Deciding To Arbitrate After Consumer Disputes Arise

Deciding To Arbitrate After Consumer Disputes Arise

4.29.2024

By Elayne E. Greenberg

The Context

On Sept. 13, 2023, nonprofit organizations and consumer law professors submitted a petition urging the Consumer Financial Protection Bureau to allow consumers to decide whether to arbitrate their consumer disputes after the dispute arises.[1] This is one more attempt by concerned consumer activists to end the practice that forces consumers to agree at the time of purchase to arbitrate consumer disputes that may arise in the future with a specified arbitration provider such as the American Arbitration Association,[2] but before the consumer has given their meaningful informed consent to arbitration. Moving the consumer’s decision whether to arbitrate after a dispute arises, as opposed to at the time of contract formation, is only a first step toward ensuring a consumer’s meaningful informed consent to arbitration. More is needed to ensure that consent is informed and meaningful. In this column, I suggest additional affirmative design modifications for lawyers and consumer arbitration providers like the American Arbitration Association to consider to promote consumers’ meaningful informed consent when consumers are deciding whether to arbitrate.

Empirical research on consumers’ awareness of “forced arbitration,” reinforces that consumers are often not even aware of the arbitration clause when they purchase an item.[3] Moreover, even those consumers who are aware of the arbitration clauses still erroneously believe that no court will enforce such an onerous clause. Rather, they are confident that their justice fantasies will immunize them against court action that enforces arbitration clauses and obscures their consumer’s rights.[4] As one illustration, in 2015, this author along with her esteemed colleagues Jeff Sovern, Paul F. Kirgis and Yuxian Liu published their research on 668 consumers’ understanding of the ramifications of forced arbitration clauses in their consumer contract.[5] Many participants in the study believed that access to court was a fundamental right that cannot be overridden by  a contract clause. “You always have a right to pursue legal action when someone has wronged you, it is not up to one part or another to determine whether or not they will take away that right.” “Doesn’t matter to them what the contract says, why should it matter to me . . .”[6]

Eight years later, in 2023, Professor Roseanna Sommers tested 1,075 consumers about their awareness and knowledge of those consumer contracts they had signed with arbitration contracts.[7] The results were compared with the Sovern study conducted in 2015, and the Sommers’ study results were similar. Noteworthy for this discussion, study participants still held on to the justice fantasy study participants voiced in the 2015 Sovern – study participants still believed they would be able to sue in court even if they agreed to the forced arbitration provision in the sample consumer contract.[8]

Additional design modifications should be considered to ensure consumer meaningful informed consent about whether to arbitrate or litigate consumer disputes. Simply moving the decision to provide consent from the time of contract formation to the time  a dispute arises does not alone ensure that the consent provided is meaningful and informed.

Designing an Improved Decision-Making Process

At the point of decision-making, the party’s attorney or the program’s attorney are ethically mandated  to educate the party about their viable legal options in a way the consumer finds comprehensible.[9] Specifically, the American Bar Association Model Rule of Professional Conduct 1.2(a) states in relevant part “ . . . a lawyer shall abide by a client’s decisions  concerning the objectives of representation and . . . shall consult with the client as to the means by which they are to be pursued.”[10] Model Rule1.4 (b) provides that “ a lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”[11]

An attorney’s recitation of the applicable ethical codes is just a beginning, and not enough for most parties to provide their meaningful informed consent. In her study of litigants from three state courts in Utah, California, and Oregon, Donna Shestowsky reported the inadequacy of attorneys’ mere recitation of the applicable ethical codes to help a client make a meaningful informed decision about whether to arbitrate.[12] In her study, she found that represented litigants were not more likely to correctly report whether their court offered arbitration than non-represented litigants.[13] Why? Researcher Roselle Wissler questions whether an attorney’s experience and comfort with alternative dispute resolution influences the degree to which they provide their clients adequate information to give their meaningful informed consent to arbitrate.[14]

As part of a lawyer’s ethical obligation to provide meaningful and informed consent about arbitration, lawyers and alternative dispute resolution providers like the American Arbitration Association that provides consumer arbitrations should tailor the information and presentations to the individualized informational needs and processing style of the client. The design of any program should also accommodate the diverse informational needs and processing styles of consumers who might be affected by consumer arbitration. The population of consumers with consumer disputes are a heterogeneous group: business savvy vs. unsophisticated; speakers of different native tongues; visual vs. auditory learners; experience with court vs. arbitration, preference for in-person interaction vs. Zoom. What are the different remedies, time, cost, and appealability for each process? Who is the decision-maker, and how does the decision-maker get selected? In addition to the baseline information, some parties have found it helpful to have the information in writing. Others find that a video of an arbitration from beginning to end provides a realistic overview of arbitration and how it differs from litigation.

And Beyond . . .

The focus of this article has been on helping consumers achieve meaningful informed consent when deciding whether to arbitrate their consumer disputes. Yet, the lack of meaningful informed consent has justice implications in other alternative dispute resolution arenas beyond consumer disputes. Parties are different, from inexperienced to sophisticated, with attorneys and without, all with different justice expectations, some realistic, others fantasy land. As alternative dispute resolution providers such as the American Arbitration Association, JAMS, and CPR Dispute Resolution Services are proliferating and fast becoming the appropriate way to resolve disputes, the ethical integrity of the alternative dispute resolution provider’s program is measured, in large part, by the parties’ meaningful informed consent and self-determination. The responsibility to ensure meaningful informed consent is borne by the program designer, administrator, lawyer, neutral, and the parties themselves. And, meaningful informed consent should be in the forefront of program design ab initio and throughout the program’s use.

Elayne Greenberg died on Friday, April 19, far too young. She was, as her colleagues at St. John’s Law School said, “an irrepressibly positive force” and a New York State leader in ADR.  For more than 15 years her column the Ethical Compass provided a lodestar to the ADR community.  She was a mentor, teacher, and warm friend.  Her memory will be for a blessing. –Laura Kaster, co-editor, NY Dispute Resolution Lawyer 

 

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Professor Elayne E. Greenberg was faculty director of the Hugh L. Carey Center for Dispute Resolution and professor of legal practice at St. John’s University Law School. This article previously appeared as her column, “Ethical Compass,” in NY Dispute Resolution Lawyer (2024, vol. 17, no. 1) a publication of NYSBA’s Dispute Resolution Section. For more information, please visit NYSBA.ORG/DISPUTE.

 [1] https://www.regulations.gov/document/CFPB-2023-0047-0001; See, Law Profs, Business Groups Spar Over Proposed Consumer Arbitration Ban at https://www.reuters.com/legal/transactional/column-law-profs-business-groups-spar-over-proposed-consumer-arbitration-ban-2023-11-15/.

[2] See, e.g. American Arbitration Association at https://adr.org/sites/default/files/Consumer%20Rules.pdf.

[3] See, e.g. Jeff Sovern, Elayne E. Greenberg, Paul F. Kirgis, & Yuxiang Liu, ‘Whimsy Little Contracts’ with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements, Social Science Research Network, 75 Md. L. Rev. 1(2015), Roseanna Sommers, What Do Consumers Understand About Predispute Arbitration Agreements? An Empirical Investigation (July 25, 2023). https://ssrn.com/abstract=4521064 or http://dx.doi.org/10.2139/ssrn.4521064.

[4] Id.

[5] Sovern et al. at 70.

[6] Id. at 70.

[7] Roseanna Sommers, What Do Consumers Understand About Predispute Arbitration Agreements? An Empirical Investigation (July 25, 2023). https://ssrn.com/abstract=4521064 or http://dx.doi.org/10.2139/ssrn.4521064.

[8] Id. at 21.

[9] Donna Shestowsky, When Ignorance Is Not Bliss: An Empirical Study of Litigants’ Awareness of Court-Sponsored Alternative Dispute Resolution Programs, Harvard Negotiation Law Review, volume 22 (Spring 2017); Elayne E. Greenberg, … Because ‘Yes’ Actually Means ‘No’: A Personalized Prescriptive to Reactualize Informed Consent in Dispute Resolution, 102 Marq. L. Rev. 197 (2018).

[10] ABA Model Rules of Professional Conduct Rule 1.2(a).

[11] Id. at Rule 1.4 (b).

[12] Donna Shestowsky, When Ignorance is Not Bliss: An Empirical Study of Litigants’ Awareness of Court-Sponsored Alternative Dispute Resolution Programs, Harvard Negotiation Law Review Volume 22 (Spring 2017),

[13] Id. at 217.

[14] Id. at 221.