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MANDATORY BINDING ARBITRATION: 

IS IT FAIR AND VOLUNTARY? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 15, 2009 

Serial No. 111–57 

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 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Majority Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

STEVE COHEN, Tennessee, Chairman 

WILLIAM D. DELAHUNT, Massachusetts 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

DANIEL MAFFEI, New York 

ZOE LOFGREN, California 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

JOHN CONYERS, JR., Michigan 

TRENT FRANKS, Arizona 

JIM JORDAN, Ohio 

HOWARD COBLE, North Carolina 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III) 

C O N T E N T S 

SEPTEMBER 15, 2009 

Page 

OPENING STATEMENTS 

The Honorable Steve Cohen, a Representative in Congress from the State 

of Tennessee, and Chairman, Subcommittee on Commercial and Administrative Law ........................................................................................................... 1 

The Honorable Trent Franks, a Representative in Congress from the State 

of Arizona, and Ranking Member, Subcommittee on Commercial and Administrative Law .................................................................................................. 2 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, Chairman, Committee on the Judiciary, and Ranking 

Member, Subcommittee on Commercial and Administrative Law .................. 4 

WITNESSES 

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

State of California 

Oral Testimony ..................................................................................................... 6 

Prepared Statement ............................................................................................. 9 

The Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress 

from the State of Georgia, and Member, Subcommittee on Commercial 

and Administrative Law 

Oral Testimony ..................................................................................................... 17 

Prepared Statement ............................................................................................. 18 

Ms. Alison E. Hirschel, National Consumer Voice for Quality Long-Term 

Care, Washington, DC 

Oral Testimony ..................................................................................................... 19 

Prepared Statement ............................................................................................. 21 

Mr. Stuart T. Rossman, National Consumer Law Center, Boston, MA 

Oral Testimony ..................................................................................................... 24 

Prepared Statement ............................................................................................. 27 

Mr. Stephen J. Ware, University of Kansas, School of Law, Lawrence, KS 

Oral Testimony ..................................................................................................... 74 

Prepared Statement ............................................................................................. 76 

Mr. Cliff Palefsky, National Employment Lawyers Association, San Francisco, 

CA 

Oral Testimony ..................................................................................................... 86 

Prepared Statement ............................................................................................. 88 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Chairman, Committee on the 

Judiciary, and Ranking Member, Subcommittee on Commercial and Administrative Law ........................................................................................................ 4 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Response to Post-Hearing Questions from Alison E. Hirschel, National Consumer Voice for Quality Long-Term Care, Washington, DC ............................ 158 

Page

IV 

Response to Post-Hearing Questions from Stuart T. Rossman, National Consumer Law Center, Boston, MA .......................................................................... 170 

Response to Post-Hearing Questions from Stephen J. Ware, University of 

Kansas, School of Law, Lawrence, KS ............................................................... 181 

Response to Post-Hearing Questions from Cliff Palefsky, National Employment Lawyers Association, San Francisco, CA .................................................. 187 

Material submitted by the Honorable Trent Franks, a Representative in 

Congress From the State of Arizona, and Ranking Member, Subcommittee 

on Commercial and Administrative Law ........................................................... 194 

Prepared Statement of Bruce Yardwood on behalf of the American Health 

Care Association (AHCA) and the National Center for Assisted Living 

(NCAL) .................................................................................................................. 266 

Prepared Statement of Public Citizen .................................................................... 271 

Prepared Statement of AARP ................................................................................. 282 

Prepared Statement of the National Association of Home Builders ................... 294 

Prepared Statement of Richard W. Naimark on behalf of the American Arbitration Association ............................................................................................... 299 

Prepared Statement of the American Association of Homes and Services for 

the Aging (AAHSA) .............................................................................................. 304 

OFFICIAL HEARING RECORD 

MATERIAL SUBMITTED FOR THE HEARING RECORD BUT NOT REPRINTED

Enclosures to Cliff Palefsky’s Response to the Post-Hearing Questions have been retained in the official Committee hearing record available at the Subcommittee. 

Report by the Searle Civil Justice Institute Consumer Arbitration Task Force, Consumer Arbitration Before the American Arbitration Association, March 2009. This 

report is available at the Subcommittee and can also be accessed at: 

http://www.searlearbitration.org/p/fulllreport.pdf 

Enclosures to the Prepared Statement of Public Citizen have been retained in the 

official Committee hearing record available at the Subcommittee. 

Enclosure to the Prepared Statement of Bruce Yardwood on behalf of the American 

Health Care Association (AHCA) and the National Center for Assisted Living 

(NCAL) has been retained in the official Committee hearing record available at 

the Subcommittee. 

(1) 

MANDATORY BINDING ARBITRATION: 

IS IT FAIR AND VOLUNTARY? 

TUESDAY, SEPTEMBER 15, 2009 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to notice, at 1:17 p.m., in room 

2141, Rayburn House Office Building, the Honorable Steve Cohen 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Cohen, Conyers, Watt, Maffei, Johnson, 

Scott, Franks, and Coble. 

Staff present: (Majority) Norberto Salinas, Counsel; Adam Russell, Majority Professional Staff Member; and (Minority) Daniel 

Flores, Counsel. 

Mr. COHEN. My apologies for being late. This hearing of the Committee on the Judiciary Subcommittee on Commercial and Administrative Law will now come to order. Without objection the Chair 

will be authorized to declare a recess of the hearing. 

I will now recognize myself for a short statement. This past May, 

this Subcommittee held a hearing focused on the credit card industry’s use of arbitration. Today’s hearing is not focused on a specific 

industry. Instead this Subcommittee will examine the use of arbitration in employment contracts, long-term care facility admission 

contracts and other consumer contracts. 

Also, the witnesses will update us on the recent developments in 

the last 4 months which necessitate us having a further discussion 

on the use of mandatory arbitration. We are looking at many 

changes to the realm of arbitration. The National Arbitration 

Forum has abandoned its consumer arbitration practice, and the 

American Arbitration Association has halted its practice of arbitrating debt collection cases. 

Bank of America has chosen not to seek enforcement of arbitration agreements with specific customers and American Express is 

re-evaluating its arbitration policy. 

The Federal Trade Commission is examining this process as well, 

and President Obama’s administration is urging a new Federal 

agency be able to regulate the use of arbitration in consumer transactions. 

While all of these changes are a positive step, it is unclear what 

impact they may have on the arbitration process. As a Nation that 

has championed civil rights and consumer protection laws, we must 

2 

balance the needs for quicker and inexpensive resolution for disputes with upholding a consumer’s right to choose. 

According to my colleagues on the other side, the Supreme Court 

has interpreted the FAA to permit challenges to an arbitration 

agreement if that challenge is based on generally applicable state 

contract law. As a result, they contend that courts around the 

country routinely strike down arbitration agreements that do not 

provide consumers with fair notice or fair procedures. 

While some courts have struck down arbitration agreements, and 

decisions, it certainly hasn’t happened routinely. Courts have done 

so only for the most egregious examples, such as where there is 

evidence that the arbitrators were corrupt or where the arbitration 

agreements were unconscionable. 

And as we all know, it is difficult to prove corruption without expending enormous resources, which most employees and customers 

don’t have the resources to carry that type of suit to conclusion. 

Further, most states have a very narrow view of what constitutes 

unconscionability. Thus the system does not protect consumers. 

While arbitration may offer benefits, and certainly it does, and 

I understand that, and I have talked to many people about it, and 

they can facilitate the correction of certain problems and in an inexpensive and timely manner, I still have concerns about the use 

of mandatory binding arbitration agreements in any context in 

light of the lawsuit against the National Arbitration Forum. 

Certainly sensitive to the importance of the arbitration process 

and how it can be helpful in resolving issues, but adhesion contracts cause me a problem and have since I learned about them in 

law school. Nevertheless, there are instances in which the process 

may not always be the best in the interest of the consumers or employees because sometimes they are adhesion contracts, and sometimes it doesn’t allow them to get the proper redress of injuries 

they may suffer. 

We must be sure the arbitration process is fair and voluntary so 

that all parties to a dispute can reap the benefits of arbitration. Accordingly, I look forward to receiving today’s testimony, and I now 

recognize my colleague Mr. Franks, the distinguished Ranking 

Member for his opening remarks. 

Mr. FRANKS. Well, thank you, Mr. Chairman, and Mr. Chairman, 

I would like to welcome the two Members here, Mr. Johnson and 

Ms. Sa ́nchez. I had the privilege of seeing Ms. Sa ́nchez’s addition 

to her family, and I have this sneaking suspicion it may be a little 

Democrat. But I tell you, it was a precious, precious little boy, and 

it kind of gives the rest of us hope here. 

Mr. Chairman, in all due deference to probably the opposing 

viewpoints at the table here, I guess I would start out by saying, 

you know, arbitration, I believe is a critical tool in our society because it makes justice prompt and accessible for millions of Americans, and without it too many citizens would be left out in the cold 

by overburdened courts and overpriced lawyers. 

I feel strongly enough about this that I circulated a letter yesterday to all my colleagues seeking to set the record straight on arbitration, and because I believe that record is so full of myths that 

it can be hard for us to see the issue clearly. 

3 

Many times, for example, I hear claims that the voluntary use 

of pre-dispute arbitration agreements somehow undercuts consumers’ indelible rights to jury trials, but I think that can be hardly further from the truth. 

Jury trials are remote prospects in the vast majority of consumer 

lawsuits in the first place. The norm for these cases in court is not 

jury trial, but dismissal on pre-trial motions or disposition on summary judgment. 

Many cases, of course, are settled, perhaps most significantly in 

consumer class actions. But class actions routinely leave consumers 

with pennies on the dollar for their claims. It is the wealthy trial 

lawyers who bring these cases, not the consumer plaintiffs, who 

reap the profits from litigation. 

Still worse, the right to trial jury is simply hollow for those 

whose claims are too small for a lawyer to make. Millions upon 

millions of Americans who have claims that are clearly meritorious 

don’t generate enough legal fees to attract a lawyer. These citizens 

face tall odds when they go it alone in court. It is the simple, flexible, inexpensive procedures of arbitration that allow them to seek 

and obtain meaningful relief. 

Now, the second myth is that the courts have interpreted the 

Federal Arbitration Act to trump state laws, leaving consumers little recourse in the few cases in which arbitration might be unfair. 

But the Supreme Court has interpreted the act to permit anyone 

to challenge an arbitration agreement if the challenge is based on 

generally applicable state contract law. 

In applying this standard, courts around the country regularly 

apply legal principles, such as state unconscionability law to strike 

down arbitration agreements that do not provide consumers with 

fair notice or fair procedures. 

And the third myth is that arbitration involves high administrative fees and unduly limits discovery. The truth again is to the contrary. The American Arbitration Association, for example, limits 

consumers’ fees to only $125 for arbitration claims seeking less 

than $10,000. The AAA’s consumer due process protocol, meanwhile, calls for consumers to have access to discovery that is legally 

obtainable and relevant to their case. 

Recently there has been one incident that has led to renewed 

calls for restrictions on mandatory binding arbitration, and that 

was the National Arbitration Forum’s withdrawal from consumer 

arbitration. NAF’s action followed a lawsuit over the Forum’s debt 

collection relationships. But Mr. Chairman, this incident shows 

that problems are already being solved in the one sector that has 

been the poster child for enemies of arbitration. 

NAF’s debt collection experience provides no basis for reaching 

out to prohibit mandatory binding arbitration across the board. Too 

often Congress specializes in legislating unnecessary, quote, ‘‘solutions’’ to nonexistent problems. Such legislation typically serves 

only to strengthen special interests such as the plaintiff’s trial bar. 

I hope that Congress does not pursue an unnecessary solution to 

the mythical problems with arbitration. That legislation would 

come at a huge price, the sacrifice of one of the practical means 

that millions of Americans have to obtain justice. And with that, 

Mr. Chairman, I respectfully yield back. 

4 

Mr. COHEN. Thank you, and I thank you for your statement. 

And I now recognize Mr. Conyers, distinguished Member of the 

Subcommittee and the congressperson from the state that has a 

football team, once again, for an opening statement. 

Mr. CONYERS. Thank you, Mr. Chairman. We welcome the witnesses, but particularly our two Members of the Committee who 

have been making very important and unique contributions on the 

subject. This debate started in 1925 when we passed the first Federal Arbitration Act, but here is what brings us here today. 

Arbitration has not always been beneficial to all parties. Arbitration has not been fair to all parties, and arbitration has sometimes 

eviscerated protection of some Federal consumer and civil rights 

statutes. I commend Ms. Sa ́nchez, a former Subcommittee Chair 

herself, for her targeting and focus on one particular area of nursing homes, and that is critical, and that to Hank Johnson. His approach is a wider one. 

Now, there are some more problems that have cropped up. The 

claim, well, there is secrecy in arbitration awards so we don’t know 

who needs—we sometimes need to change the law and we don’t get 

a chance to do it because the awards are required not to be published. So there is some wrongdoing that sometimes escapes our attention and ultimately harms everybody. 

And then originally, arbitration was conceived of as one organization or organizations in the same industry. For example, if General 

Motors and Chrysler ended up in arbitration there would be some 

balance. The question, though, is what happens when it is an employee going up against an employer? That is a different situation. 

And I am sorry to report that arbitrators have not always been 

found to be neutral, and that as a matter of fact there has been 

established relationships with parties on one side of the dispute or 

other that have made it unlikely to get a fair result. 

And then mandatory provisions have escalated. They are in every 

kind of contract and it is a ‘‘take it or leave it’’ deal. It is in there. 

What is the matter with you? You don’t like arbitration? What is 

your problem? 

Credit card companies are infamous in the way they do this. Cell 

phone providers, again, that dictate their consumer product sales 

and service contracts have mandatory arbitration clauses, and so 

millions of consumers and employees are left with little or no way 

to change or modify or negotiate an arbitration clause, so—— 

I am looking at some studies by Public Citizen, Christian Science 

Monitor, Center for Responsible Lending, the Minnesota attorney 

general’s decision, and I want to start this hearing. We have got 

some fine University of Michigan law school people here, and I 

want to get them up, as well as our distinguished Members of the 

Committee. Thank you, very much. 

[The prepared statement of Mr. Conyers follows:] 

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, CHAIRMAN, COMMITTEE ON THE JUDICIARY, AND MEMBER, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

During the Congressional debates on arbitration more than 70 years ago, witnesses testified about the potential benefits of this form of resolving disputes without judicial intervention. 

5 

They noted, for example, that when arbitration is properly used, it can help parties avoid the delay and costs of protracted litigation. And arbitration can serve to 

relieve the burden on courts to decide disputes. 

Their testimony led Congress to pass the Federal Arbitration Act, which empowered courts to enforce arbitration agreements. 

As we have since learned during the last 20 years, however, arbitration is not always beneficial to all parties, and it may eviscerate the protection of some federal 

consumer and civil rights statutes. 

Others claim that the secrecy of arbitration awards hinders the development of 

the law, and awareness of wrongdoing by businesses, which ultimately harms all 

consumers and employees. 

Still others assert that arbitration providers and arbitrators are not always neutral and, in fact, may have cozy relationships with parties on one side of these disputes. 

Nevertheless, the use of mandatory provisions in various contractual agreements 

has rapidly escalated in recent years and, as a result, has become virtually ubiquitous. 

Many businesses—from credit card companies to cell phone providers—dictate 

that their consumer product sale and service contracts include mandatory arbitration clauses. Similarly, many employers demand that their workers agree to arbitrate employment disputes as a condition of their employment. 

As a result, millions of consumers and employees across our Nation are legally 

bound to mandatory arbitration clauses in contracts with little or no ability to negotiate them. 

To those who wonder why these mandatory arbitration clauses are fundamentally 

unfair to consumers and employees, here are just a few reasons. 

First, those who are charged with determining arbitration disputes may not really be neutral and independent. 

For many years, former arbitrators, consumers, and employees have contended 

that arbitration providers tend to favor their business customers. Specifically, they 

assert that arbitrators often decide in favor of businesses and, in the rare instances 

when they rule in favor of consumers or employees, they often award damages lower 

than what was requested. 

Indeed, this Subcommittee has heard from several witnesses supporting these assertions, as well as considered studies and analyses by Public Citizen, the Christian 

Science Monitor, and the Center for Responsible Lending that reached similar conclusions. 

But it was not until this summer, when a lawsuit filed by the Minnesota Attorney 

General helped to focus a national spotlight on these serious allegations, that we 

learned how true they were. 

The lawsuit alleged that the National Arbitration Forum, a major arbitration provider claiming that it is independent, neutral, and unaffiliated with any party to 

a dispute, was actually encouraging companies to insert arbitration agreements in 

their consumer contracts, and to appoint the Forum to arbitrate their disputes. 

Worse, the complaint alleges, the Forum blackballed arbitrators who ruled against 

its favored businesses, and had financial ties to some businesses that were parties 

to disputes it arbitrated. 

Obviously, arbitration under these circumstances could not be considered fair. The 

Forum quickly agreed to a settlement, which included its complete withdrawal from 

arbitrating consumer cases. 

After this settlement, the American Arbitration Association, another major arbitration provider, promptly announced that it would cease arbitrating certain consumer disputes. 

Despite these developments, nothing currently prevents other arbitration providers from providing services that are not independent. 

Minnesota’s lawsuit certainly calls into question whether arbitration proceedings 

are consistently conducted by neutral arbitrators. 

But consumers and employees should not have to rely on governmental lawsuits 

to ensure that arbitration proceedings are fair. 

Accordingly, I urge Congress to consider legislation that would restore integrity 

to the arbitration process, or limit the enforceability of mandatory arbitration 

clauses, or both. 

Clearly, in the absence of governmental oversight, arbitration providers and businesses have established relationships that benefit them financially at the expense 

of consumers and employees. 

Second, mandatory arbitration clauses are particularly unfair to consumers and 

employees, because they often lack any bargaining power over whether these clauses 

are included in contracts with their business counterparties. 

6 

It should come to no surprise that many of these clauses, when included in consumer and employment contracts, favor businesses. 

By virtue of these clauses, consumers and employees legally lose their constitutional right to a jury trial. In addition, some of the procedural requirements these 

clauses impose can make it difficult, even cost-prohibitive, for consumers to protect 

their rights under the law. 

Congress should not restrict the rights and options of consumers and employees 

to resolve disputes. Rather, arbitration should be one option among many to resolve 

disputes. It should not be the only option. 

Third, the courts have greatly expanded the scope of the Federal Arbitration Act 

to apply to consumers and employees in respects not originally intended by the Act’s 

drafters. 

As we have learned, the Federal Arbitration Act was conceived to give courts the 

authority to enforce arbitration awards, and Congress intended for the Act to apply 

only to disputes between merchants of an equal bargaining position. The Act was 

not intended to apply to workers or consumers. 

Nevertheless, the Supreme Court has substantially broadened the reach of the 

Act, which has, in turn, encouraged the inclusion of mandatory arbitration clauses 

in nearly every type of consumer and employment contract. 

The Court’s decisions have very much weakened the impact of Federal and State 

consumer protection laws and employee rights laws. As a result, many Americans 

have been denied their day in court. 

Congress should therefore consider legislation clarifying the Act’s original intent 

and spirit. 

Legislation that protects consumers and employees is a common-sense solution for 

all Americans. 

My colleagues, Representatives Linda Sa ́nchez and Hank Johnson, each have introduced legislation that make positive steps toward a solution. 

Their proposals will allow consumers, employees, franchisees, residents of longterm care facilities, and others to opt for arbitration, rather than have arbitration 

imposed on them as a pre-condition for service or employment. Their legislation 

would help ensure a fairer arbitration process because the terms of arbitration will 

not be dictated by one party to the dispute. 

If Congress fails to be more assertive in protecting consumers and employees and 

guaranteeing the right to a jury trial, I fear that more Americans will be on the 

losing end when they have to arbitrate a dispute. 

I thank the witnesses for being here today, and look forward to hearing their testimony. 

Mr. COHEN. Cheer, cheer for Michigan, da, da—thank you for the 

gentleman’s statement. Without objection other Members’ opening 

statements will be included in the record and first I would like to— 

we have a panel of congresspeople. 

And I do welcome Ms. Sa ́nchez, the former Chairperson of this 

particular Committee, and Mr. Johnson, the Chairperson of another distinguished and important Subcommittee of the Judiciary 

Committee. And I welcome each of them to the Committee, and I 

would recognize the former Chairlady, Ms. Sa ́nchez, for her statement. 

TESTIMONY OF THE HONORABLE LINDA T. SA ́ NCHEZ, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. SA ́ NCHEZ. Thank you, Chairman Cohen and Chairman Conyers and Ranking Member Franks and Members of the Committee 

for allowing me the opportunity to testify today about a very important piece of legislation, which also has a very deeply personal 

meaning for me. 

Last Congress, when I chaired this Subcommittee, we held several hearings to investigate the fairness and usefulness of arbitration agreements. We learned among other things that arbitration 

7 

is a very useful alternative to the court system, but especially when 

the parties agreeing to arbitrate have about the same level of 

knowledge and the same amount of sophistication regarding it. 

On the other hand, we also found that in certain circumstances 

arbitration agreements can be forced on vulnerable parties who 

have little knowledge about what they are signing, and quite frankly, little choice, if any choice, in the matter at all. 

I want to be very clear that I strongly support the principles of 

arbitration and the arbitration process. Arbitration can clear court 

dockets, provide swift resolution and reduce legal fees. But because 

it can also limit evidence and damages and deny the possibility of 

a jury trial, it must be willingly entered into by both parties, not 

just the party with the superior economic power. 

Checking a parent or other relative into a nursing home or other 

long-term care facility is a perfect example of a time when one 

party has no real power or choice in the matter. And for these reasons I introduced H.R. 1237, the Fairness in Nursing Home Arbitration Act, to make pre-dispute, mandatory arbitration clauses in 

long-term care contracts unenforceable and to restore to residents 

and their families their full legal rights. 

This legislation would allow families and residents to maintain 

their peace of mind as they look for that perfect long-term care facility. 

By 2040, the demand for long-term care services will more than 

double in this country and the long-term care industry is increasingly requiring patients or their guardians to sign binding, pre-dispute arbitration clauses as a prerequisite to admission. 

Unfortunately, the inclusion of such mandatory clauses adds a 

confusing and legally binding complication to an event that is already difficult enough and sometimes even very heartbreaking. For 

desperate families who are unable to provide adequate care at 

home, the need for an immediate placement for their loved one 

makes the ‘‘take it or leave it’’ choice no choice at all. 

Families who are in the midst of a very painful decision to place 

a parent in a nursing home rarely have the time or wherewithal 

to fully and thoughtfully consider mandatory arbitration clauses. 

They are in no position to adequately determine what agreeing to 

such a clause will mean for their loved one should the unthinkable 

happen. 

Instead of some future dispute, what is real and immediate is the 

prospect of needing care for a loved one now. The emotional toll 

and the sense of vulnerability when moving a loved one into the 

care of strangers at a nursing home is something that I am familiar with. My father, who has been struggling with Alzheimer’s for 

a number of years, took a turn for the worse in the past year, to 

the point where we could no longer provide safe and adequate care 

at home for him. 

One of the last things that I wanted to worry about when searching for a perfect placement was whether or not he was forgoing his 

legal rights. Instead, I wanted to focus solely on the quality and 

the range of services that each facility had to offer. As it turned 

out, my family chose a facility that met other requirements but 

also had a mandatory pre-dispute arbitration clause in its contract. 

8 

This bill that I have introduced is for the families across the Nation who face similar decisions at a time when they are least prepared to make them. As we learned last year, average consumers 

are totally unfamiliar with the concept of arbitration. They may not 

even be aware of the rights that they are signing away when they 

agree to it. In short, I believe that Congress should act to protect 

these vulnerable families. 

I want to also clarify that not all nursing home operators use 

mandatory, binding arbitration agreements upon admission. Some 

do try to protect vulnerable families, for instance, by offering arbitration on a voluntary basis. Others do admit patients immediately 

but give them time to consider whether arbitration is right for 

them. 

This bill is fundamentally about fairness. It promotes fairness for 

families experiencing the trauma of a parent in declining health by 

making unenforceable mandatory, binding arbitration agreements 

that families were essentially forced to sign whether they wanted 

to or not. 

Fairness demands that parties to a contract should have a legitimate choice, not a forced one, about whether or not to arbitrate 

their disputes. I am proud to note that several significant groups 

who advocate on behalf of seniors and consumers, including AARP, 

the National Senior Citizens Law Center, the Alzheimer’s Foundation of America and the National Association of Consumer Advocates, all support H.R. 1237. 

In closing, I just want to mention one thing because I have been 

accused of being anti-arbitration. What this bill seeks to do is just 

take away the unequal bargaining power in a pre-dispute situation. 

There is nothing that would take it away in a post-dispute, which 

means that parties after a dispute arises could agree to have their 

dispute settled in binding arbitration if they so choose. 

But it would not force people into that scenario when they 

haven’t had adequate time to recognize what they are signing when 

they sign a mandatory, pre-dispute, binding arbitration clause. I 

think you very much for the opportunity to testify today and I hope 

that you will join me in supporting this legislation. 

[The prepared statement of Ms. Sa ́nchez follows:] 

9 

PREPARED STATEMENT OF THE HONORABLE LINDA T. SA ́ NCHEZ, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA, AND MEMBER, COMMITTEE ON THE JUDICIARY


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Mr. COHEN. Thank you, Congresswoman Sa ́nchez. We welcome 

you back to your old home and thank you for your coming here. 

Our next witness is Representative Hank Johnson, who represents Georgia’s 4th Congressional District. He is a regional whip, 

and he also serves on the House Democratic leadership. He is on 

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petition Policy, a distinguished Member of this Subcommittee and 

my dear friend. 

You are recognized. 

TESTIMONY OF THE HONORABLE HENRY C. ‘‘HANK’’ JOHNSON, 

JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF 

GEORGIA 

Mr. JOHNSON. Thank you, Chairman Cohen, and I have always 

tried to be as great a Member as you have set the example for me. 

But I want to get into this. Forced arbitration has been a concern 

of mine for many years, and I firmly believe that the Congress 

must act in this instance to protect consumers. 

In the 100—— 

Mr. COHEN. Mr. Johnson, it has been suggested that you might 

need to pull the mike a little closer because some of us don’t hear 

as well as we did 20 years ago. 

Mr. JOHNSON. All right. Okay. In the 110th Congress I introduced the Arbitration Fairness Act, a bill that would prevent all 

forced pre-dispute arbitration clauses. That bill passed favorably 

out of this Subcommittee, and I reintroduced the legislation in this 

Congress, and I am proud to have the Chairman of the full Judiciary Committee and three other fine Members of this Subcommittee 

as original co-sponsors. 

In fact, this bipartisan bill already has 90 co-sponsors. H.R. 1020, 

the Arbitration Fairness Act, does not eliminate all arbitration; it 

merely prevents forced pre-dispute arbitration clauses. Consumers 

may still opt to arbitrate a dispute with a company, but only when 

that consumer determines that it is the appropriate forum at the 

time the conflict arises and not before. 

As Chairman of the Judiciary Committee, Judiciary Subcommittee on Courts and Competition Policy, I believe it is vital 

that consumers continue to have access to the courts and not be 

foreclosed from litigation by the constraints of pre-dispute forced 

arbitration clauses. Major arbitration companies, including the National Arbitration Forum and the American Arbitration Association, have recently stopped arbitrating consumer claims. 

However, pre-dispute arbitration clauses remain in many of the 

consumer, franchisee and employment contracts. This means that 

the NAF and the AAA’s grand gestures do not actually mitigate the 

harmful impact of forced arbitration clauses on consumers. 

Another company will eventually fill the void and begin to arbitrate consumer claims again. There is no reason to think that the 

arbitration process will be any fairer to consumers when this occurs. 

Just a few weeks ago, Bank of America voluntarily dropped its 

mandatory arbitration program for credit card disputes, deposit account disputes and disputes involving loans for automobiles, recreational vehicles and boats. 

This is very noble of Bank of America, and it is the kind of reform we need, but we cannot count on companies to voluntarily remove arbitration clauses when so many of the companies benefit 

tremendously from them. 

I recently wrote a letter to the attorney general of the state of 

Georgia addressing the need for close scrutiny of arbitration 

18 

clauses in home builder contracts. The personal harm alleged by 

several of my constituents shows how difficult it is for consumers 

to prevail in the arbitration process. 

The abusive practices that harm these victims are indicative of 

a much larger problem where consumers are forced to agree to arbitration clauses that strongly favor the company to the detriment 

of the consumer. 

You know, it is okay to, across the backyard fence, to lie to your 

neighbor about the length and weight of the fish that you caught 

or about your previous career as an actor or a model or something 

like that. 

I mean, you can do that. But in court, at the courthouse, you 

must take an oath of office and swear to tell the truth, and that 

promise or that oath is enforceable through the criminal laws of 

this Nation and various states. But we have no kind of fundamental check and balance on arbitration proceedings with respect 

to having to tell the truth. 

And secondly, well, I am not going to go into all the particulars. 

I know that our witnesses to come will go into various aspects of 

forced arbitration and why we need to take action as a legislature 

to correct this imbalance which has existed. Thank you. 

[The prepared statement of Mr. Johnson follows:] 

PREPARED STATEMENT OF THE HONORABLE HENRY C. ‘‘HANK’’ JOHNSON, JR., A REP- RESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA, AND MEMBER, SUB- COMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

Thank you, Chairman Cohen, for the opportunity to testify today before the Commercial and Administrative Law Subcommittee. Forced arbitration has been a concern of mine for many years and I firmly believe that Congress must act in this 

instance to protect consumers. 

In the 110th Congress, I introduced the Arbitration Fairness Act, a bill that would 

prevent all forced pre-dispute arbitration clauses. That bill passed favorably out of 

this Subcommittee. I re-introduced my legislation in this Congress, and am proud 

to have the Chairman of the Full Judiciary and three other fine members of this 

Subcommittee as original cosponsors. In fact, this bipartisan bill already has over 

90 cosponsors. 

The Arbitration Fairness Act does not forbid arbitration clauses. It merely prevents forced pre-dispute arbitration clauses. Consumers may still opt to arbitrate a 

dispute with a company. But only when that consumer determines that it is the appropriate forum at the time the conflict arises and not before. 

As Chairman of the Judiciary Committee Subcommittee on Courts and Competition Policy, I believe it is vital that consumers continue to have access to the courts 

and not be foreclosed from litigation by the constraints of a pre-dispute forced arbitration clause. 

Major arbitration companies, including the National Arbitration Forum and 

American Arbitration Association have recognized that the arbitration process, in its 

mandatory form, is unfair to consumers. Recently, Bank of America voluntarily 

dropped its mandatory arbitration program for credit-card disputes, deposit account 

disputes and disputes involved loans for automobiles, recreational vehicles and 

boats. 

These small steps towards eliminating forced arbitration clauses only underscores 

the need for Congress to enact my legislation along with Representative Sanchez’s 

Fairness in Nursing Home Arbitration Act. Pre-dispute forced arbitration agreements are nearly always the product of unequal bargaining power between the consumer and the business. The scales of justice ought not to be so weighted. 

I recently wrote a letter to the Attorney General of the State of Georgia addressing the need for close scrutiny of arbitration clauses in home builder contracts. The 

personal harm alleged by several of my constituents pertains to just one company’s 

abuse of the arbitration process. However, the abusive practices that harmed these 

victims of arbitration is indicative of a much larger problems where consumers are 

forced to sign arbitration clauses that strongly favor the company to the detriment 

of the consumer. 

19 

Arbitration agreements remain in many other consumer, employment, and 

franchisee agreements. Congress must act to prohibit forced arbitration before consumers suffer any more harm. 

Again, I thank Chairman Cohen for the opportunity to testify before the Commercial and Administrative Law Subcommittee today. 

Mr. COHEN. Thank you, Mr. Johnson. I appreciate the witnesses. 

Is there any Member of the panel that would like to ask a question 

of our colleagues? If not, we thank you for your testimony and your 

work in authoring these bills, and we will have hearings and obviously you are welcome to attend or go to the recesses of your office 

and watch by the magic of television. 

So we now dismiss the first panel and welcome the second panel. 

I thank the witnesses for participating in today’s hearing. Without objection, your written statement will be placed in the record, 

and we would ask that you limit your oral remarks to 5 minutes. 

You have got a lighting system, and the green means you are within the first 4 minutes. 

When it is yellow it means you need to be starting to think about 

the fact that, in 1 minute or less, you will have a red light, which 

means you are supposed to stop. If you do stop at that point, you 

will be one of our best witnesses. Subcommittee Members will be 

permitted to ask questions subject to the same 5-minute limit, 

which is rarely kept. 

Our first witness is Ms. Alison Hirschel. Professor Hirschel 

serves as the ‘‘elder’’ law attorney—oh, I guess that is for older people. Yes, I didn’t think it fit you—at the Michigan Poverty Law 

Program, a statewide back-up center for legal services programs, 

where her practice includes litigation, legislative and administrative advocacy and professional and community education efforts. 

Prior to coming to Michigan in 1997, she spent 12 years at Community Legal Services in Philadelphia as a staff attorney, co-director there of the Elderly Law Project, and finally as deputy director. 

Thank you for being here, Professor Hirschel, and you may begin 

your 5 minutes. 

TESTIMONY OF ALISON E. HIRSCHEL, NATIONAL CONSUMER 

VOICE FOR QUALITY LONG-TERM CARE, WASHINGTON, DC 

Ms. HIRSCHEL. Thank you very much, Chairman Conyers, Chairman Cohen, Ranking Member Franks—— 

Mr. COHEN. You need to pop your button on, I guess, to get 

audio. 

Ms. HIRSCHEL. Okay. Chairman Conyers, Chairman Cohen, 

Ranking Member Franks and Members of the Subcommittee, thank 

you for inviting me here today to speak on behalf of NCCNHR: The 

National Consumer Voice for Quality Long-term Care. 

For the past 24 years, I have been a public interest lawyer representing long-term care consumers, and I know from my practice 

that residents and families often sign admissions agreements when 

they are under enormous stress. Frequently, because of a medical 

crisis or the loss of the caregiver, the resident needs immediate 

placement and the facility to which they are being admitted might 

be the only option they have. 

20 

Most consumers who sign admissions contracts don’t realize that 

they include an arbitration clause, and even if they notice them, 

they don’t know that arbitrators are often industry lawyers with an 

incentive to favor the facility, or that arbitration can be costly for 

consumers, or that awards are generally significantly lower than 

jury awards, and that there is virtually no appeal. 

The last thing on most consumers’ minds at the time of admissions is how they will seek a remedy if something goes wrong. Consumers enter a long-term care facility looking for care and compassion, not arbitration or litigation. Even if the consumer understands the provisions, most won’t challenge them. 

No resident or family wants to get off on the wrong foot with a 

facility that will hold the resident’s very life in their hand. No one 

wants to be marked a troublemaker before the resident has even 

entered the facility, especially about a legal provision in the admissions contract that they hope will never apply to them. 

Unfortunately, sometimes things do go grievously wrong. In the 

case of Vunies B. High, a 92-year-old Detroit area woman who happened to be the sister of the legendary boxer Joe Louis, she had 

dementia, and her family admitted her to an assisted living facility 

where they thought she would be safe. 

Unfortunately, on a frigid night in February of last year, when 

the staff failed to properly supervise her, she wandered out of that 

facility wearing only her pajamas and froze to death. Only then did 

her family discover that the admissions agreement contained a 

mandatory binding arbitration provision. 

It stated, like many of these provisions, that in case of any dispute, the provider has the sole and unfettered option to resolve the 

dispute in binding arbitration. The provider would choose the location for the arbitration. The provider would choose the rules, and 

the provider retained its rights to any action against Ms. High in 

court though she was required to give up that right if she had an 

action against the facility. 

Fortunately, the Federal court in that case determined that the 

contract was unenforceable for a number of reasons, including the 

unequal bargaining power of the parties, the lack of discussion of 

the provision with Ms. High or her family, Ms. High’s obvious confusion, and the fact that the agreement was presented to Ms. High 

and her family after she had already moved into the facility, and 

was, in fact, never signed. 

The High family was lucky the arbitration agreement was invalidated. Courts routinely enforce onerous arbitration clauses signed 

under the most coercive conditions. When arbitration agreements 

are enforced, harrowing abuse or neglect may never be brought to 

light, and that is an important incentive for facilities to provide 

quality care, and it is lost when those things don’t come to light. 

As Yale law professor, Judith Resnik, notes in a forthcoming 

book, secretiveness in outcomes is often a signature of arbitration. 

She notes that ‘‘arbitration is often a set of procedures without 

transcripts, public observers or reported outcomes.’’ 

At the same time we are seeing a dramatic rise in the number 

of mandatory arbitration clauses, government surveys and studies 

continue to provide disturbing evidence of serious neglect and 

avoidable injuries and deaths in nursing homes. This is particuVerDate Aug 31 2005 15:07 Feb 23, 2010 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6601 H:\WORK\COMM\091509\52199.000 HJUD1 PsN: 52199
21 

1 NCCNHR (formerly the National Citizens’ Coalition for Nursing Home Reform) is a nonprofit 

membership organization founded in 1975 by Elma L. Holder to protect the rights, safety and 

dignity of America’s long-term care residents 

larly shocking in an industry that receives $75 billion in taxpayer 

money each year through Medicare and Medicaid. 

Proponents of forced pre-dispute arbitration agreements lament 

that funds that should be spent on resident care are allegedly diverted to pay for litigation and liability insurance. 

But I want to be clear about two points: First, what really costs 

taxpayers unfathomable sums of money is poor care itself. Poor 

care leads to unnecessary and frequent hospitalization for conditions that never should have arisen and to surgery, specialists’ visits, medications and durable medical equipment to address ills that 

never should have been suffered. 

Second, even if providers are spared the expense of litigation and 

increased premiums should those occur, there is no guarantee that 

those savings will be used to improve resident care or do anything 

that benefits residents. Nothing prevents providers from simply 

using those funds to increase their investors’ returns. 

As testimony in several congressional hearings has disclosed, 

nursing home corporations are setting up complex operating and financing structures that hide ownership, bleed funding out of facilities, limit accountability and reduce nursing staff and quality of 

care. 

We should be limiting corporate abuse of public funds, not residents seeking justice. And finally, let me just note that I am not 

anti-arbitration. I am only opposed to pre-dispute, binding, forced 

arbitration. 

Arbitration wasn’t intended as an end-run around justice or a 

way to keep wrongdoing out of the public eye. And in cases in 

which consumers already suffered grievous harm, Congress should 

not permit long-term care facilities to add the bitter burden of denial of the fundamental right of access to the court. 

Thank you. 

[The prepared statement of Ms. Hirschel follows:] 

PREPARED STATEMENT OF ALISON E. HIRSCHEL

Chairman Conyers, Chairman Cohen, Ranking Member Franks and members of the 

Subcommittee: 

Thank you for inviting me to speak on behalf of NCCNHR: The National Consumer Voice for Quality Long Term Care.1 For more than 30 years, NCCNHR has 

provided a national voice for long-term care residents, their families, ombudsmen, 

and consumer advocates, such as the Michigan Campaign for Quality Care which 

I represent. Thirty years ago, I started my career as an intern at the House Select 

Committee on Aging. And for the past 24 years, I have been a public interest lawyer 

representing long term care consumers on issues ranging from their initial admissions to facilities to their sometimes tragic experiences of abuse or neglect in those 

facilities. 

Residents and families often sign admission agreements at times of enormous 

stress in their lives and when they feel they have very limited options. Seeking admission to a facility is rarely a slow and deliberative process in which consumers 

carefully evaluate the quality and services at numerous facilities and ponder every 

page of the often voluminous admissions package to compare it to admission agreements of other nearby facilities. Frequently, the admission occurs after a medical 

crisis or the loss of a caregiver when the resident needs an immediate placement. 

22 

Indeed, sixty percent of nursing home admissions are directly from a hospital. The 

facility to which the applicant is being admitted will often be the only facility that 

has a bed, will accept the resident, or is close to the resident’s family and friends. 

Most consumers who sign these contracts are unaware that they include an arbitration clause, and they may not understand the provisions even if they notice them. 

They don’t know that the arbitrators are often health care industry lawyers who 

have an incentive to find for the facility and limit awards so that they will be hired 

by the provider for future disputes. They don’t understand that arbitration can be 

very costly for the consumer, that arbitration awards are generally significantly 

lower than jury awards, and that there is no real ability to appeal. Moreover, the 

last thing on most consumers’ minds at the time of admission is how they will seek 

a remedy if something goes wrong. They enter a long term care facility looking for 

care and compassion, not litigation or arbitration. 

Even if the long term care facility explains the binding arbitration clause, most 

consumers will not challenge it. First, nothing about the long term care admissions 

process is like a negotiation between two equal parties. Consumers may not have 

any other options and they generally sign whatever paperwork is presented to them. 

Second, no resident or family wants to get off on the wrong foot with a facility that 

will hold the fragile resident’s life in its hands. No one wants to be marked a troublemaker before the resident has even entered the facility, especially about a legal 

provision applicants do not expect to ever affect them. 

Unfortunately, sometimes things do go grievously wrong as they did for Vunies 

B. High, a 92 year old Detroit area resident with dementia. She was the sister of 

the legendary boxer Joe Louis, a graduate of Howard University, an accomplished 

woman who served as a long time English teacher and counselor in Detroit public 

schools. Ms. High’s family placed her in an assisted living facility because they 

thought she would be safe there. On a frigid night in February of last year, staff 

of the facility failed to notice when Ms. High wandered out of that facility wearing 

only her pajamas. She froze to death. Her family then discovered that the admissions agreement contained a mandatory, binding arbitration provision. It, like many 

mandatory arbitration clauses, stated that in the case of any dispute: 

• The provider had the sole and unfettered option to choose to resolve the dispute in binding arbitration; 

• The provider would choose the location for the arbitration; 

• The provider would choose the rules (the rules of the American Arbitration 

Association or of the American Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration); 

• And the provider retained its right to institute any action against Ms. High 

in any court of competent jurisdiction, though Ms. High was required to forego that option as well as her right to a jury trial in any matter that was litigated in court. 

In addition, the agreement contained a limitation of only $100,000 in damages, 

in addition to medical costs incurred, a provision Ms. High’s family also did not recall. When Ms. High’s family sought redress for her tragic and preventable death, 

the facility, relying on the arbitration agreement, moved to dismiss the case. Fortunately, the federal court determined that the contract was unenforceable for a number of reasons including: 

• The unequal bargaining power of the parties; 

• The lack of discussion of the provision with Ms. High or her family; 

• Ms. High’s obvious limitations and confusion; 

• The unilateral nature of the arbitration provision; 

• The fact that the agreement was presented to Ms. High and her family after 

she had already moved into the facility; and 

• The context of presenting the agreement in an elder care facility. 

The High family was lucky the arbitration agreement was invalidated. Courts 

routinely enforce onerous arbitration provisions signed under the most coercive conditions. When arbitration agreements are enforced, harrowing abuse or neglect may 

23 

2See Chapter 14 in Judith Resnik and Dennis Curtis, REPRESENTING JUSTICE: THE RISE 

AND FALL OF ADJUDICATION AS SEEN FROM RENAISSANCE ICONOGRAPHY TO 

TWENTY-FIRST CENTURY COURTHOUSES (Yale University Press, forthcoming 2010). 3 Id. citing Iberia Credit Bureau, Inc. v. Cingular Wireless, 379 F. 3d 159, 175 (2005). 4 Id. 

5 Id 

never be brought to light and an important incentive for facilities to provide quality 

care is therefore lost. 

As Yale Law Professor Judith Resnik notes in a forthcoming book, ‘‘[S]ecrecy 

about both processes and outcomes is often a signature of [arbitration]. . . .’’ 2 She 

cites a federal court decision that observes that confidentiality is part of the character of arbitration itself to prevent it from having precedent and gaining the 

trappings of adjudication.3 And that secrecy often includes banning disclosures by 

participants, barring attendance by third party observers, and excluding or limiting 

the media.4 As Professor Resnik concludes, ‘‘The [Alternative Dispute Resolution] 

packet . . . is often a set of procedures without transcripts, public observers, or reported outcomes.’’ 5

At the same time we are seeing a dramatic rise in the number of mandatory arbitration clauses, government studies continue to provide disturbing evidence of serious neglect and avoidable injuries and deaths in nursing homes. According to a Government Accountability Office (GAO) report in 2007, twenty percent of nursing 

homes have been cited for putting their residents at risk of serious injury or death— 

a shockingly high figure in an industry that receives more than $75 billion taxpayer 

dollars through Medicare and Medicaid each year. And the GAO says that state surveys understate the actual jeopardy and harm residents are experiencing. 

It is true that we have an elaborate nursing home enforcement system. But that 

enforcement system is, like many nursing homes themselves, seriously understaffed 

and enormously challenged by its vital responsibilities. In my home state, a shortage of surveyors has meant that complaints take weeks, months, and sometimes as 

long as a year to investigate. In that period, records are lost or altered, witnesses 

and evidence disappear, and surveyors are no longer able to substantiate even extremely serious and legitimate complaints. And when the neglect or abuse cannot 

be substantiated, no penalty can be imposed. 

Moreover, while surveyors miss a lot at nursing homes, licensed assisted living 

facilities—which do not have the benefit of federal regulation—are inspected even 

less often and less rigorously, and regulators in my state have few remedies if problems are discovered. And there is no enforcement in unlicensed facilities like the one 

in which Ms. High resided. Thus, an overburdened enforcement system in nursing 

homes, a limited system in licensed assisted living, and a nonexistent enforcement 

system in unlicensed homes cannot be an adequate substitute for litigation in egregious cases. 

Proponents of forced pre-dispute arbitration agreements lament that funds that 

should be spent on resident care are allegedly diverted to pay for litigation and liability insurance. But I want to be clear about two points: First, what really costs 

taxpayers unfathomable sums of money is poor care itself. Poor care leads to unnecessary and frequent hospitalization for conditions that never should have arisen, 

and to surgery, specialists’ visits, medications, and durable medical equipment to 

address ills that never should have been suffered. When a Wisconsin nursing home 

ignored for more than five days Glen Macaux’s doctor’s orders to inspect and assess 

his surgical site, the resulting infection caused septic shock, excruciating pain, severe depression, and total disability—as well as hospital bills of almost $200,000. 

Second, even if providers were spared the expense of litigation and increased insurance premiums—by tipping the playing field very much in their own favor— 

there is no guarantee that savings will be invested in adequate staffing, training, 

supplies, or in creating safe and appealing environments. Nothing prevents providers from using those funds to increase investors’ returns instead of improving 

residents’ care and lives. The Government Accountability Office showed that when 

Congress increased Medicare funding for skilled nursing facilities specifically to improve nurse staffing levels, the amount of nursing care residents received was virtually unchanged. And the Centers for Medicare and Medicaid Services recently reVerDate Aug 31 2005 15:07 Feb 23, 2010 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 0190 H:\WORK\COMM\091509\52199.000 HJUD1 PsN: 52199
24 

duced Medicare funding to nursing homes because it concluded that some of the 

therapy Medicare paid for was given by aides, not licensed physical therapists, and 

that it was often given to residents concurrently in groups while the government 

was billed for individual treatments. Moreover, as testimony in several Congressional hearings has disclosed, nursing home corporations are setting up complex operating and financing structures that hide ownership, bleed funding out of the facilities for corporate profits, limit accountability, and reduce nursing staff and quality 

of care. We should be concerned about corporate abuse of public funds, not with residents seeking justice in the courts when they become victims of neglect and abuse 

that is often caused by corporate greed. 

Finally, let me note that we are not anti-arbitration. We are only opposed to predispute, binding, forced arbitration. Arbitration was not intended as an end run 

around justice or a way to keep wrongdoing out of the public eye. In cases in which 

consumers have already suffered grievous harm, Congress should not permit long 

term care facilities to add the bitter burden of denial of the fundamental right of 

access to the courts. 

Thank you. 

Mr. COHEN. Thank you, Professor Hirschel, and you did good on 

your red light. 

Our second witness is Mr. Stuart Rossman. He is another University of Michigan attendee, I believe, while in undergraduate 

school. He is a National Consumer Law Center staff attorney directing litigation efforts there. He has 13 years in private practice 

and we welcome him here. 

He has founded and chaired the attorney general’s Abandoned 

House Task Force, a project ready to assist municipalities and community groups in seeking solutions to abandoned properties. Thank 

you, sir, we welcome your testimony. 

TESTIMONY OF STUART T. ROSSMAN, NATIONAL CONSUMER 

LAW CENTER, BOSTON, MA 

Mr. ROSSMAN. Mr. Chairman, Members of the Committee, thank 

you very much for inviting me here. As was noted, I am Director 

of Litigation for the National Consumer Law Center, which is a 40- 

year-old national organization representing the interests of low income and elderly consumers in the areas of access to credit, affordable home ownership and utility rights. 

We are dedicated to enforcing the substantive rights of consumers and we are proud supporters of the Arbitration Fairness 

Act that has been filed. 

In my practice, arbitration clauses are ubiquitous. They show up 

in credit cards. They show up in bank accounts. They show up in 

telephone and cell phone contracts. They appear in personal, home 

and car loans, utility agreements and in student financing. 

They are particularly prevalent in predatory products where we 

are dealing with the most vulnerable consumers, items such as 

payday loans, rent-to-own contracts and subprime mortgages and 

credit cards all contain the forced arbitration clauses. 

Forced arbitration clauses prevent access to the constitutionally 

protected judicial system. It prevents people from having access to 

the rules of evidence, the rules of civil procedure, appellate review 

and their right to jury. 

You are well aware of the problems which have been discussed 

and will be discussed this afternoon, but ostensibly we are dealing 

25 

with issues where the arbitration provisions show up as contract 

of adhesion with no choice between alternative products. 

They are required prior to the dispute no one can even imagine 

what the problems could be down the road. There is a lack of transparency and secrecy. There is a lack of accountability with a right 

of review. 

There is a bias toward the merchant as the repeat user, the repeat player bias that we have heard about. There is susceptibility 

for conflict of interest and then there is the expense to the consumer. 

As has been noted, there have been two major developments this 

past month in this area. First is as a result of a suit brought by 

the Minnesota Attorney General’s Office, the National Arbitration 

Forum has dropped doing all consumer arbitration cases. They are 

no longer accepting new arbitration cases or processing them. 

The claims that were brought by the Minnesota Attorney General’s office dealt with conflicts of interest, but there were also 

issues involving the level and the quality of the service that was 

being provided and whether it was biased. 

Then, in response to a letter from the Minnesota Attorney General’s Office or otherwise, the American Arbitration Association announced that it was suspending its debt collection arbitrations 

pending further consideration of appropriate safeguards. 

And then the Bank of America and JPMorgan Chase both announced that they would be dropping arbitration clauses in all of 

their credit card agreements. Bank of America went further to indicate that it was dropping it in its deposit agreements and its automobile loans. 

That is a welcome development as a first step, but is not enough, 

and Federal legislation still is needed. With the debt collection, the 

problem is not the actor, the bad apple so to speak, but the system 

itself. 

The opportunity for abuse and for profiteering are inherent in 

the relationship. It is an intrinsic flaw where the arbitration company draws its income from satisfying the debt collector or risk losing that account. Private justice where the funds are being paid for 

by private parties is inherently going to end up being biased. 

The fact that NAF is no longer in the business does not mean 

that there are not plenty of pretenders to the throne waiting in the 

wings to take over this very lucrative business. The American Arbitration Association did in fact drop debt collection arbitration, but 

it did not drop the enforcement of forced arbitration clauses against 

plaintiffs, when they brought their own cases. 

Furthermore, we have no idea what safeguard would be put in 

place, when they would be put in place and, most important, who 

will enforce them. Without enforcement, they are just pieces of 

paper. 

And finally, Bank of America and JPMorgan Chase should be 

congratulated for dropping the credit card requirements, but that 

still means that eight out of the ten largest credit cards companies 

in the United States still have mandatory arbitration clauses and 

the banks can always reverse their policies. As has been seen recently on a number of occasions, banks announce policies and can 

easily reverse them a year or two later down the road. 

26 

Congress created consumer rights and enforcement under the 

Fair Debt Collection Practices Act and Fair Credit Reporting Act, 

Truth in Lending and other statutes, but I am particularly interested, as a civil rights lawyer, in the access to fair credit. And I 

would be very concerned if under the Equal Credit Opportunity Act 

or the Equal Credit Opportunity Act my clients were no longer able 

to assert their rights under those statutes. 

For 10 years I filed suit against the automobile finance industry 

for claims of discrimination. We were able to get systemic change 

in those industries as a result of those lawsuits. I would not have 

wanted to tell my clients, Betty Cason or Edwin Borlay that they 

did not have their day in court to assert their ECOA claims because of an arbitration clause, when they couldn’t possibly have 

known about the discrimination at the time that they entered into 

their loan agreements. 

At NCLC we say that economic justice is a civil right and I 

would ask this Committee and Congress to sustain those civil 

rights by passing the Arbitration Fairness Act and all other consumer litigation intended to protect consumers from forced arbitration clauses. Thank you very much. 

[The prepared statement of Mr. Rossman follows:] 

27 

PREPARED STATEMENT OF STUART T. ROSSMAN


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Mr. COHEN. Thank you, sir, we appreciate your testimony. 

Our third witness has a positive and a negative to me, his great 

first name Stephen, Mr. Stephen Ware. He is a professor at the 

University of Kansas School of Law, which brings back pangs from 

11⁄2 years ago. 

He teaches at the school there, doesn’t take SATs for his basketball players, taught six different law schools including Samford’s 


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Cumberland School of Law, which started in Tennessee and was a 

faculty member there for 2 years. 

He is the author of two books, several other publications and a 

frequent speaker at academic conferences, continuing legal education programs and a ‘‘Rock Shock Jayhawk.’’ You are welcome. 

TESTIMONY OF STEPHEN J. WARE, UNIVERSITY OF KANSAS, 

SCHOOL OF LAW, LAWRENCE, KS 

Mr. WARE. Thank you very much, Chairman Cohen, Ranking 

Member Franks, Members of the Subcommittee. 

Although I am a professor of law at the University of Kansas, I 

speak to you today not on behalf of my university or anyone else, 

but on my own as an individual scholar who specializes in arbitration law. 

Thank you for inviting me to testify. As someone who has spent 

the last 16 years focused on arbitration, it is a real honor for me 

to get the chance to talk to the elected officials who ultimately control the future of arbitration in this country. 

And my suggestion and request to you is to please proceed with 

caution because arbitration does a lot of good, including a lot of 

good for ordinary citizens. For example, I am a consumer, and I 

like to see arbitration clauses in the contracts of the companies I 

do business with. 

That tells me that the company is saving money on legal fees because arbitration tends to be a quicker and cheaper process and 

competition over time will force the company to pass on some of 

those savings to me. And if I ever have a claim against one of those 

companies, I would like to save my own time and money by having 

access to the quicker and cheaper process. 

So if arbitration and litigation tend to reach similar outcomes, 

and by outcomes I mean who wins and how much money they win, 

but arbitration reaches those outcomes quicker and cheaper than 

litigation, then arbitration is good for everybody. 

It is good for the business and it is good for the consumer or employee or whoever has a dispute with the business. And that is basically the conclusion I have reached in my career of studying arbitration. 

Sure the trial lawyers who feel threatened by arbitration can tell 

stories of particular consumers and employees who did not fare 

well in a particular arbitration, but people can also tell stories of 

particular consumers and employees that did not fare well in litigation. 

So we shouldn’t be comparing arbitration to some ideal imaginary dispute resolution process. We should be comparing the reality of arbitration with the reality of litigation, as those are the 

two options available to parties today. And when the comparison 

moves beyond stories, beyond anecdotes, to serious empirical studies arbitration looks very good for consumers and employees overall. 

So what is at issue here in the bills before Congress? Basically 

you are being asked what should be the law on arbitration clauses 

in consumer contracts, employment contracts and similar contracts, 

and there are at least three possible answers to that question. 

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One answer is none of these arbitration clauses should be enforced and that is the answer of the Arbitration Fairness Act. If 

you enact that bill or something similar, you will say none of these 

arbitrations clauses shall be enforced. At the other extreme would 

be laws saying all of these arbitration clauses should be enforced. 

Nobody is advocating that and that is not what current law does. 

What current law does under the Federal Arbitration Act is enforce some of these arbitration clauses. The Federal Arbitration Act 

instructs courts to enforce the fair ones, don’t enforce the unfair 

ones, and courts frequently decline to enforce arbitration clauses. 

Courts have spent generations developing legal doctrine that are 

sensitive to the case-by-case variations in the facts of a case. Arbitration agreements can be written in a wide variety of ways, and 

the consent parties give to arbitration agreements can incur under 

a wide variety of circumstances. 

I suggest that courts, being sensitive to those factual differences, 

courts resolving cases individually, is a better approach than legislation which necessarily paints with a broad brush. I thank you for 

your attention and look forward to any questions. 

[The prepared statement of Mr. Ware follows:] 

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PREPARED STATEMENT OF STEPHEN J. WARE


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Mr. COHEN. Thank you, sir. Appreciate your testimony, Professor 

Ware. 

Mr. WARE. I stayed within the 5 minutes, too. 

Mr. COHEN. Right, you did, you beat the 5-minute clock. Beulah 

didn’t have to hit the buzzer. 

Our final witness is Mr. Cliff Palefsky. He is a civil rights and 

employment lawyer and a partner in the San Francisco law firm 

of McGuinn, Hillsman and Palefsky, co-founder of the National 

Employment Lawyer’s Association and co-chair of their Mandatory 

Arbitration Task Force. 

He has been involved in many arbitration decisions. He has been 

involved in state and Federal legislative efforts dealing with mandatory arbitration of civil rights claims. Mr. Palefsky, welcome. 

TESTIMONY OF CLIFF PALEFSKY, NATIONAL EMPLOYMENT 

LAWYERS ASSOCIATION, SAN FRANCISCO, CA 

Mr. PALEFSKY. Thank you very much, Mr. Chairman. I think I 

should start with presenting my bias here. 

I am an employment lawyer. We are the folks that Congress has 

asked to help enforce your civil rights laws and your whistleblower 

laws and your wage and hour laws. I believe that I have an ethical 

obligation to my clients to get their cases resolved as quickly as 

possible without even filing a complaint if I can, because that is 

what people in the employment context need. 

That is my bias. You will have a hard time finding anyone in this 

country who is a bigger proponent of ADR than me, a bigger user 

of ADR than me. We have led the Nation in encouraging the use 

of mediation for employment disputes. 

Let me tell you what I have learned over the past 20 years. Civilizations are evaluated by the quality of their civil justice systems. 

We are still lecturing, today, other countries about the rule of law, 

while in contemporary America, American workers and consumers 

are being sent to secret tribunals with no right of appeal. 

It is extraordinary that we sit here and debate the right of terrorists to access a Federal court, when the victims of sexual harassment and whistleblowers are denied that opportunity and are told 

that they must not only go to secret tribunals with no right of appeal, but they must pay for that privilege. 

The notion that arbitration and our public constitutional court 

system are equivalent is the modern day version of separate but 

equal. It would be malpractice for any practicing attorney to equate 

the two systems and to not understand the differences. 

In every single material defining respect, they are the exact opposites. Public versus private, free versus pay, full discovery versus 

no discovery or limited discovery, a judge who is required to follow 

the law versus not follow the law, the right to appeal versus the 

right not to appeal and a judge whose economic future is dependent 

on satisfying the repeat user. 

Arbitration is a dispute resolution system. It is not a justice system. It cannot be confused as a justice system. In the employment 

context, it is important to realize that none of these notions that 

Professor Ware talks about in terms of voluntariness apply. 

Our laws, the Norris-LaGuardia Act, the National Labor Relations Act, say it is the public policy of this country to recognize that 

87 

individual workers do not have the ability to freely negotiate terms 

of labor. 

Ever since the 13th amendment, we have recognized that the 

free market has failed to protect employees. The notion that if you 

don’t like this arbitration clause, quit, give up your job, give up 

your health insurance is a proper way to regulate the workplace, 

has been discredited. 

What is at stake here is the integrity of the laws that you have 

passed. You have passed the civil rights laws and we cannot enforce them. They are being undermined. You have passed whistleblower laws and we cannot enforce them. If you blow the whistle 

and no one hears, you are not a whistleblower, you are a sitting 

duck. You are a sucker. 

If you want to know what America would look like if all sex harassment claims were sent to arbitration, look at the securities industry in the 1970’s and 1980’s, when movies like ‘‘Bonfire of the 

Vanities’’ and ‘‘Working Girl’’ were held up as models of how accurate they are. 

If you want to know what America would look like if all whistleblower claims went to arbitration, look at the securities industry 

where they have compelled arbitration of whistleblower claims up 

to the present date. 

If you want to know what America would look like if subprime 

lending claims go to arbitration, look at what happened here until 

last year or 2 years ago, when Freddie Mac and Fannie Mae said 

they would not longer buy loans with mandatory arbitration 

clauses. 

What is going on, in fact, is do-it-yourself tort reform. Congressman Franks, I would love to address what you believe are myths. 

In fact all state regulation of the arbitration relationship essentially has been preempted. Your own state of Arizona has specifically excluded employment contracts from your arbitration statute. 

That has been preempted. 

The notion that courts all over the country are enforcing 

unconscionability arguments is simply not true. We have had that 

success in California, but all over the country courts are not striking down clauses. They are finding the most egregious clauses to 

be just fine because it clears their dockets. 

What is going on is a scandal in the house of justice and the Judiciary Committee must recognize—don’t worry about statistics. 

You would never suggest to any other country that justice is provided in secret conference rooms by judges who have to please the 

repeat user. For-profit justice has never worked. It will never work. 

Thank you very much. 

[The prepared statement of Mr. Palefsky follows:] 

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PREPARED STATEMENT OF CLIFF PALEFSKY


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ATTACHMENT A 


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Mr. COHEN. Thank you, sir. We will now have 5-minutes of questions. Same rules on the clock, and I will begin. Mr. Ware, you stated that you like to go to stores that have arbitration agreements. 

Do you read those arbitration agreements before you go into a 

store? 

Mr. WARE. Well, when I receive a credit card or a cell phone contract, I often look to see the arbitration clause, and I am pleased 

to see when there is one in there. 


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Mr. COHEN. That is kind of like the ‘‘Good Housekeeping Seal of 

Approval’’ to you? 

Mr. WARE. Well, no, it is a plus for the reason I gave earlier. 

I—— 

Mr. COHEN. And the reason was because they will save money, 

and they pass the savings on to you? 

Mr. WARE. Yes, it is the more efficient way of resolving disputes, 

and I am confident that over time anything that saves businesses 

money will be helpful to consumers. 

Mr. COHEN. So do you also suggest consumers, and you should 

go to stores that maybe don’t recycle because they save money, and 

they can pass the savings on to you or maybe employ people at 

very low wages or get their products from Asia where they have 

children and women working in sweatshops? 

Mr. WARE. Well, obviously, Chairman Cohen, we all want retailers and other businesses to follow all the laws you referred to there 

and those laws should be enforced. If the conduct—— 

Mr. COHEN. But you don’t—no. You don’t have to recycle, and you can buy goods from Asia where they pay people $1 an hour, 

and they don’t have kind of rights, but you would get a cheaper 

product. 

Mr. WARE. And each individual consumer ought to be able to decide if he or she doesn’t want to support a business that engages 

in those sorts of activities, and I think arbitration is importantly 

distinct from those examples in that arbitration has not shown to 

be harmful to consumers and employees. 

Mr. Palefsky says don’t look at statistics. Don’t worry about statistics because when you move past anecdotes and get to statistics, 

arbitration looks pretty darn good for consumers and employees. 

Mr. COHEN. Well, if you like it, which obviously you do and you 

like that, you could always do it voluntarily. Why should it be compulsory? 

Mr. WARE. Oh, well, that is a hugely important point, Chairman 

Cohen, the distinction between pre-dispute arbitration agreements 

and post-dispute arbitration agreements. 

And the fact of the matter is after a dispute arises the business 

can consult its lawyer and ask itself which forum would be more 

favorable to it for that particular dispute, arbitration and litigation, 

and the business can’t be expected to act against its self-interest 

at that point and agree post-dispute to arbitration, when that 

would be the more favorable process for the consumer. Similarly a 

consumer can consult a lawyer and will choose the process that is 

more favorable to it post-dispute. 

So we don’t see many post-dispute arbitration agreements. It is 

very rare. And this is through no fault of arbitration, but just the 

fact that litigation is the default. That is what happens when the 

parties don’t both agree to arbitrate, and it is very rare that they 

are going to both see arbitration after the fact as more favorable 

to them. 

Whichever party sees advantages to litigation, whether it be a 

jury or greater discovery, the more expensive motion practice, et 

cetera, that party can be expected to choose litigation. 

Mr. COHEN. Thank you, sir. Mr. Rossman and Palefsky seemed 

equally passionate, and I will recognize Mr. Palefsky first, since 

143 

your name was mentioned. Do you have any thoughts on that testimony? 

Mr. PALEFSKY. Well, absolutely. First of all, I did not mean to 

suggest that statistics don’t bear us out. Statistics do bear us out. 

In California, we were able to pass a statute that required arbitration providers to post the results of consumer employment arbitration, and those results were profound. 

Employees win a fraction of the time compared to what they win 

in court. The mean damage award of all cases is only 9 or 10 percent. The statistics actually support dramatically what we have 

been saying, that the laws that you have passed are being undermined, and that arbitration is not an equal forum. 

The statistic that you must focus on is the huge cost of arbitration. It can cost $40,000, $50,000, $80,000 to bring a sex harassment case to arbitration. Really, this is a form of double taxation. 

Americans are already paying for a public justice system. There is 

no precedent in American jurisprudence to force someone to pay a 

judge to have a law enforced. 

So the notion that arbitration is cheaper for most plaintiffs is 

simply not true. The filing fees alone at the American Arbitration 

Association can be $13,000, just to file before the arbitrators start 

charging $400 or $500 per hour. 

Mr. COHEN. Let me ask you this, sir, you and if Ms.—if anybody 

else wants to jump in, you are allowed to, the class actions are prohibited. What kind of an injustice happens when people can’t bring 

class actions for small claims? 

Mr. PALEFSKY. If people can’t bring class actions for small claims 

you are basically allowing people to cheat, to steal people’s rights 

and steal people’s money, if there is no way to vindicate the smaller claims. 

It simply is not economical to bring a claim for $100 either in arbitration or in court, so the only way your consumer protection 

laws and the only way justice will ever be reached in certain small 

claims is through the class action procedure. That is why Federal 

law has specifically designated class action procedures in various 

consumer statutes. 

And in the wage and hour context, in the Fair Labor Standards 

Act, you specifically created a collective action process recognizing 

that individual workers can’t afford to bring claims for their small 

wages that are owed for their overtime; that they fear retaliation. 

So without the ability to bring class actions for smaller claims 

you are basically giving a ‘‘Get Out of Jail Free Card,’’ and it is an 

invitation to cheat and to steal. 

Mr. COHEN. Mr. Ware, is there a way to take your love for arbitration cases but also have group love and have class actions? 

Mr. WARE. Yes, Mr. Chairman, absolutely. You can have class actions in arbitration. And so the question of whether consumers 

should be allowed to sign away their right to class action is really 

a separate question from whether that class action is going to proceed in litigation or arbitration. 

And it is important, it seems to me, to recognize that from the 

consumers’ standpoint class actions are something of a mixed bag. 

In other words, if I win a class action, what do I win, maybe a $5 

144 

coupon to buy more services from a company that I am already 

having a dispute with and don’t want to deal with them anymore. 

Whereas, if I give up that right to class action in favor of arbitration, then when I have a real dispute, a dispute I care about as opposed to one a plaintiff’s lawyer brought on my behalf, I may have 

the better access to justice in the quicker, cheaper process. 

So to me it is a very mixed question whether consumers should 

want to give up that right to class action. If, however, you conclude 

that they should not be able to, then you have got a separate issue 

from arbitration as a whole. Arbitration Fairness Act reaches far 

more broadly than class action. 

Mr. COHEN. But don’t you think there are times when the class 

action tends to change the policies and the practices of the merchant and that is a benefit to everybody, even in you just got the 

$5 coupon you don’t want to use, that they don’t continue to use 

those same unscrupulous practices that got them a judgment rendered against them? 

Mr. WARE. Yes, Mr. Cohen, I agree with you that that would go 

into the cost benefit analysis of whether it is a worthwhile right. 

And again, if you disagree with my assessment of those pros and 

cons, you can tackle class action separately in a much more narrow 

bill than the ones that have been considered in Congress. 

Mr. ROSSMAN. I just—if you don’t mind Mr. Chairman—— 

Mr. COHEN. Sure, Mr. Rossman. 

Mr. ROSSMAN. Listening to the concerns, particularly the fact is 

that Congress has already taken care of the issue of $5 coupons 

and the Class Action Fairness Act was passed 4 years ago and that 

class actions are, in fact, the sole way that many consumer laws 

can be enforced. 

In the Equal Credit Opportunity Act cases that I was just mentioning to you, the remedy that we sought was to get systemic 

change in the way that automobile loans were being handled across 

the country, which were leading to discrimination against African 

Americans and Hispanics. 

We were seeking future injunctive relief to change those policies. 

You cannot get that relief in arbitration. It was only by being able 

to try cases, in Tennessee as a matter of fact, that we were able 

to get those changes made across the industry. That authority was 

required from the United States Federal District Court judge. 

I am also somewhat confused by the professor talking about 

making informed judgments. It would seem to me being able to 

make a choice, whether you are the merchant or the consumer, 

after dispute arises, and you can make the cost benefit analysis 

knowing what is at stake, certainly makes more sense than making 

that cost benefit analysis in a vacuum where you don’t even know 

what the dispute is. You can’t even conceive of it. 

As I said to you beforehand, I doubt very much that Mrs. Cason, 

when she went in to buy her Nissan car was thinking about preserving her civil rights, preventing discrimination at that point in 

time and how she was going to be enforcing it 5 years down the 

road. 

I think that it proves the case. You should have the opportunity 

to consult with counsel, knowing what your full rights are and 

145 

knowing what the dispute is when you make that decision, not buying a pig in poke. 

Mr. COHEN. Thank you. And Ms. Hirschel, you gave the example 

of the nursing home situation. My father had to go into a nursing 

home, and it was a very difficult time. He had Alzheimer’s, and we 

were lucky to get a nursing home to take him, and most people are 

fortunate. Sixty percent of admits come from hospitals, and that is 

kind of the rules. It is tough. 

Is there a way to have a process whereby the people have a little 

bit more opportunity, you know, to render independent judgment 

rather than, you know, ‘‘Oh, my God, my loved one needs this care, 

I am lucky to have a bed, and let us move on?’’ 

Ms. HIRSCHEL. If you are asking if there is some sort of compromise that is available, my answer to that would unfortunately 

be no, because the longer a resident is in a nursing home the more 

vulnerable those people feel. The more they understand that every 

aspect of their life, from the meals that they need to going to the 

bathroom, is dependent on the staff in that facility. 

So if you say, well, after 30 days they should be more comfortable, at that point we can talk about arbitration. It is still a situation in which the person is very vulnerable and unwilling to create a problem by resisting an arbitration agreement. 

In addition, you know many nursing home residents don’t even 

now have access to a telephone. Many nursing homes don’t have 

any involved family. Nursing home residents don’t have any involved family. They are hardly in a position to consult a lawyer 30 

days or 60 days after they enter a nursing home for advice about 

what the implications of the arbitration agreement with a mandatory arbitration would be. 

And they are simply not in a position—the majority of nursing 

home residents have some form of cognitive impairment. They are 

simply not in a position to understand what the implications of 

that clause would be. 

Mr. COHEN. Thank you. 

And with that I recognize the Ranking Member, Mr. Franks, for 

questioning. 

Mr. FRANKS. Thank you Mr. Chairman. Mr. Ware, I guess sometimes it is good to restate the obvious, and that is binding arbitration in the context that we have discussed is something that people 

sign up for ahead of time. 

This is not something that is imposed upon them later and sometimes, you know, it occurs to me it gives them at least an initial 

option to say whether I would rather subject myself to binding arbitration or a court system that I may have some of the same questions as to the ultimate justice that may come out of that. 

And you have made some, I think, very compelling statements 

related to the similar outcome, but I was struck by Mr. Palefsky’s 

comments that seem to diverge significantly from yours. I thought 

the one about the terrorist was kind of interesting. 

I am not sure we could get terrorists to sign a binding arbitration 

agreement. It might go against some of their own philosophical persuasions, and I am not sure if they did that they would hold themselves accountable to it in the long run. 

146 

But can you give me some idea as to why it seems that Mr. 

Palefsky’s remarks are so divergent from your own? 

Mr. WARE. Thank you, Mr. Franks. Mr. Palefsky, when he 

backed away from his statement about ‘‘don’t worry about statistics,’’ he then picked the one empirical study that supports his side 

of the case in contrast to several that cut the other way. 

The one empirical study he is referring to was the Colvin article 

he attached to his testimony, and the Colvin article even cites all 

the other studies and says, oh, these are surprising results and 

they contradict what we have seen in the other studies. 

More importantly, the Colvin study, at least what Palefsky attached to his testimony is a—it is not even a published article, and 

the way of course scholarship works, empirical studies are published, and then other scholars have a chance to look at them and 

critique them and debate develops. So it is clearly a reach by Mr. 

Palefsky to pull the one study that contradicts the norm and then 

act as if it is the only study. 

Mr. FRANKS. The one area I found myself somewhat fascinated 

was that sometimes I am afraid in the last couple of years this 

Committee has in some cases granted more constitutional and legal 

deference to terrorists than they have American citizens, but that 

is another subject entirely. 

What conclusion do you draw from the recent legal action against 

the National Arbitration Forum for its debt collection processes and 

practices? 

Mr. WARE. Well, as the Minnesota attorney general’s investigation revealed, which scholars in the field had known already, is 

that debt collection, whether it be through arbitration or litigation, 

debt collection raises a set of issues unique to debt collection. 

It has a lot to do with the defendant, the debtor being hard to 

serve with process and to give notice of the dispute, and then a lot 

of debtors in that situation don’t show up to court and for arbitration to defend the case so a default judgment arises. 

Those issues peculiar to debt collection, in fact, have caused the 

FTC to have a series of events around the country studying both 

arbitration and litigation of debt collection issues because they recognize how unique those issues are. 

And in the arbitration context, obviously the recent developments 

with the National Arbitration Forum and the American Arbitration 

Association have largely put those issues aside so that that has 

been taken care of, the concerns about that have been taken care 

of and those issues are simply inapplicable when we are talking 

about other consumer and employment arbitration. 

Mr. FRANKS. On one of the written statements that you have, 

this is pointed out here, in your statement you make the argument 

that ‘‘contractually agreed to mandatory binding arbitration is actually more voluntary than litigation.’’ Could you explain that detail? Do you think that, as you have said, that arbitration remains 

generally as fair as litigation? 

Mr. WARE. Well that is just a simple point that arbitration 

doesn’t happen unless there is a contract theme that is going to 

happen, and sometimes the contract—even pre-dispute consumer, 

even the sort of things that would be covered by the Arbitration 

Fairness Act—everyone would agree is voluntary. 

147 

For example, I have formed a contract with a home builder 

where the home builder, the builder and I, both agree to put an 

arbitration clause in the contract. I don’t think anybody would dispute the voluntariness of that pre-dispute consumer transaction, 

yet the AFA made that unenforceable. 

So those aren’t the kind of transactions I think Members are concerned about. I think the form contract, which is often not read or 

understood by consumers, and those problems are problems or 

issues that go far beyond arbitration. 

Lots of form contracts have lots of clauses that courts sometimes 

find unconscionable. So my point, again, is let us handle this as we 

do now on a case-by-case basis in the courts, where courts are sensitive to the particular clauses and the particular facts of the case. 

Mr. FRANKS. Mr. Chairman, I have one more question, but I am 

out of time, so I yield back. 

Mr. COHEN. If you would like to take it, I will go ahead and yield 

to you. 

Mr. FRANKS. Okay, thank you. Just briefly, opponents of arbitration claim that if we eliminate pre-dispute arbitration agreements 

consumers will still be able to agree to arbitrate their disputes 

after the disputes arise. Now, I understand you have already addressed that to a degree, but help—just restate it in a way that the 

Committee can understand as to why that is fairly unlikely? 

Mr. WARE. It is highly unlikely. It doesn’t happen now and there 

is no reason why it is going to happen a lot in the future, simply 

because at that point, once there is a dispute both sides can look 

at the dispute and say what is in my self-interest for this dispute? 

So even if arbitration has lower process costs, it is quicker and 

cheaper than litigation, there will often be usually one party who 

says I don’t want those quicker and cheaper lower process costs. I 

would rather have the forum that is better for me for whatever tactical reasons in that case, and you can’t expect lawyers and their 

clients to think any other way. We have an adversary system 

where each side is supposed to look after their own interests. 

Mr. FRANKS. Thank you. 

And thank you, Mr. Chairman. 

Mr. COHEN. You are welcome. 

Mr. Johnson, do you seek recognition? 

Mr. JOHNSON. Yes, I do, Mr. Chairman. Thank you very much. 

Is it—well, you have been studying the arbitration process for 14 

years you said? 

Mr. WARE. Sixteen now, Mr. Johnson. 

Mr. JOHNSON. Sixteen, and have you gotten some idea out of that 

study as to the success rate for the merchants or the commercial 

interest that has the consumer locked into it? Do you know what 

the rates are in terms of how many times the consumers win and 

how many times they lose, the percentage? 

Mr. WARE. Yes, Mr. Johnson. Those are the empirical studies we 

were discussing earlier, and Mr. Palefsky and I were referring to 

the employment arbitration studies. In the consumer arbitration 

side there has been a little less study but—— 

Mr. JOHNSON. And that is what I want to know is of the small 

amount of study that has been done are you aware of the results 

of those studies? 

148 

Mr. WARE. Yes sir, I think the most reliable one is the recent 

study by my faculty colleague at the University of Kansas, Chris 

Drahozal. His study which he testified about here recently, shows 

very comparable results in consumer actions in arbitration and litigation, again, supporting the general conclusion that arbitration 

and litigation do about as well for consumers in terms of outcomes 

as each other. 

Mr. JOHNSON. All right. Thank you. 

And Mr. Palefsky, do you have any response to the kind professor from Kansas? 

Mr. PALEFSKY. I think that he is wrong. I know that many studies in the past try to find out how can you find out what happened 

in arbitration because no one was making those results available. 

They were secret, but now that we have the California statistics— 

once those statistics were posted online by the providers, that is 

where we learned that the National Arbitration Forum credit card 

cases were going 99 percent where the banks win. 

That is where we learned that employees were winning between 

12 and 20 percent. So I think that some of the older studies didn’t 

have the kind of accurate information and out of fairness to Professor Colvin, he did publish a paper. 

It is cited in his paper—what we have attached here is an updated version, and Mr. Colvin, Professor Colvin’s statistics are directly from the providers. So we know that the system is not working. And if it was in fact a better system for consumers you know 

the companies would not be tripping over themselves to force it on 

them. 

Mr. JOHNSON. All right. Thank you sir. 

And Mr. Ware, is it true that you don’t have to take an oath of 

office, excuse me, an oath before testifying, an oath to testify truthfully in an arbitration proceeding? 

Mr. WARE. Well, different arbitration—— 

Mr. JOHNSON. Yes or no, if I could, because I am going to run 

out of time shortly. Is that true or is that false? 

Mr. WARE. It varies. 

Mr. JOHNSON. I mean well, what public officer with the authority 

to administer an oath on behalf of the government would be available for an arbitration proceeding? 

Mr. WARE. None, but perjury is a ground for courts vacating an 

arbitration award. 

Mr. JOHNSON. Well, but perjury does require an oath that you 

take to tell the truth, the whole truth and nothing but the truth, 

under penalty of perjury, and that is the legal route to address 

issues of lying. 

Mr. WARE. Yes, Mr. Johnson, but Federal Arbitration Act Section 

10 allows courts to vacate arbitration awards when there is corruption in the arbitration process such as someone lying. 

Mr. JOHNSON. And then, you know, is it true the arbitration 

costs are almost unbearable for the consumer? 

Mr. WARE. No. In the vast majority of cases the arbitration costs 

are very low. The fees to file a claim in arbitration, for example the 

AAA Consumer Due Process Protocol, very low fees comparable to 

the fees paid in court. 

149 

Mr. JOHNSON. But oftentimes the proceeding is held in a city different from the one that the consumer lives in and where the dispute arose. Is that correct? 

Mr. WARE. No, I think that is quite rare that an arbitration 

clause requires the consumer to travel far. 

Mr. JOHNSON. Well, that was carefully worded now. I mean it 

really puts—average arbitration clause doesn’t put any restrictions 

on where the arbitration proceeding would take place. It is so broad 

that it leaves that up to the commercial interest to decide what is 

in their best interest. 

But oftentimes I understand that, you know, these arbitration 

proceedings actually take place—like if I live in Atlanta, and I 

signed up for a cell phone agreement in Atlanta, and something 

happened in where—and if you are like my momma you don’t like 

anybody taking a nickel or a penny away from you, and they don’t 

deserve it. 

She will pursue matters like that to the end of the earth, but you 

would have to sometimes go to the end of the earth to deal with 

the location of the arbitration hearing. 

Mr. WARE. And courts have held unconscionable the few arbitration clauses that have required the consumer to travel a long way, 

while now many consumer arbitration agreements are written to 

say that the arbitration will be in the county or judicial district 

where the consumer resides. 

Mr. JOHNSON. Thank you. I will yield back. 

Mr. COHEN. Thank you. 

And now I recognize the gentleman in his Carolina blue, Mr. 

Coble. 

Mr. COBLE. Thank you sir. Professor Ware, the Chairman and 

Mr. Franks and Mr. Johnson commenced their examination with 

you. I don’t want you to feel slighted so I will make you my leadoff hitter as well. 

I was going to ask about the Minnesota case, but I think you 

pretty well addressed that. Let me ask you this, Professor, to your 

knowledge, has the American Arbitration Association ever stated 

that pre-dispute contractual agreements to arbitrate are generally 

unfair to consumers? 

Mr. WARE. No, definitely not. That is an important distinction 

that the AAA has only, and maybe even temporarily, refrained 

from taking new debt collection arbitration cases. But they have 

not said that the problems that the concerns about debt collection 

reached beyond that to other consumer and employment arbitration. 

Mr. COBLE. Thank you, sir. 

Mr. Palefsky, are there any aspects of binding arbitration that 

you feel are effective and should be permitted or retained? 

Mr. PALEFSKY. Oh, I think binding arbitration can be a great 

way to resolve many disputes, sir. Contract disputes between parties of equal bargaining power. In my practice, executives fighting 

over severance, I think voluntary arbitration can be a very effective 

method. 

I do believe that mediation is a much better way. And if I might 

correct Mr. Ware, the American Arbitration Association refuses to 

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ican Arbitration Association issued a press release in 1997 saying 

that employment arbitration should be voluntary. 

Mr. COBLE. Well, let me—I am on a race with a red light so let 

me interrupt you. Let me put another question to you, Mr. 

Palefsky. Do you believe, Mr. Palefsky, there are instances—or, 

strike that. Are there any instances where consumers can voluntarily consent to binding arbitration? 

Mr. PALEFSKY. Of course. I think knowing and voluntary consent 

is all that is required to make it a valid arbitration agreement. I 

don’t have any problem with the current—all right, here is the 

problem. The only check and balance that was ever contemplated 

to keep arbitration fair was voluntariness, that the parties themselves ensured fairness. 

This notion that a consumer has to run to court and litigate unconscionability, which would cost you $20,000, and if you win, it 

goes on appeal for 2 years, it is going to cost a consumer $50,000 

in 2 years to challenge an unfair arbitration clause in court. 

Mr. COBLE. Well—— 

Mr. PALEFSKY. That serves nobody’s interest. Make it voluntary, 

and the marketplace will ensure fairness. 

Mr. COBLE. Ms. Hirschel, if nursing homes cannot utilize binding 

arbitration, how would this affect that industry? 

Ms. HIRSCHEL. Well, I know that there is often an expressed concern about the cost that nursing homes would suffer, but there are 

two things that I would like to say about that. One is that if you 

are looking at liability insurance premiums, the Center on Medicare Advocacy did a study in 2003 that showed that liability insurance premiums were not tied to insurance pay-out. 

The second thing is if you are looking at litigation costs, there 

was a study in Florida that showed that only a very small number 

of nursing homes were repeatedly sued, and that those were the facilities that were entirely predictable because they were the facilities that were cited over and over for egregious violations. 

So I think that both the liability insurance costs and the litigation costs are costs that are not necessarily going to go up or are 

clearly tied to ending mandatory pre-dispute binding arbitration. 

Mr. COBLE. Mr. Rossman, I don’t want you to feel—— 

Mr. ROSSMAN. Thank you. 

Mr. COBLE [continuing]. Ignored. Is it your view that binding arbitration is an ineffective venue for consumers? 

Mr. ROSSMAN. Well, once again, that is a sweeping response. I 

think that pre-dispute is ineffective because there is no way that 

a consumer can make a considered and informed judgment when 

they are just entering into a transaction as to any conceivable dispute that would arise under that contract. 

If after they have entered into the contract a dispute arises and 

they are given an opportunity to choose between going through arbitration or through litigation, I think that it is a perfectly acceptable choice at that point in time, but at that point they know what 

they are buying. 

Mr. COBLE. Let me go to my lead-off man and let him sum up. 

Mr. WARE. Well, my response to that last point is again, when 

I and my home builder put an arbitration clause in our contract 

pre-dispute, we were making a deal that we both thought was 

151 

going to save us money, and this bill we are discussing would take 

money out of our pockets and put it in the hands of trial lawyers. 

Mr. ROSSMAN. Congressman, if I could just a second, you are 

using the home builder there. Are there other home builders you 

could conceivably go to? What do you do when all but one mobile 

telephone company in the United States requires mandatory predispute arbitration? What do you do if now eight out of ten credit 

card companies require that you have mandatory pre-dispute arbitration clause and prior to August it was 10 out of 10. 

Mr. WARE. If the consumer really prioritizes avoiding arbitration, 

the consumer can pick the cell phone or credit card company that 

doesn’t require it, and for the bulk of the consumers who don’t pay 

attention to that and get an arbitration clause, they are getting 

what courts are saying in a case-by-case basis is a fair process, or 

if it is not fair, a court will hold it unconscionable in that case. 

Mr. COBLE. Mr. Rossman, I was going to brag to my Chairman 

from Tennessee at beating the red light, but you cost me that favor, 

so I yield back. 

Mr. ROSSMAN. I apologize, and I beg your forgiveness. 

Mr. COHEN. Thank you, Mr. Coble. 

Mr. Scott from Virginia is recognized. 

Mr. SCOTT. Thank you. Mr. Rossman, could you explain the legal 

concept of adhesion contracts and explain why all of these just 

aren’t thrown out based on that legal principle? 

Mr. ROSSMAN. Well, the adhesion contract is a contract where 

there is a clause that is a mandatory or a required portion and it 

is a ‘‘take it or leave it.’’ Either you take the contract with the arbitration clause or you don’t take the contract. 

If in fact we are dealing in a marketplace where the alternative 

is really not between taking the contract with the arbitration 

clause or not taking the contract, but rather the situation of having 

access to the service or not having access to the service, that is no 

choice at all. 

The reality of it is that, you know, until recently, unless you 

were a member of the AFL-CIO or a member of AARP, you could 

not get a credit card in the United States without a mandatory arbitration clause. 

If you want to get a cell phone right now in the United States, 

you have to accept it with a mandatory arbitration clause, unless 

you are with the one carrier with limited coverage in the United 

States that doesn’t require it. 

I would argue that in our modern society that access to credit 

cards, access to mobile phones, have become virtual necessities, 

and that it is no choice whatsoever. It is a ‘‘take it or leave it’’ 

under those circumstances. 

And although there are, in fact, laws that find that clauses can 

be unconscionable, the reality is that there are different levels of 

unconscionability depending on what state you are in. If you are 

in California or in Massachusetts, you may find that there is a 

much higher level of unconscionability or less of a tolerance for 

unconscionability. 

But it is not the same across the United States, and there are 

many places where that will, in fact, be allowed, and, in fact, there 

have been cases that have allowed it throughout the United States. 

152 

That kind of checkered enforcement is inexcusable. Where I live 

shouldn’t determine whether or not I have a choice between credit 

cards or phone service. 

Mr. SCOTT. Are there other anti-trust implications, Mr. 

Rossman? 

Mr. PALEFSKY. Absolutely. Pre-dispute clauses that designate a 

single provider are, in every definition, contracts in restraint of 

trade. They eliminate competition in the providing of ADR services. 

They lock you into perhaps the most expensive—I can get an arbitrator to arbitrate without any filing fee at all. Or I can go the 

American Arbitration Association and pay a $13,000 filing fee and 

arbitrators who charge $500 an hour. 

It is absolutely inappropriate to allow one party to contract in 

advance, not only with the consumer to mandate the use of a single 

provider, but they work out deals with the providers themselves to 

get special arrangements in the administration of their case loads. 

It is not uncommon for these major arbitration providers to have 

case managers assigned to a particular company no matter where 

the arbitration arises. One person in that organization is charged 

with keeping the customer satisfied. 

It is an invitation to abuse. And if consumers had the ability to 

choose the arbitration provider, it would do wonders to improving 

the fairness of the system and reducing the cost. There is no reason 

in the world—ADR used to be a noble endeavor undertaken by people who really were concerned with solving problems. In the labor arbitration field, they would charge $100 an hour to 

resolve a dispute. Those very same arbitrators, when they are 

doing my sex harassment cases, are charging $500 an hour because 

they can. And that is exactly the result of these pre-dispute restraints of trade. 

Mr. SCOTT. Could you explain what the EEOC thinks of mandatory arbitration? 

Mr. PALEFSKY. The EEOC unanimously, the Republican and 

Democrat commissioners, passed a policy statement which is probably the best thing ever written on mandatory arbitration. They 

say that it has structural biases against the claimants. 

They say it interferes with their ability to enforce the law, to do 

the job that you have asked them to do. They point to the high 

costs. They point to the limited discovery. They point to the private 

hearings, and the EEOC has stated unequivocally—again, it is a 

shame that this has turned into a partisan issue. 

Justice need not be a Democrat or Republican issue. The EEOC 

unanimously has a policy statement which is attached to my testimony which I urge you all to read because you cannot say you support civil rights and support mandatory arbitration of civil rights 

claims. 

The reason we passed the civil rights laws was to provide access 

to a Federal court and a judge who was obligated to apply the law. 

Arbitrators do not need to know or follow the law. That is not acceptable for laws of Congress. That is not acceptable for civil rights 

laws. 

We are talking about the Lilly Ledbetter Fair Pay Act where we 

had to fix Supreme Court decisions. We can’t enforce that. Arbitrators don’t need to know the law or enforce it or respect the acts of 

153 

Congress. That is not acceptable. We cannot be a Nation of laws 

if there is no place to go to enforce the laws. 

What does it mean to live in a constitutional democracy if Congress can pass a law and the people you are trying to protect don’t 

have the right to have the law enforced? The Supreme Court has 

built a fiction that arbitration is just another forum with no impact 

on substantive rights. That is simply false as a matter of fact, because you lose the right to have the law enforced. 

Here is the law, on appeal, that ‘‘an arbitration award has to be 

confirmed even if there are errors of law or fact on the face of the 

award that result in a substantial injustice.’’ Think about that for 

a second, that our courts are obligated to put their imprimatur on 

a judgment that is false on its face in the enforcement of this Nation’s civil rights laws. Is that what you had in mind? 

Mr. SCOTT. Thank you. 

Mr. COHEN. Thank you, Mr. Scott. Would you like to go on any 

further? 

Mr. SCOTT. Well, yes, can you say a word about the structural 

biases in the arbitration that the EEOC pointed out? 

Mr. PALEFSKY. Right. The structural biases deal with one, the 

privacy makes it difficult for witnesses to gather access of similar 

treatment, pattern and practice. Who else was discriminated 

against? Who else was harassed? 

The cost: most people can’t afford their day-to-day life. You can’t 

afford $20,000 or $30,000 to bring the case. You cannot—discrimination cases are different than a lot of other cases. There are a lot 

of small consumer cases where you don’t need a lot of discovery, 

but in discrimination cases, I am trying to prove someone’s state 

of mind. I cannot do that without depositions. 

In the employment case, all of the witnesses, all of the documents are under the control of the employer. Ethical rules preclude 

me from getting that information informally. I simply cannot sustain my burden of proof without adequate discovery. 

In many arbitration forums, they don’t even permit depositions. 

In the securities industry, in FINRA arbitrations, I represent whistleblowers, and I am not allowed to take a single deposition. 

That is like saying, tie your hands behind your back and come 

out fighting and argue your case to arbitrators selected by the securities industry who know that if they find against this firm, they 

will never sit again. 

There is a reason that we appoint judges for life. There is a reason that we have financial disclosures for our judges. You cannot 

design a system where the decision maker has a financial interest 

in pleasing the repeat user. As a concept it does not work and it 

cannot work. 

And it is incredible that anyone in this room on this Committee 

would suggest that for-profit justice where the decision maker has 

an economic interest in the outcome of the case is equivalent to our 

constitutional system of justice. 

I wanted to point out to you that in the Declaration of Independence, Thomas Jefferson listed the grievances against the king that 

justified this revolution, and we know that he said ‘‘for depriving 

us of the benefit of trial by jury.’’ But he was also concerned about 

the repeat user. 

154 

In the Declaration of Independence he said, ‘‘He has made judges 

dependent on his will alone for the tenure of their offices and the 

amount in payment of their salaries.’’ Those words are truer today. 

At the turn of the last century, arbitration was so disfavored because of the very abuses that we see occurring today, that courts 

were not even permitted to enforce pre-dispute clauses. 

Everything that we are seeing happening today happened 100 

years ago. The FAA was passed in 1925 to permit Federal courts 

to once again be able to enforce arbitration clauses between merchants. It was never intended to apply in the adhesion context. It 

was specifically never intended to apply to employment claims. 

And that is how it was interpreted in the courts for 70 years, and 

it was certainly never intended to apply to statutory claims for the 

laws that you pass to encourage people to blow the whistle. If you 

don’t want people to blow the whistle, take the laws off the books. 

If you don’t like the civil rights laws, take them off the books. 

But do not pretend you want to enforce those laws and say that 

we can’t bring those to a free court to a judge who is obligated to 

follow the law. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. COHEN. Thank you, I appreciate it. We have finished our 

first round. We are not going to have a second round. I think we 

have a pretty good idea about where Mr. Ware and Mr. Palefsky 

stand. I am going just allow the other two witnesses to have, like, 

2 minutes if you would like to have anything further to say. 

Ms. Hirschel? 

Ms. HIRSCHEL. Thank you very much. All I want to say is that 

this really is a gross injustice, especially in the nursing home context, and it is an injustice that only Congress can solve, and I ask 

you to do that. Thank you. 

Mr. COHEN. Thank you. 

And Mr. Rossman? 

Mr. ROSSMAN. Just once again, thanking the Committee for allowing us to testify today. The issue here is whether or not consumers are going to be able to enforce the rights that this Congress 

has given each and every one of them, to allow them a right to seek 

a full and fair hearing where they have the right to be able to have 

an impartial arbitrator determine their claims is one that I think 

that is one that is both constitutional as well as a hallmark of our 

system of justice. 

By going forward and having a system, as Mr. Palefsky says, 

where one party is literally paying for the cost of the arbitrator, 

One thing I do want to clarify, and I will end on this note, I think 

it has been passed around what the cost of arbitration is, and I 

think somewhere in the testimony I saw someone said that the filing fee was $125. I believe—Professor, you may correct me on 

that—I believe that is for a documents-only filing. 

And the reality of it is that, whether it be a labor case or a consumer case, you are not going to be able to file these on the papers. 

We have to do discovery and we have to go through hearings on 

this and when the arbitrator has to decide a case is being paid by 

the hour, I suspect that he has very, or she, has very little incentive for doing it as expeditiously as would be the case with a FedVerDate Aug 31 2005 15:07 Feb 23, 2010 Jkt 000000 PO 00000 Frm 00158 Fmt 6633 Sfmt 6601 H:\WORK\COMM\091509\52199.000 HJUD1 PsN: 52199
155 

eral district court judge who is on the mandate from the chief judge 

of the district to clear the docket as quickly as possible. 

So you have a system that is inherently not only more expensive 

when you actually assert your rights, but it is in the interest of the 

arbitrators to drag it out and move it along as much as possible 

to get as much fees as they possibly can under the circumstances. 

Mr. COHEN. Thank you, sir. 

And Mr. Palefsky, I want to ask one last question. You distinguish employment law and statutory violations as areas where you 

don’t think the laws of arbitration should apply in a unique way. 

Any there any other type of cases that would fit into the category 

that you think should be maybe carved out? 

Mr. PALEFSKY. I think that every American citizen has the constitutional right to access to the right of petition, to the right of due 

process and to the right to trial by jury, and that right should not 

be waived unless it is waived knowingly and voluntarily. 

The answer to your question is yes. I don’t think adhesion contracts are an appropriate way to waive constitutional rights. I 

think an adhesion contract is a privilege that we extend to business 

to allow them to conduct routine commercial transactions where 

the rights that are being exchanged come from the parties. 

It is not an appropriate way to waive constitutional rights, and 

it is certainly not an appropriate way to waive the protections of 

statutes that Congress passes after the free market has failed to 

protect those consumers, nursing home victims, workers, investors 

on Wall Street. 

Mr. FRANKS. Mr. Chairman, could we ask Mr. Ware—the other 

three got final thoughts. Would you be willing to let him have a 

final thought? 

Mr. COHEN. Sure. 

Mr. WARE. Just—— 

Mr. COHEN. Gentlemen, you are not in Kansas anymore. 

Mr. WARE. Thank you, Mr. Chairman, just to say very quickly 

that we should not be comparing arbitration to this mythical vision 

of litigation where everything is wonderful. We need to compare it 

to the reality of litigation and the practical effect on consumers and 

employees’s access to justice. 

Mr. COHEN. Thank you, Mr. Ware. 

I thank all the witnesses for their testimony today and the Members who attended. Without objection, Members will have 5 legislative days to submit any additional written questions which are forwarded to the witnesses. I ask you to respond, unlike certain people that have come to us from the state of New Jersey, in a timely 

manner, they will be made part of the record. 

Without objection, the record will remain open for 5 legislative 

days from the submission of any other additional material. Again, 

I thank everyone for their time and patience. The hearing of the 

Subcommittee on Commercial and Administrative Law is adjourned. 

[Whereupon, at 2:53 p.m., the Subcommittee was adjourned.] 

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RESPONSE TO POST-HEARING QUESTIONS FROM ALISON E. HIRSCHEL, 

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MATERIAL SUBMITTED BY THE HONORABLE TRENT FRANKS, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF ARIZONA, AND RANKING MEMBER, SUBCOMMITTEE

ON COMMERCIAL AND ADMINISTRATIVE LAW


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PREPARED STATEMENT OF RICHARD W. NAIMARK ON BEHALF OF THE

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