[Hague-jur-commercial-law] WSJ: Signing Away Your Right to Sue

[Manon Ress]

QUOTE:One customer turned the tables on her termite-control company. 
Margo Rebar of Vestavia Hills, Ala., was required to sign an arbitration 
contract when she signed up for termite-control insurance. So when she 
paid her monthly bill, she included a note stating that by cashing the 
check, the company was agreeing to let her out of the arbitration 
clause. The check was cashed -- and last fall the Alabama Supreme Court 
ruled that it was an enforceable contract. Now, Ms. Rebar is free to sue 
the company. "We're thrilled," she says.END of QUOTE
WSJ October 1, 2003

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Signing Away Your Right to Sue
In Significant Legal Shift,
Doctors, Gyms, Cable Services
Start to Require Arbitration

By *JANE SPENCER*
*Staff Reporter of THE WALL STREET JOURNAL*

It is a tough choice: Give up your legal rights -- or forget about 
joining a gym, getting a cellphone or even seeing your doctor.

In an effort to fend off lawsuits, a growing number of companies, 
including Comcast Corp. and Amazon.com Inc., are asking consumers to 
agree to "mandatory arbitration" and waive their right to sue the 
company if a dispute arises.

These binding arbitration clauses have been standard in credit-card and 
stock brokerage contracts for years, but they are now migrating into the 
fine print of everyday consumer services, including cable TV, 
cellphones, online retailers, gyms, auto financing firms, travel 
agencies and summer camps.

Even more jarring to some consumers: While health-maintenance 
organizations have long required arbitration, some private doctors -- in 
an effort to rein in medical-malpractice claims -- are making patients 
agree to arbitration before they receive medical care.

Companies say mandatory binding arbitration offers both parties a 
cheaper and quicker alternative to drawn-out court battles and prevents 
trial lawyers from reaping the benefits of massive class-action 
settlements. "You still get to have your rights heard, it's just more 
efficient," says Silvia Kleer, a lawyer for Ford Motor Credit Co., which 
is in the midst of introducing an arbitration provision to its 
auto-financing agreements nationwide.

The downside is that arbitration sharply limits consumers' ability to 
battle companies through the court system. Some even prohibit suits in 
small-claims court. Many consumers don't realize they have agreed to 
arbitration until they have a problem, since the clauses are typically 
tucked into contracts or described in "bill stuffers" that accompany 
monthly statements.

	OPTING OUT
How consumers can avoid mandatory arbitration clauses: • Credit-card 
issuers Discover, Chase and Fleet give cardholders a 30-day window to 
reject the arbitration terms.

• Some organizations like AARP don't allow arbitration clauses on 
affinity credit cards. Some credit unions also offer clause-free cards.

• While doctors and hospitals may pressure you to sign an agreement, 
many will still treat you even if you don't.

	

	

Critics say these agreements force consumers into a second-rate justice 
system with no jury and few opportunities to appeal. The proceedings are 
usually private, which means companies are spared bad publicity, and 
there often is no public record. "The corporate world understands this 
as a way to subvert the jury system and get tort reform in a way they 
have not been able to do through state legislatures," says Joanne 
Doroshow, executive director of the Center for Justice & Democracy in 
New York.

The agreements are showing up in an increasing variety of places. Cable 
provider Comcast Corp. recently added arbitration provisions to both its 
high-speed Internet and cable-television contracts. All of AOL Time 
Warner Inc.'s high-speed Internet companies -- including AOL for 
Broadband, Road Runner and EarthLink -- require arbitration, and the 
company says it is considering adding arbitration to its cable-TV 
contracts. Dozens of heavily trafficked Web sites, including eBay Inc., 
Amazon and Hotels.com include an arbitration provision to the terms & 
conditions section.

Movie-rental companies like Hollywood Entertainment Corp.'s Hollywood 
Video and Blockbuster Inc. require arbitration, and the clauses continue 
to proliferate in the financial-services industry: Capital One Financial 
Corp. added a clause to its credit-card agreement last year, and Sallie 
Mae, a student-loan finance company, now requires it with some services.

The trend is also taking hold in the health-care field, as doctors seek 
ways to limit skyrocketing liability-insurance premiums. The American 
Medical Association has come out in favor of arbitration, and some 
states are actively taking steps to encourage doctors to use it. In 
March, the Utah state Legislature passed a law that allows doctors to 
turn away patients who refuse to sign arbitration clauses.

*Signing at the Doctor's Office*

Heidi Olsen of Payson, Utah, experienced the state's new law first hand 
in April, when she was three weeks away from delivering her fourth 
child. Her obstetrician's staff handed her a document, and told her to 
sign. "I didn't want to sign my rights away, just because their 
insurance rates are going up," says Ms. Olsen. But Ms. Olsen, who says 
she likes her doctor and didn't want to make a last-minute switch, 
eventually relented and signed the agreement.

Consumer groups say arbitration gives companies the upper hand in 
disputes. Companies don't directly dictate the outcome of the hearings, 
and consumers often have a say in which individual arbitrator hears the 
case. Still, in consumer contracts, companies often name the arbitration 
firm that will handle all of their disputes: Sprint Corp.'s new consumer 
contracts require that all arbitrations be heard by the CPR Institute 
for Dispute Resolution.

Arbitration firms say the financial arrangements don't influence 
rulings, and arbitrators are trained to be highly independent. For 
instance, the American Arbitration Association, used by Verizon 
Wireless, says that consumers win at least some financial damages in 57% 
of cases it hears. Richard Naimark, senior vice president at the 
association, says the speed of arbitration proceedings, which are 
completed in just four months, on average, is ultimately far more 
consumer-friendly than the court system. "Companies can outlast you; 
they can outspend you in court," says Mr. Naimark.

But arbitration can also be costly for consumers. A simple hearing may 
cost consumers only $100 or so, and sometimes companies will pick that 
up. But consumers seeking large damages can spend far more, and probably 
need to hire a lawyer. Thomas Campbell, a trial lawyer in Birmingham, 
Ala., who has filed two arbitration claims for clients over 
termite-control contracts, says the total filing costs in the cases came 
to $12,000 and $16,000, respectively, not including his lawyer fees.

While state and federal courts generally have upheld arbitration 
agreements, they have thrown out some clauses that were deemed too 
restrictive. The result: Companies are rapidly rewriting their 
agreements, to make the arbitration clauses impervious to legal 
challenges down the road. In the past year, companies including Morgan 
Stanley's Discover unit, eBay and Sprint have all revised the terms of 
their arbitration clauses.

The revisions, which companies commonly mail along with their monthly 
bill, often give savvy consumers a way to back out of the clauses. But 
you need to act quickly. Credit cards issued through Fleet, Discover and 
Capital One all have offered consumers a 30-day window to opt-out when 
the arbitration contract is revised. But once you miss the window, 
you're locked in.

*Shopping Around*

Customers can also shop around for companies that don't require 
arbitration. Many small credit unions, like Tower Federal Credit Union 
of Laurel, Md., will issue credit cards without contracts. Nextel, for 
example, is one of the only wireless providers that doesn't include 
arbitration provision in its contracts.

Consumers can also avoid arbitration provisions when they get a credit 
card through organizations that have negotiating power with credit-card 
issuers. All credit cards issued by AARP, for example, don't contain 
arbitration provisions since the organization refuses to accept them.

One customer turned the tables on her termite-control company. Margo 
Rebar of Vestavia Hills, Ala., was required to sign an arbitration 
contract when she signed up for termite-control insurance. So when she 
paid her monthly bill, she included a note stating that by cashing the 
check, the company was agreeing to let her out of the arbitration 
clause. The check was cashed -- and last fall the Alabama Supreme Court 
ruled that it was an enforceable contract. Now, Ms. Rebar is free to sue 
the company. "We're thrilled," she says.

*Write to* Jane Spencer at jane.spencer@wsj.com 
<mailto:jane.spencer@wsj.com>^1

-- 
Manon Anne Ress
Consumer Project on Technology
www.cptech.org
PO Box 19367, Washington, DC 20036
manon.ress@cptech.org, voice: 1.202.387.8030, fax: 1.202.234.5176