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AUTOMOBILE ARBITRATION FAIRNESS ACT 

OF 2008 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

ON

H.R. 5312 

MARCH 6, 2008 

Serial No. 110–173 

Printed for the use of the Committee on the Judiciary 

( 

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

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

BETTY SUTTON, Ohio 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

PERRY APELBAUM, Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

LINDA T. SA ́ NCHEZ, California, Chairwoman 

JOHN CONYERS, JR., Michigan 

HANK JOHNSON, Georgia 

ZOE LOFGREN, California 

WILLIAM D. DELAHUNT, Massachusetts 

MELVIN L. WATT, North Carolina 

STEVE COHEN, Tennessee 

CHRIS CANNON, Utah 

JIM JORDAN, Ohio 

RIC KELLER, Florida 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III) 

C O N T E N T S 

MARCH 6, 2008 

Page 

THE BILL 

H.R. 5312, the ‘‘Automobile Arbitration Fairness Act of 2008’’ ........................... 2 

OPENING STATEMENT 

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

State of California, and Chairwoman, Subcommittee on Commercial and 

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

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

of Utah, and Ranking Member, Subcommittee on Commercial and Administrative Law ........................................................................................................... 5 

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Ranking Member, Committee on the Judiciary ......................... 8 

WITNESSES 

Ms. Rosemary Shahan, President, Consumers for Automobile Reliability and 

Safety, Sacramento, CA 

Oral Testimony ..................................................................................................... 10 

Prepared Statement ............................................................................................. 12 

Ms. Erika Rice, Arcanum, OH 

Oral Testimony ..................................................................................................... 27 

Prepared Statement ............................................................................................. 29 

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

Oral Testimony ..................................................................................................... 33 

Prepared Statement ............................................................................................. 35 

Mr. Hallen D. Rosner, Rosner & Mansfield, LLP, San Diego, CA 

Oral Testimony ..................................................................................................... 37 

Prepared Statement ............................................................................................. 39 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Chris Cannon, a Representative in 

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

on Commercial and Administrative Law ........................................................... 5 

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 ........................................................................................................................ 6 

Prepared Statement of the Honorable Hank Johnson, a Representative in 

Congress from the State of Georgia, and Member, Subcommittee on Commercial and Administrative Law ........................................................................ 7 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the American Financial Services Association (AFSA) ... 78 

Letter from the Alliance of Automobile Manufacturers ....................................... 89 

Page

IV 

Responses to Post-Hearing Questions from Rosemary Shahan, President, Consumers for Automobile Reliability and Safety, Sacramento, CA ...................... 91 

Responses to Post-Hearing Questions from Erika Rice, Arcanum, OH .............. 96 

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

President, American Arbitration Association, Washington, DC ....................... 99 

Responses to Post-Hearing Questions from Hallen D. Rosner, Rosner & Mansfield, LLP, San Diego, CA .................................................................................... 105 

(1) 

AUTOMOBILE ARBITRATION FAIRNESS ACT 

OF 2008 

THURSDAY, MARCH 6, 2008 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 9:37 a.m., in room 

2237, Rayburn House Office Building, the Honorable Linda 

Sa ́nchez (Chairwoman of the Subcommittee) presiding. 

Present: Representatives Sa ́nchez, Johnson, Watt, Smith, and 

Cannon. 

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

Minority Counsel; and Adam Russell, Majority Professional Staff 

Member. 

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

Subcommittee on Commercial and Administrative Law will now 

come to order, and I will recognize myself for a short statement. 

During the last session, this Subcommittee held two hearings focusing on arbitration. Our first hearing in June provided the Subcommittee with a basic knowledge of the history of arbitration, and 

its benefits and problems. We revisited arbitration during a hearing in October in which we reviewed H.R. 3010, the ‘‘Arbitration 

Fairness Act of 2007,’’ authored by Congressman Hank Johnson. 

During those hearings we learned that an increasing number of 

businesses and employers have begun to utilize arbitration to the 

detriment of others, especially consumers. 

Today we hold this legislative hearing on H.R. 5312, the ‘‘Automobile Arbitration Fairness Act of 2008’’ to respond to a significant 

problem with arbitration: the take-it-or-leave-it approach of pre-dispute binding mandatory arbitration clauses. This legislation targets certain arbitration clauses solely related to motor vehicle purchase or lease contracts. It would grant to automotive consumers 

what Congress extended to motor vehicle dealers in 2002: protection from mandatory binding arbitration clauses. 

[The bill, H.R. 5312, follows:] 

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I5312-1.eps
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Ms. SA ́ NCHEZ. Since then, automobile manufacturers have been 

prohibited from requiring automobile dealers to accept pre-dispute 

mandatory binding arbitration clauses in their franchise contracts. 

It seems only fair that consumers receive the same protection afforded to automobile dealers. 

H.R. 5312 would give consumers the choice to settle a dispute related to their purchase or lease of a motor vehicle through arbitration or in court. As a result of this simple change, consumers would 

be able to consider the advantages and disadvantages of choosing 

to arbitrate with the specifics of their own case in mind. They could 

negotiate with the dealer or financier the terms of the arbitration 

agreement, should they decide to arbitrate. 

Most importantly, arbitration could still be an avenue to resolve 

a dispute, but one to which all the parties would agree to voluntarily, fairly, and with full knowledge of the potential costs and 

benefits. 

Today we gather to hear testimony from several individuals with 

knowledge of the arbitration process and consumer automobile contracts. I want to emphasize that today’s testimony is very important for our understanding of the legislation. Accordingly, I very 

much am looking forward to hearing today’s testimony, and I welcome a thorough discussion of the issues and legislation. 

At this time I would now like to recognize my colleague, Mr. 

Cannon, the distinguished Ranking Member of the Subcommittee, 

for his opening remarks. 

Mr. CANNON. Thank you, Madam Chair. I look forward to the 

testimony today. As we talked about earlier, there is a markup in 

Courts and Intellectual Property shortly after this, and I am a 

Member of that Subcommittee and so in the interest of time I 

would ask unanimous consent to submit my opening statement to 

the record—— 

Ms. SA ́ NCHEZ. Without objection. 

[The prepared statement of Mr. Cannon follows:] 

PREPARED STATEMENT OF THE HONORABLE CHRIS CANNON, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF UTAH, AND RANKING MEMBER, SUBCOMMITTEE ON

COMMERCIAL AND ADMINISTRATIVE LAW

Thank you Madam Chair and welcome to our witnesses. 

This hearing marks the third time this Congress we have met to consider the 

question of mandatory binding arbitration. 

I welcome the opportunity to talk about arbitration, because its wide availability 

is one of the most important features of our modern dispute resolution system. 

It is a fact that our courts are overburdened, and arbitration has provided an escape valve for citizens hoping to avoid an unresponsive judicial system. 

We should do everything we can to protect it. 

Part of protecting it is overseeing it to assure that the abuse we have seen in the 

judicial system does not creep into the arbitration system. 

Opponents of arbitration allege that mandatory binding arbitration clauses are 

abusive, and in response we have seen the introduction of H.R. 5312 in the auto 

sector, and we have seen the introduction of H.R. 3010 in the broader area of consumer, employment, franchise and other contracts. 

One thing we have not seen, though, is hard, representative and credible evidence 

that mandatory binding arbitration is being widely abused. 

On the contrary, the evidence we have seen is that mandatory binding arbitration 

produces fair results, prompt results, and lower costs of goods and services. 

And we have seen that, to make the arbitration system ever better, companies 

asking their customers to consent to mandatory binding arbitration are offering 

those costumers pro-consumer contract clauses. These are known as ‘‘fair clauses.’’ 

6 

They provide important innovations, such as opt-outs, off-ramps to small claims 

court, and fee-shifting so that consumers don’t bear the costs of arbitration. 

Although we have not seen much evidence concerning the use of mandatory binding arbitration in the auto purchase and lease field, I think there is every reason 

to believe that the same scenario exists in that sector. 

Competition between dealers for customers is intense. Many dealers are bending 

over backward to make customers happy. Manufacturers are as well, as can be seen 

in the wave of high-mileage, multi-year warranties accompanying new car sales. 

Solicitousness towards customers should be especially strong in the auto lease 

market—where so much depends on whether a dealer can keep a happy customer 

coming back every few years for a new lease. 

The composition of today’s witness panel—doubled up with consumer advocates, 

complemented by an individual witness and the arbitration sector—means we won’t 

be able to hear from the auto dealers or any of the companies that write the peripheral contracts associated with car sales like financing agreements or insurance 

agreements. 

That is unfortunate. We, for one, tried to obtain a witness from the auto finance 

sector, which works arm-in-arm with dealers on most any auto sale or lease in the 

country, but due to the size of the panel the majority could not accommodate that 

request. 

The reason why we were interested in having the auto finance sector was related 

to their concerns that H.R. 5312 would include their contracts. It is my understanding that the Chair and the other sponsors present indicated that their intent 

is not to cover auto finance contracts, other peripheral contracts associated with an 

auto sale or lease, or even rental-car agreements so without their testimony we will 

presume that is the case. 

I expect today that we will hear a good deal about how H.R. 5312 simply seeks 

to impose parity in contracts involving auto dealers. Under a 2002 law, dealers cannot be forced into mandatory binding arbitration with auto manufacturers. H.R. 

5312, its proponents argue, would simply give the same benefit to consumers when 

they contract with dealers. 

I find that argument unpersuasive. Because we limited arbitration in a particular 

sector in 2002 doesn’t provide enough of a record for action here today. 

When we are done today, I suspect we will be at the same place we were when 

we started—staring at a record that tells us that arbitration works, and that we 

should do nothing to limit buyers’ and sellers’ freedom to enter into it. 

And I am left wondering whether there is anyone that would benefit from the proposed legislation other than trial lawyers. 

I yield back the remainder of my time. 

Mr. CANNON [continuing]. And just point out that we have been 

through several of these hearings and discussions about arbitration, but I would only make the point that there is a huge difference, just in nature, between dealers and consumers. We ought 

to focus on that during the course of this hearing. 

With that, Madam Chair, I am happy to yield back. 

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

Without objection, other Members’ opening statements will be included in the record. And without objection, the Chair will be authorized to declare a recess of this hearing at any point. 

[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

Properly used, arbitration can help parties avoid the delay and costs of protracted 

litigation. 

But unfortunately, as we have heard in prior Subcommittee hearings, some businesses are insisting on mandatory arbitration clauses in their consumer contracts, 

with consumers who have no practical choice but to go along, because of their unequal bargaining position. 

These mandatory arbitration clauses are written by the business’s lawyers, and 

quite naturally often favor the business. 

Some of the procedural requirements they impose can make it exceedingly difficult, even cost- prohibitive for consumers to protect their rights under the law. 

7 

At their essence, these mandatory arbitration clauses, when imposed on consumers who have no power to refuse them, force consumers to give up their constitutional right to a jury trial. 

Chairwoman Sa ́nchez has introduced H.R. 5312, the ‘‘Automobile Arbitration Fairness Act of 2008,’’ to address these concerns in one specific area, automobile sales 

and leases. This bill would give consumers who have a legal claim against an automobile dealer the right to choose—after the problem arises—whether to resolve the 

claim through arbitration, or in court. 

The auto dealers obtained this same relief from Congress a few years ago, when 

we decided that in light of the unequal bargaining position auto dealers faced 

against manufacturers in their franchise agreements, it was not fair to permit the 

manufacturers to impose mandatory arbitration clauses. 

It is now time to take this same step on behalf of fundamental fairness with the 

automobile dealer- consumer relationship. 

I commend Chairwoman Sa ́nchez for her leadership in authoring this legislation, 

which is supported by a majority of the Subcommittee’s Members. 

And I look forward to the testimony from today’s witnesses. 

[The prepared statement of Mr. Johnson follows:] 

PREPARED STATEMENT OF THE HONORABLE HANK JOHNSON, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF GEORGIA, AND MEMBER, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

• Thank you Madame Chairwoman for holding this important hearing today on 

H.R. 5312, the Automobile Arbitration Fairness Act of 2008. 

• And many thanks to our witness for coming before the Committee. 

• Fairness is the key word in the title of this bill and fairness is the underlying 

issue that brings us here today. 

• In 2002, with bipartisan support and over 250 co-sponsors Congress passed 

the ‘‘Motor Vehicle Franchise Contract Arbitration Fairness Act.’’ 

• At that time, auto dealers sought relief because they were saddled with mandatory binding arbitration agreements in franchise contracts. They rightly 

cited the inherent unfair nature of such agreements. 

• The 2002 Bill, introduced by Representative Mary Bono, granted relief by 

making such agreements voluntary. It was a sensible, no nonsense solution 

to a heavy-handed practice. It leveled the playing field for auto dealers. 

• It is a bill that makes perfect sense. The Congress overwhelmingly supported 

the idea. 

• Fast forward to 2008 and H.R. 5312, a bill that would extend to automobile 

consumers the same fairness that the automobile dealers now enjoy. 

• We are all familiar with purchasing a car; it is often an arduous and complicated process, filled with stacks of papers to sign, complicated financial 

terms, and wait times that can last for hours, 

• And when consumers finally walk away—worn out—but usually happy with 

a vehicle their families will depend on to get to work, school, and home; they 

are totally unaware that tucked away in the ‘‘mice print’’ of all those financial 

terms and ‘‘legalese’’ is a provision that strips them of a constitutional right. 

• For the average American the right to a day in court is a dearly held right 

one that is automatically assumed, one that is deeply embedded in the Bill 

of Rights. 

• Yet there are thousands of citizens, who unknowingly have given away their 

right to a trial by signing consumer contracts when they purchase a vehicle. 

• And more ironically they have done so because of the heavy-handed tactics 

of the very auto dealers who just six short years ago came before Congress 

to have that right restored to them. 

• Later, for those consumers who have a problem with their vehicle or the dealership the small ‘‘mice print’’ clause becomes a ticking time bomb that explodes when they seek relief. 

• These clauses are a very unpleasant surprise to consumers who never realized that their consumer dispute would be forced to go to a private, closed 

system with no oversight, no chance of appeal and no real justice. 

8 

• So we are back to a simple matter of fairness— Good for the goose, good for 

the gander. Automobile dealers must extend the same terms to their customers that they so rightfully claimed for themselves. 

• As most of you are aware, in the last session, I introduced, H.R. 3010, the 

Arbitration Fairness Act, which would do away with pre-dispute mandatory 

arbitration agreements in all consumer, medical, employment, and franchise 

contracts. 

• I did that because fair is fair and the fundamental feature of a fair justice 

system is that both sides to a dispute are on equal footing in a public court 

of law, governed by the civil rules of procedure. 

• The imminent associate Supreme Court Justice the late William J. Brennan 

once put it very succinctly 

‘‘The Framers of the Bill of Rights did not purport to ‘‘create’’ rights. Rather they 

designed the Bill of Rights to prohibit our Government from infringing rights and 

liberties presumed to be preexisting.’’ 

Clearly, the right to a trial is a widely presumed, preexisting liberty and we must 

ensure that it is preserved and protected for all Americans. 

• So, I return to my previous statement, ‘‘Fairness is the key word in this Bill 

and fairness is the underlying issue that brings us here today—and—there 

is no time like today—to restore fairness to the people! 

• Thank you Madame Chairwoman and I yield back. 

Mr. SMITH. Madam Chair, I would like to be recognized, just very 

briefly. 

Ms. SA ́ NCHEZ. Absolutely. I would recognize our distinguished 

Ranking Member of the full Committee, Mr. Smith, for opening remarks. 

Mr. SMITH. Thank you, Madam Chair. Actually, I don’t have an 

opening statement and I will certainly concur with the precedent 

that has been set about putting it in the record. I just wanted to 

say that I think the subject of today’s hearing is a very important 

one. 

I tend to lean toward appreciating the value of arbitration, and 

perhaps I ought to confess to a slight bias. Long ago and far away 

when I was a county commissioner in Bexar County in San Antonio, Texas, I actually started the first mediation center in that 

county. So I think that that could have real value. Although I also 

recognize that there are two sides to the issue and that is what is 

going to be explored at this very interesting hearing today. 

I also want to follow up on what the Ranking Member, Mr. Cannon, said. I, too, have to be in 20 minutes at the mark-up of a bill 

in the IP Subcommittee, and I just hope, Madame Chair that you 

will pass along to those who make decisions as to when Subcommittee hearings and mark-ups are scheduled that, many times, 

it puts Members in the untenable position, where we would like to 

be at a hearing, and we would like to be at a mark-up. And it is 

probably helpful to Members not to have both scheduled concurrently, just because it does put us in the position of having to 

choose. 

So I just make that statement for the record and hope that those 

who schedule these kinds of hearings and other mark-ups can consider that in the future. And with that I will yield back. 

Ms. SA ́ NCHEZ. I thank the gentleman for his comments, and I am 

mindful of the concern of concurrent hearings and mark-ups. 

Now, I am pleased to move on and introduce the witnesses for 

today’s hearing. Our first witness is Rosemary Shahan. Did I pronounce that correctly? 

Ms. SHAHAN. Yes, thank you. 

9 

Ms. SA ́ NCHEZ. Okay. Ms. Shahan is the president of Consumers 

for Auto Reliability and Safety, otherwise known as CARS. In 1979 

she initiated California’s Auto Lemon Law and worked as a volunteer for enactment of the law from 1979 to 1982. This legislation 

became the model for similar laws in all 50 states. 

Ms. Shahan has continued her consumer advocacy work and has 

been a major force in the adoption of Federal Motor Vehicle Safety 

Standards to require airbags. She spearheaded Federal Motor Vehicle Safety Standards adopted by the National Highway Traffic 

Safety Administration to improve vehicle safety recalls and improve seatbelts for smaller adults and children. Ms. Shahan also 

assisted in the enactment of major landmark auto safety and antifraud legislation. 

Our second witness is Erika Rice. Ms. Rice was born and raised 

near Dayton, Ohio, and now lives in the town of Arcanum, Ohio, 

is that correct? 

Ms. RICE. Yes, it is. 

Ms. SA ́ NCHEZ. She has an associate’s degree in social work, and 

has been working for more than 3 years with children with emotional, behavioral, and mental health disorders. Ms. Rice is here 

today to tell us about her experience with mandatory binding arbitration in an automobile contract. 

Our third witness is Richard Naimark. Mr. Naimark is senior 

vice president of American Arbitration at the International Center 

for Dispute Resolution Research. He is the founder and former executive director of the Global Center for Dispute Resolution—which 

conducted research in arbitration and alternative dispute resolution for business disputes in cross-border transactions. 

Mr. Naimark is an experienced mediator and facilitator, having 

served in a wide variety of business and organizational settings. 

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

hundreds of seminars and training programs on dispute resolution 

and published several articles on alternative dispute resolution. 

Welcome to you, Mr. Naimark. 

Our final witness on the panel is Hallen Rosner. Mr. Rosner is 

a partner at Rosner & Mansfield, LLP, specializing in auto fraud. 

He also represents the National Association of Consumer Advocates, a nonprofit corporation whose primary focus involves the protection and representation of consumers. 

Over the past 23 years Mr. Rosner’s firm has represented thousands of consumers and, in particular, servicemen and women who 

serve in the armed services. In 2007 his firm was awarded the Public Service Award by the San Diego Bar Association, recognizing 

over two decades of helping consumers. 

Mr. Rosner teaches military, legal aide and volunteer attorneys, 

among others, about how to understand vehicle contracts and recognize the most common forms of auto fraud. He is a board member for EPIC, the Energy Policy Initiative Center, and has acted for 

many years as legal counsel for the consumer organization UCAN, 

the Utility Consumer’s Action Network. Mr. Rosner writes ‘‘Ask 

Hal,’’ an Internet auto-fraud advisory column that gets over 10,000 

hits a month from across the country. 

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

10 

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

that you please limit your oral testimony today to 5 minutes. 

You will note that we have a lighting system, and when your 

time begins you will receive a green light on the lighting system. 

After 4 minutes of testimony you will get the yellow warning light 

that you have about a minute to finish your testimony. And when 

the light turns red, of course, your time has expired and we would 

ask that you finish off any final thoughts so that we can move on 

to our next witness. 

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

the 5-minute limit. 

With that I will invite Ms. Shahan to please proceed with her 

testimony. 

TESTIMONY OF ROSEMARY SHAHAN, PRESIDENT, CONSUMERS 

FOR AUTOMOBILE RELIABILITY AND SAFETY, SACRAMENTO, 

CA 

Ms. SHAHAN. Thank you, Chairwoman Sa ́nchez and Members of 

the Committee, and Ranking Member Mr. Cannon, for the invitation to testify today in support of H.R. 5312, the ‘‘Automobile Arbitration Fairness Act of 2008.’’ 

I am Rosemary Shahan, president of Consumers for Auto Reliability and Safety. We are based in Sacramento, and we are delighted to have the opportunity to support this desperately needed 

legislation that will improve protections for consumers and also 

benefit honest businesses by freeing car buyers from having mandatory pre-dispute arbitration imposed on them as a condition of 

selling or leasing a vehicle. 

H.R. 5312 will allow consumers and auto dealers to resolve disputes through arbitration if they choose after a dispute has arisen. 

Thus, it will make participation in arbitration more informed and 

voluntary. H.R. 5312 will ensure that a consumer’s rights are protected against a fraudulent auto dealer who seeks to use a binding 

mandatory arbitration clause buried in a purchase contract to take 

advantage of the consumer. The bill will also give auto consumers 

the same right to be free from binding mandatory arbitration 

agreements that auto dealers currently enjoy. 

First I should tell you, I am not an attorney. I am a former college English teacher who had a horrendous car experience at a car 

dealership in Lemon Grove, California, and as well, my family was 

stationed on active duty with the United States Navy. 

And that led me to get active on behalf of car owners and initiate 

California’s Auto Lemon Law that was authored by 

Assemblymember Sally Tanner that became the model for similar 

laws in all 50 states. Our organization is dedicated to preventing 

motor vehicle related fatalities, injuries, and economic losses, and 

we see this as one of the most important bills pending before Congress to help consumers across the country. 

Pre-dispute mandatory binding arbitration deprives consumers of 

access to justice. Since 1979, I have listened to complaints of consumers all over the country who are harmed due to illegal practices 

perpetrated by car dealers. The victims run the gamut. Most of 

them are pretty sophisticated; they don’t have problems with other 

11 

kinds of financial transactions but they are no match for car dealers who sometimes engage in very sophisticated forms of fraud. 

Some of the consumers have been students who had to drop out 

of school because their vehicles kept breaking down, even though 

when they bought them they were promised they were in mint condition. Others are active duty members of our Armed Forces and 

their families, who are often targeted by unscrupulous auto dealerships. And this is a problem nationally; if you ask the military 

about it they can tell you more. 

For decades I have been able to offer consumers hope that they 

could recover from their losses and be made whole if they simply 

persisted in pursuing their rights. We actually have really good 

laws on the books, on the Federal level and on the state level, to 

protect consumers, but over the past several years it has become 

increasingly difficult for consumers to have access to justice under 

those laws due to the imposition of pre-dispute binding mandatory 

arbitration. 

Pre-dispute binding arbitration is inherently unfair. As Members 

of Congress argued in favor of granting auto dealers access to 

courts for resolving disputes with auto manufacturers, the contracts are take-it-or-leave-it, boiler plate contracts of adhesion. 

There is no opportunity to negotiate, especially since the majority 

of car dealers now use these clauses in their contracts. 

The parties to the contracts are on an unequal footing; the arbitrators are inherently biased in favor of repeat customers like the 

car dealers, who contract their decisions and have the advantage 

of knowing which arbitrators or which arbitration processes tend to 

rule in their favor. Arbitrators are not required to apply the law 

or adhere to judicial precedent. 

Even if the arbitrators totally disregard the law, there is rarely 

any review, little or no check on their power; there is usually not 

even a record that would be subject to review. Discovery is very, 

either nonexistent or very limited, and without discovery consumers are severely disadvantaged. 

H.R. 5312 will provide consumers with the same protections already enjoyed by car dealers. The same arguments that were made 

by auto dealers in Congress in favor of preserving their rights 

apply equally to consumers, if not more. As Senator Hatch stated 

when he introduced S. 1140, the Motor Vehicle Franchise Contract 

Arbitration Fairness Act of 2001, ‘‘The new law was needed to protect car dealers from having mandatory arbitration clauses imposed 

on them by automakers due to their unequal bargaining power.’’ 

And I would be happy to answer any questions that you or the 

Committee may have. 

[The prepared statement of Ms. Shahan follows:] 

12 

PREPARED STATEMENT OF ROSEMARY SHAHAN


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Ms. SA ́ NCHEZ. Thank you. Again, we appreciate your testimony. 

At this time I would invite Ms. Rice to please share her testimony. 

TESTIMONY OF ERIKA RICE, ARCANUM, OH 

Ms. RICE. Good morning. I would like to get started by thanking 

Chairwoman Sa ́nchez, Ranking Member Cannon, and the rest of 

the Members of the Subcommittee for hearing my testimony today. 

I am hoping that when this bill becomes a law, other families will 

be protected from what has happened to us. 

My name is Erika Rice, and I am a mother of two from Arcanum, 

Ohio. My husband and I were taken advantage of by a car dealership that used a clause that was buried in some fine print. I later 

learned that this clause could take away my right to hold the dealership responsible for their actions. 

In November of 2006, my husband, daughter, and I went to a car 

dealership with the intention of buying a safe car that would last 

us for a number of years. After being there for almost 4 hours, the 

dealer finally sat us down and in just a few minutes, hurried us 

through a mountain of documents. Because it was 45 minutes past 

the closing time of the dealership, I was not given the chance to 

read the unending lines of fine print; instead, the dealer just pointed and said, ‘‘Sign here, sign here,’’ not answering any of my questions. 

The dealer assured me that the car had undergone quality assurance inspections, and I was led to believe that the car had never 

been in an accident or been damaged. I learned later that in fact, 

the car had been in a crash where the airbags had deployed and 

the car was seriously damaged. In short, they had sold me a rebuilt 

wreck. 

During the whole process of buying the car, the word ‘‘arbitration’’ was never mentioned. I didn’t even know what the word 

meant until I was forced to file a claim against the dealership due 

to their lack of responsiveness. The dealer never explained the 

term or explained that by signing certain documents I might be 

giving up my right to hold them accountable for what I later 

learned was a complete scam. 

That night as I was driving home it began to rain, and my windshield wipers in my new car quit working. Here I was, driving with 

my 6-year-old, on the interstate in a rainstorm, and the windshield 

wipers quit working. Needless to say, I wasn’t happy with the car. 

The next morning I drove the car back to the dealer. On the way 

there, the ‘‘check engine’’ light came on. When I got to the dealer 

I informed them that I wanted another car because of the obvious 

problems with the car they had just sold me hours before. 

They told me they couldn’t help me; my pleas fell on deaf ears. 

I told them that I still wanted to buy a car and I would be willing 

to buy that car from them, only I didn’t want a car that had problems within minutes of driving it. 

After a few weeks had passed, the car had spent more time in 

the shop being fixed than being driven by myself or my husband. 

I was getting nowhere with the dealer, and so I told them that I 

was looking into hiring an attorney, thinking that if perhaps they 

28 

knew how serious I was about the situation they would actually try 

to rectify it. 

Instead, the people at the dealership literally laughed at me. 

They said, ‘‘Bring it on.’’ What they knew, that I didn’t at the time, 

is that I might be unable to hold them accountable by the fine 

print: the binding mandatory arbitration clause. 

The worst part about my case is that the box that said I would 

be bound under my contract for arbitration was never even 

checked. This alone should allow me to pursue my claim in court. 

Let me clarify: My purchase agreement for the car has a provision 

in it which states, ‘‘Buyer acknowledges that if this box is checked, 

this agreement contains an arbitration clause.’’ Right next to that 

statement is a checkmark box, but the box is not checked on my 

contract. 

So even though the box is not checked, the dealer’s lawyers have 

filed a motion to force me to go to arbitration with the AAA. This 

motion has been pending for over a year. 

You may be asking yourself, ‘‘Why don’t I just submit to the arbitration and try to get a good settlement that will allow me to buy 

a car that works?’’ First of all, I know there is not much of a 

chance that I will win in arbitration. I have learned about the 

thousands of other car buyers who have paid thousands of dollars 

in arbitration fees believing that the arbitrator would be fair, only 

to find out otherwise. 

Secondly, I can’t even afford the cost of going through with the 

arbitration process. In order to just start that process, I would have 

to pay half or more of all the cost of arbitration. I have learned 

that arbitrator’s fees usually range from at least $700 to $1,800 per 

day with an average of $1,300. In addition to the arbitration fees, 

I would also have to pay half of the administrative fees. I know 

that the cards are totally stacked against me. 

What upsets me the most is that all of this could have been prevented. If the dealers were not allowed to use mandatory arbitration clauses in their contracts, perhaps they would have treated me 

right from the start. I would never have been forced to get a lawyer 

and spend all my time and money just to get a judge to hear my 

concerns. It has been a very stressful situation. 

I went to a dealership excited to get a new car. Instead, I was 

scammed and lied to. If the dealer was never allowed the opportunity to try and force me into an unfair, secret, and expensive arbitration system, all of this could be avoided. 

Thank you for hearing my testimony. 

[The prepared statement of Ms. Rice follows:] 

29 

PREPARED STATEMENT OF ERIKA RICE


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Ms. SA ́ NCHEZ. We are sorry for the trouble that you obviously encountered in your experience, but we appreciate very much the fact 

that you took the time to attend today. At this time I would like 

Mr. Naimark to speak. 

TESTIMONY OF RICHARD NAIMARK, SENIOR VICE PRESIDENT, 

AMERICAN ARBITRATION ASSOCIATION, WASHINGTON, DC 

Mr. NAIMARK. Good morning, Madam Chair, Congressman Cannon, all the Members of the Committee. I am Richard Naimark; I 

am senior vice president of American Arbitration Association, and 

we appreciate the opportunity to testify before the Subcommittee 

today. 

May I say at the outset that the AAA is a not-for-profit public 

service organization with over 80 years of experience in the field. 

Arbitrators who hear cases that are administered by the AAA are 

not employees of the AAA, but are independent, neutral, screened, 

and trained, and in the consumer context are virtually always attorneys. 

The AAA does not represent an industry, per se. It does not represent the ADR or arbitration industry or other arbitral institutions. And our primary concern today, and reason for attending, is 

concern about the health and integrity of the arbitration process in 

particular. 

I will note that there is a marked irony in the hearing today and 

in the bill that is being proposed, as already has been noted in 

some of the submitted testimony: The automobile dealers themselves were successful in securing a provision and law that allows 

them to circumvent the arbitration provisions in their contracts 

with automobile manufacturers, and now we have sort of the other 

end of the spectrum, which I think is a rather ironic situation. 

Nonetheless, let me say that we have two primary suggestions that 

we would like to propose to the Subcommittee—to the Committee— 

changes to H.R. 5312 that would preserve the objectives but would 

not have extensive potential unintended impacts that might be undesirable. 

And the first thing I want to say is that this is largely, in many 

respects, as has already been said, an issue of access to justice. The 

reality is that for most Americans, consumers don’t have ready access to justice. Studies have shown difficulty for consumers, individuals, for claims typically less than $65,000, in obtaining legal 

representation, unless they can finance the lawsuits themselves; 

and for pro se, self-representation in court is often extremely difficult to manage. The court process was not designed for easy access. 

So I want to say, in that context, that arbitration can provide a 

fair, balanced dispute resolution in the consumer context if it incorporates principles like due process protocols, which require some 

fair play in the process. 

Very briefly, some highlights of the due process protocols which 

are part of the AAA process in the consumer setting. They provide 

for things like:, consumers and businesses have a right to independent, impartial neutrals to decide their disputes; consumers always have a right to representation; costs of the process must be 

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cessible; no party may have a unilateral choice of arbitrator; there 

should be full disclosure by arbitrators of any potential conflict or 

previous contact with any of the parties; and perhaps most importantly of all, there should be no limitation of remedy that would 

otherwise be available in court. 

And in this way, you preserve safeguards. There are other aspects, certainly, of the protocols. 

Now, the other thing I want to stress is that it would be a mistake to amend the Federal Arbitration Act. The so-called Dealers’ 

Day in Court did not amend the FAA; it was a piece of, sort of, collateral legislation. The reason we talk about that is, the arbitration 

world context is extremely large. There are all kinds of businessto-business arbitrations, there are international arbitrations, there 

are some arbitrations involving governmental bodies, there are lots 

of arbitrations involving unions and management. 

The alterations of the FAA potentially impact over 80 years of judicial wisdom, which have built up the contours and the confines 

of how arbitration ought to be properly conducted. So rather than 

doing something like that, we would suggest not amending the 

FAA, but thinking about sort of a collateral piece of legislation. 

Thank you. 

[The prepared statement of Mr. Naimark follows:] 

35 

PREPARED STATEMENT OF RICHARD NAIMARK


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Ms. SA ́ NCHEZ. Thank you, Mr. Naimark. 

At this time I would like to invite Mr. Rosner to provide his testimony. 

TESTIMONY OF HALLEN D. ROSNER, ROSNER & MANSFIELD, 

LLP, SAN DIEGO, CA 

Mr. ROSNER. I agree with Mr. Conner, what we need to do today 

is focus on the car dealer context. 

And Mr. Smith, while you are leaving, I did want you to see, I 

brought a car contract here today. I kept one thing just to flash you 

with as you leave. This is the standard retail installment sales contract that a consumer gets. 

This is what they see after they have been at the dealership for 

3 or 4 hours and been shown paperwork that would take hours to 

read; there have been various studies done. This is what comes at 

the end. They have already signed 10 times that they are going to 

buy. Then they get the retail installment sales contract. 

In this contract is one single line on the front page that mentions 

arbitration. I have two for you; I would like to submit them at the 

end of my testimony. If you want to play ‘‘look for the needle in 

the haystack,’’ try and find the one line on the front of a contract 

that mentions arbitration. 

It actually beautifully blends in, and I will give you a clue: The 

one line that mentions arbitration is where they have the consumer, after spending 4 hours, after being told, ‘‘Here is where you 

sign,’’ and they finally just want to be out of there, the one line is 

the line where they promise that they thoroughly read the front 

and back of the contract, which, of course, they wouldn’t know that 

they are acknowledging that because no one reads the front and 

back of the contract. 

I brought two agreements for a reason. One is a 2006; one is a 

2004. The front side has 2,000 words, there are over 100 clauses— 

there you will find the arbitration clauses. The reason I brought 

two is that the 2004 version had a group called JAMS, that is Judicial Arbitration Mediation Services—highly respected ex-judges. 

They instituted rules such as proposed by AAA. 

The result was, they were disqualified and taken out of the contracts as a provider because the put in rules of fairness. I was unfortunately having to explain that AAA is right now rumored, because they put in some better consumer protections recently, that 

they are going to be taken out of the dealer contracts. The only improvement they want is the National Arbitration Forum, and in my 

testimony and others there has been quite a lot of documentation 

about the nature of that organization. 

So if you did read the back of the contract, and I did a whole section in my written statement here about how people buy cars. This 

is something you end up doing after many, many hours. It is the 

last thing you sign. They have already had you sign that you are 

going to buy it. 

You wouldn’t know what you are agreeing to because this tells 

you to go to a Web site to learn the rules of the organizations that 

are involved in what you are doing. So if you happen to have your 

laptop and you go to the Web site, you can then pull up United 

38 

States Code and read the other 100 pages of regulations governing 

the agreement that you are entering into. 

What we propose here, and this is—arbitration should be knowing and voluntary. It is never, never knowing and voluntary in the 

car context because the people, first, don’t know it exists; that is 

the reality. The second, if you knew it existed you wouldn’t know 

the rules because it is not in the agreement. 

There was a comment here about the importance of access to justice. The reality is, arbitration is right now precluding access to 

justice. There is no problem getting representation if you are a consumer of a $10,000 car if your case has merit. Anyone in my state 

can get me to represent them if their case has merit because we 

have consumer laws that, if the consumer’s car should be brought 

back, the dealership has to pay their fees. 

But what I get on my column, from across the country, is people 

can’t get lawyers. They won’t take arbitration cases with arbitration clauses. The same lawyer who will represent you in court, not 

charge you one penny up front, won’t take the arbitration because 

among the clauses here is a clause that takes away, potentially, 

that right to get paid to represent the consumer. These rules aren’t 

fair. 

And I guess I ask you to consider this fact: Would the same car 

dealer who sells you a wrecked car, who took advantage of this 

young lady here, hesitate to maybe tilt the field a little bit in a document like this, in writing the rules and regulations? They get to 

pick the organization you have to go to. We run into the repeatplayer bias and other difficulties. 

I noted in the written statement submitted by the gentleman 

from AAA, he says, ‘‘No party should have a unilateral choice of arbitrator.’’ I would like to amend to that, ‘‘Or group or arbitration 

system.’’ Of course, everyone spreads butter different. When you 

have groups that send out mass solicitations, like the National Arbitration Forum, saying, ‘‘Choose us and we will make your bottom 

line better. We will take care of you,’’ and that is what they do, 

then tell you how to write in clauses, that is not where you as a 

consumer want to have your dispute heard. 

The problem is access to justice. And the other biggest problem 

is the inability to do discovery and stop it. It promotes widespread 

fraud because it is all done in secrecy, versus, I detailed how one 

lady changed the law for millions by doing it in a court proceeding 

because it became public, it became a record, it because a law. 

Arbitration is secret. It promotes continued fraud and predatory 

practices against consumers, and I think that is one of the major 

problems we have. 

[The prepared statement of Mr. Rosner follows:] 

39 

PREPARED STATEMENT OF HALLEN D. ROSNER


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Ms. SA ́ NCHEZ. Thank you. Your time, unfortunately, has expired. 

And we want to thank all of the witnesses for their testimony, 

and we are going to now begin our round of questioning. And I will 

begin by recognizing myself for 5 minutes. 

My first question is for Ms. Shahan. One section of the proposed 

legislation that we are talking about today requires that arbitrators provide a written decision if either party to the arbitration requests one. I want you to please explain why that language is important. 

Ms. SHAHAN. Yes. Thank you, Congresswoman. 

That is one of the best provisions in the bill, and we see that as 

a real benefit because right now, when consumers are going to 

these arbitration programs, there is no requirement that there be 

any record at all. And I think that it is very carefully crafted so 

that it is not overly burdensome. It doesn’t require formal findings 

of fact; it requires simply that the arbitrator provide an informal 

explanation of how they arrived at their decision. 

And that will help other consumers. It will also help, I hope, policymakers decide how these decisions are being rendered and why, 

so that if there is a need to improved this system, that can be done. 

Ms. SA ́ NCHEZ. In your prepared statement, you state that lenders 

will not accept retail installment contracts for auto loans unless the 

dealers include binding mandatory arbitration clauses in the contract, and I would like you to please explain that. 

Ms. SHAHAN. Yes. This has been a real concern because some 

dealers were not imposing mandatory binding arbitration, pre-dispute, but lenders insist on it. And so consumers, especially consumers who aren’t paying cash for a car and have to get a loan and 

use a retail installment contract, are having arbitration forced on 

them by virtually all the dealers. 

If you are a consumer, you have very limited options. If you are 

buying a new car, you have to go to a franchise car dealer unless 

you are going overseas and getting it directly from the manufacturer, because they have a monopoly in all 50 states. That is the 

only place you can go to get a new car. 

And if you are buying a used car and you want to go to a reputable dealership that is licensed by the state, where you have 

some expectation that they are a legitimate business, you really 

don’t expect that they can engage in massive fraud and get away 

with it. And so consumers’ guard is down, their options are limited, 

and the lenders are forcing dealers who might not be inclined to 

use these provisions to do it. 

Ms. SA ́ NCHEZ. Thank you. 

Ms. Rice, and again, I am sorry for the experience that you have 

had, but we are still thankful that you are here to talk about your 

experience in this field. One of the many arguments that are used 

for mandatory binding arbitration is that it is less costly than litigating in the traditional court system. And I wanted to know 

whether you found that to be true in your situation, that having 

to arbitrate your issue would be less costly than it would be to pursue that claim in court. 

Ms. RICE. There aren’t set fees; there aren’t set limitations on 

how much a private person can charge a consumer in regards to 

arbitration. There is no way for me to research that and to come 

70 

up with a number that says, ‘‘Okay, this is, you know, where it is 

at, and what it is going to cost me.’’ 

You know, my lawsuit has cost me some money, but if the dealership would have just done the right thing at the beginning, it 

wouldn’t have come to this; I wouldn’t be sitting in front of all of 

you today and telling you this story. It would be, ‘‘This dealership 

did me right, and everything is great and wonderful.’’ So, I mean, 

short of having my attorney here to tell you the difference between 

what she is going to charge me versus what arbitration is going to 

cost, I mean, there is really no way to come up with the correct answer on that. 

Ms. SA ́ NCHEZ. Thank you. 

Mr. Rosner, maybe you can provide a little bit of information on 

the cost to the consumer between arbitration versus court. 

Mr. ROSNER. Obviously, the cost of a court proceeding in a case 

with my firm, for a consumer, is zero. There is a complaint fee of 

$300; the court system if free. In the court system we have arbitration available, but those arbitrators are people who donate their 

time, don’t do it as a regular business, and we pay them a minimal 

fee and they will hear disputes. We also have mediation, and there 

is no cost during it. 

If they want to go to arbitration, you are lucky if you get an arbitrator whose fees are limited to $300 to $600 per hour. Plus, I have 

to look to a consumer and say, ‘‘Despite the fact that California law 

says that you will not have to pay the dealer’s attorneys fees in 

these consumer cases,’’ because they know no one will bring—they 

can’t afford it. The risk is too high. Even if there is a 10 percent 

chance they lose, they can’t afford to spend more than a car. 

But in arbitration, they can get awarded the fees of the dealership. So they have to risk losing everything they have, and they are 

in for paying large fees, and arbitration is often very expensive— 

$300 to $600 an hour. And the way I put it is, they are being asked 

to contribute to someone per hour, a fee equal to their car payment 

per month. This is outside of their area. 

So there are firms like mine that will advance fees for consumers. It limits what cases we can take, and it leaves tremendous 

numbers of consumers begging for legal representation because the 

consumer can’t pay the arbitration fee, and there is not a lot of 

lawyers who could afford to advance that without going broke and 

otherwise take those sorts of risks. 

So this is why I say this denies access to people, it does not encourage it. And there is no rational base for saying it is cheaper. 

It flat out isn’t. 

Ms. SA ́ NCHEZ. Thank you. My time is expired, but Mr. Cannon 

has generously agreed to allow me to ask one last question, and it 

is also a question for you, Mr. Rosner. 

Mr. Naimark has suggested that Congress incorporate into this 

legislation due process and procedural protocols which are aimed at 

protecting consumers. And my question for you is, are these protocols sufficient to actually protect consumers? 

Mr. ROSNER. They really aren’t. They are hard to enforce, they 

are hard to put down, but you can achieve his objective. If you 

make people have to enter into arbitration voluntarily and knowVerDate Aug 31 2005 12:22 Jan 16, 2009 Jkt 000000 PO 00000 Frm 00074 Fmt 6633 Sfmt 6601 H:\WORK\COMM\030608\41083.000 HJUD1 PsN: DOUGA
71 

ingly, then people won’t enter into it unless you make the system 

fair. 

So if you set up things like—I use core arbitration all the time; 

arbitration is not inherently bad. But if you take the first step, and 

make it knowing and fair. So if the consumer doesn’t have to enter 

into it until the dispute arises, to where they haven’t sat in a car 

dealership for 6 hours, if they want consumers to go to arbitration, 

if they present a fair system, then there may be the possibility of 

arbitration. 

So the way to get the protocols isn’t to try and make car dealers 

rewrite their contracts and create a huge board and bureaucracy, 

it is to create a knowing and fair system. And if people have to be 

knowing and voluntary, then you are going to have to be encouraged to create a fair system so they want to go. That is very American; it is the marketplace of ideas. 

If you offer them a better alternative to the court system, they 

shall take it. But if you unilaterally impose it on the back of a huge 

contract or let the car dealers write the agreements—so let us use 

your legislation will result in these results without having to go 

through creating an unenforceable system. And these are good 

things that should happen; they are not happening, and if they do 

the car dealers won’t use the system. 

So we can achieve the results by making it knowing and voluntary. We are not saying no arbitration; we are saying knowing 

and voluntary. 

Ms. SA ́ NCHEZ. Thank you. I think that is a very important distinction with respect to the legislation we are discussing today. I 

thank you all for your answers. And now I would like to recognize 

Mr. Cannon for 5 minutes of questions. 

Mr. CANNON. Thank you, Madam Chair. 

Thank you for being here, Ms. Shahan. You are sort of like this 

embodiment of this great hero in my life, and it is nice to know 

who you are and see you here. I think the Lemon Law was actually 

a remarkably good thing. And, by the way, did you call it the 

Lemon Law because you lived in Lemon Grove, which I always 

thought of as sort of a sweet place. I have a brother-in-law and sister-in-law who live there. 

Ms. SHAHAN. I love Lemon Grove. 

Mr. CANNON. It doesn’t really relate to the fact that you buy a 

lousy car—— 

Ms. SHAHAN. That is right. The nomenclature came from the 

sour taste it leaves in people’s mouths. 

Mr. CANNON. Let me just ask one question, Mr. Rosner. If you 

essentially cost zero to your clients, do you tell them that they 

don’t need to pay you for the filing fees, that sort of thing? 

Mr. ROSNER. Yes. 

Mr. CANNON. And California then, I take it, it is—— 

Mr. ROSNER. It is completely permissible. In California, to be 

honest, sir, after a few thousand cases I am a pretty good judge of 

how things will go in court. The results have been very—the same 

cases I have never lost in court I find myself losing in arbitration, 

but I pay everything. 

Mr. CANNON. You are comfortable getting paid back for the risk, 

but you don’t put that risk on the client, right? 

72 

Mr. ROSNER. That is correct, sir. 

Mr. CANNON. Different laws, different states. It is an interesting 

fact. 

I actually want to—I don’t often do this, but I actually want to 

lecture here a little bit. And you guys are stuck, and I apologize—— [Laughter.] 

The Chair has apologized twice to Ms. Rice for the problem that 

she has had, and on the other hand, you have Mr. Naimark, who 

talks about the cost of litigation and why it is not worth litigating. 

I personally have passed up a number of lawsuits in my life because I am not going to get paid back as much as it is going to cost 

me to do the litigation. 

And I think there is a philosophical gap here that I think we 

ought to explore. I think the Chair would agree with me that the 

reason she apologizes to Ms. Rice is because she believes there is 

an obligation, by the system, to you as a person. 

And I think that philosophy derives from a guy named Kant, who 

wrote a book called ‘‘The Social Contract,’’ a French author some 

time back. And his premise was that society, as human beings, we 

owe each other something, and that is an attractive idea—I read 

the book when I was 18 or 19 and I was interested in the idea. And 

it is a good idea; I think that people do actually owe each other 

things. 

The problem is, who gets to decide who owes what to whom? And 

that is the fundamental concept that we are actually dealing with 

here. This is a fundamental philosophical discussion, and I think 

it ought to be considered in the context of philosophy, because that 

allows us to make decisions, instead of in sympathy, in a context 

that allows us to create a system that actually works. 

So, somewhere between your problem, which is very serious and 

a clear problem, and, for instance, Ms. Shahan’s dramatic impact 

on the law by getting the California Lemon Law enacted, and Mr. 

Naimark’s fairly dry and clear statement about the cost that we 

are incurring to society. I think were talking about philosophy and 

what we are doing that makes a big difference. 

So if you say that we have an obligation to each other as individuals, that is like a good Christian, or Jewish, or Muslim, or any 

other kind of religious view that elevates our obligations to other 

people. If you say government should take a role, then you take an 

additional responsibility because government has to make decisions. 

And, in fact, if we decide that you have been wronged and government should step in, then you might actually find yourself in a 

position where the government can reimburse you for the foulness 

of the dealer who cheated you. And that would be okay if God were 

the guy who was making those kinds of decisions, but to do that 

kind of a payment to you, you would need to take money from 

other people to make it available. And so the idea behind socialism 

is that there is force in government to take money and reallocate 

it. 

And in fact, the recent debate between Senator Obama and Senator Clinton in Ohio—a large part of that debate was about which 

program required more force by government. And, a remarkable debate because in America, you see, we have never had success with 

73 

the Socialist Party, and a large part of the reason for that failure 

or success is that communism, which is just socialism with force, 

has had such an awful rap in the world today. 

So as we look at these things, and I see my time is running; I 

am not going to go over that time. But what we are talking about 

here is how we use the system. In America we don’t do socialism; 

in America we have what I like to call Anglo-American constitutionalism. We have a Constitution that has principles; we build a 

superstructure over that of law. And that way, it doesn’t matter 

what your background is or your context is, whether you are a millionaire or a pauper, Ms. Rice, you get the same protection, theoretically, in front of the law. 

And Mr. Rosner is absolutely right when he is thinking, and I 

know this is going through his mind, that people that are poor 

don’t get the same kind of shake that people that are rich get. And 

that is a reasonable conclusion. And so our job is to create a system 

where people, regardless of their economic circumstances, their 

educational circumstances, their other inherent differences, have 

the same rights or the same opportunities, without saying we are 

going to substitute our judgment for a legal system and reach into 

some people’s pocket and put it into other people’s. 

And in the end, that is what this bill is about. This bill that is 

before us is about how we reallocate resources in society to protect 

some. And I would just tell you, if you want protection from the 

government you ought to think twice. Because the people that end 

up being protected tend to be the elite, rich, the corporations that 

have vast resources, and they can use the law to benefit their interests and not others. 

And so while I sympathize heavily, Ms. Rice, with your circumstance, I want a system that is most likely to create an environment where you are better served. And by the way, I think you 

should tell all your friends what a creep the guy was you bought 

the car from and tell them not to go there. And that is the ultimate 

defense, because creepy people do creepy things, and in our lives 

we have a choice of getting on with our lives or spending money. 

And I read part of—if you will allow me another moment—— 

Ms. SA ́ NCHEZ. If you would yield to me when you are done. 

Mr. CANNON. Absolutely. Absolutely. 

In your circumstance, you are facing the worst of all choices. You 

have got arbitration that costs a great deal of money; you hire a 

lawyer, it costs a lot of money. No lawyer is going to step in because of the legal context that you are in. You face some really ugly 

choices. And you end up saying to yourself, and I hate the fact that 

this is the case, but you say to yourself, ‘‘Look, how much is this 

lousy car going to cost me? What can I do with it? How do I get 

out of it? How can I get on with my life?’’ Because you were talking about $1,800 or $1,300 a day, I think 

you said was the average cost. You know, it doesn’t take many days 

before you say, ‘‘I am just going to pay this off, find a dealer I can 

trust, get a car that is reliable, and go on with my life.’’ And the 

only alternative to that is to say, ‘‘I want the government to take 

care of it,’’ and that comes with burdens and costs that I think that 

you probably are not ready to ask for. 

And with that, I would be happy to yield. 

74 

Ms. SA ́ NCHEZ. Thank you. I would just like to make a couple of 

brief comments. Number one, my apology to Ms. Rice was for her 

having gone through such a bad experience. I am not assessing 

blame in her particular situation, but I can empathize with the 

idea of being excited about getting a brand new car, and then finding out that it doesn’t function just minutes after you have driven 

it off the lot. 

Secondly, with respect to some of the arguments that you were 

making, Mr. Cannon, about asking government to step in and who 

bears the cost. I don’t think that we are asking government to reimburse Ms. Rice for her bad experience or for the lemon that she 

bought. We are certainly not asking taxpayers to come to her rescue and bail her out of what ended up being a very unfortunate circumstance for her. 

I think what we are asking for is what Mr. Rosner said, is some 

fairness in a system, and not getting rid of arbitration, but merely 

making it a knowing, willing, informed, and voluntary decision on 

the part of a consumer, whether or not they choose to pursue what 

they think is their due in the arbitration system, or whether or not 

they choose to go the route of the traditional court system. 

And I think that is what this bill ultimately is about, is ensuring 

that there are safeguards that people aren’t reading or missing— 

that would be a better word, missing a mandatory binding arbitration clause in a lengthy contract that comes at the end of a very 

heavy negotiating session over price and mountains of paperwork. 

Mr. CANNON. Reclaiming my time, let me just say that I agree 

with the gentlelady and that you explained your view and your nature of your apologies, I think, perfectly. I would only just add this, 

that our decision today is not a decision about solving Ms. Rice’s 

problem; it is about solving a societal problem. We are in the position we are in because we have looked at the costs and the best 

ways to get to it over a very long period of time. And the bill that 

you have introduced fits within the structure of the Anglo-American constitutional system. 

It is not a matter of, the bill you introduced is not a socialistic 

bill; I would not suggest that. But rather, I talked about Ms. Rice’s 

circumstances to point out that what we are really doing in Congress is trying to create the system that is the most efficient for 

her and for other consumers to keep prices down, costs down, interest rates down, and give her the mobility to move back and forth 

between. 

If you change the system and create another system, it may actually benefit Ms. Rice because she can go to Mr. Rosner and get a 

lawyer to work the system. But I believe, this is my personal belief 

in this regard, that that is not wise, because what it ends up doing 

is raising the cost to all consumers, because now lawyers can get 

all the complicated and expensive system in a way that they benefit an individual but costs the entire system a great deal more. 

That is the ongoing debate we have had about these arbitration 

clauses. 

And with that, Madam Chair, I would be happy to yield. 

Ms. SA ́ NCHEZ. Will you yield to me? 

The only comment that I would have to your final concluding remarks is that, with respect to fixing Ms. Rice’s problem and makVerDate Aug 31 2005 12:22 Jan 16, 2009 Jkt 000000 PO 00000 Frm 00078 Fmt 6633 Sfmt 6601 H:\WORK\COMM\030608\41083.000 HJUD1 PsN: DOUGA
75 

ing the system more expensive by allowing her to perhaps choose 

to go the traditional court system, perhaps what we will also do is 

with these dealers who are engaging in this practice find it is too 

expensive to continue to try to sucker people into buying bad cars. 

Maybe they will reform their behavior and actually sell the product 

that they are representing to the customer, that the customer 

wants to buy when the customer goes in and plunks down their 

money, and maybe we actually will get a change in behavior so 

that this doesn’t happen on a widespread basis. 

Mr. ROSNER. I would love a 1-minute response to Mr. Cannon’s 

question on obligation if I—I don’t know if that is asking for too 

much. Mr. Cannon asked, ‘‘Where is the obligation to this young 

lady?’’ if you would. The obligation is the Constitution of the 

United States, which had guaranteed her a right to a jury trial and 

to have her grievances heard. It is the government that took away 

that right through various arbitration provisions and put her into 

an unfair system. 

The right, here, is to have compensation to her. In Ms. Shahan’s testimony she talked about $10 billion consumers lose buying bad 

cars. We help the good car dealers if we go ahead and make the 

other car dealers pay the price for what they do. And as I point 

out in my testimony, the advantage of a court system is, one single 

lady, like I pointed out Rita Thompson, changed the way millions 

of cars are sold. That can’t happen in arbitration, which cloaks everything in secrecy, which tells the car dealer, even if he loses a 

secret arbitration to her, it is profitable to keep doing it. So we protect society, and the cost is to the people doing the wrong where 

it should be. 

Mr. CANNON. Reclaiming my time, and I hope this will be final. 

In fact, Mr. Rosner makes a very good point. I don’t think that 

good car dealers would object to having bad car dealers driven out 

of business. But I think if you look at the overall system, the cost 

of litigation is much, much higher, and the effectiveness of telling 

your friends what a creepy dealer you went to is much better. 

With that, Madam Chair, I yield back. 

Ms. SA ́ NCHEZ. I thank the gentleman, and I want to thank, 

again, all of the witnesses for their testimony today. 

Without objection, Members will have 5 legislative days to submit any additional written questions, which we will forward to the 

witnesses and ask that you answer as promptly as you can so that 

they can be made a part of this record as well. And without objection, the record will remain open for 5 legislative days for the submission of any additional material. 

Again, I thank everybody on the panel for their time and patience, and this hearing of the Subcommittee on Commercial and 

Administrative Law is adjourned. 

[Whereupon, at 10:27 a.m., the Subcommittee was adjourned.] 

(77) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

78 

PREPARED STATEMENT OF THE AMERICAN FINANCIAL SERVICES ASSOCIATION (AFSA) 


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LETTER FROM THE ALLIANCE OF AUTOMOBILE MANUFACTURERS


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RESPONSES TO POST-HEARING QUESTIONS FROM ROSEMARY SHAHAN, PRESIDENT, 

CONSUMERS FOR AUTOMOBILE RELIABILITY AND SAFETY, SACRAMENTO, CA 


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RESPONSES TO POST-HEARING QUESTIONS FROM ERIKA RICE, ARCANUM, OH 


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RESPONSES TO POST-HEARING QUESTIONS FROM RICHARD NAIMARK, SENIOR VICE

PRESIDENT, AMERICAN ARBITRATION ASSOCIATION, WASHINGTON, DC 


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RESPONSES TO POST-HEARING QUESTIONS FROM HALLEN D. ROSNER, 

ROSNER & MANSFIELD, LLP, SAN DIEGO, CA 


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