Episode Transcript
[00:00:00] Speaker A: Imagine a justice system built on rigorous evidence, not gut instincts or educated guesses about what works and what doesn't.
More people could access the civil justice they deserve.
The criminal justice system could be smaller, more effective, and more humane.
The Access to Justice Lab here at Harvard Law School is producing that needed evidence. And this podcast is about the challenge of transforming law into an evidence based field.
I'm your host, Jim Griner, and this is Proof Over Precedent.
This week we're bringing you a student voice.
[00:00:38] Speaker B: Hello, my name is Spencer. I'm currently a 1L here at HLS and I'm speaking with Waitro for my access to justice class. Wacho, could you please just introduce the topic that you researched?
[00:00:48] Speaker C: Thanks, Spencer. I looked into research about whether consumers do better in court litigation or in mandated arbitration. I looked at four studies and then I made some recommendations for future research.
[00:01:02] Speaker B: That's an amazing topic. Could you just explain a bit more what mandated arbitration is?
[00:01:08] Speaker C: Sure. So do you have an Instagram account?
[00:01:11] Speaker B: I do, yes.
[00:01:12] Speaker C: So when you made your Instagram account, you entered into a contract, the terms and conditions of Instagram, and there was a clause in there that said that you forfeit your right to sue Instagram in court. And if you have any claims against Instagram, you need to sue them in arbitration.
So this sort of clause is found in a lot of commercial contracts where you're unable to sue companies that you're obtaining their services for in court and have to go to arbitration.
And arbitration is administered by a private organization.
Usually retired judges or attorneys are the adjudicator.
And, you know, the terms, the terms vary. Sometimes there's minimums and maximums on damages, damage awards, there's prohibitions on things like class actions, jury trials. So it's a lot different than court litigation. It's a lot faster.
But as you can see, these certain rules could potentially disadvantage consumers.
[00:02:20] Speaker B: Yeah, I mean, I had no idea that I signed off on that. I never really read the terms and conditions. But you mentioned that there was some research studies that you looked into. Could you just explain a bit more about what those studies were and what they said about mandatory arbitration?
[00:02:34] Speaker C: Yeah, so we can go through each one of them. I think I should probably briefly say why we have worries about mandatory arbitration.
So unlike judges who receive salaries, arbitration services pay arbitrators per case.
So usually the firms are paying the arbitration firm, so they're effectively paying the judges.
And for each case, the arbitration services randomly generate a list of arbitrators.
But the firms and the consumers usually can go back and forth striking arbitrators from the list.
So if firms have more information about which arbitrators are more consumer or industry friendly, then as you can see, they're going to have an advantage in selecting the arbitrator.
So arbitrators that know this may be likely to. Well, this is an assumption. And the research, you know, we have to look into the research, but you know, maybe that could influence some of their decision making.
[00:03:36] Speaker B: Yeah, that's definitely concerning considering how much more resources these large corporations have.
But what were the types of things that you looked into? What was the research studies that you looked into for this paper?
[00:03:51] Speaker C: Yeah, so I'll start with the CFPB study.
They looked at cases from 2010 to 2012, and they were studying the effect of arbitration clauses on consumer financial disputes. And they reviewed 1847 consumer financial disputes in a big arbitration firm regarding products like credit cards and private student loans, very applicable to us.
And 69.1% of cases were concerning consumer debt, 59.8% were a consumer claim.
And actually both sides usually had counsel.
So they're finding in their findings, they write about how disputes brought in disputes brought by companies, arbitrators granted financial relief to the companies in 93% of cases with an average award of 12,500.
In disputes brought by consumers, arbitrators provided those consumers financial relief in 20.3% of cases with an average award of 5389.
So as you can see, this appears to be more favorable to companies. But we, you know, we can't conclusively say that yet.
There was also very little adjudication. When arbitrators did resolve cases on the merits, they were in certain circumstances more likely to award relief to consumers that had attorneys, which is really interesting.
So what are the implications? Well, you know, you can argue different things based on these findings. So some people note that consumers in arbitration receive an average of 5,389 in relief compared to an average about $32 in class action lawsuits. So upon first glance, that may seem like consumers will get higher awards and arbitration.
But then other people point out that this comparison is only focusing on cases in which consumers actually win arbitrations. And, and they win less frequently. So does it really, is that really like an actual point if they're winning less?
And then the weaknesses of this study is that we don't have information about how much people, how much money people are obtaining through settlement arbitration, which is an important statistic.
[00:06:12] Speaker B: Interesting.
And you also mentioned that there was a study from the U.S. chamber Institute for Legal Reform that you looked into.
What were the findings of that study?
[00:06:21] Speaker C: Yeah. So in the interest of time, you can look at the background in my blog post, but I'll just jump right to the findings. So consumers were more likely to win an arbitration compared to in court, which is interesting.
Consumers won more money in arbitration compared to in court.
So those findings seem to indicate the opposite of what the CFPB study was saying. Suggesting. But there are several very strong weaknesses with the chamber study.
First, they excluded class actions in court litigation, which is an important data point. It's also unclear how much people get in settlement arbitration like the last study. Often because these amounts are private, settlements are private.
But most importantly, this is not randomized.
So the outcomes between cases in arbitration versus court litigation could be due to different factors other than adjudicatory setting.
So it's really hard to kind of hold these findings as conclusive when it's not randomized.
[00:07:32] Speaker B: What about the Calvin and Go study? Was that one able to provide any more conclusive data?
[00:07:38] Speaker C: So, unfortunately, they also did not use random assignment, but their findings are really interesting and worth looking into.
So they surveyed 1,256 attorneys in both forums. They found that plaintiff employees won 46% of mandatory arbitration cases, with an average of 362,390 in damages, compared to 62% in litigation, with an average of 676,688.
They also found that 29% of settlements in mandatory arbitration fell between the range of $1 to 25k compared to 15% of settlements in federal court and 18% in state court.
Compare that to they found that 23% of settlements in mandatory arbitration were were above 100k compared to 43% in federal court and 38% in state court.
So this actually indicates the opposite of the Chamber study, that it's suggesting that plaintiff employees are going to have better outcomes in litigation rather than mandatory arbitration.
So there's some strengths and weaknesses with this study. It's really great that they were able to collect data on settlements while these cases had arguably more similarities. In the chamber study, they controlled for employer size and claims, But a significant difference is that employees in arbitration had higher salaries.
That's a huge difference between those two cases.
Like I said, there was no random assignment. So we don't know if these outcomes are due potential potentially due to other factors.
And employees in both forms had attorneys who tend to be expensive. So it's really discounting a lot of cases where consumers don't have attorneys.
[00:09:42] Speaker B: Right. And what about the Egan, Matthos and Sarah study? Did that one provide any more conclusive findings?
[00:09:49] Speaker C: Yeah, so they ran a regression analysis. They did not use random assignment.
They found that industry friendly arbitrators were 40% more likely to be chosen and that incentivized them to award consumers lower amounts. So that speaks more to this general concern of that I spoke about in the beginning, that since, you know, judges are salaried, arbitrators are not, they're paid per case, paid by the firm. That could lead to perverse incentives.
And they estimated that these industry friendly arbitrators awarded customers 12% less money, about 90k compared to their more consumer friendly colleagues.
But this study can't answer the question of whether consumer outcomes are necessarily better in court litigation. Like I said, cases would need to be randomly assigned to really get at this question.
[00:10:45] Speaker B: Right. So it sounds like there's still a fair amount of uncertainty about what the actual impact of these mandatory arbitration clauses are and whether or not they lead to better or worse outcomes for consumers. So I'm wondering if you have any sort of ideas on how researchers could build off of these studies and if there are any areas for continued research in this field.
[00:11:06] Speaker C: Yeah, so like I've said 100 times in this podcast, I really think that we should be doing RCTs here because that allows you to control for a lot of other factors that could be leading to differences in outcomes.
So I have two ideas.
So some companies have contracts with an opt out provision for arbitration. So going back to that Instagram provision, it allows users to opt out of that provision, mandating arbitration within 30 days of the date that you agree to those terms.
So researcher could randomize a notification to consumers that suggesting that they opt out and then track those cases over time. This study is called an encouragement design.
And they could also sign confidentiality agreements with these consumers so they're able to access settlement amounts. I think this idea is really cool. I think one thing that might be difficult is, you know, you don't know which which people who enter these contracts are actually going to need to sue the company.
So I think it would require a very large sample size to increase the amount of people that would actually end up needing to sue the the company.
And then also, this is a really cool idea. You can randomize law.
So for example, the SEC conducted an RCT on short sale restrictions to evaluate whether those restrictions are actually improving the market.
So they basically exempted some individuals from those restrictions and essentially they're randomizing those restrictions to see if they're actually effective on improving the financial market.
So a researcher could design a similar study here for mandated arbitration.
They could identify a government agency, such as the cfpb, that could exercise jurisdiction over arbitration, and they could grant temporary, temporary exemptions for a random set of companies or contracts. So in that way, you're, you're randomizing the mandated arbitration.
And this approach may face legal challenges under the Federal Arbitration Act. And, you know, we're not sure if the CFPB is still going to exist, but I really do think it's worth trying because this is such a key part of many commercial contracts, and there's just not enough research on this area. So I definitely encourage researchers to consider either idea that I mentioned or something else. But I think having things be. Be randomized is really key here.
[00:14:02] Speaker B: Right. Well, thank you so much for doing all this research, for proposing those ideas, and of course, for speaking with me today.
[00:14:10] Speaker C: Thank you so much, Spencer.
[00:14:12] Speaker A: Proof Over Precedent is a production of the Access to Justice Lab at Harvard Law School.
Views expressed in student podcasts are not necessarily those of the A J Lab.
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[00:14:37] Speaker D: You know, this is, along with that, is that any research that is involving prisoners and that is federally funded, one must have a prisoner representative on their IRB panel in order to represent the views of, of prisoners.
So one prisoner representative that I worked with at actually was incarcerated for quite some time and bring a very unique perspective. Most prisoner representatives are, are lawyers.
And so he brought a very interesting perspective, but he was saying that it was very common for there to be research and, and drug trials and things like that that did take place in the present setting. So, you know, I, I could see that the feds using this as, as a vehicle to ensure that people are treated ethically, that people know that they do have rights as a research subject, even though they may not have many rights because they're a prisoner, but it creates those additional protections.
