by Joe Bird
Many of the various agreements in the mortgage loan process and between mortgage brokers, lenders and banks and their employees contain provisions that require disputes to be submitted to arbitration. What is arbitration and why does the large wealthy entity drafting these agreements desire arbitration rather than resolving legal disputes in front of a judge or jury? It isn’t to provide the employee or mortgagor with additional protection against injustice.
Arbitration was created as a low cost alternative to the court process. It was designed to avoid the cost of a lawsuit in a court room with never ending discovery [interrogations called depositions, written questions called interrogatories and demands for records and the process of fighting over the information through the lawyers]. Discovery and what lawyers call motion practice where issues are decided by the judge based on written submissions have almost taken the place of a trial and testimony in modern courtroom warfare.
Arbitration was to eliminate discovery and the attendant costs and provide a mechanism for a decision based on a hearing where humans actually were heard before a neutral or unbiased arbitrator chosen by the parties. It is now a trap for the unwary and something to be avoided rather than agreed to as a low cost alternative to a lawsuit.
Arbitration today is managed by large organizations like the American Arbitration Association. The AAA enlists lawyers to become arbitrators. The AAA also creates rules for the conduct of arbitration, one being that the process is confidential or semi-secret. It also has morphed into a private court process with discovery and motion practice now a part of the process. So, it has become a non-transparent version of a court, a place where fraud can hide in confidence.
The ability to hide fraud in arbitration is aided and abetted by the ability of an arbitrator to cloak the decision in “discretion” and make the decision impervious to appeal. So, even if the decision is absolutely and clearly wrong legally and factually, there is no possibility of it being corrected through an appeal, unlike a court decision which is reviewable on appeal and must be in accordance with the law.
Moreover, while judges are elected or appointed by voters or elected representatives and their decisions subject to scrutiny, an arbitrator is selected by the parties. Large law firms representing the opportunity for repeat appointments where an arbitrator can charge over $50,000 for one case often paid by the large law firms client [the employer or bank] impairs the arbitrator’s ability to remain unbiased: by auditioning for the next appointment with a decision favorable to the employer, an arbitrator secures more appointments and earns more money.
By now the “WHY” is answered. Large institutions can hide inside an arbitration claim. They can now have the discovery they use in arbitration to club an individual into submission. They are able to use arbitrators who need their appointments to earn fees as private judges to survive and so will consistently “lean” in their favor. The decision is virtually unreviewable on appeal. So, if you were an employer, bank or lender, why wouldn’t you include an arbitration clause in all your agreements?
If your employer, lender or bank is asking you to agree to arbitration when signing an agreement, think twice. There is a reason they are asking you to agree to arbitrate and it is not to afford you more protection against injustice or a low cost alternative to a lawsuit.
So, beware. Arbitration can be often be used to enable fraud. Think about is before agreeing to it. Ask an attorney if it is appropriate in context. If not, you may find that those who would defraud you are able to hide in the murkiness of a “private” arbitration.
The fraud lawyers at Mahany & Ertl represents businesses and individuals hurt by fraud. Mortgage fraud, predatory foreclosure practices, investment fraud, Ponzi schemes and whistleblower cases (fraud against the government and taxpayers). We enjoy what we do and are honored to help hard working companies, investors and the American public get back their hard earned money. If you are a victim of a fraud or wish to come forward with information about a fraud against the public, give us a call. (Whistleblowers may be entitled to large cash awards from the government.)
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Wisconsin; Portland, Maine & Minneapolis, Minnesota. Services available in many jurisdictions.