National Arbitration Forum

The National Arbitration Forum (NAF), founded in 1986, provides arbitration and mediation services to businesses, based at its Minneapolis, Minnesota headquarters and offices in New Jersey. The company is one of the United States's largest and most controversial dispute resolution companies.^[1] The company has attracted widespread controversy because businesses frequently force consumers and employees to pursue their disputes through NAF by means of mandatory binding arbitration clauses in adhesion contracts. The company maintains a panel of over 1,600 arbitrators and mediators who are attorneys and former judges located across the United States and in 35 countries around the world.^[2] Panelists arbitrate and mediate the disputes.

The company is an "approved"^[3] dispute resolution service provider of ICANN domain name disputes and has handled more than 7,600 cases.^[4]

History

The NAF was founded in 1986 as a subsidiary of another company, Equilaw, which subsequently went bankrupt in 1994. NAF survived the bankruptcy and appears to have grown rapidly in recent years.^[5] The NAF and Lawyers Associated Worldwide (LAW) work together on an international level.^[6] The National Arbitration Forum is located in Minneapolis, Minnesota.

Domain name disputes

An approved domain name dispute program provider for ICANN, NAF has administered over 10,000 domain name disputes since 1999.^[7] The number of domain name disputes administered is on the rise, up 143 cases from 2006 to 2007. NAF deals predominantly with registered domain names that are abused by parties who have no legitimate rights to them. Some of the famous trademarks involved in NAF domain name dispute resolutions include Los Angeles Angels, Disney, Hershey's Kisses, Jimmy Buffett, and Univision.^[8]

Controversy

Consumer advocacy groups and attorneys frequently claim that the National Arbitration Forum is the most biased against consumers of the major arbitration organizations. Recent studies of the National Arbitration Forum arbitrations demonstrate that in arbitrations between consumers and businesses, 99 percent of the National Arbitration Forum's decisions are in favor of the business. The National Arbitration Forum and its proponents claim that arbitration offers businesses a preferred way to resolve legal disputes without going to court because it offers "efficiency and simplicity". Consumer advocates counter that arbitration is usually imposed by businesses on consumers, employees, and other individuals who have no choice in the matter. Businesses insert contract provisions, known as mandatory binding arbitration clauses, into their contracts. These arbitration clauses prohibit consumers or employees from raising any claim in court. Virtually every American who has a credit card or cell phone, or who builds a house, gets a job, or buys a computer has agreed unknowingly to settle any dispute through binding mandatory arbitration (BMA).

An April 21, 2008 article in the Wall Street Journal delved deeper into the allegations of bias on the part of NAF. More than other arbitration providers, NAF works with "a few large companies, such as credit-card issuers, who potentially have disputes with many consumers," said Jean Sternlight, a law professor at the University of Nevada, Las Vegas who specializes in arbitration. Says Sternlight: An NAF arbitrator "can expect to see many disputes involving the same company, there may be a heightened pressure on the arbitrator to rule in favor of the company or else risk losing future arbitration work". The Journal notes that one California appellate court ruled that an employee whose employer required all employee disputes to go before NAF did not have to arbitrate his discrimination claim.^{[citation needed]} The court said the employer enjoyed a possible "repeat player" advantage, including "knowledge of the arbitrators' temperaments, procedural preferences, styles and the like, and the arbitrators' cultivation of further business".

In its June 16, 2008 cover story, Business Week published an in depth look at credit collection arbitrations at NAF. The story explains how NAF markets itself to collection lawyers and then works with them in ways that raise questions about its impartiality.^[9]

Public Citizen study

The non-profit consumer advocacy group Public Citizen recently conducted an eight-month examination into the credit card industry's use of pre-dispute binding mandatory arbitration based on all available data from the National Arbitration Forum. Public Citizen examined court records and scholarship on arbitration and comprehensively crunched data for all 33,948 cases in the National Arbitration Forum’s California records. The Public Citizen report found that the credit card industry relies heavily on binding mandatory arbitration to enforce its will. The National Arbitration Forum identified virtually all of its California cases as "collection" cases filed against consumers by credit card companies or firms that buy debts for cents on the dollar. Fifty-three percent of those cases involved MBNA credit cardholders. All but 118 of the National Arbitration Forum cases in California were filed against consumers by credit cards or debt collectors. Thus, the report found that consumers chose to bring only 118 cases before the National Arbitration Forum, while corporations chose the National Arbitration Forum nearly 34,000 times – 99.6% of the total cases.

In the more than 19,000 cases in which the National Arbitration Forum appointed an arbitrator, 94 percent of the decisions were in favor of the business and against the consumer.

Arbitrators also have a strong financial incentive to rule in favor of companies that file cases against consumers because those companies are their most loyal customers, and a busy arbitrator can make hundreds of thousands of dollars a year. Arbitrators routinely charge $400 or more an hour. Top arbitrators can charge up to $10,000 per day, and some make $1 million a year. In comparison, California Superior Court judges earn $170,000 a year.

The deck also is stacked against consumers by the same financial incentives. The slate of arbitrators is chosen by National Arbitration Forum, and the National Arbitration Forum is, in turn, chosen as the arbitration firm of choice by credit card giant MBNA. It is highly unlikely that MBNA would pick an arbitration firm that produces results MBNA does not like.

In California, a small, busy cadre of 28 arbitrators handled nearly nine of every 10 National Arbitration Forum cases. This group ruled for businesses 94 percent of the time. Another 120 arbitrators handled slightly more than 10 percent of the cases in which an arbitrator was assigned. They ruled for businesses 86% of the time and for consumers 10%. Outside of California, there is little information that would allow consumers to even begin to assess the bias of an arbitrator because California is the only state with any disclosure law on the books.

Companies do not choose arbitrators who do not rule in their favor. One former National Arbitration Forum arbitrator, a Harvard law professor named Elizabeth Bartholet, was blackballed after she awarded $48,000 to a consumer in a case brought by a credit card company. After the same company had her removed from other pending cases, she resigned, citing the National Arbitration Forum’s "apparent systematic bias in favor of the financial services industry".

Unlike court proceedings, arbitration hearings are secret. Its arbitrators generally do not issue a written decision unless one of the parties specifically requests and pays for it in advance. In one case examined in the Public Citizen report, a three-page decision cost $1,500.

Critics also charge that, arbitration violates due process safeguards. The National Arbitration Forum limits parties’ access to key information that they would be allowed to obtain in court. The law makes it nearly impossible for consumers to appeal adverse decisions by arbitrators.

A July 2008 industry-supported Navigant analysis of Public Citizen data ^[10] claimed that 26,665 arbitrations out of a total of 33,948 arbitrations were either heard or dismissed (i.e. excluding settlements). Of these 26,665 arbitrations, the industry analysis claimed that consumer parties were reported to have prevailed outright or had the case against them dismissed in 8,558 cases (32.1%). Claims against consumers were reduced by NAF in an additional 4,376 cases (16.4%). In order to aid comparisons to figures presented by Public Citizen, the analyses used the NAF data covering January 2003 through March 2007. These are the data that Public Citizen has made available in spreadsheet format on the Public Citizen website ("Public Citizen Data"). The Public Citizen data contains information for 33,948 arbitrations.

In March 2010,^[11] a study of the National Arbitration Forum's record of panelist appointments for domain name disputes was published.^[12] It raised concern that a small handful of the NAF's roster panelists were appointed to hear a vastly disproportionate number of cases. In one instance, a single panelist was appointed to hear 949 cases, or about 10% of all NAF domain name dispute cases ever heard.

Legislation and lawsuits against NAF

Proposed arbitration legislation

Senator Russ Feingold of Wisconsin and Congressman Hank Johnson of Georgia, together with numerous co-sponsors in both Houses, recently introduced the Arbitration Fairness Act (S. 931, H.R. 1020) in the U.S. Congress. The Bill would prohibit mandatory pre-dispute binding arbitration in consumer, employment, and franchise disputes. Parties to a dispute would still be able to choose arbitration over court if they wanted to, but individuals would be given a choice in the matter and would not be denied their constitutional right to access the courts and have a jury trial. The bill is supported by the groups such as Public Citizen, Center for Responsible Lending, Consumer Federation of America, Homeowners of Texas, Homeowners Against Deficient Dwellings, Home Owners for Better Building, National Association of Consumer Advocates, National Consumer Law Center, National Consumer Coalition for Nursing Home Reform, National Employment Lawyers Association, and American Association for Justice. Opposition to the bill is led by the U.S. Chamber of Commerce's Institute for Legal Reform.

City of San Francisco lawsuit

In March 2008, the City of County of San Francisco filed a lawsuit against the National Arbitration Forum on behalf of its citizens, accusing the arbitrator of unfairly favoring credit card companies in disputes with their customers. Drawing upon research by Public Citizen and others and the City's own investigation, the suit alleges that in specific cases the NAF approved an inflated award, improperly imposed attorneys fees, and did not respond to consumer requests to appear at an arbitration. The lawsuit said that between January 2003 and March 2007 NAF heard 18,075 credit card cases, and ruled in favor of consumers on just 30 occasions.^[13]

Businessweek's allegations of bias

In June 2008, Businessweek made broad claims of NAF's bias in favor of consumer creditors and hidden conflict of interest. According to the article, NAF markets itself to consumer credit providers, collection agencies and law firms.^[14]

Ex-employee lawsuit

In April 2009 an ex-employee filed suit against NAF "for employment discrimination, deceptive trade practices and consumer fraud." The suit said that "During the course of plaintiff’s employment at defendants, she witnessed fraudulent and corrupt practices in the administration of arbitration cases."^[15]

Minnesota Attorney General lawsuit

During the weekend of July 18, 2009 the National Arbitration Forum agreed to cease arbitrating credit card disputes, after being sued on July 14, 2009 by Minnesota Attorney General, Lori Swanson. Dani Liblang a consumer lawyer based in Birmingham, MI said, “The National Arbitration Forum was in the pockets of the big banks. It would just rubber-stamp whatever the banks wanted in the credit disputes.”^[16]

The Minnesota Attorney General brought an enforcement action against NAF, alleging that it had “actively encouraged” credit card issuers to place mandatory arbitration clauses in their contracts naming the forum as the arbitrator. The suit also alleges that a group of hedge funds with ties to a large debt-collection agency called Axiant owns a stake in the forum through an entity created to hide the connection. Nearly 60 percent of the debt collection claims handled in 2006 by the National Arbitration Forum had been filed by an Axiant predecessor, according to the Attorney General.

The National Arbitration Forum "has extensive ties to the debt-collection industry," the Attorney General said at a press conference. "This is not an independent company and it needs to cease telling the public that it is."

"This is as big of a case as I've ever filed as attorney general," Swanson said. “These practices attack the foundation of our legal system.” The suit alleges violations of state consumer fraud, deceptive trade practices and false advertising laws.

The National Arbitration Forum defended its practices, saying that the arbitrators it contracts with are "independent," ensuring the "impartiality" of arbitration.^[17]

In response to the suit, NAF and the Minnesota Attorney General reached a settlement, in which The National Arbitration Forum agreed to stop accepting new credit card arbitration claims by 24 July 2009.

"Under the settlement, the National Arbitration Forum will, by the end of the week, stop accepting any new consumer arbitrations or in any manner participate in the processing or administering of new consumer arbitrations. The company will permanently stop administering arbitrations involving consumer debt, including credit cards, consumer loans, telecommunications, utilities, health care, and consumer leases."^[18]

See also

• Arbitration

• American Arbitration Association
• Arbitration in the United States
• Alternative dispute resolution
• Dispute resolution
• Mediation
• National Academy of Arbitrators

References

1. ^ National Arbitration Forum : About Us
2. ^ National Arbitration Forum : Locations
3. ^ ICANN
4. ^ Domain Mangazine
5. ^ Citizen.org
6. ^ Lawyers world wide
7. ^ Domains
8. ^ DN Forum
9. ^ Business Week
10. ^ Institute for Legal Reform
11. ^ Domain Name Dispute Stats Reveal Concern Over Panelist Appointment
12. ^ Dnattorney.com web site
13. ^ St. Louis Park firm that settles credit disputes accused of fraud
14. ^ Businessweek``, 5 June 2008, [1]
15. ^ Counterpunch, 20 July 2009, Judicial Apartheid: Heralded by the Supreme Court as Fair, Vast Private Judicial System Exposed as Fraud
16. ^ The Detroit Free Press, Tuesday July 21, 2009, Page A7
17. ^ USA Today, 14 July 2009, Minnesota lawsuit claims credit card arbitration firm has ties to industry
18. ^ Office of Minnesota Attorney General website, 20 July 2009, [2]

External links

• Suit accuses credit card service firm; S.F. city attorney alleges bias for debt collectors in arbitration
• TLPJ Charges National Arbitration Forum with Violating CA Disclosure Law
• Neutrality Questions Continue to Dog Arbitration Firm
• National Arbitration Forum's Wall of Secrecy Crumbling
• Public Citizen Report, The Arbitration Trap: How Credit Card Companies Ensnare Consumers
• National Arbitration Forum Website
• California Consumer Arbitration Data
• National Arbitration Forum Press Release Claims That New Study Demonstrates That Arbitration Offers Benefits for Consumers
• PPT National Arbitration Forum: California Consumer Arbitration Data
• Dnattorney.com web site