[Congressional Record Volume 155, Number 64 (Wednesday, April 29, 2009)]
[Senate]
[Pages S4897-S4899]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. FEINGOLD (for himself, Mr. Durbin, Mr. Kerry, Mr. 
        Whitehouse, Mr. Wyden, Mr. Udall of New Mexico, Mr. Merkley, 
        and Mr. Kennedy):
  S. 931. A bill to amend title 9 of the 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 1920's,

[[Page S4898]]

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 arbitrators--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 2009, which I am happy to say has 
already been introduced in the House by Rep. Hank Johnson, 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 bill 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.
  I should note that the bill includes two notable changes from 
versions that have been introduced in previous Congresses. First, the 
bill creates a new Chapter 4 of Title 9, separating the new provisions 
concerning arbitration of consumer, employment, franchise, and civil 
rights disputes from the Federal Arbitration Act. This should give some 
comfort to those who are concerned that the bill might have an 
unintended effect on business to business arbitration.
  Second, the bill reverses the Supreme Court's April 2009 decision in 
14 Park Plaza v. Pyett. In that case, the Court held that arbitration 
provisions included in collective bargaining agreements can have the 
effect of preventing employees from pursuing employment discrimination 
claims in court. Unions have never believed this was the case. The 
decision once again expands the reach of arbitration, making less 
effective statutes specifically intended by Congress to protect 
workers. Therefore, the bill provides that it generally does not apply 
to arbitration provisions contained in collective bargaining 
agreements, except that such provisions may not waive employees' rights 
to take constitutional or statutory claims to court.
  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.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 931

       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 
     2009''.

     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 forcing 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 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

[[Page S4899]]

     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 
     public, written decisions, arbitration often offers none of 
     these features.
       (7) Many corporations add to 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 erroneously upheld even egregiously 
     unfair mandatory arbitration clauses in deference to a 
     supposed Federal policy favoring arbitration over the 
     constitutional rights of individuals.

     SEC. 3. ARBITRATION OF EMPLOYMENT, CONSUMER, FRANCHISE, AND 
                   CIVIL RIGHTS DISPUTES.

       (a) In General.--Title 9 of the United States Code is 
     amended by adding at the end the following:

``CHAPTER 4--ARBITRATION OF EMPLOYMENT, CONSUMER, FRANCHISE, AND CIVIL 
                            RIGHTS DISPUTES

``Sec.
``401. Definitions.
``402. Validity and enforceability.

     ``Sec. 401. Definitions

       ``In this chapter--
       ``(1) the term `civil rights dispute' means a dispute--
       ``(A) arising under--
       ``(i) the Constitution of the United States or the 
     constitution of a State; or
       ``(ii) a Federal or State statute that prohibits 
     discrimination on the basis of race, sex, disability, 
     religion, national origin, or any invidious basis in 
     education, employment, credit, housing, public accommodations 
     and facilities, voting, or program funded or conducted by the 
     Federal Government or State government, including any statute 
     enforced by the Civil Rights Division of the Department of 
     Justice and any statute enumerated in section 62(e) of the 
     Internal Revenue Code of 1986 (relating to unlawful 
     discrimination); and
       ``(B) in which at least 1 party alleging a violation of the 
     Constitution of the United States, a State constitution, or a 
     statute prohibiting discrimination is an individual;
       ``(2) the term `consumer dispute' means a dispute between a 
     person other than an organization who seeks or acquires real 
     or personal property, services (including services relating 
     to securities and other investments), money, or credit for 
     personal, family, or household purposes and the seller or 
     provider of such property, services, money, or credit;
       ``(3) the term `employment dispute' means a dispute between 
     an employer and employee arising out of the relationship of 
     employer and employee as defined in section 3 of the Fair 
     Labor Standards Act of 1938 (29 U.S.C. 203);
       ``(4) the term `franchise dispute' means a dispute between 
     a franchisee with a principal place of business in the United 
     States and a franchisor 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
       ``(5) the term `predispute arbitration agreement' means any 
     agreement to arbitrate a dispute that had not yet arisen at 
     the time of the making of the agreement.

     ``Sec. 402. Validity and enforceability

       ``(a) In General.--Notwithstanding any other provision of 
     this title, no predispute arbitration agreement shall be 
     valid or enforceable if it requires arbitration of an 
     employment, consumer, franchise, or civil rights dispute.
       ``(b) Applicability.--
       ``(1) In general.--An issue as to whether this chapter 
     applies to an arbitration agreement shall be determined under 
     Federal law. The applicability of this chapter to an 
     agreement to arbitrate and the validity and enforceability of 
     an agreement to which this chapter applies 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.
       ``(2) Collective bargaining agreements.--Nothing in this 
     chapter shall apply to any arbitration provision in a 
     contract between an employer and a labor organization or 
     between labor organizations, except that no such arbitration 
     provision shall have the effect of waiving the right of an 
     employee to seek judicial enforcement of a right arising 
     under a provision of the Constitution of the United States, a 
     State constitution, or a Federal or State statute, or public 
     policy arising therefrom.''.
       (b) Technical and Conforming Amendments.--
       (1) In general.--Title 9 of the United States Code is 
     amended--
       (A) in section 1, by striking ``of seamen,'' and all that 
     follows through ``interstate commerce'';
       (B) in section 2, by inserting ``or as otherwise provided 
     in chapter 4'' before the period at the end;
       (C) in section 208--
       (i) in the section heading, by striking ``Chapter 1; 
     residual application'' and inserting ``Application''; and
       (ii) by adding at the end the following: ``This chapter 
     applies to the extent that this chapter is not in conflict 
     with chapter 4.''; and
       (D) in section 307--
       (i) in the section heading, by striking ``Chapter 1; 
     residual application'' and inserting ``Application''; and
       (ii) by adding at the end the following: ``This chapter 
     applies to the extent that this chapter is not in conflict 
     with chapter 4.''.
       (2) Table of sections.--
       (A) Chapter 2.--The table of sections for chapter 2 of 
     title 9, United States Code, is amended by striking the item 
     relating to section 208 and inserting the following:

``208. Application.''.

       (B) Chapter 3.--The table of sections for chapter 3 of 
     title 9, United States Code, is amended by striking the item 
     relating to section 307 and inserting the following:

``307. Application.''.

       (3) Table of chapters.--The table of chapters for title 9, 
     United States Code, is amended by adding at the end the 
     following:

``4. Arbitration of employment, consumer, franchise, and civil rights 
    disputes.................................................401''.....

     SEC. 4. EFFECTIVE DATE.

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

                          ____________________