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Michigan Court Says Arbitrators Should Be Held to Weaker Ethical Standards than Judges

Michigan Court Says Arbitrators Should Be Held to Weaker Ethical Standards than Judges

photo credit: jmtimages via photopin cc

By Paul Bland
Executive Director

A Michigan appellate court has noted that judges may be disqualified not only if they violate ethical standards or exhibit actual bias, but also if they do something that creates an “appearance of impropriety.” Nonetheless, the court held that the appearance of impropriety standard does not apply to arbitrators. To be blunt, this decision seems like a terrible one. In my view, if arbitrators are going to be allowed to replace the civil justice system for important cases (as the U.S. Supreme Court has repeatedly said they will), they should be held to the same ethical standards as judges.

For one thing, there has been a very serious history of arbitrator ethical abuses in the very recent past in the United States. The single largest provider of consumer arbitration services in the nation for many years was the infamous National Arbitration Forum. For a more complete description of this sordid chapter in American injustice, see Public Justice’s comments to the Consumer Financial Protection Bureau from the summer of 2012. The NAF not only operated in a variety of ways that favored lenders and were unfair to consumers, and it advertised its services to lenders with strong hints and implications that it was going to favor them, but it eventually turned out that the NAF had enormous undisclosed financial ties to debt collectors whose cases it regularly decided in their favor and against consumers.

Given that America’s largest consumer arbitrator operated in a deceitful and corrupt manner, the idea that arbitrators should be held to a lesser ethical standard than courts is hard to swallow.

It also makes no sense to say that arbitrators may operate less ethically than the justice system, when one reflects that arbitrators’ decisions are not subject to meaningful judicial review. If a judge with a secret conflict of interest reaches a terrible decision, there is a substantial possibility that a higher court will fix the error on appeal. As I’ve set out in some detail in congressional testimony, (pages. 26-27) arbitrators’ decisions are immune from review. Courts turn a blind eye to arbitrators’ decisions even when they add up to “wacky” rulings of law, “glaring errors of law,” and “silly fact finding.” If there isn’t going to be any check on horrendous decisions, then we should at least insist that arbitrators must operate as fairly as courts.

Holding arbitrators to lower ethical standards is contrary to the promises the Supreme Court and corporations have made. There has been a recurring pattern in the law for some decades. A corporation will urge the Supreme Court to permit forced arbitration of some new category of claims – first the antitrust laws, later the securities laws, later consumer protection laws, still later civil rights laws – and plaintiffs would question if this was really a good idea. And again and again, the Supreme Court would justify its decision to permit forced arbitration of such claims on the grounds that there was nothing to be concerned about because arbitration would be just as fair as the civil justice system.

From the consumer and workers’ perspective, having forced arbitration of fundamental legal rights is essentially unfair. The Alliance for Justice’s new film “Lost in the Fine Print” makes this point extremely well. But if many courts follow the lead of the Michigan appellate court and arbitrators are allowed to engage in behavior that we would say was unethical if it were done by a judge, then the unfairness becomes magnified.

In what world is a secretive, unreviewable system of corporate-controlled justice presumptively less in need of ethical rules than the civil justice system created by the Founding Fathers at the beginning of this nation?

A world without enough limits on corporate power.