Mandatory Arbitration can be a Consumer's Worst Nightmare
Arbitration has be touted as a fair method for two parties to settle a conflict and save time and money. All too often that is not the case in foundation repair conflicts between the homeowner and the contractor. According to Claude E. Ducloux, attorney, "Arbitration is a remedy with treacherous costs, unreviewable results, and lacking any requirement that resolution follow legal precedent." Did you hear about the homeowner conflict with a contractor over a $22,650 foundation repair job that was billed $63,670 in arbitration expenses? Do you think $63,670 in arbitration expenses is unconscionable? Obviously some people thought it was OK, because the court had to rule on the "unconscionability" of these arbitration expenses. Keep reading, we will tell you about it.
Many of the foundation repair companies in Texas require the homeowner to sign a contract with a Mandatory Arbitration clause. Do NOT Sign It !!!!
And now you can read about the $63,670 in arbitration expenses from an article
that was published in the Journal
of Texas Consumer Law and reprinted with permission from The Austin Lawyer
As a lawyer with a broad litigation practice whose clients are primarily reaching into their own pockets to pay me, I've always been extremely concerned with the price of legal services. When arbitration became the "golden child" alternative to litigation, I jumped on that bandwagon along with everybody else. My experiences, however, in arbitration, combined with now increased access to the real courtroom resulting from the palpable decline in litigation, have caused me to reassess that position. As you know from my previous columns, I've been very concerned that the touted benefits of arbitration (speed and finality) are now all too often outweighed by the expense, uncertainty, and all too frequent prejudice of the arbitrators towards their "customer base": those who get sued a lot (also known as repeat customers). Frankly, no arbitrator who appropriately whacks a bad guy with statutory penalties and fees can realistically expect to get repeat business from that party. And the outcomes prove it.
Therefore, while I have hopped off that speeding train, the judiciary has all too often ordered "Full Speed Ahead!" We're seeing opinions that endorse arbitration at every turn, which, in my mind, is an evolving mystery. Frankly, considering the size of disputes that most of my typical business clients have, give me a good ole' county court-at-law judge or district judge anytime. I truly believe our judges try to do their best work, and try to get the answer right without worrying about politics or "repeat business." The resolution of small cases at the courthouse is speedy and, unless your firm is training a new associate, reasonably inexpensive.
Indeed, two of the three of the litigation-based CLE programs at which I have spoken on other issues over the Summer of 2005 have each featured speakers warning the attendees of the dangers of arbitration clauses and the appellate bench's apparent addiction to their validity. Unfortunately, in our polemic society, intelligent discussion all too often gives way to invective, so any criticism is termed anecdotal, and those who challenge the wisdom of arbitration are termed "poopieheads."
Now, just when I need it, here comes a perfect case to illustrate my point. So let me throw a log on that fire: the recent case of Olshan Foundation Repair v. Ayala (2005 Tx. App. LEXIS 7350, 04-0400829CV) out of San Antonio. Get a load of this.
The Ayalas hired Olshan for foundation stabilization for a total job price of $22,650.00. As with many of these companies, they have learned not only to install foundation parts, but arbitration clauses as well. When the foundation allegedly failed, the Ayalas sued, and Olshan invoked the arbitration clause. The Ayalas and Olshan received the standard letter saying that (1) AAA* will preside over the arbitration; (2) a panel of three structural engineers approved by AAA will conduct the arbitration; and (3) the arbitration will cost the parties over $63,670.00, (!) and the Ayalas were invoiced by AAA for their "share" of $33,150.00 "payment due upon receipt" (Wouldn't you like to have been a fly on the wall when they opened that bill!). The Ayalas sued to void the clause, arguing that the arbitration agreement unconscionable.
The trial court ruled for the Ayalas, and, in a split decision, the San Antonio Court affirmed that finding, admitting that a $64,000.00 fee to arbitrate a $22,500.00 dispute is "by any definition, shocking." As the Court's majority opinion reports, the evidence concerning costs and expenses was uncontroverted. Nevertheless, the dissent argued that "unconscionability" had to be determined at the outset of the contract, and since nobody knew that AAA would charge that much (duh. How could they disclose that fee? No one would ever hire Olshan!), the dissent would have told them, "tough noogies, the courts favor arbitration," and thus, would have forced the Ayalas to pay the arbitrator to resolve that case (despite their evidence that their "share" of the fee constituted a substantial percentage of the Ayalas' annual income).
Read it yourself. Many of you might represent interests who are "repeat customers" and therefore love arbitration. In my mind, unless it's a very small matter using an arbitrator you can trust, and you need instant and final resolution; arbitration is proving to be a crap shoot of ever-increasing uncertainty. Unlike a mediator, whose worst result is simply failing to get a case settled, validate your parking, or poison you with bad cookies, a bad arbitrator, who's only qualification often is that he or she passed a training course, can really ruin people financially. Is this the justice the founding fathers sought to promote?
Where are you on this? As the Legislature continues to pound nails into courthouse doors with cumbersome, ineffective and discouraging administrative remedies, thus closing down judicial avenues to recovery for consumers, small businesses and homeowners, we lawyers must play a significant role in protecting the public and pushing the debate. If you think I'm wrong on this, please let me hear from you. If you think I'm right, make sure your clients understand (as I ensure mine do) that arbitration is not a panacea, but just one other remedy with treacherous costs, unreviewable results, lacking any requirement that resolution follow legal precedent.
If that's wrong, sue me. I promise you won't have to arbitrate.
Keep the faith.
*Hill, Ducloux, Carnes & Hopper
According to the Public Citizen web site, which presents the first comprehensive collection of information on arbitration costs, arbitration does not seem to achieve its goals of fairness, speed, lower cost, and finality. Actually, in many cases arbitration offers the opposite - lack of fairness, delays, higher cost, and no final solution - that is, a court case after arbitration. The major findings of this group are:
- The cost to a plaintiff of initiating an arbitration is almost always higher than the cost of instituting a lawsuit.
- Arbitration costs are high under a pre-dispute arbitration clause because there is no price competition among providers.
- Arbitration costs will probably always be higher than court costs in any event, because the expenses of a private legal system are so substantial.
- Arbitration saddles claimants with a plethora of extra fees that they would not be charged if they went to court.
- Taking a case to arbitration does not guarantee that a consumer or employee will stay out of court, making arbitration still more costly.
- The costs of arbitration are so high that even some businesses that choose to include arbitration clauses in contracts with consumers and farmers have refused to pay the fees.
- High arbitration costs can also be used to bludgeon an adversary.
- The oft-cited benefits that arbitration can offer in exchange for higher fees will seldom benefit consumer litigants.
You may read the complete article from Public Citizen by clicking on one of the two links below.
We have More Arbitration Information - see below
The owners and employees of Dawson Foundation Repair wish to be very clear with you - our customers and future customers. We do NOT have Mandatory Arbitration clauses in our agreements. We provide the very best product in the foundation repair business - Bell Bottom Piers - which are also the most costly for the contractor. We also provide the very best service in the industry - read some of our 400+ testimonial letters. Please check us out with the Better Business Bureau. Please go to Google and search for lawsuits or complaints against our company - you won't find any. The very few complaints we have had in the past were resolved without arbitration or a lawsuit.