbitrators of any potential conflict or appearance of conflict or previous contact between the arbitrator and the parties. The arbitrator 

shall have no personal or financial interest in the matter. 

Perhaps most important, I would like to highlight there shall be 

no limitation of remedy that would be otherwise available in court 

of administrative hearing. There are other features as well to the 

protocols, but I think that gives you a bit of a flavor. 

I was told a few years ago by a very prominent plaintiffs’ employment attorney that at least 95 percent of the meritorious claims 

that come into his office will never get legal representation because 

30 

no one can afford to pay for it. The lawyer can’t afford to bankroll 

all these cases and the individual often cannot afford to pay for it. 

So for those that do get to court, only 2 percent ever get to trial 

before a judge or a jury. 

So the idea of ‘‘my day in court’’ is in reality a myth for more 

mere mortals. Most Americans can’t afford the court process. This 

is a problem. Lack of access to justice is a drag on our democracy 

and our social system. But, and I say ‘‘BUT’’ in capital letters, arbitration needs to be done right—no sloping of the playing field, no 

structural advantages for either side, the need to be these procedural safeguards built into the process. 

That essentially is my message for the Committee. Congress can 

address these problems in the use of arbitration in consumer and 

employment disputes by codifying the standards and protections 

that were built by the National Consumer Disputes Advisory Committee and the Task Force on Alternative Dispute Resolution in 

Employment. In that way, fairness in consumer and employment 

arbitration will no longer be voluntary. 

Thank you. 

[The prepared statement of Mr. Naimark follows:] 

31 

PREPARED STATEMENT OF RICHARD NAIMARK


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Ms. SA ́ NCHEZ. Thank you, Mr. Naimark, and you came in under 

5 minutes. 

I would now at this time invite Governor Barnes to please give 

his oral testimony. 

TESTIMONY OF THE HONORABLE ROY BARNES, 

THE BARNES LAW GROUP, LLC, MARIETTA, GA 

Mr. BARNES. Madam Chair, Mr. Cannon, Mr. Johnson and others, I want to talk about just one category of cases. I began to see 

these when I was down at Legal Aid, and they have become the 

result of a decision of the Supreme Court of the United States. I 

came up and listened to the argument. Paul Bland made the argument over there that you previously heard from. 

That is contracts that are illegal. You would think that an illegal 

contract, that is a contract for a crime, that you wouldn’t have to 

worry too much about arbitration. For example, the chief justice 

asked the counsel for the bank, if Murder Incorporated were still 

in existence and it had an arbitration provision, would we have to 

go to arbitration on a dispute over whether the fee had ever been 

paid on Murder Incorporated? 

Well, the answer under the law as it exists today is yes, you 

would have to go to arbitration about it. You would have to go to 

arbitration and argue before arbitration on a ridiculous, or as Ms. 

MacCleery says, as the courts have said, ‘‘crazy’’ decisions that are 

made. Now, the case that arose in Cardegna v. Buckeye, which is 

the case that came up from Florida, is that in most States the making of payday loans is a crime. It is in Georgia. It was a felony in 

Florida. 

With all due respect, Mr. Cannon, I will tell you I never found 

anybody at Legal Aid that thought it was fair and efficient after 

they had been taken advantage of, that they were told they had to 

go to arbitration to prove that they were a victim of a crime. 

The other point I want to make, these claims are so small. If you 

ever file an arbitration, they may pay the claim. But it doesn’t stop 

the conduct, even though it is illegal. Let me tell you something, 

there are more payday lenders in the United States than there are 

McDonald’s stores, more payday lenders than there are McDonald’s’. 

They charge anywhere from 250 percent to 1,000 percent interest. It is a practice that has been universally condemned over the 

years. Let me give you some examples of cases that we have been 

involved in that I can tell you about. Ina Claire Evans, one of Mr. 

Johnson’s constituents over there—make sure I don’t run over my 

time here—she was charged 829.55 percent interest on a $500 loan. 

Ms. Shamburger, also from over in DeKalb, was charged $701. 

That case was filed on August 6, 2004. We have been to the court 

of appeals twice on the arbitration. 

And then you say, well, you tried to go to court. Why didn’t you 

just go to arbitration? We did go to arbitration. We took two of 

them and put them in arbitration, and I want to say and benefit 

Mr. Naimark over here, it wasn’t AAA now. But we went to arbitration on two of them. Do you know how long those cases have 

been pending? They have been pending 3 years. And do you know 

why? Because the arbitrator ruled in our favor in one of the cases. 

49 

It said, well, if it is a crime under the Georgia law, then of course 

the arbitration provision, all the restrictions of not being able to 

group the cases together and stop this practice, of course it is illegal. 

And then on motion to reconsider after a letter was sent up and 

objection was made about the decision, upon reconsideration the arbitrator said, ‘‘Well, no, I can’t decide that.’’ And so you can only 

litigate one case, and we have to let the criminal activity continue. 

One of the cases, a lady came to me. She worked for the State. 

I would see her when I would go down to the World Congress Center. She was a secretary down there, a young African American 

woman. She came up to me after I left the governor’s office, and 

she said, ‘‘I am so embarrassed.’’ I said, ‘‘Well, what is wrong?’’ She 

said, ‘‘I have a child, and I have been raising the child by myself. 

Christmas came, and I wanted some money to buy Christmas for 

my child, so I went down and I borrowed $300 from a payday lender. I have been paying every month′′—this was July—′′and I paid 

$900 and I still owe the $300.’’ And I said, ‘‘Don’t pay another 

penny,’’ and they took the money out of her account before I could 

stop the automatic withdrawal. I filed suit for her. We have been 

litigating that case 3 years over the arbitration provision. 

So I will tell you, at least if you do nothing else, take arbitration 

provisions out of criminal acts. At least say if it is a criminal act, 

you don’t have to go to arbitration, and take it away from the Supreme Court of the United States. The Supreme Court of the 

United States says, well—and this is my last word I am going to 

take—the Supreme Court said, and I heard it from the justice myself, because they ruled that the arbitration provision was valid in 

the Supreme Court, Cardegna v. Buckeye. They said, ‘‘Well, if Congress didn’t want us to do this, they would stop us.’’ 

Well, here it is and it is up to you all to see if it is going to be 

stopped. 

Thank you. 

Ms. SA ́ NCHEZ. We appreciate your testimony, Governor. It is very 

compelling. Thank you. 

At this time, I would invite Mr. Connor to give his oral remarks. 

TESTIMONY OF KENNETH L. CONNOR, ESQ., 

WILKES AND McHUGH, P.A., WASHINGTON, DC 

Mr. CONNOR. Thank you very much, Madam Chair, Congressman 

Cannon, and Members of the Committee. I appreciate the chance 

to come and share some experiences with you about arbitration in 

the context of nursing home cases. I think it is important for you 

to understand the background of these cases so that you can understand the implications of the waiver of the rights that frequently 

come up in these cases. 

For over 25 years I have represented victims of abuse and neglect in nursing home cases around the country, from Florida to 

California. I have reviewed hundreds of charts, represented hundreds of clients. I can tell you without hesitation, but with great 

sadness, that the way in which we treat many of our frail, elderly 

families and adults in this country is really America’s shame and 

dirty secret. 

50 

Daily, I encounter nursing home residents who suffer from avoidable pressure ulcers, some literally as big as pie plates, infected to 

the bone, infected because they were left languishing in their urine 

and feces for so long that their wounds became contaminated and 

their skin became increasingly excoriated. They often suffer from 

avoidable malnutrition and dehydration. They have gaunt bodies 

and hallow eyes and parched tongues that are a testimony of the 

lack of time that harried and often overworked nursing home employees have to devote to their care and attention in the nursing 

homes. 

They frequently suffer from multiple falls and avoidable fractures because again, given the short staffing in nursing homes 

which is a product of nursing home operators’ decisions to consciously seek to maximize profits by minimizing their labor costs. 

These residents are allowed to fall and suffer horrific fractures. We 

frequently find that nursing home employees have to use shaving 

cream and other substances to try to soften the feces that have 

dried so hard on their bodies. Their bed linens have become covered with brown rings, a testament to the length of time the urine 

has been there and been left to dry. 

But the point I make, very simply, is it is these kinds of circumstances that give rise to the claims that nursing home residents have against their caregivers, against the institutions that 

typically are being paid money by Medicare and Medicaid to take 

care of these residents. I guarantee you, if the results of these 

kinds of outcomes were occurring at Abu Ghraib or Guantanamo, 

there would be no end to the congressional hearings into the matter. There would be no end to the outrage that the media would 

be expressing about the consequences of those actions. 

But these facts are often suppressed by nursing home operators 

by shredding the records or falsifying the records. I routinely come 

in contact with records that have been so poorly falsified, they are 

documenting care as having been given before residents are admitted to the facility, long after they are dead or buried, while they 

are in the hospital. I look at their time cards and find they are giving care on days when the employee isn’t even at work. 

But it is in this context in which issues relating to nursing home 

arbitration arise. I can assure you that there is no more stressful 

emotional difficult experience than families who are now admitting 

for the first time their inability to care for their loved one at home 

and are putting them into the care of a nursing home, who in 

soothing tones is assuring them of their ability to care for their 

loved one. 

Typically, these families and often the residents who suffer from 

dementia or who are medicated or who are blind or deaf or both 

or otherwise lacking in some mental capacity to appreciate the significance of what they are signing, they are presented with 50 or 

60 pages in an admission packet. They are told that they need to 

sign these documents so that grandmother can be admitted to the 

nursing home, and if they don’t, she won’t be. That is not acceptable because usually these folks have a monopoly in many communities, and the family would have to travel miles to see them otherwise. 

51 

Typically, these documents are signed by someone who merely 

makes their mark, because they are so illiterate they can’t understand. They can’t read or write, and frequently, as I mentioned, 

their sight or hearing is compromised, and they are unable to appreciate the significance of what they are signing. Yet because they 

were afforded an opportunity to sign, the courts often enforce these 

agreements notwithstanding the unconscionable circumstances in 

which they are entered into. 

As a result, typically you find a waiver of all kinds of rights, not 

just the right to a jury trial, but the right to discovery, limitations 

on witnesses, limitations on the ability to present your case, limitations on the ability to interview witnesses. And yet typically, all of 

this information is available to the nursing homes. 

When they are finally arbitrated, Congressman Cannon, I would 

submit to you, you will find that the costs in these settings are 

typically higher than they are in cases involving litigation, and the 

rewards are lower. As a result, the costs as a percentage of the 

awards are much higher than they would be in the case of a jury 

verdict. 

Ms. SA ́ NCHEZ. Mr. Connor, your time has expired. I will allow 

you to summarize your final thought and we will get a chance to 

visit more testimony through our questions. 

Mr. CONNOR. Thank you, Madam Chairman. 

I would simply say that in the nursing home context, the mandatory binding arbitration regime is a playing field that is tilted substantially in favor of the nursing home and against our most frail 

and vulnerable members of society, who are most desperately in 

need of the protection of the rights that they are accorded under 

the law. 

Thank you. 

[The prepared statement of Mr. Connor follows:] 

PREPARED STATEMENT OF KENNETH L. CONNOR

Mr. Chairman and Members of the Subcmmittee: 

Thank you for the opportunity to share some thoughts with you about the use of 

binding mandatory arbitration in the context of nursing home cases. In order to 

fully appreciate the implications of what is at stake for nursing home residents and 

their families, some background is in order. 

For almost twenty five years I have represented nursing home residents who have 

suffered abuse and neglect at the hands of their caregivers in long term care institutions. I have been involved in cases from Florida to California and have been exposed to the charts of hundreds of patients in facilities all over the country. I am 

saddened to tell you that the care and treatment that many of our elders receive 

in long term care facilities is nothing short of scandalous and is America’s shameful 

and dirty secret. This problem is pervasive and extends to every part of the country. 

Daily, I encounter frail elderly adults in nursing homes who have suffered from 

avoidable pressure ulcers (bed sores) which penetrate all the way to the bone. Some 

of these wounds are as big as pie plates. Often they are infected and so foul smelling 

that when you approach their room from down the hall, you can smell the resident 

before you can see them. The wounds often become infected because residents are 

left to languish in urine and feces for so long that the feces becomes hardened and 

stuck to their bodies and the urine dries in tell-tale brown rings on their bed 

clothes. Residents often suffer from avoidable malnutrition and dehydration and 

their gaunt bodies, hollow eyes and parched tongues are testimony to the lack of 

time and attention that overworked and harried staff are able to afford them. Many 

times these residents suffer from multiple falls and associated fractures resulting 

from a lack of supervision—that lack resulting from nursing home operators consciously understaffing their facilities seeking to maximize profits by minimizing 

labor costs. All too often my clients are the victims of rape or sexual assault—someVerDate Aug 31 2005 10:40 Apr 29, 2009 Jkt 000000 PO 00000 Frm 00057 Fmt 6633 Sfmt 6621 H:\WORK\COMM\102507\38510.000 HJUD1 PsN: 38510
52 

times by their caregivers, and sometimes by fellow residents who, because of their 

diminished capacity and lack of supervision, are allowed to prey on weaker residents. 

The results of this abuse and neglect are so horrific that if it were happening to 

detainees at Guantanamo or Abu Ghraib, there would be no end to the Congressional hearings investigating the problem or to the hue and cry of America’s media 

howling in outrage. Yet, year after year, these problems persist and they are multiplying. 

These facts are often suppressed by unscrupulous nursing home operators who 

falsify records or shred them in an attempt to conceal them from regulators, residents’ family members, and their lawyers. These attempts at falsification are often 

so poorly executed that in my practice I regularly review records that reflect care 

as having been given on non-existent days (February 30 or 31), on days when the 

resident was in the hospital rather than in the nursing home, and before the resident was even admitted. Sometimes I find care charted on days that occur long after 

the resident has been dead and buried. Often, when I compare the care givers’ time 

cards with their charting, I find that the care givers are not even at work when 

the care was purportedly administered. 

In an interview with the Washington Post published February 4, 2000, John T. 

Bentivoglio, special counsel for health-care fraud at the Department of Justice, said 

in an interview, ‘‘A number of highflying nursing home chains appear to have incorporated defrauding Medicare as part of their business strategy.’’ In my experience, 

those words are just as true today as they were when they were uttered seven hears 

ago. 

It is into this milieu that families bring their precious, elderly loved ones to be 

cared for by the nursing home industry. Most people seeking care for their loved 

ones don’t have a clue about the scope of problems that exist in the nursing home 

industry (and, of course, the problems I have outlined above, while pervasive are 

not universal). They just know that they no longer can provide the care needed by 

their aging parent or grandparent and their local nursing home has assured them 

that it can do so. Comforted though they are by those assurances, the admission 

process is, nevertheless, stressful to say the least. 

Few decisions are as difficult or as painful as the decision to surrender one’s loved 

one to be cared for by strangers. Families are often wracked with remorse and guilt 

at the time of the nursing home admission. The elderly person is often filled with 

apprehension and fear and worries about being abandoned to the care of strangers. 

Emotions typically run high. An admissions packet of 50–60 pages is often presented for review by the patient or their family. The briefest of explanations is offered and the patient or their representative is asked to sign on multiple pages. The 

agreement for binding mandatory arbitration is commonly sandwiched toward the 

end of the documents and is explained, if at all, in the briefest of terms and in the 

most soothing of tones. Prospective new residents frequently suffer from dementia 

or are on medication or are otherwise mentally compromised. Often they suffer from 

poor vision or illiteracy. Rarely do they have the capacity to understand the significant and complex documentation with which they are presented. Sometimes, the 

nursing home representative will acknowledge, after the fact, that they, themselves, 

didn’t really understand the significance of the arbitration agreement they were 

asking the resident or their family member to sign. The goal, however, is to get patient’s or family member’s signature or mark on the document. If the family balks, 

they are told that admission will be denied. That is not acceptable to most family 

members since the next nearest available nursing home is often miles away and it 

will be extremely difficult to visit their loved one on a regular basis. Equality of bargaining position between the nursing home and the resident or their family does not 

exist. 

The terms of the binding mandatory arbitration agreement are often as unconscionable as the circumstances under which the agreement is executed. There is no 

mutuality. The residents and their families typically aren’t afforded an opportunity 

to negotiate the terms. As to the proposed agreement, they must ‘‘take or leave it.’’ 

The nursing home often retains the right to modify the contract, but that same right 

is not afforded to the resident or her family. The nursing home reserves the right 

to pursue a collection action in the courts against the resident or their family, but 

the resident is usually left with only the right to pursue any claims against the facility through arbitration. Discovery pursuant the agreement is emasculated. The 

agreement typically imposes draconian limits on (1) the number of witnesses who 

can be deposed or called at the arbitration, (2) the number of experts who can be 

called, (3) the number of interrogatories, requests for admission and requests for 

production that can be filed, and (4) the length of time to be allotted for the arbitration hearing. The arbitrator or arbitral forum is typically selected by the nursing 

53 

home and often the home (or the chain of which it is a part) provides repeat business for the decision maker. This is a process which hardly leads to a fair and just 

result for the resident who is a victim of abuse and neglect in a nursing home. Not 

surprisingly, therefore, arbitration awards are usually substantially lower than 

court awarded jury verdicts. 

The current system of binding mandatory arbitration employed by nursing homes 

creates a playing field that is tilted in favor of nursing homes and against frail, vulnerable residents who suffer terribly at the hands of their caregivers. Sadly these 

residents are, all too often, the victims of abuse by their caregivers. They should 

not be further abused by an arbitration system that dispenses anything but justice. 

Ms. SA ́ NCHEZ. Thank you. I appreciate your testimony, Mr. Connor. 

We will now begin the first round of questioning, and I will begin 

by recognizing myself for 5 minutes. 

Ms. MacCleery, I want to start with you. Consumer advocates 

argue that some businesses forbid class action lawsuits with the 

use of arbitration clauses. I am curious to know what effect do you 

believe that this has on consumers who are arbitrating their 

claims? 

Ms. MACCLEERY. I think it means that a lot of claims that might 

be brought won’t be, because there are abuses by corporations, particularly ones that have financial impact in small aggregate 

amounts—credit cards, cell phones—where the company has 

unrightful gains. They have obtained ill-gotten gains through some 

kind of accounting practice. There was a credit card company out 

in California that was sitting on people’s payments until they were 

late, and then dinging them with late fees—that sort of abusive behavior, but any individual consumer would not suffer a huge loss. 

So that if it was not able to be aggregated into a class action, you 

would not in fact be able to ever correct that abuse or bring it to 

light. 

Also, one other thing about this which is that there was a move 

by some of the arbitration providers, the firms, to allow class actions, including AAA, and yet when their members revolted and essentially threatened to pull their business out of that arbitration 

provider, that pressure was enough to get them to cave on that decision. That is documented in our report. 

Ms. SA ́ NCHEZ. So in other words, if I have this correct, if you are 

a consumer who has been harmed, if there are thousands of consumers who have been harmed let’s say $50 or under, for an individual it may not be worthwhile to try to recoup that $50 because 

you might have to pay $250 in fees to get back that $50. But if you 

could aggregate it, you might be able to punish companies who are 

doing bad business practices, or perhaps even illegal business practices and force them to compensate the whole class of people that 

have been affected. 

Ms. MACCLEERY. The issue is the deterrent effect that a case like 

that has against similar abuses. 

Ms. SA ́ NCHEZ. And if I am understanding you correctly, Governor 

Barnes, even with illegal actions, each individual plaintiff, if you 

will, has to arbitrate each claim and in the aggregate they can’t say 

this is a wrong business practice and you have to stop this immediately. Is that correct? 

Mr. BARNES. That is correct, to answer your question directly. 

Even where there is a crime, well, why doesn’t the solicitor prosVerDate Aug 31 2005 10:40 Apr 29, 2009 Jkt 000000 PO 00000 Frm 00059 Fmt 6633 Sfmt 6601 H:\WORK\COMM\102507\38510.000 HJUD1 PsN: 38510
54 

ecute them? Well, we have tried that a time or two, and we have 

had a few that have been prosecuted. But you go to most solicitors, 

and they said, ‘‘Listen, I have mayhem and murder in the streets. 

The courts have to take care of this.’’ This is more in a civil nature. 

Even though the general assembly said, ‘‘Listen, you ought not to 

be in this business.’’ The only way you can ever litigate these cases 

is to aggregate them some way. 

The courts, you all have put the Class Action Fairness Act, you 

have put all these requirements. Most of the States have. You have 

an interim appeal from it. Whether I agree with them or disagree 

with them, they have been controls on the abuses of class actions, 

but let me tell you something. In consumer cases, if a business, 

particularly an illegal one, knows they can get by with it because 

everybody is too busy, and they know they don’t have any responsibility or accountability because they can’t be brought, they are 

going to do it. That is just the way it is, and they are going to 

make the money. 

Ms. SA ́ NCHEZ. Because it is profitable. 

Mr. BARNES. And then when you sue them and when you go to 

arbitration with them, you have every white-shoe law firm from 

New York to Atlanta because this business is so profitable. 

Ms. SA ́ NCHEZ. Correct. 

Mr. Connor, I was very touched by some of the problems that you 

have outlined in care facilities. Now, you are a Republican, is that 

correct? 

Mr. CONNOR. I am. I am a conservative Republican trial lawyer. 

Ms. SA ́ NCHEZ. Okay. 

Mr. CANNON. Thank heaven for a few. [Laughter.] 

Mr. CONNOR. An oxymoron, some less charitably call me. 

Ms. SA ́ NCHEZ. I would never call it an oxymoron or any other 

kind of moron, I dare say. [Laughter.] 

I appreciate your testimony. I am interested in hearing from you 

and Mr. Naimark, and it is sort of a joint question. In your opinion, 

is this is partisan issue, the pre-arbitration mandatory arbitration 

clauses? Do you think that that is a partisan issue? 

Mr. CONNOR. I don’t. I think that this bill gets at frankly some 

bedrock fundamental conservative principles that Republicans 

ought to be affirming. Accountability and responsibility run hand 

in hand. If you don’t hold wrongdoers fully accountable for the consequences of their wrongdoing, that wrongdoing is going to multiply. Republican conservatives have typically said we believe decisions made at the local level by people with their feet on the 

ground are the best decisions. That is what the jury system is all 

about. 

What the arbitration system does, certainly in the nursing home 

context, is just exactly what Mr. Naimark was critical of. It slopes 

the playing field in favor of one side against the other. It doesn’t 

result in full accountability for wrongdoing. Wrongdoers calculate 

the cost of doing business. They can calculate the profit as easily 

as you and I can. Their wrongdoing multiplies and the profiteering 

increases, and it is at the expense of our frailest and most vulnerable residents for whom Republicans maintain they have high esteem for the sanctity of their lives, but are actually in many respects I think undermining the protection of those lives. 

55 

Ms. SA ́ NCHEZ. I appreciate that. I have one last question I would 

beg everybody’s indulgence to go over my time by 1 additional 

minute to just ask Mr. Naimark. Is there any objection? Okay. 

The AAA does not support pre-dispute binding arbitration in the 

health care context such as disputes involving medical malpractice 

or health insurance coverage. I am interested to know why does 

AAA take this stand, and yet support arbitration involving civil 

rights employment cases or consumer protection cases or in other 

contexts? Why is there that carve-out, and how can you justify 

that? 

Mr. NAIMARK. In a word, the health care cases are qualitatively 

different. I mean, they can literally be matters of life and death 

and very similar to the situation Mr. Connor described, where people under great duress may be signing documents and not knowing 

what they are signing. So it was the considered opinion of the advisory committee that they are qualitatively different, different 

stakes. 

Ms. SA ́ NCHEZ. I can understand and appreciate that, but to me 

the idea that that somehow deserves exception and people signing 

away their civil or statutory rights is somehow not as important, 

to me is a distinction that I couldn’t place the line there. 

Mr. NAIMARK. Well, let me say a couple of things. First of all, 

this is a public policy issue, whether mandatory clauses in the consumer and employment context are acceptable or not. The courts 

in fact are very split on this. It is a very contentious issue. You 

asked about the class actions, is that contentious? This is also. 

They are both contentious issues. 

So it really is not an issue that AAA necessarily supports or defends. It is an issue that we have to deal with. So if the cases come 

in, what we try to do is make sure that you have the protections 

with the due process protocols so that people are not giving away 

their civil rights or any rights. That was one of the issues that I 

pointed to about all remedies should be available that they would 

otherwise get in court or in an administrative hearing. It is merely 

a change in forum, and we try to make sure that that is followed 

through all the way so people aren’t losing. 

Ms. SA ́ NCHEZ. Okay. I appreciate that. My time has expired. 

I would now recognize Mr. Cannon for 5 minutes of questions. 

Mr. CANNON. Thank you, Madam Chair. 

I appreciate the testimony received from this panel. Let me just 

say, this is to a large degree not a partisan issue. This is a question 

of how we do things that make some sense, and both Mr. Connor 

and Governor Barnes have made cases for particular classes of people. 

I don’t think these things are so simplistic. For instance, after we 

passed the bill that disallowed payday loans, Utah has a disproportionate number of people in Iraq and Afghanistan, and we have a 

bunch of wives who can go in and for a $25 fee get a loan until 

the next pay day. That can be a horrible thing when those fees pile 

up, and in those cases you often have criminality. But it is a huge 

burden on families when they can’t make it to the next pay day because we have a problem with payday loans. So it is something 

where we need some balance. 

56 

Governor Barnes, you were talking about a case in particular, 

and you ended by saying that it had to wait until the criminality 

was over. Was there a criminal charge in that case? 

Mr. BARNES. It is a crime, but there was not a criminal charge 

in that case. I don’t know which one, of course, sometimes—— 

Mr. CANNON. Yes, there were both. But what you are saying essentially is the criminality continues then because there is no civil 

solution—— 

Mr. BARNES. Oh, I see what you are talking about. Yes, because 

I mean it is just an enforcement problem. In other words, it is a 

crime. It is a crime in Georgia and has been, to do payday lending, 

but you go down there and solicitors just don’t have the time to do 

it. And if they are shielded from civil responsibility, there is no impediment at all. 

Mr. CANNON. Right. But in that particular issue, it did not have 

some criminal activity going on. Thank you. 

Mr. BARNES. Well now, there was criminal activity. 

Mr. CANNON. Right, but no criminal prosecution. I am sorry. 

That is exactly what I meant. 

Ms. MacCleery, your study as I understand it was limited to the 

National Arbitration Forum, and you did not study things like the 

AAA? 

Ms. MACCLEERY. Well, here is the problem. The NAF is actually, 

and I hate to say this really, better than AAA in terms of their disclosures on the California reports in the sense that they have created a consistent dataset that allowed us to build a mechanism to 

dump it into a sortable database. So NAF still—— 

Mr. CANNON. So it was an easier thing for you to do to study 

them. 

Ms. MACCLEERY. Well, it is still 34,000 records. 

Mr. CANNON. There are some limitations on that study. Those 

are mostly credit card debt studies or collection cases, right? So you 

have—— 

Ms. MACCLEERY. It was all of the NAF cases in their data, all 

34,000. 

Mr. CANNON. What kind of cases did they deal with? 

Ms. MACCLEERY. It was mainly debt collection cases. Now, AAA 

doesn’t even complete its records in the California disclosures. So 

we have been trying to build—— 

Mr. CANNON. It is hard to get conclusions, is what you are saying. 

Ms. MACCLEERY. Well, they don’t complete the records. I mean, 

you cannot—— 

Mr. CANNON. I understand that. What we are trying to figure out 

here is what kind of weight to put on your study. There is a huge 

difference between a consumer who says, ‘‘my widget broke,’’ and 

goes to an arbitration process, and a person who says, ‘‘I paid that 

bill,’’ when maybe they did or maybe they didn’t. Certainly, there 

will be outlandish cases where bills were paid and were not credited. You mentioned the case where a payment is held and then a 

late charge is added. Those kind of things happen. We recognize 

that. Those are terrible things and should not happen. But generally speaking, credit cases are overwhelmingly going to go 

against the person who failed to pay the bill. 

57 

Ms. MACCLEERY. There is a high level of what you would call default in credit card cases. There was another database of 20,000 

cases in an Alabama court case that came to light that showed 

similar decision rates against consumers about 99 percent that 

were NAF data records. We would love to analyze the AAA data. 

Mr. CANNON. Were those also—— 

Ms. MACCLEERY. Those were also collections. 

Mr. CANNON. So in the collection cases, you had 94 percent of the 

cases that were decided by NAF in favor of the company and 

against the creditor. 

Ms. MACCLEERY. That is right. 

Mr. CANNON. Would that have been different, for instance—did 

you take a look at whether or not that would have been different 

if those people had been in the court system and been litigating in 

the court system? 

Ms. MACCLEERY. The only two studies we found on default judgments in the court systems are dated. They pre-date a lot of identity theft problems. There is one from 1990 and one study in the 

late 1960’s. Both of them have default rates for consumers that are 

lower than the default rates in our study. But there is very little 

data on a comparison basis to look at whether small claims court 

data are similar to the arbitration outcomes. 

But I think the argument is really fundamental. It is about fairness in the structural problems that we highlighted. 

Mr. CANNON. With your data, you are dealing with a very narrow 

slice, and I just think we need as a Committee to be thoughtful 

about how narrow that slice of data you looked at is as you look 

at it. We have particular problems that Governor Barnes raised, 

particular problems that Mr. Connor raised, but what your data 

shows is what it is in a very narrow slice of the issue of arbitration 

clauses. I think I understand what the position is. I think the 

record is fairly clear that this is a very narrow study in a very narrow environment with the best data available, but not data that 

particular is illuminating in other areas. 

Ms. MACCLEERY. Well, I would disagree that it is narrow. It was 

all the cases. We didn’t exclude any cases by subject matter. 

Mr. CANNON. Well, it is narrow by nature of the question—— 

Ms. MACCLEERY. Well, it is 19,000 cases. 

Mr. CANNON. That is a lot of cases, but it is a very narrow category of cases. 

Ms. MACCLEERY. We would love to look at AAA’s data if they 

would only complete their records in California. We would love to 

expand the power of the study, but this is the only empirical data 

that is currently available. 

Mr. CANNON. But I think we understand each other that you are 

not disagreeing that the nature of the study is very, very narrow. 

That is, it is related to cases that are consumer credit cases, debt 

cases where you have collections. There is no way even to compare 

that data—and I apologize, I am going over my time, but I would 

like to just clarify the point. 

Ms. SA ́ NCHEZ. Yes, finish. Yes. 

Mr. CANNON. Which is that there is no way even to compare that 

narrow kind of data with what would happen in courts. You are not 

purporting that your study compares with courts, and so it is a 

58 

data point that we can look at, but it is hard to associate with the 

larger issue. 

Ms. MACCLEERY. I think there are a lot of stories in our report 

that go outside the credit card context and look at the same kind 

of patterns of problems in decision-making in arbitration that point 

to the structural deficiencies. So I would agree that it deals with 

a certain type of case, but I would disagree that its implications are 

narrow. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. 

Mr. CANNON. Thank you. I yield back. 

Ms. SA ́ NCHEZ. Thank you. 

At this time, I will recognize Mr. Johnson, the gentleman from 

Georgia, for his questions. 

Mr. JOHNSON. Thank you. 

Mr. Naimark, would you say that AAA would be the largest arbitration firm in the Nation? 

Mr. NAIMARK. Yes, but with a qualifier. Our annual consumer 

caseload is approximately 1,500 cases, of which 60 percent settle 

before they ever get to an arbitrator, so we are talking about a relative few hundred a year that actually get to an arbitrator. In employment cases, it is roughly 2,000 per year. So we do lots and lots 

of arbitration of all types with unions, companies and international. These caseloads for us are fairly small. 

Mr. JOHNSON. Do you advertise your services in the yellow pages 

or newspapers? 

Mr. NAIMARK. I don’t know if we have listings anymore in the 

yellow pages. We have run a number of ads over the years in a variety of publications. 

Mr. JOHNSON. Typically what type? 

Mr. NAIMARK. What type? 

Mr. JOHNSON. Yes. 

Mr. NAIMARK. For the international business disputes, we will 

run them in the international business journals. 

Mr. JOHNSON. You typically run them in business journals, in 

publications that are directed toward businesses. Is that correct? 

Mr. NAIMARK. For business-to-business dispute resolution, yes. 

Mr. JOHNSON. Because it is rare that a consumer would ever 

choose AAA to arbitrate a dispute. 

Mr. NAIMARK. I don’t know that that is so. 

Mr. JOHNSON. Let me rephrase the question. How does AAA get 

the bulk of its business? 

Mr. NAIMARK. How do we get the bulk of it? 

Mr. JOHNSON. Isn’t it through referrals from businesses that either are instituting arbitration proceedings against a consumer, or 

a consumer that is limited in the choice of the arbitration panel 

that he or she can employ to pursue a dispute against a commercial interest? 

Mr. NAIMARK. In the consumer caseload—I assume that is what 

we are addressing—we get both. A significant number—I can’t tell 

you the exact percentage—are filed by consumers. Our stats show 

they win basically half of those cases, and the businesses file the 

rest. 

Mr. JOHNSON. I guess the point I am trying to make is you get 

most of your referrals from business interests. Isn’t that correct? 

59 

Most of your arbitrations are done as a result of referrals from 

business interests, commercial interests? 

Mr. NAIMARK. Unions and businesses primarily, yes. 

Mr. JOHNSON. Who typically pays the fee for the arbitration process? 

Mr. NAIMARK. If we are talking about the consumer process, we have two levels of fees for consumers. Claims up to $10,000, they 

pay a maximum of $125. For claims up to $75,000, they pay a maximum of $375. Business will pay the rest. 

Mr. JOHNSON. Most of your claims are instituted by commercial 

interests against consumers, however. Isn’t that correct? 

Mr. NAIMARK. No, that is not correct. 

Mr. JOHNSON. Well, let me ask you this question. What class of 

disputes do you get where consumers tend to file more than the 

commercial interests? 

Mr. NAIMARK. I don’t know that they file more, but in our consumer caseload—those 1,500 cases I mentioned—a significant number are filed by consumers because they are seeking redress 

against the business. Let me try to explain it this way, if a company—— 

Mr. JOHNSON. Okay. I am running out of time. I want to switch 

to a different tack now. 

The arbitrators who you employ, approximately how many do 

you employ? 

Mr. NAIMARK. Well, if you look at the entire panel for every category, roughly 9,000 I would say. 

Mr. JOHNSON. Are they judges? 

Mr. NAIMARK. Most of them are not judges, no. 

Mr. JOHNSON. Are they lawyers? 

Mr. NAIMARK. Most of them are lawyers, yes. 

Mr. JOHNSON. Yes. And most of them are selected by AAA based 

on, I guess, their connections to businesses that employ them? 

Mr. NAIMARK. Absolutely not. We have committee that reviews. 

We look especially for diversity and try to get as much balance between, especially plaintiff and defense as possible. What you try to 

do is get senior respected people in the community. 

Mr. JOHNSON. Let me ask you this question. Is there a court reporter that takes down the typical proceeding? 

Mr. NAIMARK. For a consumer case, typically no. 

Mr. JOHNSON. So there is no record upon which to appeal on? 

Mr. NAIMARK. No. I have to say typically under U.S. law, even 

if you had one, it would be tough to appeal. 

Mr. JOHNSON. There is basically no effective right to appeal the 

arbitrator’s decision, correct? 

Mr. NAIMARK. That is correct. 

Mr. JOHNSON. And there is no right to discovery of documents or 

witnesses? 

Mr. NAIMARK. No, the protocols provide that there is right to discovery. 

Mr. JOHNSON. And those are the protocols that AAA follows, but 

not necessarily all of the others? 

Mr. NAIMARK. Yes. The discovery may be limited. It is controlled 

by the arbitrator, but this is an especially important issue in the 

employment cases where typically the employee needs records that 

60 

the employer has, so you have to make provision that they can at 

least get some of the documentation. 

Mr. JOHNSON. Well, if the arbitrator rules unfairly against the 

consumer and in favor of the employer, there is no right to appeal 

is there? 

Mr. NAIMARK. No. 

Mr. JOHNSON. So it pretty much means that whatever the arbitrator says goes. 

Mr. NAIMARK. Yes. 

Mr. JOHNSON. And there is no requirement that the arbitrator be 

an attorney. 

Mr. NAIMARK. No. In the employment area, the parties pick their 

arbitrators. 

Mr. JOHNSON. And you do have some arbitrators who are not 

even lawyers. 

Mr. NAIMARK. In the consumer area, virtually none. 

Ms. SA ́ NCHEZ. The time of the gentleman—— 

Mr. JOHNSON. Virtually none are lawyers? 

Mr. NAIMARK. No, they are virtually all lawyers. 

Mr. JOHNSON. All right. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. 

I am going to thank the first panel for their testimony. I am 

going to excuse you, and we will invite the second panel to please 

come up and be seated. 

I am now pleased to introduce the witnesses for our second panel 

for today’s hearing. Our first witness is Ms. Deborah Williams. Ms. 

Williams is a Coffee Beanery franchise owner, along with her partner Richard Welshans, and was a victim of a binding mandatory 

arbitration clause. She resides in Annapolis, Maryland. We appreciate your being here today. 

Our second witness is Ms. Cathy Ventrell-Monsees. Ms. VentrellMonsees has been practicing in employment discrimination law 

since 1983. She litigated several ADEA class actions and has written more than 50 amicus briefs in the U.S. Supreme Court and circuit courts. Ms. Ventrell-Monsees has a part-time law practice and 

teaches employment discrimination law at the Washington College 

of Law at American University. From 1985 to 1998, she worked in 

and directed an age discrimination litigation project at AARP and, 

with Steve Platt, she is coauthor of ‘‘Age Discrimination Litigation.’’ Ms. Ventrell-Monsees has appeared in numerous national 

and local media as a commentator on employment issues. We welcome you to today’s hearing. 

Our third witness is Professor Peter Rutledge. Professor Rutledge is an associate professor of law at The Catholic University of 

America, where his teaching and research interests include international dispute resolution and criminal law. A former law clerk at 

the United States Supreme Court and the United States Court of 

Appeals for the Fourth Circuit, Professor Rutledge regularly advises parties and lawyers on matters before the U.S. Supreme 

Court. Before entering the academy, Professor Rutledge practiced 

at Wilmer, Cutler and Pickering, where his practice included Supreme Court work, and at Freshfields Bruckhouse Derringer, 

where his practice concentrated on international arbitration. We 

welcome you to our second panel. 

61 

Our final witness is Theodore Eppenstein. Mr. Eppenstein is a 

member of Eppenstein and Eppenstein, a law firm with an international practice. He has testified previously before Congress on 

matters of compulsory arbitration and arbitration reform. Mr. 

Eppenstein was appointed to be one of three public members of the 

Securities Industry Conference on Arbitration, an advisory committee to the U.S. Securities and Exchange Commission on arbitration. He is a member of the American Arbitration Association’s Security Advisory Committee and has coauthored many articles on 

securities arbitration and litigation. 

I want to thank you all for your willingness to participate in today’s hearing. You understand the rules about the lights from the 

previous panel. So with that, I will invite Ms. Williams to please 

begin her oral testimony. 

TESTIMONY OF DEBORAH WILLIAMS, ANNAPOLIS, MD 

Ms. WILLIAMS. I want to thank Chairwoman Sa ́nchez and the 

Members of the Subcommittee for giving me the opportunity to 

share my story. 

My name is Deborah Williams. I am 54 years old, and I am 

bankrupt and on the verge of being homeless, all because of a binding mandatory arbitration clause. In February 2004, my partner 

and I opened a Coffee Beanery franchise in Annapolis, MD. Included in our franchise contract hid a binding mandatory arbitration agreement. 

Within 3 months, our dream of owning our own small business 

was becoming a nightmare. The franchise rapidly fell apart 

through no fault of our own. The Coffee Beanery had sold us a 

failed business concept that generated massive losses. We were required to purchase expensive, faulty equipment, such as a discontinued lighting system that cost $14,000, and a defective display 

case that cost $8,000, a $2,000 markup from what it normally sells 

for. 

We were forced into illegal third-party contracts which required 

ongoing fees and additional equipment such as a gift card program, 

a required DMX music and security system, and a Pepsi contract. 

The DMX music and security system was listed in our contract as 

already paid for, but the Coffee Beanery forced us to pay an additional $8,000 for the system. The gift card program and Pepsi contract were not disclosed in our initial contract as required by law, 

but we had invested so much money that we had no choice but to 

accept the exorbitant additional fees. We would have never bought 

the franchise if these contracts had been disclosed. 

We conducted more research and discovered over 73 other failed 

Coffee Beanery franchises, and that the Coffee Beanery was being 

investigated in other States. We also learned that a Coffee Beanery 

cafe had an average life span of 3 years. That is pretty unbelievable considering that the investment is over $375,000 for the average cafe. 

We immediately alerted the Maryland attorney general of our 

situation. The attorney general’s office conducted an investigation 

and, based on Maryland franchise law and the Federal Trade Commission franchise rule, they concluded that the franchisor committed fraud in the sale of our small business. When someone comVerDate Aug 31 2005 10:40 Apr 29, 2009 Jkt 000000 PO 00000 Frm 00067 Fmt 6633 Sfmt 6601 H:\WORK\COMM\102507\38510.000 HJUD1 PsN: 38510
62 

mits fraud they should be held accountable. In December 2005, we 

filed our civil case in Maryland district court, but despite the Maryland attorney general’s finding and the protection of Maryland 

franchise law, we were forced to resolve our dispute through binding mandatory arbitration. 

The arbitration company that the Coffee Beanery used in our 

case is called the American Arbitration Association, the AAA. The 

AAA arbitrator was selected without our input and without our 

consent at a fee of $200 an hour. We had no information about her 

history as an arbitrator, or if she had been hired by the Coffee 

Beanery before to arbitrate, and how often she ruled in their favor. 

We also discovered that our arbitrator shared an accounting firm 

with the Coffee Beanery, an obvious conflict of interest. We tried 

to have her replaced, but were unsuccessful. If a judge had a similar connection to the defense in a court case, it would have been 

thrown out immediately, but not in the kangaroo court known as 

arbitration. We also found later that the Coffee Beanery’s attorney 

also doubled as an arbitrator for the AAA. 

Because discovery is very limited in arbitration, we had difficulty 

obtaining copies of the Coffee Beanery’s illegal third-party contracts to use as evidence in our case. The Coffee Beanery did not 

respond to our discovery requests, dragging out the process for 7 

months, knowing that we couldn’t afford the exorbitant costs that 

accompany a long arbitration process. We later obtained some of 

these contracts from another franchisee, and not the Coffee 

Beanery. 

The arbitration took place in Michigan, 500 miles from our home. 

We flew back and forth with our attorney four times for a total of 

11 days of proceedings. We felt that we had a great chance of prevailing since the attorney general had already found the franchisor 

had committed fraud. 

Our cost of the arbitration proceedings totaled over $100,000, 

hardly a cheaper alternative to litigating locally in Maryland. In 

the end, the arbitrator ruled that, contrary to the findings of the 

Maryland attorney general’s office, we were at fault. In addition to 

our costs, we were required to pay the Coffee Beanery $150,000, 

plus their attorneys’ costs and fees. That is a total of over 

$250,000. We are trying to appeal our decision, but we have been 

told by several attorneys that it is a lost cause. It is virtually impossible to overturn a decision of an arbitrator on appeal. 

It has been 4 years since we have opened our franchise. We 

haven’t made a profit. We haven’t paid ourselves wages. We are in 

enormous debt. We have invested over $1.5 million in this failed 

business, and every year we owe the Coffee Beanery more money 

in royalties. Since we signed a 15-year franchise agreement with 

the Coffee Beanery, our only options have been to sell this business 

to another unsuspecting person which we refuse to do, or to file for 

bankruptcy. 

Recently, our landlord terminated our lease due to our inability 

to pay rent and the doors to our Coffee Beanery cafe will be locked 

as of next Wednesday, October 31. We are borrowing money from 

our family so that we can file for bankruptcy. However, we still 

owe the Coffee Beanery royalties for the remaining 11 years on our 

franchise even if our cafe is no longer open. 

63 

Losing our right to a trial by jury has crippled us, but we are 

not alone. Binding mandatory arbitration has harmed the livelihoods of thousands of others. The Arbitration Fairness Act of 2007 

would ensure that all Americans have access to the courts and 

trials by juries to resolve disputes. It would still permit arbitration 

in cases like ours, but only if both parties voluntarily agree to it. 

Please do not force more consumers into a privatized system that 

has no oversight and almost no opportunity to appeal. That kind 

of power is dangerous and too easily abused. We never knew how 

precious our constitutional rights were until they were stolen from 

us by a binding mandatory arbitration clause. 

It is the American dream to own your own business. Our dream 

has been trampled upon by binding mandatory arbitration. I hope 

hearing our story will make a difference and you will protect hardworking Americans across the country by eliminating these abusive 

clauses. 

Thank you. 

[The prepared statement of Ms. Williams follows:] 

PREPARED STATEMENT OF DEBORAH WILLIAMS

I want to thank Chairwoman Sa ́nchez and the members of the subcommittee for 

giving me the opportunity to share my story. 

My name is Deborah Williams. I am 54, bankrupt and on the verge of being 

homeless, all because of a binding mandatory arbitration clause. In February 2004, 

my partner and I opened a Coffee Beanery franchise in Annapolis, Maryland. In the 

small print of our franchise contract hid a binding mandatory arbitration agreement. 

Within three months, our dream of owning our own small business was becoming 

a nightmare. The franchise rapidly fell apart through no fault of our own. The Coffee Beanery had sold us a failed business concept that generated massive losses. We 

were required to buy expensive, faulty equipment, such as a discontinued lighting 

system that cost $14,000, and a defective display case that cost $8000, a $2000 

mark-up from what it normally sells for. 

We were forced into illegal third-party contracts which required ongoing fees and 

additional equipment such as a Gift Card program, a required DMX music and security system, and a Pepsi contract. The DMX music and security system was listed 

in our contract as already paid for, but the Coffee Beanery forced us to pay an additional $8000 for the system. The gift card program and Pepsi contract were not disclosed in our initial contract as required by law, but we had invested so much 

money that we had no choice but to accept the exorbitant additional fees. We would 

have never bought the franchise if these contracts had been disclosed. 

We conducted more research and discovered over 73 other failed Coffee Beanery 

franchises, and that the Coffee Beanery was being investigated in other states. We 

also learned that a Coffee Beanery cafe had an average life span of three years— 

hat’s pretty unbelievable considering the average cost to open one of these cafes is 

over $375,000. 

We immediately alerted the Maryland Attorney General of our situation. The Attorney General’s office conducted an investigation and, based on Maryland franchise 

law and the Federal Trade Commission franchise rule, they concluded that the 

franchisor committed fraud in the sale of our small business. When someone commits fraud then they should be held accountable. In December 2005, we filed our 

civil case in Maryland district court, but despite Maryland Attorney General’s finding, we were forced to resolve our dispute through binding mandatory arbitration. 

The arbitration company that the Coffee Beanery used in our case is called the 

American Arbitration Association (AAA). The AAA arbitrator was selected without 

our input and without our consent at a fee of $200 an hour. We had no information 

about her history as an arbitrator—f she had been hired by the Coffee Beanery before for arbitration or how often she had ruled in their favor. 

We also discovered that our arbitrator shared an accounting firm with The Coffee 

Beanery, an obvious conflict of interest. We tried to get her replaced but were unsuccessful. If a judge had a similar connection to the defense in a court case it would 

have been thrown out immediately, but not in the kangaroo court known as arbitraVerDate Aug 31 2005 10:40 Apr 29, 2009 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6621 H:\WORK\COMM\102507\38510.000 HJUD1 PsN: 38510
64 

tion. We also found out later that the Coffee Beanery’s attorney also doubled as an 

arbitrator for the AAA. 

Because discovery is very limited in arbitration, we had difficulty obtaining copies 

of the Coffee Beanery’s illegal third-party contracts to use as evidence in our case. 

The Coffee Beanery did not respond to our discovery requests dragging out the process for seven months, knowing that we couldn’t afford the exorbitant costs that accompany a long arbitration process. We later obtained some of these contracts from 

another franchisee, and not the Coffee Beanery. 

The arbitration took place in Michigan, 500 miles from our home. We flew back 

and forth with our attorney three times for a total of 11 days of proceedings. We 

felt that we had a great chance of prevailing since the Attorney General had already 

found the franchisor had committed fraud. 

Our cost of the arbitration proceedings totaled over $100,000—ardly a cheaper alternative to litigating locally in Maryland. In the end, the arbitrator ruled that contrary to the findings of the Maryland Attorney General’s office, we were at fault. 

In addition to our costs, we were required to pay the Coffee Beanery $150,000, plus 

their attorneys’ costs and fees. That’s a total of over $250,000. 

We are trying to appeal our decision, but we have been told by several attorneys 

that it is a lost cause. It’s virtually impossible to overturn a decision of an arbitrator 

on appeal. 

It’s been four years since we have opened our franchise. We haven’t made a profit. 

We haven’t paid ourselves wages. We are in enormous debt. We’ve invested over 

$1.5 million in this failed business and every year, we owe the Coffee Beanery more 

money in royalties. Since we signed a 15 year franchise agreement with the Coffee 

Beanery, our only options have been to sell this business to another unsuspecting 

person which we refuse to do, or to file for bankruptcy. 

Recently, our landlord terminated our lease due to our inability to pay rent and 

the doors to our Coffee Beanery cafe will be locked as of next Wednesday, October 

31. We are borrowing money from our family so that we can file for bankruptcy; 

however, we may still owe the Coffee Beanery royalties for the remaining 11 years 

on our franchise even if our cafe is no longer open. 

Losing our right to a trial by a jury has crippled us, but we are not alone. Binding 

mandatory arbitration has harmed the livelihoods of thousands of others. The Arbitration Fairness Act of 2007 would ensure that all Americans have access to the 

courts and trials by juries to resolve disputes. It would still permit arbitration in 

cases like ours, but only if both parties voluntarily agree to it. 

Please do not force more consumers into a privatized system that has no oversight 

and almost no opportunity to appeal. That kind of power is dangerous and too easily 

abused. We never knew how precious our constitutional rights were until they were 

stolen from us by a binding mandatory arbitration clause. 

It is the American dream to own your own business. Our dream was trampled 

upon by binding mandatory arbitration. I hope hearing our story will make a difference and you will protect hardworking Americans across the country by eliminating these abusive clauses. 

Ms. SA ́ NCHEZ. Thank you, Ms. Williams. We appreciate your testimony. 

At this time, I would invite Ms. Ventrell-Monsees to give her testimony. 

TESTIMONY OF CATHY VENTRELL-MONSEES, ESQ., LAW OFFICES OF CATHY VENTRELL-MONSEES, CHEVY CHASE, MD, 

ON BEHALF OF THE NATIONAL EMPLOYMENT LAWYERS ASSOCIATION 

Ms. VENTRELL-MONSEES. Thank you, Madam Chair, Congressman Cannon and Members of the Subcommittee. My name is 

Cathy Ventrell-Monsees. I am an executive boardmember of the 

National Employment Lawyers Association, known as NELA. 

NELA advances employee rights and serves lawyers who advocate 

for equality and justice in the American workplace. NELA’s concern, and why we are here today, is the widespread use of pre-dispute mandatory arbitration to resolve employment cases, and the 

65 

deterrent effect that system has on the ability of employees to enforce their employment and civil rights. 

Every day, NELA members see how companies stack the deck in 

their favor in their disputes with employees, and the use of mandatory arbitration has grown exponentially over the past 15 years. In 

1991, a mere 3.6 percent of private employers used arbitration systems. Today, approximately 15 percent to 25 percent of private employers from Circuit City to Hooters to Halliburton, use mandatory 

arbitration to keep the potential claims of more than 30 million 

employees out of court. 

Companies put mandatory arbitration provisions into employment applications, employment handbooks and employee benefit 

plans. Employees must sign those documents if they want to get 

the job or keep the jobs they already have, despite whatever theoretical due process protocols may bar imposing mandatory arbitration as a condition of employment. 

The workers we represent face many different kinds of employment and discrimination problems, such as being fired while on 

family or medical leave; our military and reserve personnel who return from Iraq and Afghanistan only to find their jobs gone, blueand white-collar workers who are forced to work off the clock so 

their employers don’t have to pay them overtime; and retaliation 

against whistleblowers who risk their careers to report dishonest or 

risky corporate or government behavior. 

But the courts have held that all of these claims are subject to 

mandatory pre-dispute arbitration. So what is wrong with that? 

What is wrong is that mandatory arbitration creates a modern-day 

version of separate and unequal justice for employees, and here is 

how. Under mandatory pre-dispute arbitration, employees lose 

their day in court before an impartial judge. They lose their right 

to a trial of their peers and their right to appeal. 

They lose the protection of our laws because arbitrators do not 

have to follow the law. They do not even have to know the law. 

Employees lose important remedies because mandatory arbitration 

programs and arbitrators can and do limit the damages an employee can get in court by Federal or State law. An employer who 

forces its employees into this separate system can pick its favorite 

arbitrator and use that same arbitrator over and over again to rule 

in its favor in other cases brought by other employees of the company. 

The effect of this repeat player phenomenon is dramatic as 

shown by two recent examples taken from public reports of the 

American Arbitration Association. From January 1, 2003 to March 

31, 2007, the AAA held 62 arbitrations for Pfizer in employment 

cases, of which 29 went to decision. Of the 29, an arbitrator found 

for the employee just once, and for the employer 28 times. That is 

a rate of 97 percent for the employer. Halliburton in its cases won 

32 out of 39 cases that went to a decision, a telling 82 percent win 

rate in arbitration. 

The result? Companies that routinely discriminate against their 

employees are never held accountable to the public because of this 

private separate system. Pre-dispute mandatory arbitration provides no deterrent effect to prevent employers from discriminating 

again and again. Rather, pre-dispute binding mandatory arbitraVerDate Aug 31 2005 10:40 Apr 29, 2009 Jkt 000000 PO 00000 Frm 00071 Fmt 6633 Sfmt 6601 H:\WORK\COMM\102507\38510.000 HJUD1 PsN: 38510
66 

tion deters employees from pursuing their employment rights. That 

is a significant cost that employees in our society bear under the 

current separate and unequal system. 

Arbitration is often touted as inexpensive. Not true in employment cases. Employees often have to pay exorbitant fees just to get 

a hearing. Arbitrators typically charge $250 to $450 an hour and 

arbitrations can last more than 100 hours. A worker who has been 

fired from her job simply cannot afford this cost. 

Ms. SA ́ NCHEZ. I am sorry, Ms. Ventrell-Monsees. Your time has 

expired. I want you to summarize your final thoughts. 

Ms. VENTRELL-MONSEES. Yes. NELA urges Congress to act without delay to pass the Arbitration Fairness Act. Congress should no 

longer allow this separate and very unequal system to continue. 

Thank you. 

[The prepared statement of Ms. Ventrell-Monsees follows:] 

67 

PREPARED STATEMENT OF CATHY VENTRELL-MONSEES


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Ms. SA ́ NCHEZ. Thank you very much for your testimony. 

At this time, I would invite Professor Rutledge to give his testimony. 

TESTIMONY OF PETER B. RUTLEDGE, ESQ., THE CATHOLIC 

UNIVERSITY OF AMERICA, COLUMBUS SCHOOL OF LAW, 

WASHINGTON, DC 

Mr. RUTLEDGE. Thank you, Chairwoman Sa ́nchez, Ranking Member Cannon, Representative Johnson and Members of the Subcommittee. I am an associate professor of law at the Columbus 

School of Law, coauthor of the book ‘‘International Civil Litigation 

in the United States,’’ and author of several articles in the field of 

arbitration. 

I appreciate the opportunity to participate in the hearing today, 

and would like to take you up on your invitation, Madam Chair, 

to elicit testimony to assess the accuracy of reports on exactly what 

is the state of the empirical data in arbitration to assist the Subcommittee in deciding whether legislation is necessary. I hope that 

both my written testimony and my oral testimony will assist you 

in that process. 

Allow me to briefly summarize my points. First, the available 

data on arbitration is growing and in important respects is either 

inconsistent with or flatly contradicts some of the arguments that 

have been driving this debate so far. It is important to fill the gaps 

in the empirical record before knowing whether and to what extent 

legislation is necessary. 

Second, several of the findings upon which H.R. 3010 rests either 

conflict with the available empirical evidence or rest on criticism 

not unique to arbitration. 

Third, to the extent there are problems with arbitration, and let 

me speak personally here and stress I agree that there are some, 

several mechanisms already exist to regulate them. The question 

is not whether arbitration is perfect. Surely it is not. The question 

is whether the imperfections in the system justify jettisoning it altogether. 

That leads me to my fourth point. Eliminating arbitration agreements may have significant negative economic effects. I am the 

first to admit that this is an area where we need more empirical 

research, but several bits of anecdotal evidence which are summarized in my written testimony indicate that arbitration has enabled 

companies to lower their dispute resolution costs and that those 

savings have been passed on to individuals in the form of higher 

wages, lower prices, and better share prices. 

My own research, which I stress is a work in progress, indicates 

that eliminating the employment arbitration docket of a single organization, the AAA, would increase the cost of resolving those disputes by $88 million. If eliminating a single organization’s docket 

increases costs that much, imagine what the increase in costs 

would be if arbitration were eliminated altogether. Basic economics 

teaches us that those increased costs have to be borne by someone, 

and they are going to be borne by the individuals, the same people 

whom H.R. 3010 is trying to protect. 

94 

And fifth and finally, the notion that post-dispute arbitration can 

somehow replace pre-dispute arbitration is something that is not a 

viable alternative. 

Madam Chair, at bottom let me urge Congress to respond to the 

empirical proof here. The risk of legislating otherwise is that it 

would make worse-off the very individuals who Congress is trying 

to protect. In my remaining time, allow me to elaborate briefly on 

two examples. 

One, arbitration is often criticized on the ground that it leaves 

the party with the weaker bargaining position, whether the employee, the consumer or otherwise, worse off. You have heard a few 

examples today of particular companies or instances where that is 

the case. But the aggregate measures indicate that by most measures, the party with the inferior bargaining position achieves superior or comparable results compared to what is the case is in litigation. One thing that I would encourage the Subcommittee to do is 

to consider exactly where are these people going to end up if arbitration is not available? 

Two, arbitration is often criticized on the grounds—and it has 

been so criticized today—that it surrenders the employee’s or the 

consumer’s right to a jury trial. It is certainly true that arbitration 

does not involve a jury, but eliminating arbitration is not going to 

magically cause a jury to appear for all these cases. The available 

evidence indicates that if Congress eliminated arbitration, many of 

these individuals who it is trying to protect will not be able to find 

an attorney. If they can, few of their cases will reach a jury, and 

if they do, justice will come far later than it does for them in arbitration. 

To paraphrase the words of one respected scholar in this field, 

in a world without arbitration, we would essentially have a Cadillac system of justice for the few, and a rickshaw system of justice 

for the many. Arbitration replaces that with a system of justice of 

Saturns for all. In other words, it enables citizens as a whole to 

have greater access to justice, even if a few individuals and their 

lawyers experience a marginal reduction in recoveries. 

Madam Chairman, I have tried to keep underneath my time. 

Thank you for the opportunity to present my testimony. I would be 

happy to answer your questions. 

[The prepared statement of Mr. Rutledge follows:] 

95 

PREPARED STATEMENT OF PETER B. RUTLEDGE


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Ms. SA ́ NCHEZ. I appreciate your testimony. Thank you. 

I would now invite Mr. Eppenstein to present his oral testimony. 

TESTIMONY OF THEODORE G. EPPENSTEIN, ESQ., 

EPPENSTEIN AND EPPENSTEIN, NEW YORK, NY 

Mr. EPPENSTEIN. Thank you, Madam Chairwoman, and thank 

you, Mr. Johnson, for proposing this bill to the House. 

I am going to talk to you today a little bit about securities arbitration. I have had various opportunities to view securities arbitration, first as an advocate for the investing public in the landmark 

securities case before the U.S. Supreme Court in 1987, Shearson v. 

McMahon. Secondly, after that I testified in Congress twice, attempting to 

retroactively reverse the decision in that case, which in effect required mandatory arbitration, since it permitted the broker-dealers 

to require mandatory arbitration in their customer agreements. 

Also, I have been a public member of the Securities Industry 

Conference on Arbitration, and we are a group that meets regularly 

involving not just the three public members, but a member from 

the industry, SIFMA today, and members from each of the securities regulatory organizations, the self-regulatory organizations like 

the NASD and the New York Stock Exchange. The SEC sits in regularly at our meetings. I have been a public member since 1998. 

I can tell you through my experience from what I have observed, 

securities arbitration does not work for the investor. I request that 

you specifically include securities disputes and other investment 

malpractice disputes in your bill. My concern is that if it is not specifically laid out in your bill, we are going to be coming into court 

and finding out whether or not what is said here in the legislative 

process covers securities arbitration. 

Now, let me tell you why I think you should do this. First of all, 

the Supreme Court in 1987, in a very close 5 to 4 decision, ruled 

that based on the SEC’s position, which was presented in an amicus brief in support of the industry’s view, and against the public, 

that pre-dispute arbitration clauses would be okay with them. This 

they did despite the fact that there was an SEC rule in place at 

the time—SEC rule 15(c)2-2, which prohibited the use by brokerdealers of arbitration clauses with regard to Federal statutory 

claims of fraud. 

The SEC argued to the Court that they should permit mandatory 

arbitration, deem these contracts to be enforceable because they 

had oversight over the arbitration process. Well, they have oversight over the arbitration process, but it hasn’t worked for the investor’s protection. Let me tell you why. SRO arbitration, and that 

is self-regulatory organizations, and I am covering now all of the 

self-regulatory organizations, have arbitration panels of three people for claims over a minimal amount. 

One person must come from the securities industry—must. There 

is no way the investor can get this person off. There are no investor 

advocates on the arbitration panels. Yes, there are people selected 

from a public pool of arbitrators. However, these people sometimes 

have conflicts of interest and are problematic to the investor. 

Aside from that, the public pool is impure. They are very concerned about their own image and they want to work another day. 

114 

So they are not prone to come out with a large award because they 

think they are going to be stricken the next time their name comes 

up. 

Let me tell you about a few other things, and I am not going to 

go into a description of war stories. There certainly are plenty. I 

am going to talk about statistics because that has been specifically 

challenged. In our area, it is clear—and I will lay it out to you in 

very summary fashion—that the investor has taken it on the chin 

ever since the McMahon decision came out. 

The GAO did a study in 1992 taking a look at decisions that 

came out of arbitrations at the SROs from 1989 and 1990. They 

found the customer won about 60 percent of the time. They found 

that the customer got about 61 percent of what they claimed. After 

that, the Securities Arbitration Commentator, a private commentator looking at all SRO arbitration awards, took a look at the first 

10,000 awards after the McMahon decision and found there was a 

downward trend in the results. 

After that, you can see through the NASD’s own statistics on 

how customers fare on their website the wins and the losses from 

2000 to 2006. You can go there right now and you will see, back 

in 2002 the customer—just on a win-loss basis—was winning 53 

percent of the time. I would like to correct my written statement 

at page 10. It had 50 percent. It was 53 percent in 2002. Every 

year after 2002, it went down. 

Today, 2006 are the final figures that we have, it is down to a 

42 percent win rate for customers. That means that 58 percent of 

the time, a customer goes home not only empty-handed, but they 

are going to have to pay their lawyers. They are going to have to 

pay the costs for the privilege of going to arbitration, and they have 

no faith in the system that the public believes is a stacked deck 

against them. 

There has been a very recent study that has just come out, and 

this will be the last thing I will quote, and that is a 2007 study 

that came out looking at 14,000 arbitration awards from 1995 

through 2004. That study is mentioned in my written materials. 

That study found not only the declining trend in arbitration of win 

rates, but they look at something called an ‘‘expected recovery 

rate,’’ and that is not just the win-loss, but they took the probability of winning and they took the amount of recovery and they 

meshed it together, and they found that today—2004 was the last 

year that they covered—in 2004, the investor would get back approximately 22 percent in an arbitration. 

I ask that you do three things. One, include us in your bill. Two, 

there is a place in some instances for arbitration, but it is not going 

to work at the industry-run forum, FINRA, which is where everything is now required to be held. We need an independently run 

arbitration system for those people who want to go to arbitration 

as opposed to court. If they have a $10,000 claim, they would rather go to arbitration. Give them that opportunity. Have the industry 

cosponsor it. Have them fund it. 

The NASD paid their members each $35,000 in order to—some 

commentators have said—vote in favor of a consolidation of the arbitration forums and regulatory division at the NASD and the New 

York Stock Exchange. That equates to $175 million due to the costs 

115 

that the companies are going to save because after consolidation 

the arbitrations will be heard at one forum. But where is the benefit to the investor? 

[The prepared statement of Mr. Eppenstein follows:] 

PREPARED STATEMENT OF THEODORE G. EPPENSTEIN


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Ms. SA ́ NCHEZ. Mr. Eppenstein, I apologize, but we are way over 

time and we do have questions we need to get to and we are expecting votes on the floor shortly. So I am going to have to cut your 

testimony off. Perhaps we can elicit some more information 

through the round of questions. 

I am going to begin by recognizing myself for 5 minutes of questions. I will start with Ms. Ventrell-Monsees. One of the attachments to Mr. Naimark’s testimony is the employment due process 

protocols. The president of your association, the National Employment Lawyers Association, at the time signed the protocols. Can 

you please explain the disconnect between the president of NELA 

approving the protocols, and your contrary testimony representing 

the NELA today? 

Ms. VENTRELL-MONSEES. Yes, I can. The president of NELA did 

not sign the document, the employment due process protocol, as the 

president of NELA. The first paragraph of the employment due 

process protocol specifically states that the signatories were designated by their organizations, but the protocol reflects their personal views and should not be construed as representing the policy 

of the designating organizations. 

I happened to be at the time working at AARP when the employment due process protocol and the consumer due process protocol 

were being developed. I was also a member of the American Bar 

Association’s Labor and Employment Council at that time. You will 

see the other signatories on the due process protocol for employment were members of the American Bar Association’s Labor and 

Employment Council, of which I was also. 

All of those people acted in their individual capacities, bringing 

their knowledge and expertise to that process. The greatest flaw in 

the employment due process protocol is that, one, it did not bar 

pre-dispute mandatory arbitration. That is NELA’s concern and it 

remains our position today. 

Ms. SA ́ NCHEZ. I appreciate that answer. 

Ms. Williams, I am sorry for your experience, because it sounds 

like it has been an absolutely terrible one. I am going to ask you 

some very simple questions, and then I am going to ask you a little 

bit tougher question. Do you feel like you got ripped off? Just real 

briefly, yes or no? 

Ms. WILLIAMS. Absolutely. I feel like what was done to me was 

against the law. 

Ms. SA ́ NCHEZ. Do you think that the option of going to court 

would have been more fair to you and perhaps less costly to you? 

Ms. WILLIAMS. According to our franchise agreement, Maryland 

law would supersede the entire agreement, so that I should never 

have been in arbitration. We filed a civil suit. I was not to be in 

arbitration. I was forced in there. 

Ms. SA ́ NCHEZ. How do you feel when you hear things like something that Professor Rutledge said, that, well, you know, most people can’t hire attorneys to take their cases to court, so by virtue of 

the fact that they have mandatory arbitration, and you know, we 

are sorry that a few people are going to have bad experiences 

there, but you know, that is kind of the cost of doing business. 

Ms. WILLIAMS. It is kind of incredible to me that the gentleman 

who spoke for the AAA and this gentleman here talk about, yes, 

204 

there are flaws and yes, there are things that need to be done. 

What are you going to do for me? That flaw cost me everything I 

have ever had. What is going to happen for me? 

Ms. SA ́ NCHEZ. I am sure it is not just you, but I am sure that 

there are many others who find themselves in similar situations. 

Ms. WILLIAMS. True. 

Ms. SA ́ NCHEZ. Ms. Ventrell-Monsees, Professor Rutledge points 

out in his written testimony that a founder of NELA testified a few 

years ago that employment attorneys turned away at least 95 percent of employees who sought representation, and he suggested arbitration would allow those who have been turned away to have 

their disputes heard. I am interested in knowing what your response is to his observation and conclusions? 

Ms. VENTRELL-MONSEES. Post-dispute voluntary arbitration or 

mediation would provide a forum for employees. That is absolutely 

clear. Attorneys also turn away many, many cases that would be 

forced into mandatory pre-dispute binding arbitration because the 

deck is stacked against the employees. 

Ms. SA ́ NCHEZ. So in other words, a lot of employees who would 

normally consult with an attorney about bringing a case get turned 

away because of the very reason that there is a mandatory arbitration clause and they feel like it is not a worthwhile case to take 

because they have so many obstacles. 

Ms. VENTRELL-MONSEES. The arbitrator doesn’t have to follow 

the law. At least if you go to court, you are assured that the judge 

has a law guiding him or her and a right to appeal; that the jury 

should follow the law based on the instructions given by the judge; 

that you will get full discovery, not the limited discovery that you 

would be left with in arbitration; you will get full remedies stated 

by the Federal and State law, not the limited remedies that arbitrations take away from employees. 

Ms. SA ́ NCHEZ. Thank you. 

Professor Rutledge, if arbitration is more favorable to consumers 

and employees, according to the empirical studies that you cited in 

your written testimony, what rational business or employer would 

choose to arbitrate if it is in fact this wonderful system for employees and consumers who feel like they have been wronged? 

Mr. RUTLEDGE. Thank you, Chairwoman Sa ́nchez. That is an excellent question. The best way that I can answer it to you is by referring you to a 1997 study by the GAO entitled ‘‘Alternative Dispute Resolution: Employers’ Experiences.’’ I would just briefly highlight, recognizing that you are at the end of your time and you 

have votes going, two anecdotes that would explain why. 

Ms. SA ́ NCHEZ. That study is more than 10 years old now. Correct? 

Mr. RUTLEDGE. Absolutely, but I believe what it does, Madam 

Chairman—excuse me, Madam Chairwoman. 

Ms. SA ́ NCHEZ. I have been called a lot worse, so ‘‘chairman’’ is not 

such a bad thing. [Laughter.] 

Mr. RUTLEDGE. Me, too. [Laughter.] 

Very briefly, the reason why I believe this study is relevant is 

because I believe it helps establish for you and the other Members 

of the Committee the context in which we came into a world where 

arbitration is much more prevalent. Ms. Ventrell-Monsees cited for 

205 

you studies which I agree with indicating that if you look back, 

there was a relatively lower frequency of arbitration, and that has 

grown. 

Two anecdotes very quickly. The GAO study cites an instance in 

which the Rockwell Corporation spent over $1 million in attorneys 

fees winning a legal case. So I think the reason why a company 

might well choose to opt into an arbitration even if in the aggregate the individuals against whom they are arbitrating prevail 

more often is because it is lowering their attorneys fees. 

Second example, the Brown and Root Company spent over 

$400,000 in legal fees defending an employment discrimination suit 

which it won. Following that experience, it put an ADR system in 

place which included an arbitration clause. According to GAO, the 

overall costs of dealing with employment conflicts were less than 

half of what the company used to spend, and legal fees were down 

90 percent for the first 3 years following Brown and Root’s adoption 

of the program. That is GAO’s findings, not mine. 

I am not a business person. I can’t speak for the community. But 

responding to your initial invitation, Madam Chairman, I believe 

that the information such as what is contained in the GAO report 

will help you assess the empirical record to determine whether this 

legislation is necessary. 

Ms. SA ́ NCHEZ. I thank you for your answer. I would only note 

that Mr. Eppenstein did say that statistically not only are consumers and employees going to mandatory binding arbitration—not 

only is their win-rate falling, but their recovery is also falling as 

well. And that may be one reason why businesses choose to go 

through the arbitration system as well. 

My time has expired. I will recognize Mr. Cannon for 5 minutes 

for questions. 

Mr. CANNON. It seems to me, before you run my time, that Mr. 

Rutledge wanted to respond to your last statement-question. 

Mr. RUTLEDGE. Thank you very much. 

Ms. SA ́ NCHEZ. I will grant him the opportunity if he so chooses. 

Mr. RUTLEDGE. If I may, Madam Chairman. Thank you for the 

opportunity, and to Ranking Member Cannon. I would just make 

two points. I would not put words in Mr. Eppenstein’s mouth, but 

I believe that his testimony was concerned with the declining win 

rates in the securities industry. 

Ms. SA ́ NCHEZ. I stand corrected. You are correct. That was in one 

specific area. My apologies. 

Mr. RUTLEDGE. The other point that I would make, Congressman 

Cannon, is this. There are a variety of studies in the securities industry, the 2007 one that Mr. Eppenstein cited being only one. 

Footnote—excuse me, congressman—a footnote in my written testimony cites several others, including the Tidwell study and the 

Perino study. 

Very briefly, as to the 2007 study that Mr. Eppenstein kindly 

brought to our attention, there is one point that I would make, 

picking up on what Mr. Eppenstein said. Mr. Eppenstein indicated 

that—well, two points that I would make. One, Mr. Eppenstein indicated that win rates in securities arbitration were approximately 

98 percent. Let us compare that for a moment with what William 

206 

Howard found in 1995 in looking at employment and consumer arbitrations. 

In employment and consumer arbitrations, Mr. Howard found 

that in employment and consumer litigation only 8 percent of those 

claims went to trial, and when they went to trial, the employer’s 

win rate was 72 percent. So if we are going to engage in a comparison of raw win rates, let’s be clear that there are instances where 

the win rates at trial are more favorable to the business than the 

win rates in arbitration. 

The other point that I would make—— 

Ms. SA ́ NCHEZ. Mr. Rutledge, I am going to just interrupt you to 

point out, though, the paradox that I think we have already stated 

with Ms. Ventrell-Monsees, which is many possibly meritorious employment claims never go to court by virtue of the fact that there 

is a mandatory binding arbitration clause in the employment context. 

Mr. RUTLEDGE. Absolutely true, Chairwoman Sa ́nchez. The other 

point that I would make is that many potentially meritorious employment claims would never go to trial because there would not 

be lawyers willing to take them. I cite in my written testimony a 

statistic indicating that if you don’t have a meritorious claim of at 

least $60,000, that an employment lawyers is not going to be willing to take your case. 

Ms. SA ́ NCHEZ. I hate to keep contradicting you, but if legal services were more available to people who needed access to them, I 

don’t disagree that perhaps they would be able to bring their 

claims. But it seems to me that that is a whole other issue that 

we need to look at as Members of Congress, because there is a way 

that we can impact that as well. 

Mr. RUTLEDGE. I agree with you, Madam Chairwoman, and that 

is precisely why I say I think it is so important to respond to your 

initial invitation, which is to ask: Does the empirical record justify 

the remedy that is being proposed here? There may be other remedies that are appropriate, but the question is whether jettisoning 

arbitration on balance is going to yield net benefit to the individuals whom Congress is trying to protect. The point that I am trying 

to make is based on my assessment of the empirical evidence, and 

I am not convinced that is the case. 

Ms. SA ́ NCHEZ. I appreciate that. 

Mr. Cannon? 

Mr. EPPENSTEIN. Madam Chairperson, do I get to respond to inaccuracies about my testimony? 

Mr. CANNON. I don’t think we have any objection here. 

Ms. SA ́ NCHEZ. Okay. If there is no objection, absolutely. 

Mr. EPPENSTEIN. Thank you. 

First of all, Professor Rutledge, the customer never won 98 percent of the time. In 2006, the customer is down to a 42 percent win 

rate; 58 percent of the time, the industry wins. 

The other thing you mentioned was settlements, and the impact 

of settlements. I can tell you that settlements are impacted by arbitration. That is because—and I am not the only one to know these 

statistics, the broker-dealers do also—they feel in a settlement situation that they don’t have the big risk if they go to arbitration and 

get a decision by the arbitrators, because they know that they are 

207 

not going to be hit for a big number, and they know 58 percent of 

the time they are going to win anyway. 

So they give low-ball offers to the investor. The investor is there 

with the investor’s attorney and the investor says, ‘‘Why are they 

so low?’’ And the attorney has to tell the investor what the deal is 

in terms of the stacked deck and what we have been talking about, 

how you can’t get a fair trial. That pushes down the settlement offers. It pushes down the deals. It has a negative impact. 

And you cannot compare a court decision to an arbitration decision because you don’t have the same customer going to both forums at the same time. 

Ms. SA ́ NCHEZ. That is very valid point. 

Mr. EPPENSTEIN. That comparison is out the window. 

Ms. SA ́ NCHEZ. I appreciate that. 

I am now going to allow Mr. Cannon to ask questions. 

Mr. CANNON. Thank you. 

There are distinctions between sectors, and Mr. Eppenstein, you 

mentioned I think in your testimony that there is no public faith 

in the system. Doesn’t that have the effect of moving people and 

customers out of the system? Isn’t there a profound problem for 

stockbrokers who cheat their clients and then have the benefit of 

an arbitration system that is counterproductive for the industry 

and then perhaps for themselves individually? 

Mr. EPPENSTEIN. I don’t quite understand your question, Mr. 

Cannon. I am sorry. 

Mr. CANNON. If stockbrokers cheat their customers, the customers won’t come back. 

Mr. EPPENSTEIN. They may not have any money to continue anyway. 

Mr. CANNON. Of course not—well, perhaps. The point is there are 

other factors that affect how these things proceed and it is not just 

what happens in arbitration. Once burned, twice not there, I guess. 

Let me shift to Ms. Ventrell-Monsees. We are looking actually at 

a bill here, and I wonder if you are familiar with it. There are basically three kinds of contracts, grossly speaking here. You have an 

at-will contract, you have a signed contract. You can’t have an arbitration clause in an at-will contract. You can in a signed contract. 

And then you have union contracts. This bill excludes union contracts. Do you think that is appropriate? Are you familiar with 

that? 

Ms. VENTRELL-MONSEES. Yes, I am familiar with it, and I have 

been dealing with it for many years. We have no concern with arbitration in collective bargaining agreements. The unions are there 

to represent their workers. They often do a very good job, and so 

there is no reason for Congress to address that issue. 

The real problem that needs to be addressed is the contracts, and 

you can have mandatory arbitration in employment at-will. When 

you apply for the job, at the bottom of that application oftentimes 

there is a mandatory arbitration clause that people never see. 

Mr. CANNON. Then it is a contract that is not an at-will. There 

may be few protections for the person at that point. 

You pointed out that there are overtime problems. There are resolutions to overtime issues and those made a major story in BusiVerDate Aug 31 2005 10:40 Apr 29, 2009 Jkt 000000 PO 00000 Frm 00213 Fmt 6633 Sfmt 6601 H:\WORK\COMM\102507\38510.000 HJUD1 PsN: 38510
208 

ness Week last week. There clearly are other protections in the system. 

I had one other question for you, and that is that you cited two 

statistics, one I think was 85 percent win for the employer, and the 

other was 97 percent win for the employer. Did you look at the 

merits of those cases, or would it have been acceptable if it had 

been a 50-50 win? 

Ms. VENTRELL-MONSEES. It is not possible to look at the merits 

because they are the results of the AAA decisions in California, so 

it is just the result itself. 

Mr. CANNON. And that result you characterized as routinely discriminating against employees, as opposed to figuring out what the 

merits were. Let me just suggest that that is not very helpful to 

us because all kinds of things go into what is happening. From 1 

year to the next, the employment world, whether we have a shortage of labor or a surplus, affects that sort of thing and companies 

have a fairly long-term interest in keeping their employees relatively happy. There are aberrations to that, but I don’t think those 

statistics are very helpful in what we are looking at here. 

Ms. Williams, my understanding is that in your case, there was 

a point at which the attorney general from the State actually got 

a settlement for you, and perhaps others—I am not sure if it included others in your franchise situation. Was that the case? 

Ms. WILLIAMS. What do you mean by ‘‘settlement’’? 

Mr. CANNON. An offer to refund and take equipment back and 

things like that. 

Ms. WILLIAMS. There is an open pending investigation still. We 

can talk about arbitration today if you like. I would love to talk 

about that with you, and I hope I get the opportunity at another 

point in time. 

Mr. CANNON. I am just asking a question here. Did you have an 

opportunity to settle that was provided by the attorney general? 

Ms. WILLIAMS. Mr. Cannon, Congressman Cannon, I should 

never have been in arbitration regardless. 

Mr. CANNON. I understand that you don’t like that. I am just wondering. Look, you ended up spending $1.5 million, and you told 

us that you didn’t know at the time you made an investment which 

led to $1.5 million in expenditures that the average life of a coffee 

shop was 3 1/2 years. 

Ms. WILLIAMS. That is correct. That would be the fraud. 

Mr. CANNON. Was that fraud on the part of the company that 

sold you the equipment and the franchise, instead of telling you all 

the downsides? 

Ms. WILLIAMS. Exactly. The information was not disclosed. 

Mr. CANNON. You didn’t have a reason to go look on the Internet—at the time, I am not sure that was available—to check out 

the kind of business you were getting in? In other words, you are 

a victim here, and I don’t know this franchisor, but all the money 

you put out to vindicate your right to a trial, when you might have 

cut your losses and gone into some other kind of business, seems 

to me to be an unfair indictment of a franchisor. 

Ms. WILLIAMS. That is correct, and we were given a UFOC, and 

according to the FTC guidelines there are 21 requirements by law 

that a franchisor needs to disclose. We did our due diligence based 

209 

on the information we were given. Your due diligence is only as 

good as the information that is being disclosed to you. 

Mr. CANNON. With all due respect, we live in a world full of information, more full these days than before. It seems to me that 

it can’t all be the franchisor’s fault. This is not a case for the 

franchisor, but a case for the responsibility of the investor. 

Thank you, Madam Chair. I yield back. 

Ms. SA ́ NCHEZ. The gentleman yields back his time. 

We have been called for votes, but we have just enough time, I 

think, to allow Mr. Johnson for his 5 minutes of questions, and 

then we will conclude our hearing. 

Mr. Johnson? 

Mr. JOHNSON. Well, I don’t know if I will take 5 minutes. I will 

say that your testimony, Ms. Williams, has been very compelling. 

Ms. WILLIAMS. Thank you. 

Mr. JOHNSON. You purchased a franchise, and when you entered 

into that agreement, you really didn’t have a choice as to whether 

or not to accept the pre-dispute binding mandatory arbitration 

clause that was in it. If you did not accept it, you simply would 

have been turned away from being able to purchase that franchise. 

Is that correct? 

Ms. WILLIAMS. In our situation, the UFOC and the franchise 

agreement are amended to adhere to Maryland franchise registration disclosure laws. Under those laws, if there is a dispute as to 

whether or not fraud has been committed, it does not arbitrate. It 

goes to court. 

Mr. JOHNSON. Well, my point is there was a mandatory binding 

arbitration clause in the franchise agreement that you signed. Correct? 

Ms. WILLIAMS. I am finding out now that the amendment to the 

contract to adhere to Maryland law was useless. That is correct. 

Mr. JOHNSON. And you didn’t have a choice about whether or not 

to sign it or not. If you had not signed the agreement, then you 

would not have gotten a contract. I guess the point that I am trying to make is that when you go to purchase a cell phone, get cell 

phone service, a nursing home situation, you go to put your mother 

in a nursing home, you are confronted with a mandatory pre-dispute binding arbitration clause in the agreement. 

If you don’t sign it, then you won’t be able to get mom into the 

nursing home. You won’t be able to get the cell phone service. You 

won’t be able to purchase the home from the builder. Every builder 

in town has a mandatory arbitration clause, pre-dispute, in their 

agreement. So if you want to purchase a home in that market, you 

are going to have to sign that agreement with that clause in there. 

So it basically makes the consumer not have a choice as to 

whether or not to waive it or not. Of course, the consumer is not 

concerned about a dispute at that time. It is only when the dispute 

arises that you get caught up and you find that you have signed 

away, contracted away your right for a jury trial. A jury trial is important because it is in a public courtroom. The judge has either 

been elected or appointed. He or she has been subject to the will 

of the people and remains that way. Subject to judicial canons of 

ethics, he or she has to be fair and impartial, or else there is some 

recourse. 

210 

But there is no recourse available to help a person agree to buy 

an arbitrator or an unfair arbitration proceeding. So it is because 

of this imbalance that continues to take hold throughout the commercial industry throughout America that results in people not 

having an ability to engage in the public justice system that gives 

rise to this legislation. 

So your testimony, Ms. Williams, is a clear example notwithstanding statistics and that kind of thing, but this is a clear example of why this kind of legislation is necessary, because of the 

nightmare that you have been through—no discovery, no choice of 

the arbitrator, exorbitant fees. You have spent $100,000 in costs, 

and did not have the ability to select the arbitrator. The arbitration 

process was held 500 miles away from your home. There are just 

so many costs involved. 

Do you find, Ms. Ventrell-Monsees, that this is typical as far as 

this kind of nightmare is concerned? 

Ms. VENTRELL-MONSEES. Yes. It is a very typical story in consumer cases and employment cases as well. Just as the consumer’s 

life is devastated, so is the employee’s. 

Mr. JOHNSON. All right. 

Mr. Eppenstein, you would agree that in terms of securities regulations and securities disputes that stockholders who have been 

burned by stockbrokers are subject to the same kind of nightmare? 

Mr. EPPENSTEIN. Yes. And more than that, Mr. Johnson, the public isn’t learning about the terrible frauds that are going on because the hearings are held behind closed doors. The decisions 

don’t go into detail about what happened, and a lot of time the public never hears about it. 

Mr. JOHNSON. Thank you. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. 

I want to thank all of the witnesses. 

Mr. CANNON. Madam Chairman, may I just ask unanimous consent to submit a packet of documents for the record for the hearing? 

Ms. SA ́ NCHEZ. Without objection, so ordered. 

[The information referred to is available in the Appendix.] 

Ms. SA ́ NCHEZ. I want to thank all of the witnesses for their testimony today. We actually got in both panels before the vote. Without objection, Members will have 5 legislative days to submit any 

additional written questions, which we will forward to the witnesses and ask that you answer as promptly as you can so that 

they can be made a part of the record. 

Without objection, the record will remain open for 5 legislative 

days for the submission of any other additional materials. 

Again, I want to thank everybody for their time, patience and effort in coming today to help us get to the bottom of this issue. 

This hearing on the Subcommittee on Commercial and Administrative Law is adjourned. 

[Whereupon, at 4:40 p.m., the Subcommittee was adjourned.] 

(211) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

MATERIAL SUBMITTED BY THE HONORABLE CHRIS CANNON, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF UTAH, AND RANKING MEMBER, SUBCOMMITTEE ON

COMMERCIAL AND ADMINISTRATIVE LAW


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RESPONSE TO POST-HEARING QUESTIONS FROM LAURA MACCLEERY, ESQ., DIRECTOR, 

PUBLIC CITIZEN’S CONGRESS WATCH DIVISION, WASHINGTON, DC 


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Attachment 1 


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RESPONSE TO POST-HEARING QUESTIONS FROM RICHARD NAIMARK, SENIOR VICE

PRESIDENT, AMERICAN ARBITRATION ASSOCIATION, WASHINGTON, DC 


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POST-HEARING QUESTIONS* SUBMITTED TO THE HONORABLE ROY E. BARNES, 

THE BARNES LAW GROUP, LLC, MARIETTA, GA 

———— 

*At the time of the printing of this hearing, the Subcommittee on Commercial and 

Administrative Law had not received a response to these questions from the witness. 


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RESPONSE TO POST-HEARING QUESTIONS FROM KENNETH L. CONNOR, ESQ., WILKES

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RESPONSE TO POST-HEARING QUESTIONS FROM DEBORAH WILLIAMS, ANNAPOLIS, MD 


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RESPONSE TO POST-HEARING QUESTIONS FROM CATHY VENTRELL-MONSEES, ESQ., 

LAW OFFICES OF CATHY VENTRELL-MONSEES, CHEVY CHASE, MD, ON BEHALF OF

THE NATIONAL EMPLOYMENT LAWYERS ASSOCIATION


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RESPONSE TO POST-HEARING QUESTIONS FROM PETER B. RUTLEDGE, ESQ., THE

CATHOLIC UNIVERSITY OF AMERICA, COLUMBUS SCHOOL OF LAW, WASHINGTON, DC 


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RESPONSE TO POST-HEARING QUESTIONS FROM THEODORE G. EPPENSTEIN, ESQ., 

EPPENSTEIN AND EPPENSTEIN, NEW YORK, NY 


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