A massive study to be published in 2019 shows that arbitration can be beneficial to the plaintiffs’ bar and that the odds of victory increase significantly for parties represented by counsel.
The study will be part of an article to be published in 2019 in the California Law Review, but a 67-page summary, Arbitration Nation: Data from Four Providers, was released September 3 by authors Andrea Chandrasekher and David Horton of the University of California, Davis - School of Law.
Sweeping 40,000 Case Study: Three Key Takeaways
The authors analyzed 40,775 consumer, employment, and medical malpractice arbitrations that were filed from 2010 to 2016 at the AAA, JAMS, ADR Services, Inc., and the Kaiser Health Care Office of Independent Administration. The authors reach three major conclusions: “First, arbitration has the capacity to facilitate access to justice. Cases move quickly through the system, and corporations pickup most of the tab. Second, arbitration is not currently living up to this potential. Although businesses are correct that more individuals are arbitrating after Concepcion, this uptick has been modest. Moreover, companies are wrong about who is bringing those claims. Plaintiffs’ lawyers – not self-represented consumers, employees, or medical patients – have been taking advantage of arbitration’s speed and relative affordability. In fact, some attorneys have tried to create a simulacrum of the class action by initiating dozens or even hundreds of two-party arbitrations against the same defendant. Third, concern that arbitration favors repeat playing corporations is well founded. Indeed, businesses that arbitrate often in an institution perform particularly well within that institution. Nevertheless, this is just one-half of the repeat player story. Arbitration favors repeat players on both sides. In a variety of different settings, serially-arbitrating plaintiff’s law firms also fare particularly well” (emphasis in original).
The chart-laden study contains a wealth of data that Reuters nicely analyzed in a September 12th article: “Across the data set, the study found that arbitrations wrap up, on average, in about 11 months. (Employment cases take the longest, and even they take just 14 months to reach a conclusion.) Plaintiffs’ share of arbitration fees, on average, was $1,114, a ‘manageable’ amount, according to Professors Horton and Chandrasekher, considering that arbitration fees can run into tens of thousands of dollars. In JAMS employment proceedings, for instance, the average arbitrator’s fee was more than $37,000 – but plaintiffs paid, on average, just $62. The median fee in cases that went to a final resolution was 0, which means, according to the law profs, that the majority of plaintiffs who fully prosecuted their claims paid nothing at all to arbitrators.”
Now, the Bad News
“The bad news for plaintiffs is that their win rate in arbitration is lower than in litigation in court, according to the study. The comparisons aren’t perfect, as Horton and Chandrasekher explain. But on average, consumers win only a third of their cases at AAA and only 21 percent at JAMS, in contrast with a win rate of more than 80 percent in small claims court. Employees win 22 percent of their AAA cases and 31 percent of JAMS arbitrations, compared with win rates of about 33 percent in federal court and 50 percent in state court. Only 16 percent of patients with medical malpractice claims won arbitrations in the Kaiser system. In state courts, 27 percent of plaintiffs recover damages in med mal cases.”
Advice to States: Stop Fighting FAA Preemption and Embrace Arbitration
The authors review the strong support for arbitration emanating from SCOTUS and now the Trump Administration, and suggests that States stop enacting anti-arbitration laws that are doomed to Federal Arbitration Act preemption, and instead seek to make arbitration more attractive. How? “As noted, the FAA mercilessly preempts any state rule that exhibits distrust of arbitration. Accordingly, rather than trying to exempt claims from the extrajudicial forum, the Article suggests that state lawmakers create rewards for plaintiffs’ lawyers to arbitrate. Specifically, jurisdictions should create a statutory ‘arbitration multiplier’: an extra bounty for winning a case in arbitration. This approach addresses the root of the arbitration drought, which appears to be a lack of incentives for lawyers to take these cases, rather than a lack of access to arbitration. Moreover, because experienced lawyers greatly increase the probability of a plaintiff win, it would help level the playing field between individuals and repeat-playing corporations. Finally, unlike the legions of failed state efforts to restrict arbitration, our proposal actually encourages private dispute resolution and thus exists in harmony with the FAA.”
(ed: *A fascinating and useful endeavor, we would say! **We are intrigued by the “arbitration multiplier” proposal. ***There is no mention of FINRA arbitration.) (SAC Ref. No. 2018-37-01)
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