[Congressional Record Volume 153, Number 111 (Thursday, July 12, 2007)]
[Senate]
[Pages S9144-S9145]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. FEINGOLD (for himself and Mr. Durbin):
  S. 1782. A bill to amend chapter 1 of title 9 of United States Code 
with respect to arbitration; to the Committee on the Judiciary.
  Mr. FEINGOLD. Mr. President, today I will introduce the Arbitration 
Fairness Act of 2007. Just as its name suggests, the Arbitration 
Fairness Act is designed to return fairness to the arbitration system. 
This bill is not an anti-arbitration bill. If anything, it is pro-
arbitration. I firmly believe that this bill will strengthen the 
arbitration system by returning arbitration to a more equitable design 
that reflects the intent of the original arbitration legislation, the 
Federal Arbitration Act.
  President Calvin Coolidge signed the Federal Arbitration Act, FAA, 
into law on February 12, 1925. Congress passed the FAA to make 
arbitration an enforceable alternative to the civil courts. Even as 
early as the 1920s, there were concerns about the efficiency of the 
civil court system and a desire to allow a speedier alternative. The 
intent of the FAA, as expressed in a 1923 hearing before a subcommittee 
of the Senate Judiciary Committee, was ``to enable business men to 
settle their disputes expeditiously and economically.'' In a later 
hearing on the FAA, it was clarified that the legislation was not 
intended to apply to the employment contracts of those businesses. This 
distinction is important because it illustrates that, while arbitration 
was something that the FAA's original sponsors wanted to promote, they 
were also careful to make clear that they didn't intend for arbitration 
to become a weapon to be wielded by the powerful against those with 
less financial and negotiating power.
  Since the FAA's enactment, the use of arbitration has grown 
exponentially. Arbitration certainly has advantages. It can be a fair 
and efficient way to settle disputes. I strongly support voluntary, 
alternative dispute resolution methods, and I believe we ought to 
encourage their use. But I also believe that arbitration is a fair way 
to settle disputes between consumers and lenders only when it is 
entered into knowingly and voluntarily by both parties to the dispute 
after the dispute has arisen. Otherwise arbitration can be used as a 
weapon by the stronger party against the weaker party.
  One of the most fundamental principles of our justice system is the 
constitutional right to take a dispute to court. Indeed, all Americans 
have the right in civil and criminal cases to a trial by jury. The 
right to a jury trial in civil cases in Federal court is contained in 
the Seventh Amendment to the Constitution. Many States provide a 
similar right to a jury trial in civil matters filed in State court.
  I have been concerned for many years that mandatory arbitration 
clauses are slowly eroding the legal protections that should be 
available to all Americans. A large and growing number of corporations 
now require millions of consumers and employees to sign contracts that 
include mandatory arbitration clauses. Most of these individuals have 
little or no meaningful opportunity to negotiate the terms of their 
contracts and so find themselves having to choose either to accept a 
mandatory arbitration clause or to forgo securing employment or needed 
goods and services. Incredibly, mandatory arbitration clauses have been 
used to prevent individuals from trying to vindicate their civil rights 
under statutes specifically passed by Congress to protect them.
  There is a range of ways in which mandatory arbitration can be 
particularly hostile to individuals attempting to assert their rights. 
For example, the administrative fees, both to gain access to the 
arbitration forum and to pay for the ongoing services of the arbitrator 
or arbitrator, can be so high as to act as a de facto bar for many 
individuals who have a claim that requires resolution. In addition, 
arbitration generally lacks discovery proceedings and other civil due 
process protections.
  Furthermore, there is no meaningful judicial review of arbitrators' 
decisions. Under mandatory, binding arbitration, even if a party 
believes that the arbitrator did not consider all the facts or follow 
the law, the party cannot file a suit in court. The only basis for 
challenging a binding arbitration decision is fairly narrow: if there 
is reason to believe that the arbitrator committed actual fraud, or was 
biased, corrupt, or guilty of misconduct, or exceeded his or her 
powers. Because mandatory, binding arbitration is so conclusive, it is 
a credible means of dispute resolution only when all parties understand 
the full ramifications of agreeing to it.
  Unfortunately, in a variety of contexts, employment agreements, 
credit card agreements, HMO contracts, securities broker contracts, and 
other consumer and franchise agreements, mandatory arbitration is fast 
becoming the rule, rather than the exception. The practice of forcing 
employees to use arbitration has been on the rise since the Supreme 
Court's Circuit City decision in 2001. Unless Congress acts, the 
protections it has provided through law for American workers, 
investors, and consumers, will slowly become irrelevant.
  The Arbitration Fairness Act of 2007, which I am happy to say will 
also be introduced in the House by Representative Hank Johnson, D-GA, 
reinstates the FAA's original intent by requiring that agreements to 
arbitrate employment, consumer, franchise, or civil rights disputes be 
made after the dispute has arisen. The act does not apply to mandatory 
arbitration systems agreed to in collective bargaining, and it does not 
prohibit arbitration. What it does do is prevent a party with greater 
bargaining power from forcing individuals into arbitration through a 
contractual provision. It will ensure that citizens once again have a 
true choice between arbitration and the traditional civil court system.
  In our system of Government, Congress and State legislatures pass 
laws and the courts are available to citizens to make sure those laws 
are enforced. But the rule of law means little if the only forum 
available to those who believe they have been wronged is an 
alternative, unaccountable system where the law passed by the 
legislature does not necessarily apply. This legislation both protects 
Americans from exploitation and strengthens a valuable alternative 
method of dispute resolution. These are both worthy ends, and I hope 
that my colleagues in the Senate will join me in working to pass this 
important bill.
  I ask unanimous consent that the text of the bill and a section-by-
section analysis be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1782

       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 
     2007''.

     SEC. 2. FINDINGS.

       The Congress finds the following:
       (1) The Federal Arbitration Act (now enacted as chapter 1 
     of title 9 of the United States Code) was intended to apply 
     to disputes between commercial entities of generally similar 
     sophistication and bargaining power.
       (2) A series of United States Supreme Court decisions have 
     changed the meaning of the Act so that it now extends to 
     disputes between parties of greatly disparate economic power, 
     such as consumer disputes and employment disputes. As a 
     result, a large and rapidly growing number of corporations 
     are requiring millions of consumers and employees to give up 
     their right to have disputes resolved by a judge or jury, and 
     instead submit their claims to binding arbitration.
       (3) Most consumers and employees have little or no 
     meaningful option whether to submit their claims to 
     arbitration. Few people

[[Page S9145]]

     realize, or understand the importance of the deliberately 
     fine print that strips them of rights; and because entire 
     industries are adopting these clauses, people increasingly 
     have no choice but to accept them. They must often give up 
     their rights as a condition of having a job, getting 
     necessary medical care, buying a car, opening a bank account, 
     getting a credit card, and the like. Often times, they are 
     not even aware that they have given up their rights.
       (4) Private arbitration companies are sometimes under great 
     pressure to devise systems that favor the corporate repeat 
     players who decide whether those companies will receive their 
     lucrative business.
       (5) Mandatory arbitration undermines the development of 
     public law for civil rights and consumer rights, because 
     there is no meaningful judicial review of arbitrators' 
     decisions. With the knowledge that their rulings will not be 
     seriously examined by a court applying current law, 
     arbitrators enjoy near complete freedom to ignore the law and 
     even their own rules.
       (6) Mandatory arbitration is a poor system for protecting 
     civil rights and consumer rights because it is not 
     transparent. While the American civil justice system features 
     publicly accountable decision makers who generally issue 
     written decisions that are widely available to the public, 
     arbitration offers none of these features.
       (7) Many corporations add to their arbitration clauses 
     unfair provisions that deliberately tilt the systems against 
     individuals, including provisions that strip individuals of 
     substantive statutory rights, ban class actions, and force 
     people to arbitrate their claims hundreds of miles from their 
     homes. While some courts have been protective of individuals, 
     too many courts have upheld even egregiously unfair mandatory 
     arbitration clauses in deference to a supposed Federal policy 
     favoring arbitration over the constitutional rights of 
     individuals.

     SEC. 3. DEFINITIONS.

       Section 1 of title 9, United States Code, is amended--
       (1) by amending the heading to read as follows:

     ``Sec. 1. Definitions'';

       (2) by inserting before `` `Maritime' '' the following:
     ``As used in this chapter--'';
       (3) by striking `` `Maritime transactions' '' and inserting 
     the following:
       ``(1) `maritime transactions';'';
       (4) by striking ``commerce'' and inserting the following:
       ``(2) `commerce' '';
       (5) by striking ``, but nothing'' and all that follows 
     through the period at the end, and inserting a semicolon; and
       (6) by adding at the end the following:
       ``(3) `employment dispute', as herein defined, means a 
     dispute between an employer and employee arising out of the 
     relationship of employer and employee as defined by the Fair 
     Labor Standards Act;
       ``(4) `consumer dispute', as herein defined, means a 
     dispute between a person other than an organization who seeks 
     or acquires real or personal property, services, money, or 
     credit for personal, family, or household purposes and the 
     seller or provider of such property, services, money, or 
     credit;
       ``(5) `franchise dispute', as herein defined, means a 
     dispute between a franchisor and franchisee arising out of or 
     relating to contract or agreement by which--
       ``(A) a franchisee is granted the right to engage in the 
     business of offering, selling, or distributing goods or 
     services under a marketing plan or system prescribed in 
     substantial part by a franchisor;
       ``(B) the operation of the franchisee's business pursuant 
     to such plan or system is substantially associated with the 
     franchisor's trademark, service mark, trade name, logotype, 
     advertising, or other commercial symbol designating the 
     franchisor or its affiliate; and
       ``(C) the franchisee is required to pay, directly or 
     indirectly, a franchise fee; and
       ``(6) `pre-dispute arbitration agreement', as herein 
     defined, means any agreement to arbitrate disputes that had 
     not yet arisen at the time of the making of the agreement.''.

     SEC. 4. VALIDITY AND ENFORCEABILITY.

       Section 2 of title 9, United States Code, is amended--
       (1) by amending the heading to read as follows:

     ``Sec. 2. Validity and enforceability'',

       (2) by inserting ``(a)'' before ``A written'';
       (3) by striking ``, save'' and all that follows through 
     ``contract'', and inserting ``to the same extent as contracts 
     generally, except as otherwise provided in this title''; and
       (4) by adding at the end the following:
       ``(b) No predispute arbitration agreement shall be valid or 
     enforceable if it requires arbitration of--
       ``(1) an employment, consumer, or franchise dispute; or
       ``(2) a dispute arising under any statute intended to 
     protect civil rights or to regulate contracts or transactions 
     between parties of unequal bargaining power.
       ``(c) An issue as to whether this chapter applies to an 
     arbitration agreement shall be determined by Federal law. 
     Except as otherwise provided in this chapter, the validity or 
     enforceability of an agreement to arbitrate shall be 
     determined by the court, rather than the arbitrator, 
     irrespective of whether the party resisting arbitration 
     challenges the arbitration agreement specifically or in 
     conjunction with other terms of the contract containing such 
     agreement.
       ``(d) Nothing in this chapter shall apply to any 
     arbitration provision in a collective bargaining 
     agreement.''.

     SEC. 5. EFFECTIVE DATE.

       This Act, and the amendments made by this Act, shall take 
     effect on the date of the enactment of this Act and shall 
     apply with respect to any dispute or claim that arises on or 
     after such date.
                                  ____


                      Section-by-Section Analysis

       When Congress enacted the Federal Arbitration Act 
     (``FAA''), its goal was to allow an alternative forum for 
     parties on equal footing to resolve their disputes. Yet a 
     series of court decisions moved the law away from its 
     original intent and opened the door for arbitration to be 
     used to deprive ordinary citizens in employment, consumer, 
     and franchise disputes of their constitutional right to use 
     the civil justice system.
       The Arbitration Fairness Act of 2007, introduced in the 
     Senate by Sen. Russ Feingold (D-WI) and in the House by Rep. 
     Hank Johnson (D-GA), reflects the FAA's original intent by 
     requiring that agreements to arbitrate employment, consumer, 
     franchise, or civil rights disputes be made after the dispute 
     has arisen. The Act does not prohibit arbitration, but it 
     will prevent a party with greater bargaining power from 
     forcing individuals into arbitration through a contract 
     entered into prior to a dispute arising. It will ensure that 
     citizens have a true choice between arbitration and the 
     traditional civil court system.
       Sec. 1: Short Title: the ``Arbitration Fairness Act of 
     2007''
       Sec. 2: Findings: This section details how the law has 
     moved away from the original intent of the Federal 
     Arbitration Act and has now exposed growing numbers of 
     individual consumers and employees to mandatory arbitration 
     agreements. It also discusses the ways in which mandatory 
     arbitration systems are skewed in favor of powerful, 
     corporate, repeat players.
       Sec. 3: Definitions: This section amends section 1 of the 
     FAA (9 U.S.C. Sec. 1) to include specific definitions of 
     ``employment dispute,'' ``consumer dispute,'' and ``franchise 
     dispute,'' which are covered by the Act. An employment 
     dispute is any dispute between an employer and employee 
     arising out of the relationship as defined by the Fair Labor 
     Standards Act. A consumer dispute is a dispute between an 
     individual person who seeks or acquires property, services, 
     money, or credit for non-business purposes and the seller or 
     provider of those goods or services. A franchise dispute is a 
     dispute between a franchisor and franchisee arising out of or 
     relating to the contract establishing the franchise.
       Sec. 4: Validity and Enforceability: This section amends 
     section 2 of the FAA (9 U.S.C. Sec. 2) to establish that 
     agreements to arbitrate employment, consumer, or franchise 
     disputes will not be enforceable if they are entered before 
     the actual dispute arises. It extends this rule to disputes 
     arising under civil rights statutes and statutes regulating 
     contracts or transactions between parties of unequal 
     bargaining power. This section also states that disputes as 
     to whether the Act applies shall be resolved by the court, 
     rather than through arbitration. Finally, the section 
     clarifies that the Act does not apply to collective 
     bargaining agreements.
       Sec. 5: Effective Date: The Act shall apply to claims and 
     disputes arising on or after the date of enactment.
                                 ______