A bill to amend chapter 1 of title 9, United States Code, to establish fair procedures for arbitration clauses in contracts.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Fair Arbitration Act of 2007''.

SEC. 2. ELECTION OF ARBITRATION.

    (a) In General.--Chapter 1 of title 9, United States Code, is 
amended by adding at the end the following:
``Sec. 17. Election of arbitration
    ``(a) Fair Disclosure.--In order to be binding on the parties, a 
contract containing an arbitration clause shall--
            ``(1) have a printed heading in bold, capital letters 
        entitled `arbitration clause', which heading shall be printed 
        in letters not smaller than \1/2\ inch in height;
            ``(2) explicitly state whether participation within the 
        arbitration program is mandatory or optional;
            ``(3) identify a source that a consumer or employee can 
        contact for additional information regarding--
                    ``(A) costs and fees of the arbitration program; 
                and
                    ``(B) all forms and procedures necessary for 
                effective participation in the arbitration program; and
            ``(4) provide notice that all parties retain the right to 
        resolve a dispute in a small claims court, as provided in 
        subsection (b)(12).
    ``(b) Procedural Rights.--
            ``(1) In general.--If a contract provides for the use of 
        arbitration to resolve a dispute arising out of or relating to 
        the contract, each party to the contract shall be afforded the 
        rights described in this subsection, in addition to any rights 
        provided by the contract.
            ``(2) Competence and neutrality of arbitrator and 
        administrative process.--
                    ``(A) In general.--Each party to the dispute 
                (referred to in this section as a `party') shall be 
                entitled to a competent, neutral arbitrator and an 
                independent, neutral administration of the dispute.
                    ``(B) Arbitrator.--Each party shall have a vote in 
                the selection of the arbitrator, who--
                            ``(i) unless otherwise agreed by the 
                        parties, shall be a member in good standing of 
                        the bar of the highest court of the State in 
                        which the hearing is to be held;
                            ``(ii) shall comply with the Code of Ethics 
                        for Arbitrators in Commercial Disputes of the 
                        American Bar Association and the American 
                        Arbitration Association and any applicable code 
                        of ethics of any bar of which the arbitrator is 
                        a member;
                            ``(iii) shall have no--
                                    ``(I) personal or financial 
                                interest in the results of the 
                                proceedings in which the arbitrator is 
                                appointed; or
                                    ``(II) relation to the underlying 
                                dispute or to the parties or their 
                                counsel that may create an appearance 
                                of bias; and
                            ``(iv) prior to accepting appointment, 
                        shall disclose all information that might be 
                        relevant to neutrality (including service as an 
                        arbitrator or mediator in any past or pending 
                        case involving any of the parties or their 
                        representatives) or that may prevent a prompt 
                        hearing.
                    ``(C) Administration.--The arbitration shall be 
                administered by an independent, neutral alternative 
                dispute resolution organization to ensure fairness and 
                neutrality and prevent ex parte communication between 
                parties and the arbitrator. The arbitrator shall have 
                reasonable discretion to conduct the proceeding in 
                consideration of the specific type of industry 
                involved.
            ``(3) Applicable law.--In resolving a dispute, the 
        arbitrator--
                    ``(A) shall be governed by the same substantive law 
                that would apply under conflict of laws principles 
                applicable in a court of the State in which the party 
                that is not drafter of the contract resided at the time 
                the contract was entered into; and
                    ``(B) shall be empowered to grant whatever relief 
                would be available in court under law or equity.
            ``(4) Representation.--Each party shall have the right to 
        be represented by an attorney, or other representative as 
        permitted by State law, at their own expense.
            ``(5) Hearing.--
                    ``(A) In general.--Each party shall be entitled to 
                a fair arbitration hearing (referred to in this section 
                as a `hearing') with adequate notice and an opportunity 
                to be heard.
                    ``(B) Electronic or telephonic means.--Subject to 
                subparagraph (C), in order to reduce cost, the 
                arbitrator may hold a hearing by electronic or 
                telephonic means or by a submission of documents.
                    ``(C) Face-to-face meeting.--Each party shall have 
                the right to require a face-to-face hearing, which 
                hearing shall be held at a location that is reasonably 
                convenient for the party who did not draft the contract 
                unless in the interest of fairness the arbitrator 
                determines otherwise, in which case the arbitrator 
                shall use the process described in section 1391 of 
                title 28, to determine the venue for the hearing.
            ``(6) Evidence.--With respect to any hearing--
                    ``(A) each party shall have the right to present 
                evidence at the hearing and, for this purpose, each 
                party shall grant access to all information reasonably 
                relevant to the dispute to the other parties, subject 
                to any applicable privilege or other limitation on 
                discovery under applicable State law;
                    ``(B) consistent with the expedited nature of 
                arbitration, relevant and necessary prehearing 
                depositions shall be available to each party at the 
                direction of the arbitrator; and
                    ``(C) the arbitrator shall--
                            ``(i) make reasonable efforts to maintain 
                        the privacy of the hearing to the extent 
                        permitted by applicable State law; and
                            ``(ii) consider appropriate claims of 
                        privilege and confidentiality in addressing 
                        evidentiary issues.
            ``(7) Cross examination.--Each party shall have the right 
        to cross examine witnesses presented by the other parties at a 
        hearing.
            ``(8) Record of proceeding.--Any party seeking a 
        stenographic record of a hearing shall make arrangements 
        directly with a stenographer and shall notify the other parties 
        of these arrangements not less than 3 days before the date of 
        the hearing. The requesting party shall pay the costs of 
        obtaining the record. If the transcript is agreed by the 
        parties, or determined by the arbitrator to be the official 
        record of the proceeding, it shall be provided to the 
        arbitrator and made available to the other parties for 
        inspection, at a date, time, and place determined by the 
        arbitrator.
            ``(9) Timely resolution.--
                    ``(A) In general.--Upon submission of a complaint 
                by the claimant, the respondent shall have not more 
                than 30 days to file an answer.
                    ``(B) Evidence.--After the answer is filed by the 
                respondent, the arbitrator shall direct each party to 
                file documents and to provide evidence in a timely 
                manner so that the hearing may be held not later than 
                90 days after the date of the filing of the answer.
                    ``(C) Extensions.--In extraordinary circumstances 
                (including multiparty, multidistrict, or complex 
                litigation) the arbitrator may grant a limited 
                extension of the time limits under this paragraph, or 
                the parties may agree to such an extension.
                    ``(D) Decision.--The arbitrator shall notify each 
                party of its decision not later than 30 days after the 
                hearing.
            ``(10) Written decision.--The arbitrator shall provide each 
        party with a written explanation of the factual and legal basis 
        for the decision. This written decision shall describe the 
        application of an identified contract term, statute, or legal 
        precedent. The decision of the arbitrator shall be subject to 
        review only as provided in subsection (c)(2) of this section 
        and sections 10, 11, and 16 of this title.
            ``(11) Expenses.--The arbitrator or independent arbitration 
        administration organization, as applicable, shall have the 
        authority to--
                    ``(A) provide for reimbursement of arbitration fees 
                to the claimant, in whole or in part, as part of the 
                remedy in accordance with applicable law or in the 
                interests of justice; and
                    ``(B) waive, defer, or reduce any fee or charge due 
                from the claimant in the event of extreme hardship.
            ``(12) Small claims opt out.--
                    ``(A) In general.--Each party shall have the right 
                to opt out of binding arbitration and to proceed in any 
                small claims court with jurisdiction over the claim. 
                For purposes of this paragraph, no court with 
                jurisdiction to hear claims in excess of $50,000 shall 
                be considered a small claims court.
                    ``(B) Exception.--If a complaint in small claims 
                court is amended to exceed the lesser of the 
                jurisdictional amount of that court or a claim for 
                $50,000 in total damages, the small claims court 
                exemption of this paragraph shall not apply and the 
                parties shall proceed by arbitration.
    ``(c) Denial of Rights.--
            ``(1) Denial of rights by party misconduct.--
                    ``(A) In general.--At any time during an 
                arbitration proceeding, any party may file a motion 
                with the arbitrator asserting that another party has 
                deprived the movant of a right granted by this section 
                and seeking relief.
                    ``(B) Award by arbitrator.--If the arbitrator 
                determines that the movant has been deprived of a right 
                granted by this section by another party, the 
                arbitrator shall award the movant a monetary amount, 
                which shall not exceed the reasonable expenses incurred 
                by the movant in filing the motion, including 
                attorneys' fees, unless the arbitrator finds that--
                            ``(i) the motion was filed without the 
                        movant first making a good faith effort to 
                        obtain discovery or the realization of another 
                        right granted by this section;
                            ``(ii) the opposing party's nondisclosure, 
                        failure to respond, response, or objection was 
                        substantially justified; or
                            ``(iii) the circumstances otherwise make an 
                        award of expenses unjust.
            ``(2) Denial of rights by arbitrator.--
                    ``(A) In general.--A losing party in an arbitration 
                proceeding may file a petition in the United States 
                district court in the State in which the party that did 
                not draft the contract resided at the time the contract 
                was entered into to assert that the arbitrator violated 
                a right granted to the party by this section and to 
                seek relief.
                    ``(B) Review.--A United States district court may 
                grant a petition filed under subparagraph (A) if the 
                court finds clear and convincing evidence that an 
                action or omission of the arbitrator resulted in a 
                deprivation of a right of the petitioner under this 
                section that was not harmless. If such a finding is 
                made, the court shall order a rehearing before a new 
                arbitrator selected in the same manner as the original 
                arbitrator as the exclusive judicial remedy provided by 
                this section.
    ``(d) Limitation on Claims.--Except as otherwise expressly provided 
in this section, nothing in this section may be construed to be the 
basis for any claim in law or equity.
    ``(e) Definitions.--In this section--
            ``(1) the term `contract' means a contract evidencing a 
        transaction involving commerce; and
            ``(2) the term `State' includes the District of Columbia, 
        the Commonwealth of Puerto Rico, Guam, the Commonwealth of the 
        Northern Mariana Islands, and the Virgin Islands.''.
    (b) Technical and Conforming Amendment.--The table of sections at 
the beginning of chapter 1 of title 9, United States Code, is amended 
by adding at the end the following:

``17. Election of arbitration.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any contract (as that term is defined in section 17 of title 
9, United States Code, as added by this Act) entered into after the 
date that is 6 months after the date of enactment of this Act.

Summary: Fair Arbitration Act of 2007 - Requires a contract containing an arbitration clause, in order to be binding on the parties, to: (1) have a heading "ARBITRATION CLAUSE" printed in bold, capital letters; (2) state explicitly whether participation in arbitration is mandatory or optional; (3) identify a source that a consumer or employee can contact for additional information regarding the arbitration program; and (4) provide notice that all parties retain the right to resolve a dispute in a small claims court for a claim of $50,000 or less.

Entitles each party under arbitration to: (1) a competent, neutral arbitrator and independent, neutral administration of the dispute; (2) representation by an attorney or other representative at such party's expense; (3) a fair arbitration hearing; (4) a face-to-face hearing; (5) the right to present evidence and cross examine witnesses; (6) a written explanation of the basis for the arbitrator's decision; and (7) the right to opt out of binding arbitration and into the small claims court (for claims of $50,000 or less).

Prescribes procedures for complaints by any party of denial of rights by the other party or the arbitrator.