Tag Archive for: arbitration

What is Arbitration and Should you Seek or Oppose It?

Compel Arbitration or Oppose it?

Arbitration. Should you compel arbitration? Or oppose it? I’ve recently had a comment on Youtube asking me to discuss arbitration, and it has also come up in several recent teleconferences as members contemplated seeking arbitration. Others have wanted to know whether to oppose a motion to compel arbitration.

Let’s start with a definition: Arbitration is the submission of your case to a private entity known as an arbitrator. After some process and a hearing (most likely), the arbitrator will decide what happens in your case and issue what amounts to a judgment.

For debt cases, it’s always a single arbitrator or a company that will provide a single arbitrator that’s appointed, but for other cases it could be other things, like a panel, perhaps. In any event, there will be an arbitrator and some special rules that will NOT be your state’s rules of civil procedure and also might not be your state’s rules of evidence. But there will be rules that control the process.

Arbitration is popular because it makes it faster, easier and cheaper for people to engage in litigation. The discovery process will be limited, and the appeals process almost eliminated. That’s why rich companies and debt collectors always love it. Almost all of these things are completely and profoundly BAD for debt defendants. That’s why I’ve always suggested debt defendants should avoid arbitration.

But there is another side to the question, and there are some who argue in favor of allowing or even forcing arbitration in debt cases. What’s their argument?

I think the argument in favor of arbitration boils down to the fee, which apparently has to be paid up front by the debt collector And that can amount to two or three thousand dollars, or even a little more. The idea here is that debt collectors won’t want to put that much money down on the barrelhead just to chase a bad debt and that court is, for them, much cheaper.

There is some sense in this argument.

Debt collectors never worry about winning a case, but they do know you don’t have much money. That means that they’re sure they’ll win, but worry that they won’t collect, which is the most important thing to them. The more you make them spend, the more worried about that they’ll be. Maybe they’ll drop the case if you demand arbitration.

We often make the argument that by pursuing discovery, filing and defending motions, and preparing for trial you are driving up the costs of litigation and may make the whole thing too expensive for debt collectors to want to do. Again, not because they worry about losing, but just the amount of money they’re having to spend when their business model is designed around easy, cheap judgments. However, conducting discovery and filing and defending motions and the rest do in fact improve your chances of winning, and we think that, when it comes to a debt collector, you should win your case. These things are the way to do it, and the chance the company will drop the case is basically the icing on that cake.

In arbitration, it’s the whole cake. You should remember that.

One big question that may be more theoretical than real is, who ultimately pays the arbitrator?

I say it may be theoretical since I just said the debt collector isn’t sure you’ll have any money at all, but this won’t stop them from seeking as big a judgment as possible. And if they get a judgment, they WILL try to collect it. All. So be advised that the judgment size could matter.

Okay, but who pays the arbitrator?

I think some states may have rules that matter, and I know that California, for example, does have rules regarding employment and consumer-brought claims. In the absence of any state based rule, you
would look to the arbitration provision giving you the right to arbitration – i.e., the contract. That will often say who pays the arbitrator, and it can specify any of a number of things, from company pays all to loser pays all, to dividing it up. The contract isn’t often going to put all the burden on the company because, after all, the company wrote the contract.

If it says company pays all, though, the company can’t shift that payment to you if you lose. If it’s loser pays all, though, it obviously will. But if there isn’t a direction in the contract, that would usually mean you start by splitting the cost, but that the arbitrator can award the cost to the winner, i.e., add it to the judgment.

The rule in your case is going to depend on your own specific circumstances.

The net of all this would suggest that you will have some advantage if the contract makes the company pay, but there’s risk if the loser pays. And of course it matters a lot who pays up front, which is often the debt collector.

So… should you compel arbitration?

In a debt buyer/collector case (i.e., not the original creditor) I’d still lean strongly against. You should win this case under most state laws because of the rules of evidence, and you cannot depend on the arbitrator to enforce those rules rigorously. If it’s an original creditor, it’s a much closer question. You’ll have to consider all the things we’ve discussed here and make a judgment call.

Filing a motion to compel arbitration might trigger some settlement negotiation, but I wouldn’t think you could get the company to give you a very steep discount, but there I’m just guessing based on what I know about lawyers and not experience in these type cases.

I remain very hesitant about suggesting arbitration, but there may be value in considering it if you’re
dealing with an original creditor.

Preparing for Mediation Pro Se

Mediation is “rigged” against pro se defendants in debt law cases. Why do I say that? Is there some evil force at play? No…

The mediator might be trying his hardest to be fair and honest, but even so the process is rigged. To understand why, let’s first go back to who the mediator is.

A mediator is usually (but not absolutely always) a lawyer.  That is useful and appropriate in general because you generally want someone who knows how the legal process works and what you might encounter, in general, if you went to court. At the least it will almost certainly be someone who spends a lot of time in court or with lawyers and is impressed with lawyers.

Often the parties are given a list of “approved” mediators by the court. You’d have to get permission to get someone else. In some situations the parties are completely free to find their own mediator.

And I gather that in some situations a mediator is just assigned by the court automatically, and you don’t get to choose.

Mediation is Rigged

Whatever way it works, the lawyer has an advantage. The mediators have a reputation, and the lawyers can find out what that reputation is far more easily than you can. They won’t use a mediator who has a reputation of pushing too hard against them.

And the mediators know that, of course. You see, the debt collection lawyers are “constant.” They handle many, many of these cases, and if one of them decides never to use a mediator…well, that could be a lot of money to the mediator. If you decide against a mediator or don’t like him or her after going through the process, your options are extremely limited. Your opinion simply doesn’t matter as much to the mediator. And that’s true of everything in the whole process.

Lawyers Trust Lawyers

Next, have you ever heard the saying that “everything looks like a nail to someone who is good with a hammer?” That will apply to mediation. As I said, you can pretty much expect the mediator to be a lawyer or at least an ex-lawyer. Lawyers tend to respect, trust and understand other lawyers.

The mediator might like and respect you and be warm and friendly and all that. But when the chips are down, the mediator will tend to trust and believe the lawyer more than you. And he or she will also expect you to lose the case if it goes to trial, no matter what the evidence shows, because of this sympathy to the lawyer for the debt collector.

No matter what the evidence shows.

And this is true even if the mediator doesn’t specially trust or respect collection lawyers. We all know that debt collection isn’t rocket science, but lawyers come basically from the same caste, and they expect other lawyers to be able to beat non-lawyers.

Your Advantages Could Get Forgotten

The mediator will get paid regardless of whether you settle, and regardless of who wins. That reduces the amount of attention the mediator must spend on your central advantage: the price of litigation.

Further, the mediator will almost certainly not know much about debt law or the debt collection business. That means the mediator will tend to undervalue your second main advantage, the Rules of Evidence! If you have my materials (you should!), you will probably know far more about the relevant law and the “facts of life” than the mediator does. That’s because lawyers tend to take sides in their lives. I would never have represented a debt collection company, and debt collector lawyers rarely defend against debt collectors. So no debt collection attorney from either side would be likely to be truly impartial.

And most other lawyers don’t know much about debt collection at all. Thus the mediator’s tendency to trust and believe the debt collector is magnified in importance.

Mediation Can be Intimidating

Finally, let’s consider the mediation process itself. It’s a chance for one-on-one combat (so to speak) between the parties without the rules of evidence being so important. (And the rules of evidence are another of your biggest advantages). The debt collection lawyer will act like he can prove everything –no sweat. The mediator will believe that. Both will exert pressure on you to “realize” how strong the debt collector’s case is. You will feel lonely and outnumbered. The debt collector’s lawyer feels no risk in this situation –it’s just a job to him—whereas the personal stakes are much higher for you.

What You Must Remember

Through it all, you have to remember, cling tenaciously to the facts that… most debt collections lawyers do not have the evidence they need to win their case and cannot get it cheaply enough to go to trial against you and make money. What have they actually shown you? Can they pull up and show you and the mediator an affidavit from the original creditor that proves that they, the debt collector, actually own the debt, how much it is, that you owe it and didn’t pay? Can they prove that you owe the money? How? Remember that if they want to introduce any account information from the original creditor they’ve got to have either a witness or an affidavit. Can they get it cheaply enough to justify the expense? Not likely! You may have to remind the mediator of these facts—many times.

Don’t Forget Collection Risk

Also, you have to remember their “collection risk.” How likely are they going to be able to collect the money from you? If you didn’t pay (and if you owed) it was probably because you couldn’t afford to pay. Just because they manage to get a judgment, if they do and over your strenuous efforts in court and before, that doesn’t mean, by a long shot, that they’ll get their money.

Your Advantages

Your main tasks in mediation are to remember these facts. AND to remember not to provide them any information or material that could help them get past these problems. If you say you could pay, or if you admit the account was yours…you make their job in court much easier.

Also, remember your advantage: if they have a lawyer or two present, the clock is running, and someone is paying and not very happy about that. Time is on your side in mediation as elsewhere. Remember the Litigation materials and what your advantages are. If you can withstand the fear and temptation to give up, you’ll be in very good shape and can settle (or not) according to what is really in your best interests.