Arbitration Costs and Contingent Fee Contracts

By Drahozal, Christopher R. | Vanderbilt Law Review, April 2006 | Go to article overview

Arbitration Costs and Contingent Fee Contracts


Drahozal, Christopher R., Vanderbilt Law Review


A common criticism of arbitration is that its upfront costs (arbitrators' fees and administrative costs) may preclude consumers and employees from asserting their claims. Some commentators have argued further that arbitration costs undercut the benefits to consumers and employees of contingent fee contracts, which permit the claimants to defer payment of attorneys' fees and litigation expenses until they prevail in the case (and if they do not prevail, avoid such costs altogether). This paper argues that this criticism has it exactly backwards. Rather than arbitration costs interfering with the workings of contingent fee contracts, the contingent fee mechanism provides a means for overcoming liquidity and risk aversion barriers to arbitration. Arbitration costs are just another form of litigation expense, which attorneys should be willing to advance on behalf of clients with viable claims. As a result, even accepting the premises of the cost-based criticism, it does not follow that arbitration costs necessarily preclude individuals from bringing their claims in arbitration. Even if individual claimants cannot afford the forum costs of arbitration, at least some of those individuals - those with viable claims given the total costs of the dispute resolution process - should nonetheless be able to bring their claims. For this reason, much of the legal analysis of arbitration costs is misdirected, focusing too much on the personal finances of the individual claimant and too little on the incentives for attorneys to take the case (such as the value of the claim and possible recovery under fee-shifting statutes). In the vast majority of federal court cases adjudicating cost-based challenges to arbitration agreements, the claimant is represented by counsel and, in most, has asserted a claim that, if successful, would permit the recovery of attorneys' fees. This evidence suggests that in most reported cases, even those in which courts invalidated the arbitration agreement on cost grounds, arbitration costs were not a barrier to asserting the claim in arbitration.

I. INTRODUCTION

In a widely publicized report, The Costs of Arbitration, the consumer advocacy group Public Citizen concluded that high upfront costs in arbitration "have a deterrent effect, often preventing a claimant from even filing a case."1 Indeed, according to Public Citizen, "few consumers have actually navigated the [arbitration] process-most individuals, when confronted by the costs, are forced to drop their claims."2 Many commentators echo this cost-based criticism of arbitration. Mark Budnitz stated that "[t]he costs of arbitration can be so high that they deny consumers access to a forum in which to air their disputes."3 Charles Knapp asserted that "where the claimant is an individual buyer of goods or services, an employee, a health-care patient, a bank customer, or even a small business attempting to pursue a claim against a much larger one, the cost of arbitrators' fees may be prohibitive."4 Reginald Alleyne explained that "[e]ven when arbitration litigation costs less than judicial litigation, the timing of some required arbitration costs, such as upfront fees for the arbitrator, can make it likely that the arbitration-plaintiff will be unable to proceed in that forum."5 The National Consumer Law Center concluded bluntly: "The upshot is that high arbitration costs favor companies and hurt consumers by deterring valid claims."6

The upfront costs of arbitration provide a common ground on which consumers and employees challenge the enforceability of arbitration agreements in court as well.7 The United States Supreme Court recognized the availability of such a challenge (in dicta) in Green Tree Financial Corp.-Alabama v. Randolph,8 stating that "[i]t may well be that the existence of large arbitration costs could prevent a litigant . . . from effectively vindicating her federal statutory rights in the arbitral forum."9 Federal courts typically evaluate cost-based challenges to arbitration agreements by comparing the upfront costs of arbitration to the upfront costs of litigation, taking into account the individual claimant's ability to pay. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Arbitration Costs and Contingent Fee Contracts
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.