[Congressional Record Volume 148, Number 126 (Tuesday, October 1, 2002)]
[Senate]
[Pages S9720-S9723]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SESSIONS:
  S. 3026. A bill to amend chapter 1 of title 9, United States Code, to 
provide for greater fairness in the arbitration process; to the 
Committee on the Judiciary.
  Mr. SESSION. Mr. President, I rise to send to the desk a bill 
entitled, ``The Arbitration Fairness Act of 2002.'' This bill continues 
the legislative process that I started in the 106th Congress with the 
introduction of the Consumer and Employee Arbitration Bill of Rights. 
The purpose of these bills is to improve the Federal Arbitration Act so 
that it will remain as a cost-effective means of resolving disputes, 
but will do so in a fair way. The Arbitration Fairness Act will provide 
procedural protections to everyone who enters into a contract that 
contains an arbitration clause. This bill would ensure that consumers, 
employees, and small businesses that enter into contracts covered by 
the Federal Arbitration Act will have their disputes resolved in 
accordance with due process of law, and in a speedy and cost effective 
manner.
  Congress enacted the Federal Arbitration Act in 1925. It has served 
us as well for three-quarters of a century. Under the Act, if the 
parties agree to a contract affecting interstate commerce that contains 
a clause requiring arbitration, the clause will be enforceable in 
court. In short, the Federal Arbitration Act allows parties to a 
contract to agree not to take their disputes to court, but to resolve 
any dispute arising from that contract before a neutral decision-maker, 
generally selected by a non-profit arbitration organization, such as 
the American Arbitration Association or the National Arbitration Forum. 
The parties can generally present evidence and be represented by 
counsel. And the decision-makers will apply the relevant State law in 
resolving the dispute. Arbitration is generally quicker and less 
expensive than going to court.
  In recent years, there have been some cases where the arbitration 
process has not worked well, but thousands of disputes have been fairly 
and effectively settled by arbitrators. Such a system is even more 
important because of skyrocketing legal costs where attorneys require 
large contingent fees. Accordingly, I have opposed piecemeal 
legislative changes to the act. Instead, I believe that the Senate 
should approach the Federal Arbitration Act in a comprehensive manner.
  The approach of reforming arbitration, rather than abandoning the 
arbitration process provides several benefits. Arbitration is one of 
the most cost-effective means of resolving a dispute. Unlike 
businesses, consumers and employees generally cannot afford a team of 
lawyers to represent them. And their claims are often not being enough 
so that a lawyer would take the case on a 25 percent or even a 50 
percent contingent fee. In an article in the Columbia Human Rights Law 
Review, Lewis Maltby, Director, National Task Force on Civil Liberties 
in the Workplace of the American Civil Liberties Union and a Director 
of the American Arbitration Association--not die-hard conservative 
entities--explains how court litigation is too expensive for most 
employees:
  ``Even if the client has clearly been wronged and is virtually 
certain to prevail in court, the attorney will be forced to turn down 
the case unless there are substantial damages. A survey of plaintiff 
employment lawyers found that a prospective plaintiff needed to have a 
minimum of $60,000 in provable damages-not including pain and suffering 
or other intangible damages-before an attorney would take the case.
  Even this, however, does not exhaust the financial obstacles an 
employee must overcome to secure representation. In light of their risk 
of losing such cases, many plaintiffs' attorneys require a prospective 
client to pay a retainer, typically about $3,000. Others require 
clients to pay out-of-pocket expenses of the case as they are incurred. 
Expenses in employment discrimination cases can be substantial. Donohue 
and Siegelman found that expenses in Title VII cases are at least 
$10,000 and can reach as high as $25,000. Finally, some plaintiffs' 
attorneys now require a consultation fee, generally $200-$300, just to 
discuss their situation with a potential client.
  ``The result of these formidable hurdles in that most people with 
claims against their employer are unable to obtain counsel, and thus 
never receive justice. Paul Tobias, founder of the National Employment 
Lawyer's Association, has testified that ninety-five percent of those 
who seek help from the private bar with an employment matter do not 
obtain counsel. Howard's survey of plaintiffs' lawyers produced the 
same result. A Detroit firm reported that only one of eighty-seven 
employees who came to them seeking representation was accepted as a 
client.''

  Lewis L. Maltby, Private Justice: Employment Arbitration and Civil 
Rights, 30 Col. Hum. R.L. Rev. 29, 57-58 (1998).

[[Page S9721]]

  Without arbitration, the consumer or employee is faced with having to 
pay a lawyer's hourly rate, which may amount to several thousand 
dollars to litigate a claim in court, for a broken television that cost 
$700 new. If this is what consumers and employees are left with, many 
will have no choice but to drop their claim. This is not right. It is 
not fair. Thus, Professor Stephen Ware of the Cumberland Law School, 
states in a recent paper published by the CATO Institution that 
``current [arbitration] law is better for all consumers [than an 
exemption from the FAA] except those few who are especially likely to 
have large liability claims . . .'' Stephen J. Ware, Arbitration under 
Assault, CATO Policy Analysis No. 433 p. 10 (2002).
  Thus, while some have argued that the Congress should enact 
exemptions from the FAA for different classes of contracts from 
automobile franchise contracts to employment contracts, such exemptions 
would not help the overwhelming majority of the people who could not 
afford a lawyer to litigate in court. This is where arbitration can 
give the consumer or employee a cost-effective forum to assert their 
claim. Thus, before we make exceptions to the FAA for some of the most 
well to do corporations in our society, I think it is our duty to 
consider how we can improve the system for those less financially able.
  Can we improve the arbitration system? Yes, but we must take a 
balanced approach. In this approach we should protect the sanctity of 
legal contracts. In any contract, the parties agree to all the terms 
and clauses included in the contract document. This includes the 
arbitration clause. This is basic contract law, and the basic principle 
upon which the FAA has been supported for 75 years.
  But this is not always the case. In certain situations, consumers, 
employees, or businesses have not been treated fairly. That is what the 
Arbitration Fairness Act is designed to correct.
  The bill will maintain the cost benefits of binding arbitration, but 
will grant several specific ``due process'' rights to all parties to an 
arbitration. The bill is based on the consumer and employee due process 
protocols of the American Arbitration Association that have broad 
support. The bill provides the following rights: 1. Notice. Under the 
bill an arbitration clause, to be enforceable, would have to have a 
heading in large, bold print, would have to state whether arbitration 
is binding or optional, identify a source that the parties may contact 
for more information, and state that a consumer could opt out to small 
claims court.
  This will ensure, for example, that consumers who receive credit card 
notices in the mail will not miss an arbitration clause because it is 
printed in fine print. Further, it will give all parties means to 
obtain more information on how to resolve any disputes. Finally, the 
clause would explain that if a party's claims could otherwise be 
brought in small claims court, he is free to do so. Small claims court, 
unlike regular trial court, provides another inexpensive and quick 
means of dispute resolution.
  2. Independent selection of arbitrators. The bill will grant all 
parties the right to have potential arbitrators disclose relevant 
information concerning their business ties and employment. All parties 
to the arbitration will have an equal voice in selecting a neutral 
arbitrator. This ensures that the large company who sold a consumer a 
product will not select the arbitrator itself, because the consumer 
with a grievance will have the right to nominate potential arbitrators 
too. As a result, the final arbitrator selected will have to have the 
explicit approval of both parties to the dispute. This means the 
arbitrator will be a neutral party with no allegiance to either party.
  3. Choice of law. The bill grants the non-drafting party, usually the 
consumer or the employee, the right to have the arbitrator governed by 
the substantive law that would apply under conflicts of laws principles 
applicable in the forum in which the non-drafting party resided at the 
time the contract was entered into. This means that the substantive 
contract law that would apply in a court where the consumer, employee, 
or business resides at the time of making the contract will apply in 
the arbitration. Thus, in a dispute arising from the purchase of a 
product by an Alabama consumer from an Illinois company, a court would 
have to determine whether Alabama or Illinois law applied by looking to 
the language of the contract and to the place the contract was entered 
into. The bill ensures that an arbitrator will use the same conflict of 
laws principles that a court would in determining whether Alabama or 
Illinois law will govern the arbitration proceedings.
  4. Representation. The bill grants all parties the right to be 
represented by counsel at their own expense. Thus, if the claim 
involves complicated legal issues, the consumer, employee, or small 
business is free to have his lawyer represent him in the arbitration. 
Such representation should be substantially less expensive than a trial 
in court because of the more abbreviated and expedited process of 
arbitration.
  5. Hearing. The bill grants all parties the right to a fair hearing 
in a forum that is reasonably convenient to the consumer or employee. 
This would prevent a large company from requiring a consumer, employee, 
or small business owner to travel across the country to arbitrate his 
claim and to expend more in travel costs than his claim may be worth.

  6. Evidence. The bill grants all parties the right to conduct 
discovery and to present evidence. This ensures that the arbitrator 
will have all the facts before him prior to making a decision.
  7. Cross examination. The bill grants all parties the right to cross-
examine witnesses presented by the other party at the hearing. This 
allows a party to test the statements of the other party's witnesses 
and be sure that the evidence before the arbitrator is correct.
  8. Record. The bill grants all parties the right to hire a 
stenographer or tape record the hearing to produce a record. This right 
is key to proving later that the arbitration proceeding was fair.
  9. Timely resolution. The bill grants all parties the right to have 
an arbitration proceeding to be completed promptly so that they do not 
have to wait for a year or more to have their claim resolved. Under the 
bill a defendant must file an answer within 30 days of the filing of 
the complaint. The arbitrator has 90 days after the answer to hold a 
hearing. The arbitrator must render a final decision within 30 days 
after the hearing. Extensions are available in extraordinary 
circumstances.
  10. Written decision. The bill grants all parties the right to a 
written decision by the arbitrator explaining the resolution of the 
case and his reasons therefor. If the consumer or employee takes a 
claim to arbitration, he deserves to have an explanation of why he won 
or lost.
  11. Expenses. The bill grants all parties the right to have an 
arbitrator provide for reimbursement of arbitration fees in the 
interests of justice and the reduction, deferral, or waiver of 
arbitration fees in cases of extreme hardship. It does little good to 
take a claim to arbitration if the consumer or employee cannot even 
afford the arbitration fee. This provision ensures that the arbitrator 
can waive or reduce the fee or make the company reimburse the consumer 
or employee for a fee if the interests of justice so require.
  12. Small claims opt out. The bill grants all parties the right to 
opt out of arbitration into small claims court if that court has 
jurisdiction over the claim and the claim does not exceed $50,000.
  The bill also provides an effective mechanism for parties to enforce 
these rights. At any time, if a consumer or employee believes that the 
other party violated his rights, he may ask and the arbitrator may 
award a penalty up to the amount of the claim plus attorneys fees. For 
example, if the defendant party fails to provides discovery to a 
plaintiff party, the plaintiff can make a motion for fees. The amount 
of fee award is limited, as it is in court, to the amount of cost 
incurred by the employee in trying to obtain the information from the 
company. This principle is taken from Federal Rule of Civil Procedure 
37. After the decision, if the losing party believes that the rights 
granted to him by the Act have been violated, he may file a petition 
with the Federal district court. If the court finds by clear and 
convincing evidence that his rights were violated, it may order a new 
arbitrator appointed. Thus, if a consumer, employee, or small business 
has an arbitrator that is unfair and this causes him to lose the case,

[[Page S9722]]

the plaintiff can obtain another arbitrator.
  This bill is an important step to creating a constructive dialog on 
arbitration reform. This bill will ensure that those who can least 
afford to go to court can go to a less expensive arbitrator and be 
treated fairly. It will ensure that every arbitration carried out under 
the Federal Arbitration Act is completed fairly, promptly, and 
economically. I look forward to working with my colleagues in the 
Senate to ensure that consumers, employees, and small business who 
agree in a contract to arbitrate their claims will be afforded due 
process of law.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 3026

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Arbitration Fairness Act of 
     2002''.

     SEC. 2. ELECTION OF ARBITRATION.

       (a) Fair Disclosure.--In order to be binding on the 
     parties, a contract containing an arbitration clause shall--
       (1) have a printed heading in bold, capital letters 
     entitled ``arbitration clause'', which heading shall be 
     printed in letters not smaller than \1/2\ inch in height;
       (2) explicitly state whether participation within the 
     arbitration program is mandatory or optional;
       (3) identify a source that a consumer or employee can 
     contact for additional information on costs and fees and on 
     all forms and procedures necessary for effective 
     participation in the arbitration program; and
       (4) provide notice that all parties retain the right to 
     resolve a dispute in a small claims court, if such dispute 
     falls within the jurisdiction of that court and the claim is 
     for less than or equal to $50,000 in total damages.
       (b) Procedural Rights.--If a contract provides for the use 
     of arbitration to resolve a dispute arising out of or 
     relating to the contract, each party to the contract shall be 
     afforded the following rights, in addition to any rights 
     provided by the contract:
       (1) Competence and neutrality of arbitrator and 
     administrative process.--
       (A) In general.--Each party to the dispute (referred to in 
     this section as a ``party'') shall be entitled to a 
     competent, neutral arbitrator and an independent, neutral 
     administration of the dispute.
       (B) Arbitrator.--Each party shall have an equal voice in 
     the selection of the arbitrator, who--
       (i) shall comply with the Code of Ethics for Arbitrators in 
     Commercial Disputes of the American Arbitration Association 
     and the State bar association of which the arbitrator is a 
     member;
       (ii) shall have no personal or financial interest in the 
     results of the proceedings in which the arbitrator is 
     appointed and shall have no relation to the underlying 
     dispute or to the parties or their counsel that may create an 
     appearance of bias; and
       (iii) prior to accepting appointment, shall disclose all 
     information that might be relevant to neutrality, including 
     service as an arbitrator or mediator in any past or pending 
     case involving any of the parties or their representatives, 
     or that may prevent a prompt hearing.
       (C) Administration.--The arbitration shall be administered 
     by an independent, neutral alternative dispute resolution 
     organization to ensure fairness and neutrality and prevent ex 
     parte communication between parties and the arbitrator. The 
     arbitrator shall have reasonable discretion to conduct the 
     proceeding in consideration of the specific type of industry 
     involved.
       (2) Applicable law.--In resolving a dispute, the 
     arbitrator--
       (A) shall be governed by the same substantive law that 
     would apply under conflict of laws principles applicable in a 
     court of the forum in which the party that is not drafter of 
     the contract resided at the time the contract was entered 
     into; and
       (B) shall be empowered to grant whatever relief would be 
     available in court under law or equity.
       (3) Representation.--Each party shall have the right to be 
     represented by an attorney, or other representative as 
     permitted by State law, at their own expense.
       (4) Hearing.--
       (A) In general.--Each party shall be entitled to a fair 
     arbitration hearing (referred to in this section as a 
     ``hearing'') with adequate notice and an opportunity to be 
     heard.
       (B) Electronic or telephonic means.--Subject to 
     subparagraph (C), in order to reduce cost, the arbitrator may 
     hold a hearing by electronic or telephonic means or by a 
     submission of documents.
       (C) Face-to-face meeting.--Each party shall have the right 
     to require a face-to-face hearing, which hearing shall be 
     held at a location that is reasonably convenient for the 
     party who did not draft the contract unless in the interest 
     of fairness the arbitrator determines otherwise, in which 
     case the arbitrator shall use the process described in 
     section 1391 of title 28, United States Code, to determine 
     the venue for the hearing.
       (5) Evidence.--With respect to any hearing--
       (A) each party shall have the right to present evidence at 
     the hearing and, for this purpose, each party shall grant 
     access to all information reasonably relevant to the dispute 
     to the other parties, subject to any applicable privilege or 
     other limitation on discovery under applicable State law;
       (B) consistent with the expedited nature of arbitration, 
     relevant and necessary prehearing depositions shall be 
     available to each party at the direction of the arbitrator; 
     and
       (C) the arbitrator shall--
       (i) make reasonable efforts to maintain the privacy of the 
     hearing to the extent permitted by applicable State law; and
       (ii) consider appropriate claims of privilege and 
     confidentiality in addressing evidentiary issues.
       (6) Cross examination.--Each party shall have the right to 
     cross examine witnesses presented by the other parties at a 
     hearing.
       (7) Record of proceeding.--Any party seeking a stenographic 
     record of a hearing shall make arrangements directly with a 
     stenographer and shall notify the other parties of these 
     arrangements not less than 3 days in advance of the hearing. 
     The requesting party or parties shall pay the costs of 
     obtaining the record. If the transcript is agreed by the 
     parties, or determined by the arbitrator to be the official 
     record of the proceeding, it shall be provided to the 
     arbitrator and made available to the other parties for 
     inspection, at a date, time, and place determined by the 
     arbitrator.
       (8) Timely resolution.--Upon submission of a complaint by 
     the claimant, the respondent shall have 30 days to file an 
     answer. Thereafter, the arbitrator shall direct each party to 
     file documents and to provide evidence in a timely manner so 
     that the hearing may be held not later than 90 days after the 
     filing of the answer. In extraordinary circumstances, 
     including multiparty, multidistrict, or complex litigation, 
     the arbitrator may grant a limited extension of these time 
     limits to a party, or the parties may agree to an extension. 
     The arbitrator shall notify each party of its decision not 
     later than 30 days after the hearing.
       (9) Written decision.--The arbitrator shall provide each 
     party with a written explanation of the factual and legal 
     basis for the decision. This written decision shall describe 
     the application of an identified contract term, statute, or 
     legal precedent. The decision of the arbitrator shall be 
     final and binding, subject only to the review provisions in 
     subsection (d).
       (10) Expenses.--The arbitrator or independent arbitration 
     administration organization, as applicable, shall have the 
     authority to--
       (A) provide for reimbursement of arbitration fees to the 
     claimant, in whole or in part, as part of the remedy in 
     accordance with applicable law or in the interests of 
     justice; and
       (B) waive, defer, or reduce any fee or charge due from the 
     claimant in the event of extreme hardship.
       (11) Small claims opt out.--
       (A) In general.--Each party shall have the right to opt out 
     of binding arbitration and into the small claims court for 
     the forum, if such court has jurisdiction over the claim. For 
     purposes of this paragraph, no court with jurisdiction to 
     hear claims in excess of $50,000 shall be considered to be a 
     small claims court.
       (B) Exception.--Where a complaint in small claims court is 
     subsequently amended to exceed the lesser of the 
     jurisdictional amount or a claim for $50,000 in total 
     damages, the small claims court exemption of this paragraph 
     shall not apply and the parties are required to arbitrate.
       (c) Denial of Rights.--
       (1) Denial of rights by party misconduct.--
       (A) In general.--At any time during an arbitration 
     proceeding, any party may file a motion with the arbitrator 
     asserting that the other party has deprived the movant of 1 
     or more rights granted by this section and seeking relief.
       (B) Award by arbitrator.--If the arbitrator determines that 
     the movant has been deprived of a right granted by this 
     section by the other party, the arbitrator shall award the 
     movant a monetary amount, which shall not exceed the 
     reasonable expenses incurred by the movant in filing the 
     motion, including attorneys' fees, unless the arbitrator 
     finds that--
       (i) the motion was filed without the movant's first making 
     a good faith effort to obtain discovery or the realization of 
     another right granted by this section;
       (ii) the opposing party's nondisclosure, failure to 
     respond, response, or objection was substantially justified; 
     or
       (iii) the circumstances otherwise make an award of expenses 
     unjust.
       (2) Denial of rights by arbitrator.--A losing party in an 
     arbitration may file a petition in the district court of the 
     United States in the forum in which the party that did not 
     draft the contract resided at the time the contract was 
     entered into to assert that the arbitrator violated 1 or more 
     of the rights granted to the party by this section and to 
     seek relief. In order to grant the petition, the court must 
     find clear and convincing evidence that 1 or more actions or 
     omissions of the arbitrator resulted in a deprivation of a 
     right of the petitioner under

[[Page S9723]]

     this section that was not harmless. If such a finding is 
     made, the court shall order a rehearing before a new 
     arbitrator selected in the same manner as the original 
     arbitrator as the exclusive judicial remedy provided by this 
     section.
       (d) Effective Date.--This section shall apply to any 
     contract entered into after the date that is 6 months after 
     the date of enactment of this Act.

     SEC. 3. LIMITATION ON CLAIMS.

       Except as otherwise expressly provided in this Act, nothing 
     in this Act may be construed to be the basis for any claim in 
     law or equity.

                          ____________________