An unbalanced justice

San Francisco Chronicle

What began as a noble concept — using arbitration instead of the courts to settle many disputes — has developed into a grossly unfair commercial justice system.

In a three-part series that concluded Tuesday, Chronicle staff writer Reynolds Holding provided compelling evidence of serious problems in a system of mandatory arbitration that has become dominated by corporate interests.

The series showed case after case in which workers and consumers with legitimate grievances had no chance of getting a fair remedy in arbitration. It spelled out how “arbitration agreements” in small type often force Californians to give away significant legal rights as a condition of getting a job, obtaining medical treatment or even buying something as simple as long- distance phone service.

While we generally like the idea of reducing costly lawsuits, the shift to arbitration at this magnitude — and with its lack of basic rules — has come at a severe price to the concepts of justice and fair play.

These are among the most serious shortcomings of the arbitration system:

— Lawless process: Arbitrators do not have to be lawyers, follow the law or even justify their decisions — which, unlike court verdicts, are not open to public inspection. The absence of rules are especially disturbing in view of the next three items . . .

— Conflicts of interest: The arbitration system allows conflicts that would not be permitted by the court system. The American Arbitration Association invests in major corporations whose legal disputes the firm’s arbitrators hear; companies are allowed to buy “memberships” in the association, and their executives sit on its board of directors. Arbitration firms often court clients by touting their small awards and perfunctory procedures. Also, arbitrators face an inherent conflict to “please” companies to keep them coming back for repeat business.

— Compromised judges: Arbitrators can make $10,000 or more a day, in comparison with a Superior Court judge’s $133,000-a-year salary. This leads to the temptation for sitting judges to impress arbitration firms with their ability to get quick settlements of complex cases. Judges may also feel pressure to uphold disputed arbitration decisions.

— No oversight or alternatives: Arbitration decisions are not appealable and are subject to judicial review in only a few narrow circumstances. Also, many people with serious complaints — such as racial discrimination, sexual harassment or denial of medical care — have no choice but to have their case heard by a arbitration firm selected by the company that is the target of the grievance.

In plain terms, the arbitration system stacks the deck in favor of corporations.

And they are determined to keep it that way.

Even modest attempts to reform the arbitration system encounter stiff opposition in Sacramento and Washington. The reason is no mystery. The big corporations — who have the coziest relationships with arbitrators — also have the most clout in the capitals. They invest heavily in campaign contributions and lobbying fees, and defeat of any sort of worker or consumer rights measure is a perennial priority.

An example is state Sen. Martha Escutia’s SB458, which would keep HMOs from forcing patients into mandatory arbitration agreements as a condition of coverage. California is among the few states that allow HMOs to impose such clauses. Escutia, D-Whittier, steered her bill through the Senate, 21-14, but it stalled in the Assembly, where a bloc of self-proclaimed “Business Democrats” has been extremely hostile to consumer issues this session. Escutia hopes to revive her bill next year.

Similarly, state Sen. Sheila Kuehl, D-Santa Monica, proposed SB410 to prohibit employers from forcing workers into arbitration agreements as a condition of hiring or continued employment. Her bill ran into fierce resistance — most notably, an implied veto threat from Gov. Gray Davis — and she withdrew it from consideration until next year.

Will the climate for arbitration reform be any different next year? Not likely, unless Californians send a strong message to the governor and their legislators that workers and consumers deserve a level playing field when they bring grievances against corporations.

If the arbitration system really were fair, then HMOs and other companies would have nothing to fear about making it voluntary.

Right now, they’re having their way, at the expense of your legal rights.