Create incentives for plaintiffs to choose arbitration

Forced arbitration has long been controversial. In the 1980s, the Supreme Court expanded the Federal Arbitration Act, sparking debate about whether private dispute resolution is an elegant alternative to litigation or a rigged system that favors corporations. Recently, these issues have resurfaced, as the court has decided a rash of cases -- including its blockbuster 2011 decision in AT&T Mobility LLC v. Concepcion -- mandating that lower courts enforce class arbitration waivers in almost all circumstances. Critics argue that abolishing the class action insulates companies from wrongdoing, but businesses have predicted that pro se plaintiffs will flood the arbitral forum with their own low-value claims. The Obama administration responded to the court's FAA jurisprudence by regulating arbitration clauses in the employment, financial services and health care fields. However, after the balance of power shifted in 2017, Republicans have repealed many of these rules.

Despite this policymaking frenzy, little is known about what happens inside the confidential world of arbitration. After all, arbitration is private dispute resolution, where the proceedings are usually confidential and non-precedential. To be sure, some researchers have gained access to arbitration files, and used them to write useful empirical studies. But the overwhelming majority are from the 1990s and the 2000s, and thus have not kept pace with the law's rapid development. Moreover, most of these studies simply tally up win rates, rather than use sophisticated econometric techniques that can identify how various factors are related to arbitrators' rulings.

We tried to sharpen our understanding of this polarizing and pervasive institution by analyzing 40,775 consumer, employment, and tort cases filed in four major arbitration providers -- the American Arbitration Association, JAMS, ADR Services and the Kaiser Office of the Independent Administrator -- between 2010 and 2016.

We reached three main conclusions. First, arbitration has the capacity to facilitate access to justice. One of its greatest virtues is its speed. For example, the U.S. Department of Justice examined verdicts from state courts in 75 large counties in 2005 and found that the average disposition times were 26.6 months for jury trials and 20.8 months for bench trials. In sharp contrast, the mean length of all awarded arbitrations in our dataset was less than 11 months. Likewise, a wave of reforms has made arbitration surprisingly affordable for consumers, employees, and medical patients. In fact, in the AAA, JAMS and Kaiser, a majority of plaintiffs pay no arbitration fees.

Second, despite arbitration's virtues, it has not served as a surrogate for the class mechanism. Our data contains many Fortune 100 companies that once faced massive class actions. Yet contrary to predictions by businesses and their allies, the widespread enforcement of class arbitration waivers (which began in 2011 with Concepcion) did not spawn a surge in arbitral filings. Although the total number of arbitrations in all institutions rose after Concepcion, it did so modestly. Between Jan. 1, 2010, when our research period begins, and April 27, 2011, when the Supreme Court handed down its decision, plaintiffs initiated 6,411 cases, or an average of 401 per month. By contrast, between May 2011 and December 2016, there were 34,364 filings, or a mean of 614 per month. A monthly increase of about 200 arbitrations does not compare to the thousands or millions of complaints that were once bundled into a single class action. Moreover, the idea that the class action is unnecessary because individuals will prosecute their own claims is a fallacy. In fact, the volume of pro se filings has actually decreased over the past five years.

Third, our linear probability regression analyses of awarded cases reveals that plaintiffs perform particularly well when they hire a law firm with previous arbitration experience. We sorted plaintiffs' firms into various tiers based on how often they appeared in our data: one-shot firms, low-level repeat-players, mid-level repeat-players, high-level repeat-players and super repeat-players. Holding other variables constant, we discovered that the likelihood of a plaintiff victory increases (when contrasted against the reference group of pro se) in AAA employment cases with low-level, mid-level, high-level and super repeaters, JAMS consumer cases with low-level and super repeaters, JAMS employment cases with low-level, mid-level, and high-level repeaters, and Kaiser tort cases with low-level, mid-level and high-level repeaters. Thus, legal representation -- especially with a firm that has arbitrated before -- is paramount.

Our findings reveal why state lawmakers should create incentives for plaintiffs' lawyers to pursue claims in arbitration. For decades, state legislatures have tried to protect substantive rights by trying to exempt claims from arbitration. Yet because the FAA mercilessly preempts any state doctrine that discriminates against arbitration, these efforts have failed. Thus, in a kind of Jujitsu move, jurisdictions should create an "arbitration multiplier": a bounty for winning a case in arbitration. The arbitration multiplier would be a standalone state law that permits an arbitrator who finds that a plaintiff is entitled to fees or expenses under an existing fee-shifting law (for example, the Fair Labor Standards Act or the California Consumer Legal Remedies Act) to augment the award by a factor of her choosing. Although skeptics might argue that arbitrators are unlikely to award these bonuses, our research tells a different story. For example, plaintiffs prevailed in 1,887 AAA consumer and employment cases, and arbitrators awarded fees a respectable 522 times (28 percent). The prospect of an augmented awarded would encourage plaintiffs' attorneys to capitalize on arbitration's speed and affordability by seeking redress for the small-dollar, widely disbursed harm that once gave rise to class actions. In addition, because the multiplier would actually encourage arbitration, the FAA would not preempt it.

This article was adapted from "Arbitration Nation: Data from Four Providers," which is forthcoming in the California Law Review, and can be downloaded here for free.