• July 27, 2018

LEVENTHAL pllc has enjoyed considerable success in representing clients in arbitrations, but we have also been critical of arbitration as a form of dispute resolution.

Arbitration is a money-making endeavor. Subjecting judging to market forces raises serious and obvious risks of contamination of a justice process.

For example, if a Fortune 100 company imposes arbitration clauses on millions of its U.S. consumer customers, the arbitration company sees that Fortune 100 company in every single one of its thousands of customer arbitrations; it sees the adversaries, the individual consumers, once or twice maybe. You think this might influence who the arbitrators might be incentivized to please?

Take another example: our state and federal courts do not make more money by increasing the number of cases they handle nor by increasing the duration of cases before them. In fact, many of our court systems’ limited resources are terribly burdened by the number of cases before them (paradoxically, causing the cases to languish and to cost more). Arbitration companies, on the other hand, make more money by arbitrating more cases (and taking more time to decide them). You think that might influence arbitration companies’ views on the scope of their jurisdiction (what cases are subject to arbitration) (and how long is needed to resolve cases)?

These thoughts come to mind from the recent declaratory judgment action brought by the Minneapolis law firm of Messerli & Kramer against the American Arbitration Association in U.S. district court (D. Minn.). A bank sold a debt to a debt collector (Midland Funding LLC, represented by Messerli & Kramer) who brought an action against the alleged debtor. The debtor was subject to an arbitration clause with the bank. Based on that, the debtor invoked arbitration against Midland Funding. (Query: why wasn’t Midland Funding the proper plaintiff in the declaratory judgment action?)

Putting the parenthetical aside, it seems to us that invocation of the arbitration clause was clearly inappropriate and, if the AAA were like our courts, it would summarily reject the arbitration claim. Our courts have the economic incentive to toss cases out. The opposite is true of arbitration companies.

Editor’s Post-script: Some years ago, we noted a strange lawsuit brought anonymously in U.S. District Court over a pair of allegedly defective boots. One of the several amusing parts of the case, in our view, was that the “anonymous complaint” was a “verified complaint.” That is, the complaint’s caption named the plaintiff, “D.J.S.M.,” but, at the conclusion of the complaint, included “verification” by Minnesota attorney, David J.S. Madgett. Mr. Madgett is the plaintiff’s lawyer in the putative arbitration discussed in this post.



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