Consumer Arbitration

Consumer Arbitration

For many consumers in the United States, buying a product or service that does not work out could result in a person wondering how consumer arbitration works.  For many years, courts have upheld forcing disputes into arbitration when a consumer contract, which a consumer often signs and accepts simply by purchasing an item, designates that all disputes arising from the dispute should be submitted to arbitration.  There is controversy surrounding this, particularly concerning the oversight of the process and the public accountability that comes from product defect litigation that is lost in arbitration, but there can be benefits of arbitration for both the consumer and the manufacturer.

Understanding what consumer arbitration is and how it works will help consumers know how to best prepare and take advantage of any benefits that may be had while avoiding all the drawbacks that could be possible.  It is also important to understand why some people are opposed to forced arbitration for consumer disputes.  This article will seek to answer these questions and help consumers understand consumer arbitration and how it could affect them.

Consumer Arbitration Defined

Consumer arbitration is the process of arbitration that happens due to a dispute between a consumer of a product and the manufacturer or distributor.  This is often because the product was defective in some way or because there was an issue in what was bought and what was delivered.

Arbitration is a way to settle a dispute that allows the parties to turn the decision-making over to a neutral third party who helps the parties resolve their dispute.  It has a slightly similar feel to litigation because the parties will present their case to the arbitrator, who will review the evidence and issue an order called an award.

Unlike litigation, the parties are rarely able to appeal the award; however, the process is significantly quicker and less expensive most of the time, and the parties can keep the dispute private.  Because the process is often faster, many companies have elected to use arbitration to settle their disputes.  It keeps them out of the courts and continuing to develop their products.

The Process of Consumer Arbitration

Consumer arbitration will often follow the same pattern as any other type of arbitration, but there may be specific instances where the parties need to spend extra time and care to help the process move smoothly.  The steps of a consumer arbitration typically follow the following instances:

Agreement

Before the actual arbitration can begin, the parties will need to agree to arbitrate.  This can happen in two ways: pre-dispute or post-dispute.

Predispute agreements are often contained in a contract between the parties that requires that all disputes that arise under the contract will be submitted to arbitration.  This is often called an arbitration clause.

This is often the sticking point in consumer arbitration because the consumer will typically “sign” an arbitration clause as a part of their purchase without fully knowing that they are doing so.  Because arbitration is supposed to be voluntary, many people have an issue with an unknowing signature, which is a valid concern with the process. However, courts have continued to enforce agreements unless there are clear issues, which have continued to draw criticism and debate.

Initiation

Once a dispute arises and the parties have established that they have an agreement to arbitrate or courts have ordered arbitration, they will need to initiate the arbitration process.  Each arbitration provider has a different requirement for the initiation of the case.

Several pleadings will need to be submitted to start the process.  These are:

  • Demand: A demand for arbitration is a formal request to both the organization that handles the arbitration under the agreement and the other party. This request will begin the process and start any timelines that need to be met.  It can be served in conjunction with the statement of the claim, or it may be independent.
  • Statement of the Claim: The party that is requesting the arbitration will also submit a statement of the claim. This statement will include the harm that occurred, the person or entity that harmed them, and what relief is requested.  This is usually submitted with the demand for arbitration and served on the opposing party.
  • Answer: Once the other party receives the statement of the claim and the demand for arbitration, they have the chance to answer. An answer is a response to the statement of the claim.  It will list any defenses to the claim and any counterclaims against the initiating party.

These pleadings help orient the parties and create a full picture of the dispute for the arbitrator to understand once appointed.

Arbitrator Selection

Once arbitration has begun, the parties will need to have an arbitrator appointed.  There are several ways to choose an arbitrator, each with its benefits and drawbacks.

The method for arbitrator selection will usually be in the agreement, so this will need to be considered when drafting the agreement to ensure the best process. An arbitrator may be appointed in any of the following ways.

  • By the Parties: Many parties, especially when they are individuals or small businesses, will choose to find an arbitrator themselves. This can be through organizations or searches online.  Both parties will need to agree on the arbitrator if the decision will be made by a single arbitrator.  If it is a panel, each party will usually pick one arbitrator, and the two picked by the parties will choose the final arbitrator.
  • By an Organization: The parties may also choose to have an organization appoint the arbitrator. This can be under the organization’s arm, or by simply asking for the organization’s input.  The parties will need to submit a request that will often outline any experience or expertise that is needed, and the organization will appoint the arbitrator.
  • By a Combination: In some cases, the appointment of the arbitrator will be done through a combination of the processes listed above. The parties will submit a request to an organization, which will send a list of possible arbitrators that the parties then choose an arbitrator from.  This can often be helpful because it narrows the list to several arbitrators that the parties can choose from instead of starting from scratch, but it also gives the parties a choice in the matter.

Choosing the right arbitrator can impact the rest of the arbitration, so it is often wise to spend time and effort on a good arbitrator.  Consumer arbitration will often need a good arbitrator who has experience dealing with the specific types of disputes that arise in consumer arbitration.

Initial Hearing

In more complex or formal cases, the parties may choose to have an initial hearing.  Here the parties will outline the dispute, familiarize themselves with the process, the arbitrator, and each other, and discuss deadlines for discovery or other issues that need to be discussed.

This will often be set shortly after the demand is made and the arbitrator is appointed.  This hearing is less about the issues and more about ensuring the parties have a solid understanding of the rest of the process and are familiar with the arbitrator and any rules they will have.

Discovery

Discovery is the process of exchanging information between parties.  There will often be discussions about what needs to be exchanged and when it needs to be exchanged in the initial hearing.  For complex issues, this process may take a long time as the parties are gathering evidence and exchanging it.

The evidentiary rules are laxer in arbitration than in litigation, and the parties may have less recourse for discovery issues than they would in litigation.  Documents and witnesses will need to be exchanged between the parties to help both parties adequately prepare for the hearing.   This step in arbitration will often be particularly important in consumer arbitration because the exact injuries and issues with the product will need to be discussed and the evidence of these issues will need to be discovered.

Hearing

Once the discovery process has wrapped up, the parties will participate in a hearing.  This is the place where the parties will present their case and the arbitrator will hear the evidence to decide.  The party that requested the arbitration will often present first, giving the arbitrator any evidence, they have to support their claim.

After this, the responding party will present their case and defenses.  This process is usually highly dependent on the complexity of the case and the preparation of the parties.  If the dispute is simple and the parties are prepared, it will probably go quickly and could be as short as a day or less.

However, in complicated cases or when the parties are not fully prepared, the process may last days or weeks.  The parties may also present their ask for how the case is resolved, which the arbitrator may consider when they are issuing an award.

Award

The final step in the arbitration process is the award.  This is the decision of the arbitrator that dictates how the dispute will be resolved.  The arbitrator will usually set a timeline for this process to complete the case.

Unlike litigation, where the decision must choose one side over the other, arbitration awards may take both points of view and create an award that blends the two viewpoints into one result that helps both parties.  This award is often the final stop in arbitration, as there is very little room for an appeal.  Once the parties have received their award, the arbitration will be complete and the dispute will be resolved.

Controversy Surrounding Consumer Arbitration

As mentioned several times, the process of forcing consumers into arbitration is controversial for several reasons.  These reasons include:

  • Actual Acceptance: Many times, the agreements to arbitrate are signed without the consumer fully aware that they are signing any agreement, much less than the agreement to arbitrate is included. When a dispute arises, the consumer will often be unaware that they need to use arbitration to resolve the dispute.
  • One-Sided: The agreements that are included in these contracts are often incredibly one-sided with a skew toward the company. The company drafted the agreement, picked the rules and arbitration company they prefer, and has created no way for the consumer to bargain for this agreement.
  • Lack of Oversight: Especially in consumer arbitration and product liability, arbitration stops the public from knowing about the issue through litigation. This allows the company to potentially continue to produce a defective product or for other consumers to run into the same issue, expanding the problem beyond the parties tied up in arbitration.
  • No Options: As we often discuss on this website, the alternative dispute resolution process is not a one-size-fits-all process. The specific dispute may be suited for other forms of resolution that can help the parties find a good resolution or the case may be particularly suited for litigation. Making every dispute immediately go to arbitration can be a bad option overall for the parties and the dispute.

Consumer arbitration is not the best option for every dispute, and courts and arbitration companies are beginning to realize that the process often does not favor the consumer, so they have begun to build in more safeguards to help the parties resolve their dispute effectively, whether through arbitration or other means.

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