NCPA - National Center for Policy Analysis

Lawyers Gearing Up To Fight Arbitration Clauses

September 19, 2000

In an effort to protect themselves from lawsuits and high legal fees, corporations are increasingly inserting clauses in consumer contracts specifying binding arbitration. That's a red flag to plaintiffs' lawyers who see a loss of lucrative fees and are taking the matter to the Supreme Court.

The Court is scheduled to hear arguments early next month in a class-action suit against Green Tree Financial Corp., which is now owned by Conseco, Inc. Consumers and their lawyers are asserting their right to sue to recover damages amounting to between $15 and $30 each to recover an annual $15 repossession-insurance fee they claim had not been properly disclosed when they financed their mobile homes.

  • The Supreme Court in recent decades has promoted arbitration as a thrifty alternative to civil suits -- and the justices aren't likely to change course entirely, legal experts say.
  • But major business groups fear the justices may use this case to begin a gradual turn against mandatory arbitration.
  • The mandatory-arbitration fight is part of larger "tort-reform" war that has raged in courts and legislatures for two decades -- with, as yet, no clear winner.
  • Business has succeeded in curtailing certain types of consumer and employee lawsuits -- but, overall, plaintiffs haven't been stopped from mounting large and innovative court actions.

The Supreme Court will also hear two other arbitration cases this fall. Plaintiffs prevailed in lower courts in all three of these suits.

Source: Robert S. Greenberger, "As Arbitration Spreads to Consumer Purchases, a Court Battle Looms," Wall Street Journal, September 19, 2000.


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