In arbitration, a ‘privatization
of the justice system’
New York Times
By Jessica Silver-Greenberg & Robert Gebeloff
01 November 2015
Deborah L. Pierce, an emergency room doctor in Philadelphia, was
optimistic when she brought a sex discrimination claim against the
medical group that had dismissed her. Respected by colleagues, she said
she had a stack of glowing evaluations and evidence that the practice
had a pattern of denying women partnerships.
She began to worry, though, once she was blocked from court and forced into private arbitration.
Presiding over the case was not a judge but a corporate lawyer,
Vasilios J. Kalogredis, who also handled arbitrations. When Ms. Pierce
showed up one day for a hearing, she said she noticed Mr. Kalogredis
having a friendly coffee with the head of the medical group she was
suing.
During the proceedings, the practice withheld crucial evidence,
including audiotapes it destroyed, according to interviews and
documents. Ms. Pierce thought things could not get any worse until a
doctor reversed testimony she had given in Ms. Pierce’s favor. The
reason: Male colleagues had “clarified” her memory.
When Mr. Kalogredis ultimately ruled against Ms. Pierce, his decision
contained passages pulled, verbatim, from legal briefs prepared by
lawyers for the medical practice, according to documents.
“It took away my faith in a fair and honorable legal system,” said Ms.
Pierce, who is still paying off $200,000 in legal costs seven years
later.
If the case had been heard in civil court, Ms. Pierce would have been
able to appeal, raising questions about testimony, destruction of
evidence and potential conflicts of interest.
But arbitration, an investigation by The New York Times has found, often bears little resemblance to court.
Over the last 10 years, thousands of businesses across the country —
from big corporations to storefront shops — have used arbitration to
create an alternate system of justice. There, rules tend to favor
businesses, and judges and juries have been replaced by arbitrators who
commonly consider the companies their clients, The Times found.
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.”
All it took was adding simple arbitration clauses to contracts that
most employees and consumers do not even read. Yet at stake are claims
of medical malpractice, sexual harassment, hate crimes, discrimination,
theft, fraud, elder abuse and wrongful death, records and interviews
show.
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.
Even a cruise ship employee who said she had been drugged, raped and
left unconscious in her cabin by two crew members could not take her
employer to civil court over negligence and an unsafe workplace.
For companies, the allure of arbitration grew after a 2011 Supreme
Court ruling cleared the way for them to use the clauses to quash
class-action lawsuits. Prevented from joining together as a group in
arbitration, most plaintiffs gave up entirely, records show.
Still, there are thousands of Americans who — either out of necessity
or on principle — want their grievances heard and have taken their
chances in arbitration.
Little is known about arbitration because the proceedings are
confidential and the federal government does not require cases to be
reported. The secretive nature of the process makes it difficult to
ascertain how fairly the proceedings are conducted.
Some plaintiffs said in interviews that arbitration had helped to
resolve their disputes quickly without the bureaucratic headaches of
going to court. Some said the arbitrators had acted professionally and
without bias.
But The Times, examining records from more than 25,000 arbitrations
between 2010 and 2014 and interviewing hundreds of lawyers,
arbitrators, plaintiffs and judges in 35 states, uncovered many
troubling cases.
Behind closed doors, proceedings can devolve into legal free-for-alls.
Companies have paid employees to testify in their favor. A hearing that
lasted six hours cost the plaintiff $150,000. Arbitrations have been
conducted in the conference rooms of lawyers representing the companies
accused of wrongdoing.
Winners and losers are decided by a single arbitrator who is largely at
liberty to determine how much evidence a plaintiff can present and how
much the defense can withhold. To deliver favorable outcomes to
companies, some arbitrators have twisted or outright disregarded the
law, interviews and records show.
“What rules of evidence apply?” one arbitration firm asks in the
question and answer section of its website. “The short answer is none.”
Like the arbitrator in Ms. Pierce’s case, some have no experience as a
judge but wield far more power. And unlike the outcomes in civil court,
arbitrators’ rulings are nearly impossible to appeal.
When plaintiffs have asked the courts to intervene, court records show,
they have almost always lost. Saying its hands were tied, one court in
California said it could not overturn arbitrators’ decisions even if
they caused “substantial injustice.”
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.
Some of the chumminess is subtler, as in the case of the arbitrator who
went to a basketball game with the company’s lawyers the night before
the proceedings began. (The company won.) Or that of the man overseeing
an insurance case brought by Stephen R. Syson in Santa Barbara, Calif.
During a break in proceedings, a dismayed Mr. Syson said he watched the
arbitrator and defense lawyer return in matching silver sports cars
after going to lunch together. (He lost.)
Other potential conflicts are more explicit. Arbitration records
obtained by The Times showed that 41 arbitrators each handled 10 or
more cases for one company between 2010 and 2014.
“Private judging is an oxymoron,” Anthony Kline, a California appeals
court judge, said in an interview. “This is a business and arbitrators
have an economic reason to decide in favor of the repeat players.”
With so much latitude, some organizations are requiring their employees
and customers to take their disputes to Christian arbitration. There,
the proceedings can incorporate prayer, and arbitrators from firms like
the Colorado-based Peacemaker Ministries can consider biblical
scripture in determining their rulings.
The firms that run the arbitration proceedings say the process allows
plaintiffs to have a say in selecting an arbitrator who they think is
most likely to render a fair ruling.
The American Arbitration Association and JAMS, the country’s two
largest arbitration firms, said in interviews that they both strived to
ensure a professional process and required their arbitrators to
disclose any conflicts of interest before taking a case.
The American Arbitration Association, a nonprofit, said it allowed
plaintiffs to reject arbitrators on the ground of potential bias.
JAMS, a for-profit company, said it did the same and put extra
protections in place for consumers and employees. “Their core value is
neutrality — their business depends on it,” Kimberly Taylor, chief
operating officer of JAMS, said of its arbitrators.
But in interviews with The Times, more than three dozen arbitrators
described how they felt beholden to companies. Beneath every decision,
the arbitrators said, was the threat of losing business.
Victoria Pynchon, an arbitrator in Los Angeles, said plaintiffs had an
inherent disadvantage. “Why would an arbitrator cater to a person they
will never see again?” she said.
Arbitration proved to be devastating to Debbie Brenner of Peoria,
Ariz., who believes she did not get a fair shake in her fraud case
against a for-profit school chain that nearly left her bankrupt. In a
rambling decision against Ms. Brenner that ran to 313 pages, the
arbitrator mused on singing lessons, Jell-O and Botox.
“It was a kangaroo court,” Ms. Brenner said. “I can’t believe this is America.”
From cradle to grave
An ob-gyn’s office in Tampa, Fla., now informs expectant mothers that
if problems arise — a botched vaginal delivery, a flawed C-section —
the patients cannot take their grievances to court. Neither can the
families of loved ones who are buried at Evergreen Cemetery outside
Chicago, which also requires disputes to be resolved privately.
From birth to death, the use of arbitration has crept into nearly every
corner of Americans’ lives, encompassing moments like having a baby,
going to school, getting a job, buying a car, building a house and
placing a parent in a nursing home.
The first contact point can arise prenatally, when obstetricians seek
to limit liability by requiring patients to sign agreements containing
arbitration clauses as a condition of treating them.
Leydiana Santiago of Tampa was devastated when her baby was born in
November 2011 with vision and hearing loss and thumbs that needed to be
amputated. Ms. Santiago blamed her doctor at Lifetime Obstetrics and
Gynecology for the problems. She said her doctor mistakenly determined
that she had miscarried, court records show. As a result, Ms. Santiago
resumed taking medication for lupus — medication that can cause birth
defects.
Women’s Care Florida, which owns Lifetime, declined to comment on the case.
In April 2014, a Florida appeals court upheld a decision to force Ms.
Santiago into arbitration. “I obey what appears to be the rule of law
without any enthusiasm,” wrote one of the judges, Chris Altenbernd,
adding that he feared “I have disappointed Thomas Jefferson and John
Adams.”
Students from high school to graduate school can likewise find
themselves caught in the gears. Lee Caplin discovered this when he
enrolled his 15-year-old son at Harvard-Westlake, a private school in
Los Angeles.
His son said he was bullied and harassed, and received graphic and
profane death threats, including some that came from school computers.
Among the threats, court records show, were, “I’m going to pound your
head with an ice pick” and “I am looking forward to your death.”
Harvard-Westlake declined to comment on the case, but said that it “takes allegations of bullying very seriously.”
Afraid for his life, the teenager dropped out and the family relocated.
When Mr. Caplin sued the school for failing to protect his son, he
learned that even civil rights cases can be blocked from court.
The arbitrator ruled in favor of Harvard-Westlake, saying the plaintiff
did not sufficiently prove that the school was “negligent.”
“It’s not a system of justice; it’s a rigged system of expediency,” Mr. Caplin said.
Many companies give people a window — typically 30 to 45 days — to opt
out of arbitration. Few people actually do, either because they do not
realize they have signed a clause, or do not understand its
consequences, according to plaintiffs and lawyers.
Cliff Palefsky, a San Francisco lawyer who has worked to develop
fairness standards for arbitration, said the system worked only if both
sides wanted to participate. “Once it’s forced, it is corrupted,” he
said.
Graduates entering the job market can confront even more challenging
terrain. For many people, when the choice is between giving up the
right to go to court or the chance to get a job, it is not a choice at
all.
That is why a housekeeper in suburban Virginia said she had to sign an
employment agreement with an arbitration clause that her employer had
printed from the Internet. She said she regretted it later when he
sexually harassed her and she had no legal recourse in court.
Circumstances are not any easier on the home front, where residents
like Jordan and Bob Fogal of Houston can become stuck with a
construction nightmare.
Not long after they moved into their townhouse, more than 100 gallons of water crashed through their dining room ceiling.
The couple won when they took their builder to arbitration, but they
ended up with only $26,000, about a fifth of what they needed to make
repairs. Unable to come up with the rest of the money and sickened from
pervasive mold, the Fogals moved out.
The perils of using a secretive system can be even more acute in old
age, as illustrated by numerous cases involving nursing homes.
Daniel Deneen said he was incredulous when he got a fax from a nursing
home in McLean, Ill., about a client for whom he was a legal guardian.
The client, a 90-year-old woman with dementia, needed prompt care for
bed sores. Unless Mr. Deneen agreed to arbitration, he said, doctors
working at the nursing home would not treat her there.
“It was the most obnoxious, unfair document I have ever been presented
with in over 30 years of practicing law,” Mr. Deneen said.
Once contracts with arbitration clauses are signed, nursing homes can
also use them to force civil cases involving sexual assault and
wrongful death out of the courts.
In May 2014, a woman with Alzheimer’s was sexually assaulted twice in
two days by other residents at the Bella Vista Health Center, a nursing
home in Lemon Grove, Calif., according to an investigation by the
state’s department of public health. The investigation also found that
the nursing home “failed to protect” the woman.
A lawyer for Bella Vista, William C. Wilson, said the company disputed
the state’s findings and that the staff “makes the health and safety of
its patients their top priority.”
After unsuccessfully fighting to have the arbitration clause in their
agreement voided, the woman’s family settled with Bella Vista.
Between 2010 and 2014, more than 100 cases against nursing homes for
wrongful death, medical malpractice and elder abuse were pushed into
arbitration, according to The Times’s data.
Roschelle Powers said she found her mother, Roberta, who had diabetes
and dementia, vomiting and disoriented one day in May 2013 at a
Birmingham, Ala., nursing home. Ms. Powers said she alerted the home,
Greenbriar at the Altamont, specifically mentioning pills she had found
in her mother’s hand, according to a deposition.
A few days later, Roberta Powers’s son, Larry, said he called 911 after finding her alone and unresponsive.
A day after the ambulance took his mother to the hospital, she was
dead. An autopsy showed that the 83-year-old Mrs. Powers had more than
20 times the recommended dose of metformin, a diabetes medication, in
her blood.
During arbitration, the nursing home acknowledged the blood test
results but said they had been the result of renal dysfunction. The
arbitrator ruled in favor of Greenbriar. “There was no evidence to
support the allegation that Ms. Powers somehow gained access to, and
then took, more than her prescribed amount of metformin,” Joseph L.
Reese Jr., a lawyer for the nursing home, said.
Perry Shuttlesworth, the family’s lawyer, said that "it was only
because of forced arbitration that the nursing home got away with
this." He added that “a jury would not have let this happen. “
Even when plaintiffs prevail in arbitration, patterns of wrongdoing at
nursing homes are kept hidden from prospective residents and their
families.
Recognizing the issue, 34 United States senators have asked the federal
government to deny Medicare and Medicaid funding to nursing homes that
employ arbitration clauses. “All too often, only after a resident has
suffered an injury or death,” the senators wrote in a letter in
September, “do families truly understand the impact of the arbitration
agreement they have already signed.”
Sometimes, even death provides no escape.
Willie K.
Hamb stands in the cemetery where she wanted her husband to be buried
in a simple plot. Credit David Kasnic for The New York Times
Willie K. Hamb was at the funeral for her husband at Evergreen Cemetery
outside Chicago when she discovered that his coffin would not be buried
in the shady plot she said she had requested.
Instead, the cemetery informed Mrs. Hamb that it would place the coffin
in a wall crypt until the more than $56,000 marble mausoleum they said
she had agreed to in a contract was complete.
Mrs. Hamb, 72 and retired, said all she could afford for her husband,
known to his friends as Pudden, was the simple plot and service she had
already paid $12,461 to arrange.
Service Corporation International, one of the nation’s largest
providers of funeral services and the owner of Evergreen Cemetery,
declined to comment.
The dispute will be resolved in a coming arbitration. Mrs. Hamb’s
lawyer, Michelle Weinberg, said she was not optimistic that her client
would prevail, especially since the arbitrator is a bank compliance
officer.
A crash course
Debbie Brenner enrolled in the surgical technician program at Lamson
College near Phoenix in her 40s with high hopes of reinventing herself.
She spent hours learning about the tools used in surgical procedures as
if mastering the movements of the waltz, each handoff in graceful
succession: scalpel, retractor, clamp, sutures.
Whether the instruments featured in lessons were real, or just
depictions in photographs, depended on what teachers could round up on
any given day. Lamson students became accustomed to empty surgical
trays and anatomical mannequins missing their plastic replicas of
organs. One enterprising instructor fashioned hearts, livers and
kidneys out of felt and string.
Students considered that instructor to be one of Lamson’s better
faculty members, more than a dozen of them said in interviews. Some
teachers routinely disappeared from class, leaving tests conspicuously
on the desks to be copied, they said.
Ms. Brenner, a devout Christian, said she prayed that the program’s
shortcomings would not diminish her job prospects. She said the
enrollment officer who persuaded her to sign up for the $24,000-a-year
program had promised her she would easily find a job after graduation.
Debbie
Brenner, whose fraud case against a for-profit school chain was forced
into arbitration and left her nearly bankrupt. Credit Nick Cote for The
New York Times
When Ms. Brenner completed the program with high marks in 2009, she
said, Lamson failed to find her an internship. She was volunteering at
Maricopa County Hospital when, she said, a surgical technician told her
that most hospitals refused to hire Lamson students because they were
so poorly trained. According to students, some did not even know how to
properly sterilize their hands before surgery.
“It was a joke,” Ms. Brenner said. “The school’s brochure was all about making our dreams come true, but this was a nightmare.”
Soon after, Lamson shut down the program when it was unable to place
enough of its students in internships. In March 2011, Ms. Brenner and
other students filed a lawsuit against the school and its owner, Delta
Career Education Corporation, accusing them of fraud. The case was
promptly dismissed because of an arbitration clause in the students’
enrollment agreements.
Ms. Brenner, confident she could prevail in arbitration, persuaded her
husband to withdraw $12,000 from his retirement account to put toward
legal fees.
By the time her case was heard in March 2013, the attorney general of
Arizona had sued another Delta school for defrauding students in a
criminal justice program. And a federal class-action lawsuit in
Michigan had accused a Delta school of defrauding students out of
millions of dollars in student loans. The company did not admit
wrongdoing, but settled both lawsuits for a total of more than $8
million.
Arbitration would prove to be more advantageous for the company, records and interviews show.
Ms. Brenner’s case was conducted in the Phoenix office of Gordon &
Rees, one of two big law firms defending Lamson and Delta. The
arbitrator, Dennis Negron, was a corporate lawyer and real estate
broker who had written papers on how to limit liability because “last
on your list of desires is to be sued.”
As in most arbitrations, lawyers for both sides chose Mr. Negron from a
list provided by an arbitration firm, in this case the American
Arbitration Association.
Lawyers for Ms. Brenner and four other students grouped into the same
arbitration said they anticipated victory because they believed that
the evidence was overwhelmingly in their favor.
Even the school’s former head of admissions, Jeff Bing, testified that
he had been instructed by his superiors at Delta to increase enrollment
at all costs.
Mr. Bing said it was widely known that the admissions staff, whose
compensation was tied to the number of students recruited, was
“overpromising” on jobs. He testified that the job placement rate for
graduates was around 20 percent.
To keep the enrollment numbers up, Mr. Bing said, virtually anyone who
applied was accepted. He added in an interview that the only
qualification was “a pulse.”
Mr. Bing and other former employees recounted in interviews with The
Times how profits drove most of the decision-making at Lamson.
As administrators were pressured to increase enrollment, instructors
were drilled on the importance of student retention — which factored
into federal aid disbursements.
Penny Philippi and Karen Saliski, two former teachers, said they were
directed not to flunk anyone, including a student who skipped classes
to “chase U.F.O.s.”
Delta declined to comment.
During the arbitration proceedings, even a witness for the defense
expressed concerns about Lamson. Kelly Harris, who headed the school’s
surgical technician program, defended the quality of education offered
at Lamson but said the school enrolled too many students.
Ms. Harris, in an interview with The Times, said she warned school
executives that the practice would dilute the quality of training,
flood the job market and make the Lamson degree worthless. They
scoffed, she said.
“It broke my heart to see these kids treated as dollar signs,” Ms. Harris said.
She was one of only two people who testified for the defense. Lawyers
for Lamson and Delta denied that enrollment officers guaranteed jobs,
adding that they were hard to come by during the recession.
In the end, Mr. Negron ruled in favor of Lamson and Delta.
Mr. Negron found that the defense had presented the “two most credible
witnesses” and praised for-profit education, according to his decision,
a copy of which was obtained by The Times. Mr. Negron did not return
repeated calls and emails seeking comment.
“There is little doubt that for-profit technical or specialty schools,
like the college, serve an invaluable service to the public,” he wrote
in his decision.
Mr. Negron found that the college did not make job promises during the
enrollment process but may have engaged in “puffery, which each of the
adult students should have known and recognized as puffery.” Chiding
Ms. Brenner for not being a savvier shopper, he said she had approached
her decision to enroll in a “most cavalier manner” as if “buying a
Snickers at the local market.”
His opinion was not shared by arbitrators who ruled in favor of
students in two nearly identical cases against Lamson, documents
obtained by The Times show.
If the cases had played out in court, legal experts said, Ms. Brenner
could have referred to those decisions to appeal Mr. Negron’s.
As it stands, Ms. Brenner lost far more than the case.
Mr. Negron decided that she and the other students should pay the
defense’s $354,210.77 legal bill because of the “hardship” the students
had inflicted on Lamson and Delta.
“I felt like I had been sucker-punched,” Ms. Brenner said.
Repeat business
Fearful of losing business, some arbitrators pass around the story of
Stefan M. Mason as a cautionary tale. They say Mr. Mason ruled in favor
of an employee in an age discrimination suit, awarding him $1.7
million, and was never hired to hear another employment case.
While Mr. Mason’s experience was rare, more than 30 arbitrators said in
interviews that the pressure to rule for the companies that give them
business was real.
Companies can even specify in contracts with their customers and
employees that all cases will be handled exclusively by one arbitration
firm. Big law firms also bring repeat business to individual
arbitrators, according to documents and interviews with arbitrators.
Jackson Lewis, for example, had 40 cases with the same arbitrator in
San Francisco over a five-year period.
The JAMS arbitrator in an employment case brought by Leonard Acevedo of
Pomona, Calif., against the short-term lender CashCall simultaneously
had 28 other cases involving the company, according to documents
disclosed by JAMS during the proceedings.
“This whole experience burst my bubble,” said Mr. Acevedo, a
57-year-old veteran, who lost his case in October 2014. His lawyer,
James Cordes, offered a more critical take. “It clearly appears that
the arbitrator was working for the company,” Mr. Cordes said. “And he
disregarded evidence to hand a good result to his client.”
JAMS denied that its arbitrator had been influenced by CashCall.
Linda S. Klibanow, an employment arbitrator in Pasadena, Calif.,
acknowledged the potential for conflicts of interest but said she
thought most arbitrators, many of whom are retired judges, could remain
fair.
“I think that most arbitrators put themselves in the place of a jury as
the fact finder and try to render a fair decision,” Ms. Klibanow said.
Elizabeth Bartholet, an arbitrator in Boston who has handled more than
100 cases, agreed that many arbitrators had good intentions, but she
said that the system made it challenging to remain unbiased. Ms.
Bartholet recalled that after a company complained that she had
scheduled an extra hearing for a plaintiff, the arbitration firm she
was working with canceled it behind her back.
A year later, she said, she was at an industry conference when she
overheard two people talking about how an arbitrator in Boston had
almost cost that firm a big client. “It was a conference on ethics, if
you can believe it,” said Ms. Bartholet, a law professor at Harvard.
Deborah Pierce, the doctor in Philadelphia, said she did not expect to
confront in arbitration the very problem she was suing her employer
over: an uneven playing field.
Ms. Pierce decided to go to arbitration after learning that another
female doctor had been denied a partnership by her employer, Abington
Emergency Physician Associates, under similar circumstances. She also
had the backing of the Equal Employment Opportunity Commission, which
found that there was probable cause that Ms. Pierce had been
discriminated against.
The practice is now under different management.
Ms. Pierce needed to prove the partners’ states of mind when they
dismissed her, or debunk whatever reason the company gave for letting
her go. Both required access to the practice’s records and witnesses.
Once in arbitration, she and her lawyers said, the arbitrator gave them
a weekend to review hundreds of records the defense originally withheld.
Vasilios J. Kalogredis, the arbitrator, said he could not comment on
details of the proceedings because they were confidential, though he
emphasized that “everything was handled properly.”
For Ms. Pierce, the most astounding moment came when her lawyers asked
Mr. Kalogredis to impose sanctions on the defense for breaking the
rules of discovery and destroying evidence. He fined the defense $1,000
after investigating the matter, then billed Ms. Pierce $2,000 for the
time it took him to look into it.
“I kept thinking, ‘I’m not a lawyer, but this can’t be right,’ ” said
Ms. Pierce, who had to take out a second mortgage to cover her legal
expenses, which included a $58,000 bill from Mr. Kalogredis.
After the ruling, Ms. Pierce’s lawyers wrote to Mr. Kalogredis’s
arbitration firm questioning his qualifications. The firm, American
Health Lawyers Association, responded that it was not its
responsibility to verify the “abilities or competence” of its
arbitrators.
Robert Gebeloff contributed reporting.
top contents
appendix
previous
next