Signing Away Your Right to Sue
In Significant Legal Shift, Doctors, Gyms, Cable Services Start to Require Arbitration
By JANE SPENCER
Staff Reporter of THE WALL STREET JOURNAL
It is a tough choice: Give up your legal rights -- or forget about joining a gym, getting a cellphone or even seeing
your doctor.
In an effort to fend off lawsuits, a growing number of companies, including Comcast Corp. and Amazon.com Inc.,
are asking consumers to agree to "mandatory arbitration" and waive their right to sue the company if a dispute
arises.
These binding arbitration clauses have been standard in credit-card and stock brokerage contracts for years, but
they are now migrating into the fine print of everyday consumer services, including cable TV,
cellphones, online retailers, gyms, auto financing firms, travel agencies and summer camps.
Even more jarring to some consumers: While health-maintenance organizations have long required arbitration, some private doctors -- in an effort to rein in medical-malpractice claims -- are making patients agree to arbitration before they receive medical care.
Companies say mandatory binding arbitration offers both parties a cheaper and quicker alternative to drawn-out court battles and prevents trial lawyers from reaping the benefits of massive class-action settlements. "You still get to have your rights heard, it's just more efficient," says Silvia Kleer, a lawyer for Ford Motor Credit Co., which is in the midst of introducing an arbitration provision to its auto-financing agreements nationwide. The downside is that arbitration sharply limits consumers' ability to battle companies through the court system. Some even prohibit suits in small-claims court. Many consumers don't realize they have agreed to arbitration until they have a problem, since the clauses are typically tucked into contracts or described in "bill stuffers" that accompany monthly statements.
usually private, which means companies are spared bad publicity, and there often is no public record. "The
corporate world understands this as a way to subvert the jury system and get tort reform in a way they have not
been able to do through state legislatures," says Joanne Doroshow, executive director of the Center for Justice &
Democracy in New York.
The agreements are showing up in an increasing variety of places. Cable provider Comcast Corp. recently added
arbitration provisions to both its high-speed Internet and cable-television contracts. All of AOL Time Warner Inc.'s
high-speed Internet companies -- including AOL for Broadband, Road Runner and EarthLink -- require
arbitration, and the company says it is considering adding arbitration to its cable-TV contracts. Dozens of heavily
trafficked Web sites, including eBay Inc., Amazon and Hotels.com include an arbitration provision to the terms &
conditions section.
Movie-rental companies like Hollywood Entertainment Corp.'s Hollywood Video and Blockbuster Inc. require
arbitration, and the clauses continue to proliferate in the financial-services industry: Capital One Financial Corp.
added a clause to its credit-card agreement last year, and Sallie Mae, a student-loan finance company, now
requires it with some services.
The trend is also taking hold in the health-care field, as doctors seek ways to limit skyrocketing liability-insurance
premiums. The American Medical Association has come out in favor of arbitration, and some states are actively
taking steps to encourage doctors to use it. In March, the Utah state Legislature passed a law that allows
doctors to turn away patients who refuse to sign arbitration clauses.
Signing at the Doctor's Office
Heidi Olsen of Payson, Utah, experienced the state's new law first hand in April, when she was three weeks away
from delivering her fourth child. Her obstetrician's staff handed her a document, and told her to sign. "I didn't want
to sign my rights away, just because their insurance rates are going up," says Ms. Olsen. But Ms. Olsen, who
says she likes her doctor and didn't want to make a last-minute switch, eventually relented and signed the agreement.
Consumer groups say arbitration gives companies the upper hand in disputes. Companies don't directly dictate the
outcome of the hearings, and consumers often have a say in which individual arbitrator hears the case. Still, in
consumer contracts, companies often name the arbitration firm that will handle all of their disputes: Sprint Corp.'s
new consumer contracts require that all arbitrations be heard by the CPR Institute for Dispute Resolution.
Arbitration firms say the financial arrangements don't influence rulings, and arbitrators are trained to be highly
independent. For instance, the American Arbitration Association, used by Verizon Wireless, says that consumers
win at least some financial damages in 57% of cases it hears. Richard Naimark, senior vice president at the
association, says the speed of arbitration proceedings, which are completed in just four months, on average, is
ultimately far more consumer-friendly than the court system. "Companies can outlast you; they can outspend you in
court," says Mr. Naimark.
But arbitration can also be costly for consumers. A simple hearing may cost consumers only $100 or so, and
sometimes companies will pick that up. But consumers seeking large damages can spend far more, and probably
need to hire a lawyer. Thomas Campbell, a trial lawyer in Birmingham, Ala., who has filed two arbitration claims
for clients over termite-control contracts, says the total filing costs in the cases came to $12,000 and $16,000,
respectively, not including his lawyer fees.
While state and federal courts generally have upheld arbitration agreements, they have thrown out some clauses
that were deemed too restrictive. The result: Companies are rapidly rewriting their agreements, to make the
arbitration clauses impervious to legal challenges down the road. In the past year, companies including Morgan
Stanley's Discover unit, eBay and Sprint have all revised the terms of their arbitration clauses.
The revisions, which companies commonly mail along with their monthly bill, often give savvy consumers a way to
back out of the clauses. But you need to act quickly. Credit cards issued through Fleet, Discover and Capital One
all have offered consumers a 30-day window to opt-out when the arbitration contract is revised. But once you
miss the window, you're locked in.
Shopping Around
Customers can also shop around for companies that don't require arbitration. Many small credit unions, like Tower
Federal Credit Union of Laurel, Md., will issue credit cards without contracts. Nextel, for example, is one of the
only wireless providers that doesn't include arbitration provision in its contracts.
Consumers can also avoid arbitration provisions when they get a credit card through organizations that have
negotiating power with credit-card issuers. All credit cards issued by AARP, for example, don't contain arbitration
provisions since the organization refuses to accept them.
One customer turned the tables on her termite-control company. Margo Rebar of Vestavia Hills, Ala., was
required to sign an arbitration contract when she signed up for termite-control insurance. So when she paid her
monthly bill, she included a note stating that by cashing the check, the company was agreeing to let her out of the
arbitration clause. The check was cashed -- and last fall the Alabama Supreme Court ruled that it was an
enforceable contract. Now, Ms. Rebar is free to sue the company. "We're thrilled," she says.