[Senate Report 110-190]
[From the U.S. Government Publishing Office]
Calendar No. 410
110th Congress Report
SENATE
1st Session 110-190
======================================================================
FAIR CONTRACTS FOR GROWERS ACT OF 2007
_______
October 4, 2007.--Ordered to be printed
_______
Mr. Leahy, from the Committee on the Judiciary,
submitted the following
R E P O R T
together with
ADDITIONAL AND MINORITY VIEWS
[To accompany S. 221]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to which was referred the
bill (S. 221), to provide for greater fairness in the
arbitration process relating to livestock and poultry
contracts, having considered the same, reports favorably
thereon and recommends that the bill do pass.
CONTENTS
Page
I. Purpose of the Fair Contracts for Growers Act of 2007............1
II. History of the Bill and Committee Consideration..................4
III. Section-by-Section Summary of the Bill...........................5
IV. Cost Estimate....................................................6
V. Regulatory Impact Evaluation.....................................7
VI. Conclusion.......................................................7
VII. Additional views of Senators Feingold, Durbin, and Kennedy.......8
VIII.Minority views of Senators Kyl, Specter, and Brownback..........11
IX. Changes in Existing Law.........................................14
I. Purpose of the Fair Contracts for Growers Act of 2007
A. SUMMARY
Senators Grassley and Feingold introduced the Fair
Contracts for Growers Act of 2007 on January 9, 2007. The
legislation is cosponsored by Chairman Leahy and Senators
Hagel, Harkin, Kohl, Johnson, and Durbin. It allows the use of
arbitration to resolve a controversy as provided for under a
livestock or poultry contract only if, after the controversy
arises, both parties consent in writing. The legislation also
directs the arbitrator to provide a written explanation of the
factual and legal basis for an award. This measure strengthens
the arbitration process by ensuring that participants are
entering into the process voluntarily.
B. BACKGROUND AND NEED FOR LEGISLATION
As agricultural production becomes increasingly
technologically advanced and consolidated under large
processors, farmers in some segments of agriculture are
increasingly producing their agricultural products under
contract with these large processors. Under these contracts,
farmers do not own the product they produce; instead, they work
to generate produce or animals for large corporations who then
process and market what has been grown or raised. This is
particularly true in the livestock and poultry sector where
farmers are raising animals for corporations such as Perdue,
Tyson, and others.
Accordingly, these individual livestock and poultry growers
are heavily dependent upon their relationships with their large
corporate partners. Once in a contractual relationship with one
of these corporate processors, farmers often make significant
capital investment to build the facilities needed to raise the
animals. These facilities and other investments that farmers
make typically are based on the specified needs and
requirements of the corporate processor. Moreover, in some
regions, the industry is already so concentrated that
logistical issues, such as the distance to the processing
facility, mean that farmers have few if any viable
alternatives. As a result, most farmers do not-and often
cannot- switch between corporate processors from year to year.
Taking advantage of the dependence of individual livestock
and poultry growers, corporate processors typically present
farmers with take-it-or-leave-it contracts, allowing no
opportunity for negotiation over the terms of that contract.
These non-negotiated contracts then are automatically renewed
or extended. During the course of their contractual
relationship, processors may inform individual farmers that the
existing contract will be amended, altered, or modified in a
particular way and that this change is non-negotiable. At no
point during the various stages of the livestock and poultry
contracting process are farmers provided a true opportunity to
negotiate the terms of that contract.
Utilizing their unique advantage in the contract formation,
processors often will include provisions that shift risk onto
farmers or that otherwise insulate processors from
complications or costs. For example, farmers often are provided
with young animals, feed, and medicines by processors. If any
of these are inferior, farmers are still ultimately judged by
the final results. Thus, even if the materials supplied by
processors cause mortality or reduced quality, the processors
may attempt to deny responsibility and instead shift the risk
of loss onto the farmers. Compounding this frustrating catch-22
for farmers is the fact that mandatory arbitration clauses are
now standard in most corporate processor contracts. That means
that to dispute their responsibility in such a situation,
farmers must work through arbitration rather than through the
courts. Indeed, mandatory arbitration clauses force farmers to
sign away their constitutional right to a jury trial regardless
of the type of dispute, including allegations of fraud,
misrepresentation, discrimination, or breach of contract on the
part of the corporate processor.
Giving up the protections built into the civil judicial
system is not the only detriment that farmers face under
mandatory arbitration clauses. Under the arbitration process,
farmers must bring their case before a private panel of
arbitrators, who often demand up-front fees for access to
arbitration. These initial fees are often more than what
individual farmers, who struggle to get by from year to year,
can afford. As Scott Hamilton, a poultry grower from Alabama,
testified at a hearing held by the Senate Agriculture Committee
on April 18, 2007, these fees can be as much as $20,000--an
amount that is sometimes greater than the amount in dispute.
How truly prohibitive these costs can be was illustrated by Mr.
Hamilton when he discussed the case of one unfortunate poultry
grower:
In a more recent example in Mississippi, 67 year old
Gertrude Overstreet, a contract poultry grower since
1976, was alleging that her poultry company had
violated the terms of their agreement, and she wanted
to have her case heard in court. Mrs. Overstreet only
had two chicken houses so her income before her
termination was minimal as shown in the court record.
However the company had previously added an arbitration
clause to her contract that would require her to pay
over $20,000 in up-front costs before she could get an
arbitration hearing.
In a rare occurrence, the U.S. District Court
recognized the injustice of this arbitration clause and
ruled that it was unconscionable and therefore
unenforceable. The Court reiterated in its opinion that
Mrs. Overstreet and her husband's total monthly income,
including food stamps was less than $1,000 per month.
The Court further stated that Mrs. Overstreet only had
a 10th grade education, had no savings or property,
real or personal, other than a car and miscellaneous
household appliances. Mrs. Overstreet's testimony that
no one from the poultry company had ever explained
arbitration to her and she had no idea about the cost
of arbitration went uncontested by the poultry company.
Additionally, the Court's opinion stated that the
Oversteets could not even afford to buy their required
medications which were prescribed for them by their
doctors. Mr. Overstreet has since passed away. The
District Judge in his opinion stated simply that ``My
conscience is shocked.'' The poultry company appealed
the Judge's ruling and amazingly, the 5th Circuit Court
of Appeals panel overturned the District Judge's
opinion.
Mr. Hamilton's testimony illustrates how mandatory
arbitration clauses can be exploited by corporate processors,
for whom an entry fee of $20,000 does not pose a hardship as it
does to individual growers, in order to deprive those growers
of the opportunity to assert their rights in any forum.
Unfortunately, filing fees are not the only point at which
the costs of arbitration may stop the fair resolution of
disputes. Indeed, the fact that additional on-going fees may be
charged during the arbitration process makes arbitration even
less accessible. Yet after paying these significant fees, the
individual farmer is not provided the basic legal protections
guaranteed in the civil court system. For example, under the
current system, there is no right to receive a written
explanation of the arbitrator's decision that includes the
facts and law that informed that decision.
The Fair Contracts for Growers Act of 2007 amends the
Federal Arbitration Act by adding a new provision in Chapter 1
of Title 9 of the United States Code. This provision sets
specific guidelines for arbitration in the livestock and
poultry context. Specifically, the new provision establishes
that arbitration may be used to settle a controversy under a
livestock or poultry contract only if both parties consent to
using arbitration after the controversy arises. In this manner,
the Act disallows mandatory arbitration clauses to be a
condition of contracting with corporate processors and allows
individual farmers the opportunity to choose between the civil
court system and the arbitration system. The Act also requires
that arbitrators of a livestock or poultry dispute provide a
written explanation of the factual and legal basis for their
decisions.
The Fair Contracts for Growers Act of 2007 is supported by
a host of organizations, including the Farm Bureau, the
National Farmers' Union, the National Contract Poultry Growers
Association and the Campaign for Contract Agriculture Reform.
II. History of the Bill and Committee Consideration
The Fair Contracts for Growers Act of 2007, S. 221, is a
bipartisan measure introduced on January 9, 2007, by Senators
Grassley and Feingold. Chairman Leahy and Senators Hagel,
Harkin, Kohl, Johnson, and Durbin are cosponsors of the bill.
The bill is based on an amendment offered by Senators
Feingold, Grassley and Harkin to the Senate version of the 2001
Farm Bill (S. 1731). The amendment (S. Amdt. 2522) passed the
Senate on December 13, 2001, by a vote of 64 to 31. Despite its
strong bipartisan support in the Senate, the amendment was
taken out of the farm bill in conference.
In the 107th Congress, Senator Feingold and Senator
Grassley introduced the Fair Contracts for Growers Act as S.
2943 on September 17, 2002. Senators Dorgan, Enzi, Harkin,
Johnson and Leahy joined as cosponsors. It was referred to the
Judiciary Committee, and no further action was taken.
In the 108th Congress, Senator Grassley and Senator
Feingold reintroduced the Fair Contracts for Growers Act as S.
91 on January 7, 2003. Senators Edwards, Enzi, Hagel, Harkin,
Johnson, Leahy and Nelson joined as cosponsors. It was referred
to the Judiciary Committee, and no further action was taken.
In the 109th Congress, Senator Grassley and Senator
Feingold reintroduced the Fair Contracts for Growers Act as S.
2131 on December 16, 2005. Senators Hagel, Harkin, Johnson and
Kohl joined as cosponsors. It was referred to the Judiciary
Committee, and no further action was taken.
The Fair Contracts for Growers Act of 2007 was listed on
the Judiciary Committee's agenda for the first time on April
12, 2007. On May 17, 2007, the Committee considered the bill,
and prior to voting to report it, the Committee defeated two
amendments offered by Sen. Hatch on behalf of Sen. Kyl.
The rollcall vote on the amendment, offered by Senator
Hatch on behalf of Senator Kyl, allowing state law to supersede
the federal standards established in the bill was as follows:
Tally: 6 Yes, 11 No, 2 Not Voting.
Democrats (10): N, Leahy (D-VT); N, Kennedy (D-MA); N,
Biden (D-DE); N, Kohl (D-WI); N, Feinstein (D-CA); N, Feingold
(D-WI); N, Schumer (D-NY); N, Durbin (D-IL); N, Cardin (D-MD);
N, Whitehouse (D-RI).
Republicans (9): P, Specter (R-PA); Y, Hatch (R-UT); N,
Grassley (R-IA); Y, Kyl (R-AZ); Y, Sessions (R-AL); NV, Graham
(R-SC); Y Cornyn (R-TX); Y, Brownback (R-KS); Y, Coburn (R-OK).
The rollcall vote on the amendment, offered by Senator
Hatch on behalf of Senator Kyl, allowing mandatory arbitration
but including some procedural protections during the
arbitration process was as follows:
Tally: 6 Yes, 11 No, 2 Not Voting.
Democrats (10): N, Leahy (D-VT); N, Kennedy (D-MA); N,
Biden (D-DE); N, Kohl (D-WI); N, Feinstein (D-CA); N, Feingold
(D-WI); N, Schumer (D-NY); N, Durbin (D-IL); N, Cardin (D-MD);
N, Whitehouse (D-RI).
Republicans (9): P, Specter (R-PA); Y, Hatch (R-UT); N,
Grassley (R-IA); Y, Kyl (R-AZ); Y, Sessions (R-AL); NV, Graham
(R-SC); Y, Cornyn (R-TX); Y, Brownback (R-KS); Y, Coburn (R-
OK).
The Committee then ordered the Fair Contracts for Growers
Act, without amendment, to be reported favorably to the full
Senate, with a recommendation that the bill do pass. The
rollcall vote on this proposition was as follows:
Tally: 11 Yes, 2 No, 6 Not Voting.
Democrats (10): Y, Leahy (D-VT); Y, Kennedy (D-MA); Y,
Biden (D-DE); Y, Kohl (D-WI); Y, Feinstein (D-CA); Y, Feingold
(D-WI); Y, Schumer (D-NY); Y, Durbin (D-IL); Y, Cardin (D-MD);
Y, Whitehouse (D-RI).
Republicans (9): P, Specter (R-PA); P, Hatch (R-UT); Y,
Grassley (R-IA); N, Kyl (R-AZ); P, Sessions (R-AL); P, Graham
(R-SC); N, Cornyn (R-TX); P, Brownback (R-KS); P, Coburn (R-
OK).
III. Section-By-Section Summary of the Bill
Sec. 1. Short title
This section provides that the legislation may be cited as
the ``Fair Contracts for Growers Act of 2007.''
Sec. 2. Election of arbitration
This section defines the key terms of the legislation. It
establishes that both parties to a livestock or poultry
contract must consent to arbitration after the dispute arises.
It also requires that an explanation of the basis for any
awards made through the arbitration process be provided in
writing and with a discussion of the factual and legal basis
for that decision.
Sec. 3. Effective date
This section establishes the effective date of the
legislation. It specifies that the amendments made by Section 2
shall apply to a contract entered into, amended, altered,
modified, renewed, or extended after the date of enactment of
this Act.
IV. Congressional Budget Office Cost Estimate
The Committee sets forth, with respect to the bill, S. 221,
the following estimate and comparison prepared by the Director
of the Congressional Budget Office under section 402 of the
Congressional Budget Act of 1974:
June 13, 2007.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 221, the Fair
Contracts for Growers Act of 2007.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Daniel
Hoople.
Sincerely,
Peter R. Orszag.
Enclosure.
S. 221--Fair Contracts for Growers Act of 2007
S. 221 would amend federal law governing the use of
arbitration in certain contracts with poultry and livestock
growers. Under the bill, any dispute arising from a contract
involving a livestock or poultry producer that is entered into
or modified in any way after the date of enactment would be
subject to arbitration only in situations where all contracting
parties give written consent to its use. If arbitration is
elected, the arbitrator would be required to provide a written
explanation of the factual and legal basis for any award
determination.
CBO expects that the number of disputes heard in federal
and state courts would increase under the bill; however, such
an increase would likely have an insignificant effect on the
courts' overall caseload. As such, CBO estimates that
implementing S. 221 would have no significant cost over the
next five years. Enacting the bill would have no effect on
direct spending or revenues.
S. 221 would impose no intergovernmental mandates as
defined in the Unfunded Mandates Reform Act (UMRA) and would
impose no costs on state, local, or tribal governments.
S. 221 would impose private-sector mandates, as defined in
UMRA, on parties involved in livestock or poultry contracts
that provide for arbitration and on arbitrators elected to
resolve disputes under those contracts. The bill would impose a
mandate by requiring such contracts to allow arbitration only
after both parties in a dispute agree in writing to arbitration
after the controversy arises. The bill also would require an
arbitrator elected to resolve a dispute in such cases to
provide the parties with a written explanation of the factual
and legal basis for the award. Based on information from
industry sources, CBO estimates that the direct cost of those
mandates would fall well below the annual threshold established
in UMRA ($131 million in 2007, adjusted annually for
inflation).
The CBO staff contacts for this estimate are Daniel Hoople
(for federal costs) and Paige Piper/Bach (for the private-
sector impact). This estimate was approved by Peter H.
Fontaine, Deputy Assistant Director for Budget Analysis.
V. Regulatory Impact Evaluation
In compliance with rule XXVI of the Standing Rules of the
Senate, the Committee finds that no significant regulatory
impact will result from the enactment of S. 221.
VI. Conclusion
Enactment of the Fair Contracts for Growers Act, S. 221, is
long overdue. This bipartisan legislation will ensure that the
individual farmers who produce livestock and poultry are able
to make a meaningful choice between arbitration and civil
litigation when resolving disputes under their livestock and
poultry contracts with large corporate processors.
VII. ADDITIONAL VIEWS OF SENATORS FEINGOLD, DURBIN, AND KENNEDY
We fully support S. 221 and the committee report. We
provide these additional views to respond to the minority views
filed by Senators Kyl, Specter, and Brownback, which primarily
include criticism of a bill that the committee has not yet
considered, the Arbitration Fairness Act, S. 1782. We are
cosponsors of that legislation, which would render
unenforceable pre-dispute arbitration agreements in consumer,
employment, and franchise contracts.
The primary assertion of the minority views is that both S.
221 and S. 1782 will eliminate the option of arbitration, which
will cause great economic hardship to defendant companies. They
assert, for example, that S. 1782 would mean that ``every
dispute would have to go to court,'' and that:
[O]nce arbitration agreements are rendered null and
void by this Act [S. 221], there will be nothing
``voluntary'' about the litigation that parties will be
forced to endure. The bill's assault on ``mandatory''
arbitration is more clearly and accurately described as
the creation of mandatory and unavoidable litigation.
Reading these pronouncements, one might think that the
bills actually prohibit arbitration. They do not. Under both S.
221 and S. 1782, parties to a dispute remain free to choose
arbitration rather than litigation. And we are confident that
many will. But the very fact that the minority views assume
that arbitration will never take place if corporations cannot
force farmers, or consumers, or employees to go to arbitration
by putting an arbitration clause into a take-it-or-leave-it
contract speaks volumes. If arbitration is such a wonderfully
fair and efficient alternative to litigation, why wouldn't a
consumer or a worker choose it voluntarily?
The point of S. 221, and of S. 1782, which we hope the
committee will consider at some point in the future, is to give
parties who have a dispute a choice, after the dispute arises,
of how they want to resolve it. If arbitration is as fair and
cost-efficient as the defenders of mandatory arbitration argue,
then surely farmers, consumers, and employees will choose it
when they have the freedom to make a real choice. The problem
with the current system, as years of experience have shown in
the area of agricultural contracts, is that arbitration has
proven very beneficial and efficient for the large repeat
player, but not so for the individual farmer, grower, consumer
or employee. Indeed, one effect of S. 221 may be that once the
farmer has a real choice, arbitration programs will have a much
greater incentive to make their systems fair if they want to
stay in business.
The amendment offered by Senator Kyl during the committee's
markup of S. 221 to give the parties the right to discovery and
to a written decision in arbitration was not a serious effort
to repair an arbitration system that farmers have come to see
as stacked against them. A bill similar to S. 221 passed the
Senate by a wide margin as an amendment to the farm bill in
2002. Between that time and the date of the committee action,
defenders of the current system made no effort to move
legislation to improve the arbitration process. Farmers have
waited long enough for Congress to respond to their grievances.
Alternative half-measures hastily concocted only when
legislation designed to help them is finally moving are not
enough.
We say half-measures because Senator Kyl's amendment did
not even come close to rectifying the problems with the current
arbitration system. For example, there is generally extremely
limited judicial review of arbitration decisions. Individuals
who find themselves in mandatory binding arbitration are often
unable even to challenge the format and procedures that may
generate an unjust result.
In addition, farmers have no way of knowing how often the
arbitrators they must use under the contract have ruled in
favor of agribusiness in similar cases. Some arbitration
systems do not even require that the arbitrators follow
applicable law. Another issue that the amendment did not
address is the availability and cost of transcripts of the
arbitration proceedings. The list goes on and on. The defeat of
Senator Kyl's amendment was not a result of a partisan
unwillingness to recognize a good faith effort to ``fix''
mandatory arbitration. (As the committee report correctly
notes, a bipartisan majority of the committee voted against
each of the Kyl amendments.) It was defeated because it was too
little, too late.
The minority views reserve their greatest scorn for S.
1782, which has not yet been considered by the committee. We
see no reason to respond in detail to the one-sided discussion
of a supposedly typical employment discrimination case that now
often must go to arbitration, but could be filed in court under
that bill. We could easily describe actual employment
discrimination complaints rejected without analysis or legal
basis by arbitrators handpicked by employers, and would note
that Congress passed the Civil Rights Act of 1964 and other
civil rights statutes to give workers the ability to take their
grievances to court, not to a biased arbitration panel. In any
event, we look forward to the committee's future work on our
bill because mandatory arbitration is just as much of a problem
for consumers and employees as it is for farmers. We are
confident that a record will be developed to support our bill,
and we reject the portrait of exploding, extortionist
employment litigation that the minority views paint.
The Federal Arbitration Act of 1925 was passed to allow the
courts to recognize and enforce alternative dispute resolution.
But with the help of a few mistaken court decisions, it has
become a weapon in the hands of big business to avoid the laws
that Congress and state legislatures pass to protect consumers
and employees, and yes, farmers. Big companies are making use
of a parallel but very different legal system and forcing those
they do business with to participate in it. We make no
apologies for wanting to reverse the alarming trend of
mandatory pre-dispute arbitration agreements, and look forward
to Congress enacting S. 221 and other similar legislation to
restore the primacy of the rule of law.
Russell D. Feingold.
Richard Durbin.
Edward M. Kennedy.
VIII. MINORITY VIEWS OF SENATORS KYL, SPECTER, AND BROWNBACK
With this Act, the Senate Judiciary Committee starts the
process of repealing the Federal Arbitration Act of 1925.
Without holding a single hearing on the subject, the committee
begins to turn back the clock on over 80 years of alternative
dispute resolution in this country.
It is bad enough that American families will be forced by
this legislation to pay more for poultry and other produce so
that the trial lawyers can get their cut. Unfortunately,
however, the new Congress's assault on the arbitration system
is not limited to contracts involving poultry and livestock.
Already, two majority members of this committee have introduced
the so-called ``Arbitration Fairness Act of 2007,'' S. 1782,
which would gut arbitration agreements that cover ``employment,
consumer, or franchise disputes'' or that involve parties with
``unequal bargaining power.'' That's pretty much everything,
folks. No longer would American businesses be able to avoid
going to court over garden-variety disputes whose amount in
controversy is overwhelmed by the costs of paying for a lawyer
and going to trial--the types of disputes whose only reasonable
method of resolution is arbitration. Instead, every dispute
would have to go to court--or, more realistically, would be
settled for a nuisance payment, regardless of the merits of the
complaint. And to top it all off, the bill's ``unequal
bargaining power'' exception should ensure enough litigation
over its meaning to put many a lawyer's children through
college.
Allow us to explain why arbitration is necessary--why
Congress endorsed its use over 80 years ago, and why all of the
intervening Congresses, mostly under the control of Democratic
majorities, have been content to preserve this system. The best
reason for arbitration is that for many disputes, the cost of
litigating the matter in court grossly exceeds the amount at
issue. For example, in an employment dispute, if the plaintiff
raises McDonnell-Douglass ``inference of discrimination''
claims, the defendant will be required to produce papers and
defend depositions regarding not only the work history of the
plaintiff employee, but also of all similarly situated
employees. Even if the plaintiff's claims are utterly devoid of
merit, simply hiring the lawyers and going through discovery,
depositions, and summary judgment motions can easily cost the
defendant over $250,000. And of course, most jobs in this
country pay only a fraction of that amount.
Think about the position in which Congress would be placing
a small employer--one whose resources do not permit retention
of in-house counsel and who lacks a bottomless litigation
budget. Imagine that this employer has an employee whose
performance and work habits are substandard, and so he fires
that employee. The employee then turns around and sues the
employer, alleging various forms of unlawful discrimination.
The annual pay for the job in question is only $40,000. But the
employer must now retain an attorney, and that attorney
explains to the employer that litigating the case through its
conclusion will cost over $250,000.
What do the proponents of this legislation expect such an
employer to do? Do they think that every employer--regardless
of its size--should be forced to pay a quarter of a million
dollars for the privilege of firing a nonperforming employee?
Surely even U.S. Senators cannot be so unfamiliar with the
reality of the private economy that they believe that every
fired employee's legal complaint is meritorious. Do they think
that fired employees, and especially their lawyers--who will
need no time at all to appreciate the economic dynamics of this
new system--will not take advantage of their leverage in such a
situation?
What will happen if Congress guts arbitration is this:
every employer, regardless of its size, will begin to settle
employment discrimination suits for their nuisance value.
Private employers are not in business to win employment
lawsuits. They are in business to make money. And if confronted
with the alternatives of ``winning'' a lawsuit for $250,000, or
paying $15,000 and attorney's fees to a nonperforming employee
in order to make him go away, employers will simply pay the
ransom. It is the only economically reasonable thing to do. And
Congress will have been a party to this extortion.
Allow us to also dispel the notion that this Act is
intended to ``fix'' arbitration. This Act is not designed to
fix the system, but to gut it. One of the majority report's
complaints about poultry-contract arbitration--one of the
supposed causes for this legislation--is that ``under the
current system, there is no right to receive a written
explanation of the arbitrator's decision.'' Yet during the mark
up of this bill, an amendment was offered on behalf of Sen. Kyl
that would have done just that--that would have preserved
arbitration while creating a right to demand that an arbitrator
explain his decision in writing. The Kyl amendment also would
have empowered the arbitrator to order the discovery of
documents. Yet that amendment was defeated on a party-line
vote. For all of the alleged problems with arbitration that are
described in the majority report--problems, by the way, that
were never identified in any hearing before the committee with
jurisdiction over this bill--the purpose of this bill is not to
address those problems. The purpose of this bill is to gut
arbitration.
Two other aspects of this legislation highlight just how
extreme the bill is. First, the Act applies retroactively--it
not only prevents parties from entering into enforceable
arbitration agreements in the future, it also guts arbitration
agreements that were made years before this legislation was
even proposed. It simply takes pre-existing contracts and tears
them up.
Second, this bill's violence against private contracts is
not limited to agreements enforceable under federal law. The
Act also reaches into state jurisdiction, gutting contracts
voluntarily entered into between parties who are operating in
the same state and whose agreements would be enforceable in
state courts as a matter of state law. This Act preempts the
laws of all 50 states, preventing any state from preserving
enforceable arbitration as an alternative to courtroom
litigation. Again, an amendment was offered in the committee
that would have limited the damage done by this Act to
agreements sought to be enforced under federal law, and that
would have preserved agreements that are enforceable in state
court pursuant to state law. Again, the amendment was defeated
on a party-line vote.
The majority report also cites the high up-front fees
sometimes charged for poultry arbitrations as a justifying
cause for this legislation. Again, had this problem even been
identified in a hearing before this committee prior to the mark
up of the legislation, surely some agreement could have been
reached on a standard for limiting such fees. Obviously, it is
not necessary to retroactively gut both federal and state
arbitration in order to regulate such fees. Moreover, we find
it somewhat ironic that the majority expresses such concern
over a $20,000 fee for conducting an arbitration. If
arbitration is no longer an enforceable option, the costs
imposed on defendants both large and small by courtroom
litigation can be expected to exceed arbitration fees by an
order of magnitude.
The majority report and proponents of the bill complain of
``mandatory'' arbitration. What they really object to is
enforceable arbitration. The Act prevents private parties from
entering into any enforceable agreement to arbitrate these
disputes--even if such an agreement is entirely voluntary. It
is the bill's ban on arbitration agreements that is properly
characterized as mandatory. And once arbitration agreements are
rendered null and void by this Act, there will be nothing
``voluntary'' about the litigation that parties will be forced
to endure. The bill's assault on ``mandatory'' arbitration is
more clearly and accurately described as the creation of
mandatory and unavoidable litigation.
Harnessing the ancient political power of farmers to the
legislative agenda of the Association of Trial Lawyers of
America, this committee turns back the clock on over 80 years
of the development of the arbitration system in this country;
it drives up the costs that Americans will be forced to pay to
feed their families; and it ensures that the legal system will
be used to extract nuisance settlements from small businesses
that will now have no enforceable alternative to the expense of
courtroom litigation. With regard to this last effect, it is a
shame that this committee, in particular, would be a party to
facilitating such abuses. We should never knowingly permit the
legal system to be used as a vehicle for litigation extortion.
This is a terrible bill. And it is a bad omen of things to
come.
Jon Kyl.
Arlen Specter.
Sam Brownback.
IX. Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
S. 221, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
9 U.S.C. Sec. 17
Sec. 17. Livestock and Poultry Contracts
(a) Definitions.--In this section:
(1) Livestock.--The term ``livestock'' has the
meaning given the term in section 2(a) of the Packers
and Stockyards Act, 1921 (7 U.S.C. 182(a)).
(2) Livestock or poultry contract.--The term
``livestock or poultry contract'' means any growout
contract, marketing agreement, or other arrangement
under which a livestock or poultry grower raises and
cares for livestock or poultry.
(3) Livestock or poultry grower.--The term
``livestock or poultry grower'' means any person
engaged in the business of raising and caring for
livestock or poultry in accordance with a livestock or
poultry contract, whether the livestock or poultry is
owned by the person or by another person.
(4) Poultry.--The term ``poultry'' has the meaning
given the term in section 2(a) of the Packers and
Stockyards Act, 1921 (7 U.S.C. 182(a)).
(b) Consent to Arbitration.--If a livestock or poultry
contract provides for the use of arbitration to resolve a
controversy under the livestock or poultry contract,
arbitration may be used to settle the controversy only if,
after the controversy arises, both parties consent in writing
to use arbitration to settle the controversy.
(c) Explanation of Basis for Awards.--If arbitration is
elected to settle a dispute under a livestock or poultry
contract, the arbitrator shall provide to the parties to the
contract a written explanation of the factual and legal basis
for the award.