fine print may waive legal rights
mandatory arbitration clauses reduce consumer rights

feb. 22, 2005 — when american consumers sign contracts — for credit cards, bank loans, mortgages or telephone service — language in the fine print often waives their right to employ the full extent of the law should the company violate the contract.

"i feel completely violated, and that's the only term that i can use to explain it," said one woman who bought a car and says she got a lemon. "had i known that arbitration clause existed in the contract, i would not have signed it."

"if you did a public survey, you would find that 99 percent of consumers are totally surprised that there's small print in there that doesn't allow them to go to court," said joan claybrook, president of public citizen, a consumer advocacy organization.

the fine print of many contracts says consumers "waive the right to go to court" to resolve any disputes about a product or service. they are instead committed to binding arbitration.

the process started with the federal arbitration act of 1925, which gave companies a quicker way to resolve disputes. instead of a judge or jury handing down a decision, the companies agree to go before arbitrators, who are typically practicing attorneys. they decide the amount of the arbitration award, if any.

during the 1980s and '90s, several courts ruled that arbitration should apply to individuals, as well.

'a take-it-or-leave-it contract'

many consumer advocates say mandatory arbitration means the consumer loses a fundamental right.

"it's a take-it-or-leave-it contract," said claybrook. "you either sign it or you don't get the job or the credit card or the bank account."

binding arbitration is just that. except in very rare cases, there is no appeal, and arbitrators don't have to explain their decisions.

the american arbitration association, the oldest group that conductsarbitrations, says the law is a practical one.

"an average consumer arbitration through our organization takes about four, 4 ½ months. typically in court, if you're notgoing through small claims court, you're talking about years," saidrichard naimark, senior vice president at the arbitration association.

the association also says there are guidelines to ensure fair play.

"if the process is properly balanced so it's really a level playingfield, neither side has an advantage," naimark said. "therewill be times when either the business or the consumer or employee willfeel uncomfortable because they are on the losing end."

but claybrook says the system is flawed.

"the process completely favors the corporation," she said. "thecorporation does repeat business with the arbitration company and ifthe company routinely finds in favor of consumers or gives large awardsto consumers, they don't get used again."

peter jennings filed thisreport for "world news tonight."


fine print binds car buyers
consumers forced into arbitration process, out of courts

by brian ross and jill rackmill

feb. 23, 2005 — kelly lloyd, of spotsylvania, va., thought she and her husband were asking all the right questions when buying a used car. they test-drove the 2000 honda accord they had their eye on, asked about the car's history and, she says, were assured by the dealership that it was like new. only later, she says, did she learn that the car had been totaled in an accident by a previous owner.

but there was another surprise. contained in the tiny print on the back of the sales contract she signed was a binding arbitration clause, which meant she had given up her right to ever sue the dealer in court if anything went wrong with the car.

and she says nearly everything did: the car doors locked on their own, the horn went off without warning, the sun roof didn't work, the air bag malfunctioned and the vehicle often shook uncontrollably when she backed out of the driveway.

"i thought i'd run over the dog," lloyd said. "the whole car was vibrating, it was just jumping up and down, and i did not have a clue what was going on."

consumers left behind?

lloyd is one of thousands of consumers whose disputes with car dealers or manufacturers will not be settled in a court of law, but instead by a growing number of private arbitration companies, to the dismay of consumer activists and plaintiffs' lawyers.

"it is just simply unfair that people who have legitimate grievances are not able to go to court because of an arbitration clause they unknowingly have signed," said john gayle, lloyd's attorney.

lloyd's case will be handled by the national arbitration forum of suburban minneapolis. the naf hires its own judges and advertises to companies, including car dealers, that the arbitration proceedings will be "kept private," will be "predictable" and will "put a stop to million-dollar lawsuits."

ed anderson, managing director of naf, said there was an increasing need for its services.

"arbitration provides customers, employees, all of us, an opportunity to have their day in court," he said. "to have access to justice."

but consumer watchdog groups say companies like the naf favor businesses and corporations, and often leave consumer interests behind.

anderson, however, denied that arbitration favored big business.

"nope, not at all," he said. "everybody benefits from saving litigation costs."

still, when shown the auto contract lloyd signed, anderson also had a hard time reading the small print about arbitration.

"let me get my glasses," he said. "it'spretty small print."

an arbitrating trend

requiring car buyers to sign into binding arbitration is a practice that has become more and more common in the auto business. the big three automakers all use arbitration at the consumer level, to varying extents.

chrysler requires arbitration for all financing contracts and buy-back vehicles, according to spokesman kevin mccormack. general motors has mandatory arbitration clauses for mississippi and alabama only, due to the historic level of litigation in those two states, said gm spokesman tony simonetti. and ford leasing and financing contracts operate under elective arbitration, said spokeswoman brenda hines, which means that if either the dealer or consumer chooses arbitration, the other side is forced into the process.

a growing number of independent car dealerships, including fred martin of akron, ohio, have also embraced the arbitration clauses.

"it's a quick, fast way for us and a consumer to settle the conflict," said dealership owner adam huff.

while most courts have upheld the arbitration clauses, one of fred martin's customers, lisa eagle, has now successfully fought back in a dispute over a new car she says stalled at highway speeds.

"the first time it happened, it was absolutely scary," eagle said. "i was on the freeway getting off and the car stalled. lost all power, no brakes, no power steering."

buy a car, bring a lawyer

an ohio state court initially found the arbitration clause legal, but in a landmark decision, an appeals court called the clause buried in the fine print unconscionable, internally inconsistent and ambiguous.

"we went into a room and i was basically handed a stack of papers, sign here and here and here," eagle said of the car-buying process. "nothing about mandatory arbitration was explained to me."

anderson said that concerned consumers should consider having an attorney on standby the next time they shop for a car.

"they should read [all contracts] carefully, and if they have any doubts, review it with counsel," he said. "making a purchase of that size, one really ought to consider having legal counsel."

for now, lloyd and her family are stuck with the "lemon" they have, being unable to afford the costs of renting another vehicle while continuing to pay off the car loans they already have. lloyd said she will continue the struggle to bring her case to the court system.

"it should be allowed to be heard before a jury, before a judge, we shouldn't have to pay someone to hear our case," lloyd said. "and the way i feel, i'm the victim and i'm being forced to give up, or that that's what they want you to do is give up. but i haven't. and i'm gonna fight them till the very end because what they've done is wrong and i feel that other people should be aware of this."


clause in health care plans blocks lawsuits
arbitration clauses in health care plans prevent malpractice suits

feb. 24, 2005 — two years ago, 66-year-old clorinda mesa of los angeles was taken to the emergency room after hitting her head in a fall.

she was treated and released the same day.

"she had some complaints and we had some concerns," said grace rosilas, mesa's daughter, "but they assured us that she was ok. we took her home."

four days later, mesa died from internal bleeding that her daughter says doctors should have detected.

but when rosilas tried to take them to court, she discovered an arbitration clause in her mother's health care coverage that waived the right to a trial by jury.

"it bound the whole family, so we won't get our day in court," she said. "yeah, i'm angry."

arbitration or trial?

millions of americans are governed by arbitration clauses that block them from taking their grievances to a jury.

but some medical professionals say arbitration is nothing to be angry about.

"the more money we spend on legal process, the less money we have to spend on patients," said dr. david lerman of the southern california permanente medical group.

because of the secret nature of arbitration, it's not clear whether arbitration is in fact cheaper than jury trials.

but it is pretty clear that health care providers would oppose arbitration if the awards cost them more than a trial.

the industry argues that the patients are the ones who would suffer most without arbitration.

"i think it's reasonable and fair and it keeps the costs down and it gets these things handled much more quickly," said hal daub from the american health care association. "i think those are all advantages to the person who may be injured."

the health care industry also prefers arbitration over trials because the emotions at play before a jury in a courtroom are largely absent before an arbitrator in a conference room.

doctors say reputations can be unfairly maligned in open court, but the secrecy of arbitration keeps many malpractice cases from public view.

'that's not america'

the doctor who delivered 3-year-old niaomi franco is accused of malpractice by her parents.

because the child was deprived of oxygen at birth, she has cerebral palsy, is mentally impaired and will need special care as long as she lives.

but her case will never see the inside of a court room because of an arbitration clause in her grandfather's health coverage.

"she's been denied her fundamental constitutional right to trial by jury because her grandfather happens to get health care from a big corporation," said russell kussman, franco's attorney. "that's not america — or i hope it's not america."

a lone arbitrator will hear niaomi's story in may.

abc news' dean reynolds filed this report for "world news tonight."


arbitrators find flaws in mediation process
arbitrators find flaws in mediation process

feb. 25, 2005 —>the spread of mandatory arbitration to so many corners of consumer life has been good for lucie barron, ceo of action dispute resolution services inc. in los angeles.

"there has been a phenomenal increase in this industry," said barron, who owns one of the fastest growing arbitration and mediation companies in california.

the company tries 25 new cases a day, which are heard mostly by retired judges at a rate of $350 to $400 an hour. the fee is many times what the judges might have earned on the bench.

"you don't have to be a retired judge to be an arbitrator," said retired judge-turned-arbitrator robert thomas. "you can be anything."

lack of appeal raises concerns

like most arbitrators, thomas has faith in his own fairness. but he has doubts about a fundamental part of the arbitration process: lack of the right to appeal.

"i've had some tough cases where i kind of wish that maybe somebody would take another look at it," he said. "it's a big responsibility deciding these cases."

celeste hammond, an arbitrator in business cases who is also a professor john marshall law school in chicago, has serious reservations about the process.

"[litigants are] giving up their right to a trial," she said. "they're giving up their right to an appeal."

hammond said she's disturbed by the secrecy of the hearings. she says she learned only by chance that a lender accused in one of her cases of fleecing a customer had been accused many times of the same abuse.

"[the cases are] not open to the public," hammond said. "they're not open to the press, and usually there is a confidentiality agreement between the parties not to disclose the outcome."

but barron says arbitrators do not write the rule book: they only apply it.

"it's not really our decision to make," she said. "it's made by the courts and it's made by the legislature."

nonetheless, until the law is changed, mandatory arbitration clauses are likely to appear in more of the contracts americans sign.

abc news' betsy stark filed this report for "world news tonight."