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Are Americans Losing Access to Courts?

Jeff Bleich, president of the California State Bar, writes in the California Bar Journal about how the legal system is beginning to fail the middle class due to the high costs of the legal system.  He makes an analogy to the medical profession and doctors and how the average person (absent insurance) is priced out of decent care and treatment.

He writes:

It should not come as any surprise to us to hear that — as a profession — we are not meeting the needs of a good portion of the public. Most of us have friends or relatives who have gone without a lawyer, or chose someone outside of their field, or settled a case that they shouldn’t have, simply because they couldn’t afford the right lawyer. A quarter of all California attorneys earn less than $50,000 per year, and so if they faced a serious legal problem, they likely could not afford themselves. I routinely counsel friends that they would be better off absorbing some slight or injustice rather than face the cost, risk and pain associated with full litigation.

He also lays out some other sobering stats:

In 2005, only one in eight family law litigants had a lawyer; 34 percent of landlords and more than 90 percent of tenants were unrepresented in their housing disputes. As any lawyer who has sat through a long calendar and watched unrepresented parties try to navigate the system knows — and despite the best efforts of the self-help centers in the courts — our system is not equipped to deliver on the promise of equal justice to most pro se parties. They know it too. In fact, there are blogs and Web sites that are only too ready to describe the shortcomings of the system.

He proposes three “solutions” to the problem:

  1. The right to counsel in certain types of civil cases (similar to criminal cases when the accused cannot afford an attorney).
  2. Alternative Models including preventative law services to avoid litigation in the first place and utilizing specialized judges and investigators.
  3. Creating alternatives to lawyers, such as less-than-full-service lawyers to advise (i.e. students and specially trained paralegals) or allowing out-of-state attorneys to handle certain cases via the internet.

Sadly, Mr. Bleich omits mediation as alternative to resolve this problem.  Maybe someone cannot afford $20,000+ on an attorney to take them through discovery and a trial, but maybe they can afford $2,000 on an attorney and their share of a mediator — and get their case resolved in a fully informed manner.  Mediation works, especially when the parties are fully involved in the process and they have an understanding of what the potential outcomes could be.

Is Arbitration Better than Litigation?

This question is one of the big debates going on in the legal and ADR/CDR worlds.  Arbitration is essentially a private court (actually, that’s what tv shows like “People’s Court” and “Judy Judy” are).  The advantage is generally lower costs for all the parties, quicker hearings and relaxed rules of evidence.  The disadvantage is that the arbitrator’s ruling can only be appealed on very narrow grounds (fraud, conflict of interest, abject disregard for law, etc.).  Courts generally uphold the sacrosanct nature of the limited right to appeal.  So, if you don’t like the ruling of the arbitrator, you’re stuck with it.

You may not realize it, but more and more agreements you enter into contain mandatory arbitration clauses.  Credit card agreements are the big one.  Who reads those things when you sign up?  Not many people do (it’s long, boring, in small print and in legalese that the average person may have trouble understanding).  But then they get into financial trouble, default on their account payments, get scared and ignore all the arbitration notices, miss the hearing and have a default judgment against them that cannot be vacated and have little recourse afterward.  This and the converting of arbitration proceeding closer to a court trial (with higher discovery costs) are the main criticisms leveled at the arbitration process.

The U.S. Chamber for Legal Reform (an arm of the U.S. Chamber of Commerce — who represent businesses) has come out with a study showing how credit consumers are better off going through arbitration than litigation.  They compared arbitrations in California to a “random sample” of trials in New York City courts.  Their study claims that in 32% of the CA arbitrations the consumer prevailed versus 7% in NYC courts.  The arbitrations resulted in a lower default rate (47% vs. 80%) and a higher settlement rate (21% vs. 6%).

Companies like to use arbitrations because it limits their expenses on collecting on delinquent accounts.  So, in analyzing the study, consider the sponsor (and their motivations).  Also, you would be right to question if apples and oranges are being compared.

The debate will continue.

FINRA to test all public arbitration panels

FINRA is the financial industry’s self-regulatory arm.  Part of what they do is manage arbitrations for broker-client and broker-employee disputes.  Nearly all brokerage agreements and broker employment agreements contain a clause mandating aribtration rather than litigation.

Most arbitration panels are comprised of 3 arbitrators, one who is considered an “industry” arbitrator (generally, someone who works or has worked in the financial services industry) and two who are “public” arbitrators (never having been associated with the financial services industry).  In this way, the panel will have a perspective from within and outside the industry and having 2 public arbitrators protects the client or employee claimant from feeling like the panel is stacked against them by a self-regulating body.

Now, FINRA is launching a pilot program to test how well an all public panel will work.  From their press release:

Six firms — Merrill Lynch, Citigroup Global Markets, UBS, Wachovia Securities, Morgan Stanley and Charles Schwab — have volunteered to participate in the pilot program. The first five firms will contribute 40 arbitration cases each per year to the program and Schwab, with fewer cases in the forum, will refer 10 cases – meaning that over the course of the pilot, over 400 arbitration cases involving those firms can be heard by all-public arbitration panels. Only the investor making the arbitration claim can elect to participate in the pilot program; the firms will not decide which cases become part of the pilot. The pilot will be available to eligible claims filed on or after October 6, 2008.

FINRA is also reaching out to a wide range of other firms to join the pilot so that a variety of firm sizes and business models will be represented.

The pilot program will be evaluated according to a number of criteria, including the percentage of investors who opt into the pilot and the percentage of investors who choose an all-public panel after opting in. FINRA will compare the results of pilot and non-pilot investor cases, including the percentage of cases that settle before award (and how quickly they settle). FINRA will also study the length of hearings and the use of expert witnesses in pilot and non-pilot cases.

I am an arbitrator for FINRA.  I’ll be curious to see how this works.

No Mediation, Case Dismissed!

A federal court in California recently ruled that a company who did not mediate their dispute prior to filing suit, according to the agreement between the parties, will have its case dismissed.  In Brosnan v. Dry Cleaning Systems Inc, plaintiff entered a dry cleaning franchise agreement with the defendant.  The agreement stipulated that any disputes must be put to mediation before filing suit in court.  That did not happen in this case.

Plaintiff argued that the case should be stayed (paused) until a mediation could be held.  The court did not agree, holding that unlike in an arbitration case, there were no preliminary issues to be settled, and granted defendant’s motion to dismiss.

Hat tip to National Arbitration Forum.