Arbitration is a fair way of resolving claims, according to the testimony of Victor Schwartz (which he discusses in the nearby video) on behalf of the U.S. Chamber Institute for Legal Reform. Studies have shown that consumers fare just as well, if not better, when they take their claims to arbitration rather than litigation, and arbitration proceedings are resolved more quickly and with lower transaction costs. The procedure gives consumers a fair, cost-effective forum to resolve smaller disputes that are not financially viable for litigation.
According to Schwartz, arbitration is a threat to the trial lawyers’ business plan. These lawyers don’t want to litigate small claims – they want to bundle as many claims as possible together into a class action to drive up the settlement value and their fees with it. However, a vast majority of claims are individualized and would not qualify for class consideration. And even if they are one of the rare cases that can be grouped into a class, few consumers bother to submit the complex forms necessary to obtain recovery.
Hiring a lawyer on a contingency fee basis to go to court instead of arbitration can cost a consumer up to 50 percent of any eventual reward – and that’s only if they can find an attorney. Studies have shown what most of us already know – plaintiffs’ lawyers will only take a case if they believe there is both a substantial chance of success and a potential recovery that will justify their expenses. Some studies show that lawyers will not take a case if the claim is worth less than $60,000. Since the vast majority of arbitration claims involve small sums, the elimination of pre-dispute arbitration could force consumers to spend more on a lawyer than their claim is worth. In addition, arbitration can be a much more expeditious procedure than litigation, which could take years to resolve in our increasingly overcrowded court system.
Ultimately, arbitration lets consumers and employees resolve their claims in an affordable, timely, and accessible forum. Eliminating pre-dispute arbitration would be good for trial lawyers but bad for everyone else.