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Abstract:
This Article presents the results from the first detailed empirical study of consumer arbitration as administered by the American Arbitration Association. Primarily using a sample of 301 AAA consumer arbitrations that resulted in an award between April and December 2007, it considers such issues as the costs incurred by consumers in arbitration, the speed of the arbitral process, and the outcomes of the cases - the very topics of most interest in the policy debate on consumer arbitration.

Arbitration, Dispute Resolution, Contracts

Abstract:
Since the mid 1970s, federal courts have taken the doctrine of cy pres relief from the venerable law of trusts and adapted it for use in the modern class action proceeding. In its original context, cy pres was utilized as a means of judicially designating a charitable recipient when, for whatever reason, it was no longer possible to fulfill the original goal of the maker of the trust. The purpose of cy pres was to provide “the next best relief” by finding a recipient who would resemble the original donor’s recipient as much as possible. In the context of class actions, courts have utilized the doctrine as a means of disposing of unclaimed class wide relief. Where a substantial portion of the fund is likely to go unclaimed by absent class members, courts either order or authorize the payment of all or part of the remaining funds to a charitable interest that has some connection - however loose - to the subject matter of the suit. In recent years, use of cy pres in federal class actions has increased dramatically.

Use of cy pres in class actions has largely escaped either judicial or scholarly scrutiny or critique. This is unfortunate, since the doctrine’s use distorts the class action in a manner that undermines the inherently adversary nature of the federal adjudicatory process and the inherently compensatory nature of the underlying substantive law being enforced in the class proceeding. At the same time, resort to cy pres threatens the due process rights of both defendants and absent class members. It achieves these pathological ends by creating an illusion of victim compensation through adversary adjudication when in reality it transforms the underlying law into the forced payment of the equivalent of a civil fine to an entity that has no legitimate interest in the proceeding and has suffered no injury at the hands of the defendants.

In this article, we initially explore the history and current use of cy pres relief in the modern class action. We then explain - for the first time ever in legal scholarship - why the doctrine’s use so seriously undermines norms that are central both to our constitutional system and to American democracy. We then conduct a detailed empirical examination of the available data concerning the use of cy pres relief in class actions. Our empirical analysis underscores our normative critique of the doctrine by highlighting both its rapid expansion and the manner in which it has been abused.

cy pres, class actions, due process, separation of powers, case-or-controversy, Article III, constitutional law, civil procedure, remedies

Abstract:
This Interim Report builds on the Preliminary Report, Consumer Arbitration Before the American Arbitration Association, issued in March 2009 by the Searle Civil Justice Institute's Consumer Arbitration Task Force. It seeks to compare the outcomes of debt collection arbitrations to the outcomes of debt collection cases in court to help in evaluating arbitration as a means of resolving consumer disputes. The arbitration cases examined are debt collection cases administered by the American Arbitration Association (AAA) as part of its consumer arbitration docket, supplemented by cases brought by a single debt buyer as part of a consumer debt collection program administered by the AAA. The court cases examined are a sample of cases seeking collection of unpaid student loans in federal court and samples of debt collection cases from Oklahoma state courts and Virginia state courts. The Task Force focused on debt collection cases because debt collection cases tend to present relatively simple legal and factual issues and thus are relatively comparable in arbitration and in court.

Key findings are the following: (1) Creditors prevailed less often (that is, consumers prevailed more often) in the arbitrations studied than in court; (2) creditor recovery rates in the arbitrations studied were lower than, or comparable to, creditor recovery rates in court; (3) the consumer response rates in the arbitrations studied did not appear to differ systematically from consumer response rates in court; and (4) the rate of other case dispositions (e.g., dismissals and settlements) did not appear to differ systematically between the arbitration and court cases studied. At a minimum, the findings should dispel the notion that high creditor win rates and recovery rates in debt collection arbitrations in and of themselves show that arbitration is biased in favor of businesses. Instead, high creditor win rates and recovery rates appear to be due to characteristics of debt collection cases rather than the venue - court or arbitration - in which those cases are resolved. While these findings are subject to several important limitations, the report furthers our empirical understanding of arbitration as a means of resolving consumer disputes, and contributes new information to the policy debate over consumer arbitration.

Arbitration, debt collection