Beware of arbitration clauses

In the last ten years business in the U.S. have turned to arbitration to create an alternate system of justice  where “rules tend to favor businesses, and judges and juries have been replaced by arbitrators who commonly consider the companies their clients.”

The change has been swift and virtually unnoticed, even though it has meant that tens of millions of Americans have lost a fundamental right: their day in court.”

“This amounts to the whole-scale privatization of the justice system,” said Myriam Gilles, a law professor at the Benjamin N. Cardozo School of Law. “Americans are actively being deprived of their rights.”

What has been happening is that companies, large and small have been adding arbitration clauses to contracts and agreements that take away people’s right to sue in a court of law should the situation arise. These simple clauses can take away a person’s right to sue for medical malpractice, sexual harassment, hate crimes, discrimination, theft, fraud, elder abuse and wrongful death.

The family of a 94-year-old woman at a nursing home in Murrysville, Pa., who died from a head wound that had been left to fester, was ordered to go to arbitration. So was a woman in Jefferson, Ala., who sued Honda over injuries she said she sustained when the brakes on her car failed. When an infant was born in Tampa, Fla., with serious deformities, a lawsuit her parents brought against the obstetrician for negligence was dismissed from court because of an arbitration clause.

Little is known about what goes on in arbitration hearings due to confidentiality provisions and the fact the cases don’t have to be reported to the federal government.

The NY Times reports this disturbing issue

Unfettered by strict judicial rules against conflicts of interest, companies can steer cases to friendly arbitrators. In turn, interviews and records show, some arbitrators cultivate close ties with companies to get business.

Arbitrators aren’t required to follow legal procedures like discovery, which enables you to request information from the defendant. Also, there is no regulation or rule that requires arbitrators to take the law and legal precedent into account in making their decisions. They’re supposed to, but aren’t legally required to do so.

And here is probably the most important aspect of arbitration, most decisions cannot be appealed.

Mandatory arbitration is a lose-lose situation. Don’t deal with anyone who requires a mandatory binding arbitration clause. If you find they do require one, walk away and explain why you are doing so.  Read every contract and look for the clause. The clause isn’t always straight forward. They can say it various ways, such as “dispute resolution mechanism.”

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Pre-settlement loans are a bad bet

You’ve been injured and filed a lawsuit. You can’t work and bills are piling up. Then you see a commercial on television saying you can get cash in advance of your settlement. The spokesman says there is risk to you. Unfortunately, there is.

Lawsuit loans seem very attractive to plaintiffs awaiting judgments or settlements in civil lawsuits, like personal injury cases. But read the fine print before you sign on the dotted line. In fact, don’t even read the fine print, don’t do it.

The way it works is a plaintiff in a lawsuit finds their injuries have prevented them from working or being able to pay bills. They contact a lawsuit loan company. The company contacts the plaintiff’s lawyer to ascertain what the ball park settlement or verdict might be. Then, based on that estimate the company will offer a cash advance to the plaintiff.

The amount advanced can range anywhere from $500 to $50,000 depending on the case. The money is paid at the end of the lawsuit.

Sounds good, no? NO. The devil is in the interest rates. Lawsuit loan borrowers can find themselves paying annual interest rates in excess of 100%.

FOXBusiness quotes  Justin Hakes, a spokesman for the U.S. Chamber Institute for Legal Reform, which ironically, is a group that represents business interests against plaintiffs interests

Even when the consumer ‘wins’ or settles the case, he or she often recovers no money, because the entire amount of the award or settlement goes to pay the plaintiff’s attorneys or to repay the lawsuit lender. Fees also vary depending upon the company and the type of case. Some companies will fix the fee for the advance up front. Others will charge a monthly fee for each month between the time the funding is issued and when it is repaid, sometimes as high as 15% per month.

Given that lawsuits can drag on for years sometimes, it would be prudent for a person to seek out alternative ways of financing and steer clear of lawsuit loan companies.

Businesses like payday lenders and pawn shops are regulated by the government but not so for the lawsuit companies. The reason these lenders fly under the radar is that they don’t call their loans, loans. They call them non-recourse financing or cash advances.

Hakes says

The lawsuit lending industry goes to great lengths to tell the public that consumer lawsuit loans are not really loans but are instead ” and this is how, in many states, lawsuit lenders have managed to skirt usury and fair-lending laws. But their advertisements sing a different tune. A simple Web search using the term ‘lawsuit loan’ turns up a flurry of paid advertisements with headlines like ‘lawsuit loans NOW!

Due to the lack of regulation, the courts have stepped in.  The website ExpertLaw cites two cases, in Michigan and Ohio where courts ruled against the companies.

A Michigan court recently held invalid a lawsuit funding contract where the defendant’s liability had been established, holding that as the plaintiff was certain to recover some amount of money the funding company’s advance was no longer contingent, and thus that the plaintiff only had to repay the principal (without interest) under Michigan’s usury laws.

An Ohio court similarly discharged a plaintiff’s obligation under a lawsuit funding contract on the basis of a common law doctrine called “champertry” – a prohibition against the sale of a party’s interest in a lawsuit. The court’s rationale was that lawsuit funding company sought to profit from the injured woman’s case, that lawsuit funding could create a disincentive to settle a case, where the plaintiff would have to pay the entire amount of the settlement to the finance company.

The best bet is to only utilize pre-settlement funding companies as a last resort when you have no alternatives sources of funding like friends or relatives. And if you do, which we don’t recommend, make sure you get all the details spelled out and they clearly disclose the terms of the contract.

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