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Private Judges Arbitrate More Consumer Suits

Disputes: Proponents like the fact it speeds up resolutions and unclogs the courts. Critics worry that deliberations and outcomes are cloaked in secrecy.

March 08, 1998|MICHAEL G. WAGNER | TIMES STAFF WRITER

It's almost impossible these days to open a checking account, get automobile insurance, buy stock, obtain health care or even take an ocean cruise without being asked--or compelled--to surrender one of America's most basic constitutional rights.

Through tiny paragraphs of legalese that many people never see or read, Americans are forfeiting their rights to a day in court if they believe that some provider has done them wrong.

Instead of having their disputes settled in a courtroom by judges subject to public votes of confidence, more and more people are discovering that fine print "arbitration clauses" are obliging them to argue their cases before rented judges in private offices.

The booming industry this movement has spawned is deeply rooted in Orange County, home of the nation's largest for-profit vendor of private justice, JAMS/Endispute Inc., whose 350 arbitrators, most of them retired judges, resolve more than 20,000 cases a year in 30 offices nationwide. Superior Court judges in California, by comparison, dispose of roughly 77,000 similar cases each year.

Arbitration clauses have shown up with monthly bank and credit card statements from Bank of America, on the service agreements of long-distance giant MCI, and on the basic enrollment forms of major HMOs such as Kaiser Permanente.

Often they are easy to overlook. Someone in the market for automobile insurance, for example, would have to flip to page 25 of some Allstate policies to read: "No legal action can be brought against us under this coverage" and any "arbitration award will be binding." In other words, it can't be appealed.

Proponents of arbitration note that it is helping unclog the nation's courts, once so backlogged that cases routinely gathered dust for years before they could be resolved.

They say consumers are coming to prefer arbitration over court proceedings, which tend to end in win-it-all or lose-it-all judgments, while arbitration can often result in each side getting half a loaf.

"The biggest advantage is speed," said Timothy J. Rabun, chief executive of Costa Mesa's Judicial Dispute Resolution. "You can bring the most complex construction defect or medical malpractice case here . . . and be done in eight hours."

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Forms of binding arbitration have been practiced for decades, primarily between businesses with commercial disputes. Today, thousands of cases that once inched through state courts are now routinely arbitrated, in part because of the growth of arbitration agreements aimed at consumers.

In most cases, the two combatants must agree on an arbitrator in advance, ensuring a fair result, said Richard Chernick, a prominent Los Angeles arbitrator.

"In court you're at the mercy of inflexible rules, enormous calendar congestion and judicial officers who usually could care less," he said.

But critics say the spread of binding arbitration is an alarming end run by corporate America, which is winning, by stealth, the limits on punitive damages and protection from huge jury awards that it has largely failed to get through Congress, state ballot initiatives or state laws.

Although arbitration is promoted as a less costly alternative to the civil courts, that isn't always the case. Generally, both parties must share the costs of any arbitration hearings. But often their financial resources are anything but equal.

The arbitrator's fee can average $250 an hour or more; when expert witness and attorney fees are included, a simple hearing can run into thousands of dollars.

Able to dangle the prospect of immense volume, large companies negotiate exclusive contracts with private justice providers. This creates the perception that an arbitration company may be biased toward large companies--which repeatedly appear before private judges, according to an Indiana University study. It noted that complainants rarely appear more than once.

California Chief Justice Ronald George has appointed a task force of legal experts to examine whether the state's increasingly influential private judges and arbitrators ought to be subject to stricter ethical standards.

In many ways, arbitration is turning the legal world upside down.

Secrecy now cloaks legal disputes once heard by a branch of government that has traditionally been open. Disputes that might have established important legal precedents now leave no trace in court.

Hearing transcripts and arbitration records that could prove helpful to other would-be litigants are rarely kept and seldom available to the public. Consumers are routinely denied the rights they would have in court to know the names of other people caught in their situations. Appeals seldom succeed.

The secrecy also hides awards won as a result of shoddy medical care or mismanagement of a client's money, for example. That prevents other potential victims from hearing warnings found in public court judgments.

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