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March 09, 2005
Arbitration in Consumer Contracts is a SCAM!
Over the last decade the use of arbitration as an alternative to our court systems has been growing, especially in consumer contracts. If you have purchased a new home or car, you probably have unknowingly waived your rights to a civil trial by jury for any dispute.
A civil trial is guaranteed by the 7th amendment of the Constitution. Unfortunately due to loopholes in federal law, mandatory, binding arbitration has been forced upon consumers to resolve product defects. Most every new homebuilder in Texas has an arbitration clause as a prerequisite to purchasing a new home to resolve all construction defects, therefore waving their Constitutional rights. In short, to purchase the American Dream, consumers must give up their rights as an American.
Contrary to popular belief arbitration is extremely costly and grossly unfair to the consumer. In fact there has been enough abuse in arbitration that the Texas House and Senate has conducted three investigations into the practice. And the newly created Texas Residential Construction Commission, which oversees the homebuilding industry, has also conducted a very thorough study. At all the hearings, the consumers hammered the home building industry with horror stories attributed to arbitration.
Over the years a number of unfair arbitration awards have been disclosed in the investigations. Even when the arbitration is in the favor of the consumer, the results can be very disappointing. A perfect example of this abuse is an arbitration award against homebuilder Bob Perry that can be found in the Senate hearing public records.
The filing fee was over $6000. In contrast, the fee to file in court is only $125. The cost for the arbitrator was $1000 a day. In court, the Judge and Jury are paid with our tax dollars. The filing fee did not include the cost of an attorney or expert witnesses, which you must have in either arbitration or court. The arbitrator in this case ruled in favor of the homebuyer for a total of $750,000. Unfortunately this award was entered over two years ago, and as of today has not been paid by the builder. (see http://www.hadd.com/documents/perry.pdf)
This is just one of many examples detailing the abuse of arbitration. Because of these investigations, our elected officials have filed bills to curb the abuse. These bills will require all arbitrations to be made public record. Currently the arbitration proceedings are held in secret, away from scrutiny by our elected officials and the public. The bills will also require arbitrators in Texas to be registered with the state and will require full disclosure of the arbitration agreement in new home contracts.
Although these bills attempt to resolve the abuse of arbitration, they fail to acknowledge that all Americans, by the Constitution, have the right to a civil trial by our time honored court system. Arbitration should always be an available alternative to the court system, but consumers should never have to be forced to give up their constitution rights.
Homebuilders and their tort reform groups have long defended the used of mandatory arbitration clauses claiming arbitration is good for the consumer, but the evidence says otherwise. The abuse of arbitration will stop only when it is truly an option, not a mandate, to our current court system. Until then consumers should carefully read their contracts and rethink their purchases if there is a mandatory, binding arbitration clause.
For more information on the abuse of arbitration read the report at http://www.hadd.com/documents/arbitration.pdf
Posted by John Cobarruvias at March 9, 2005 05:41 PM | Permalink
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Comments
Ironically, the City of Houston had an outstanding record on this sort of thing a century ago. We led the nation here in application of admiralty law, such as Common Carriage, to matters of state and local government through statutes such as those establishing the Texas Railroad Commission.
However, the municipal bond lawyers began their rise to power in this City after the Race Riot of 1917 and triumphed altogether after the Red Scare of the 1950's.
Thus, there is no longer common carriage regulation of public services, no building code to speak of, and little or no use of standard codes for ordinary transactions.
Although it was undoubtedly the only unique achievement of the Democratic Party of Texas and the only time Harris County had much influence in the state party, the implementation of Common Carriage at the state level is not on the list of Democratic Party accomplishments published by this party on its website.
The legacies of Houston Democrats Will HOGG, Will CLAYTON, and Major PARTEN have been thoroughly suppressed by the present generation of party leaders. Most of them are lawyers with a stake in replacing uniform and efficient regulation with complex contracting and with the arbitration or litigation that follow from it.
This historical memory-loss and degenerate parasitism is subversive of republican democracy and destructive of both economic and social progress. That, in turn, probably explains how this party has a popular but not an electoral majority in Harris County. It is "sensitive" and "inclusive" but not actually progressive in any but the most marginal respects.
Posted by: John Robert BEHRMAN at March 10, 2005 08:32 AM
Yes, and arbitration is still the biggest consumer scam since the solar powered flashlight.
Posted by: John Cobarruvias at March 10, 2005 10:50 AM
I find it hard to believe the current leaders of the Democratic Party are actively suppressing the legacies of Mr. Hogg, Mr. Clayton, and Mr. Parten, and believe leaving Common Carriage off the list of Democratic achievements an oversight, but not premeditated. I respect your opinions and strongly believe everyone is entitled to their beliefs. Our hope with this blog is to advance the issues of the Democratic Party. We do not expect for everyone to agree with us, or for each of us to agree with everybody who comments on this site. I think it would be dangerous if no one ever asked questions of their leadership. Differing views aid in the balance of power. However, I do not see how making such negative comments helps to move this discussion forward. I believe we all want to improve the standing and effectiveness of the Party, but throwing accusations of memory-loss, degenerate parasitism, and subversiveness do not get us anywhere closer to that goal. I wish that anyone who poses criticism do so in a constructive manner by proposing practical and attainable solutions to the noted problems.
Posted by: Marc Olivier at March 10, 2005 09:52 PM
It is a curious phenomenon: we berate the Republicans for their intolerance of criticism, then berate our own Democrats for being critical -- displaying the exact same intolerance as the Republicans!
This is the worst form of hypocrisy, the kind that gives substance to the claims that Democrats are no better than Republicans.
Posted by: Dale Napier at March 11, 2005 10:30 AM
Hum....I am confused. What does the above comments have to do with the article?
Posted by: John Cobarruvias at March 11, 2005 11:34 AM
Good point John. Let's move this discussion to a new thread - http://www.houstondemocrats.com/archives/2005/03/lets_work_toget.html
Posted by: Lyn Wall at March 11, 2005 12:25 PM