S.6484 (Lanza) / A.7445 (Titone)




S.6484 (Lanza) / A.7445 (Titone)


Limitations on the use of arbitration in certain consumer transactions



The Business Council opposes S.6484 (Lanza) / A.7445 (Titone), which seeks to limit the use of arbitration procedures in certain circumstances. The legislation was introduced at the request of the Office of Court Administration (“OCA”) following recommendations from a group of attorneys comprising the Advisory Committee on Civil Practice.  The result is a proposal that would undermine the successful arbitration procedures now in place – procedures that benefit consumers and the courts by providing fair and prompt redress of disputes in the vast majority of cases. The proposed legislation would, instead, extend class action lawsuits without improving the outcomes for consumers.

It is certainly well documented by the New York courts that the Federal Arbitration Act (FAA) establishes a strong federal mandate in favor of enforcing and upholding arbitration agreements. The United States Supreme Court has interpreted the FAA on many occasions and has reaffirmed that, in the FAA, Congress declared a national policy favoring arbitration and withdrawing the power of the states to require a judicial forum for the resolution of claims which contracting parties agreed to resolve by arbitration.

The Federal Arbitration Act, 9 U.S.C. §2 states that a written provision in a contract providing for arbitration as a means to settle disputes “…shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” The United States Supreme Court has consistently ruled that federal and state courts must enforce the FAA and “reflects an emphatic federal policy in favor of arbitral dispute resolution” Marmet Health Care Center, Inc. v., Brown 132 S.Ct.1201 (1202) quoting Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213,217 (1985).

Arbitration enables consumers with grievances to obtain redress for the vast majority of disputes they are likely to have – small, individualized claims for which litigation in court is impractical. It also serves the court system by providing an alternative means of resolution thus freeing up the judiciary.  It is widely acknowledged and has been extensively discussed that the state court system is already overburdened and unable to handle its current caseload in a timely manner.

Naysayers argue that arbitration clauses threaten due process because consumers are deprived their day in court.  The process of arbitration generally provides a consumer with a forum to obtain redress for actions alleged committed by companies in a fair and expeditious manner without the burden of attempting to navigate the court system.

Many of the “advocates” arguing against the use of arbitration are actually proponents of (and beneficiaries of) class action lawsuits.  It is debatable whether class actions provide consumers with better outcomes.  It is not uncommon for consumers, as parties to a class action to see results of minimal compensation but generous fees for the attorneys that instituted the litigation. One needs to question whether consumers truly benefit from class action settlements. After a lengthy process, the consumer finally may have obtained a day in court but not necessarily obtained justice or restitution.

The American Arbitration Association (AAA) administers consumer arbitrations and has implemented rules and policies tailored for the resolution of consumers’ and employees’ disputes, which provide basic requirements of procedural fairness and afford strong protections for consumers and employers.  Arbitration is an important tool benefiting consumers by providing a fair and accessible means for resolving disputes. If the goal of the legislation is to ensure fairness and accountability, a system is already in place thus obviating the need for such legislation.

For these reasons The Business Council opposes S.6484 (Lanza) / A.7445 (Titone).