PRIVATE JUSTICE Millions are losing their legal rights Supreme Court forces disputes

from court to arbitration - a system with no laws

Reynolds Holding, Chronicle Staff Writer
Sunday, October 7, 2001
© 2002 San Francisco Chronicle, Page A – 1
A private brand of civil justice, one without laws or juries or constitutional rights, has swept
quietly across the nation's commercial landscape, shielding corporations from costly
verdicts, compromising judges and stripping the public of its right to a day in court. Tens of
millions of Americans can no longer get medical treatment, a job, a home, a credit card or
a host of goods and services without agreeing to resolve future disputes in confidential,
unregulated proceedings riddled with conflicts of interest. They cannot claim injury, fraud
or discrimination without paying filing fees that may reach thousands of dollars. They
cannot rely on legal guarantees of due process and fair treatment. They cannot appeal,
except in rare circumstances. And most of them don't even know it. They have been forced
into binding arbitration, a quasi-legal process that allows private individuals to pass final
judgment on the disputes of the parties who hire them. Voluntary arbitration has a long
history in corporate commerce, organized labor and professional sports, where it has
earned praise for efficiently resolving conflicts between adversaries of equal strength. But
over the past two decades, corporate America has imposed mandatory arbitration on the
public as a condition of doing business - with the blessing of the U.S. Supreme Court.
Legal experts, including advocates of voluntary arbitration and several members of the
court itself, have accused the justices of ignoring the intent of Congress and distorting the
Federal Arbitration Act so that business interests can avoid the costs and risks of lawsuits
and judges can lighten their workloads. "The Supreme Court rewrote that statute as a
service to corporations that don't like jury trials," says Professor Paul Carrington of Duke
University School of Law.
The result, critics say, is a second-class justice system in which obscure clauses buried
deep in bank statements, phone bills and job applications deprive millions of people of
their legal rights:
-- Lost rights: In mandatory arbitration, high fees can discourage individuals from pursuing
cases. The system lacks the procedural safeguards of court, and limited awards can make
hiring a lawyer difficult. Arbitrators don't have to be lawyers and may not follow the law or
justify their rulings. Their decisions are confidential and final.
-- Conflicts of interest: Some arbitration firms have invested in the companies whose
disputes the firms' arbitrators hear, creating the appearance of conflicts that would never
be tolerated in court. Studies show that arbitrators may favor large corporations and other
frequent clients.
-- Compromised judges: Soaring demand and potentially high pay have lured an
increasing number of sitting judges into arbitration - particularly in California - and
pressured some to act in ways that may impress arbitration firms but weaken public
confidence in the courts.
"Mandatory arbitration allows corporations to undermine the whole system by which we
hold them accountable," says Montana Supreme Court Justice Terry Trieweiler. "Every
day it becomes more pervasive, and more oppressive."

Exhibit D
Taking a case through mandatory arbitration can be financially and emotionally
devastating.
While a vice president at NationsBank Capital Markets, Renee Cecala says male bosses
grabbed, cursed and pawed her. A stripper dressed as a pizza delivery boy disrobed as
she stood on the trading floor. For Halloween, she received a small coffin containing a
nude figure with a penis as long as its body.
In 1998, under securities-industry rules, her complaint was assigned to a panel of three
arbitrators.
The panel's chairman was a retired music teacher. The second arbitrator had run a small
stock-brokerage firm in Indiana and, Cecala says, "was immensely hard of hearing." The
third, a small-town lawyer and diabetic, often slept during the proceedings as his insulin
pump whistled in the background.
"I remember walking into the room, seeing these three and thinking, "Oh, my God,' " says
Cecala.
Transcripts show the panel losing control of the attorneys, misstating the law and making
bizarre rulings. The hearings lasted 18 days over more than two years and cost Cecala
almost $25,000 in arbitrator and hearing fees alone. Then the panel ruled against her.
Cecala says she fell into deep depression, unable to sleep for days at a time.
"In terms of the massiveness of the mess, it's hard to top her case," says Cecala's current
attorney, Mitchell Aberman, who is asking a federal judge to overturn the arbitrators' ruling.
In response to mounting criticism, several arbitration firms have adopted fairness
standards. But the protocols are sometimes ignored and, in any event, cannot be enforced
in court.
Reforms that would protect the public have been proposed in Congress and state
legislatures. On Sept. 26, Gov. Gray Davis signed a bill calling for rules requiring
arbitrators to disclose conflicts of interest. A bill now before the U.S. House of
Representatives would prohibit employers from imposing arbitration on most workers.
But the prospects for further reform are uncertain. The California Chamber of Commerce,
the American Insurance Association and other business interests from Silicon Valley to
Wall Street have consistently fought to defeat proposed limits.
"What you're talking about here," says Rep. Dennis Kucinich, D-Ohio, a sponsor of the
House bill, "is a classic struggle between the basic rights of workers and the desire of
corporations to have absolute control of the workplace."
On Wednesday, the U.S. Supreme Court will hear arguments in a case that could extend
the reach of mandatory arbitration even further. The court will decide whether the federal
Equal Employment Opportunity Commission can sue an employer on behalf of Scotty
Baker, a fired short-order cook who unwittingly signed away his right to a jury trial.
The case may show how far the court is willing to go in limiting not only the rights of
individuals but the authority of the agencies created to protect them.
"Employers see a green light posted on the front steps of the Supreme Court,
emboldening them to make arguments that 20 years ago would have been deemed
outrageous," says San Francisco attorney Michael Rubin, author of a brief supporting the

Exhibit D
EEOC's position. "This time, I hope the Supreme Court tells them that they have finally
pushed too far."
FEDERAL ARBITRATION ACTFor years, the nation's courts refused to enforce arbitration
agreements, frustrating companies eager to conduct business without lawyers or courts.
Then, in 1923, Republican Rep. Ogden L. Mills of New York introduced a bill that would
make arbitration contracts enforceable in federal court.
Critics of arbitration worried the legislation would undercut the rights of individuals. But the
bill's authors and supporters said it would only apply to "merchants" in contract disputes.
The Federal Arbitration Act became law in 1925, and for decades the nation's courts
honored the limits Congress intended to impose on the act.
But by the mid-1970s, the fear of an explosion in litigation gripped the federal judiciary.
Business interests warned of skyrocketing lawsuits. Insurance company Crum & Forster
ran a full page advertisement in Time magazine, condemning lawyers for filing more than 1
million product liability cases each year. Although the actual number never exceeded
about 80,000, the point had been made.
In 1983, without explanation, the Supreme Court declared that the Federal Arbitration Act
had created a "liberal federal policy favoring arbitration," meaning arbitration agreements
should be upheld whenever possible.
The pronouncement marked a stark change in the high court's thinking, and the new policy
soon drew criticism from its own members, including Justice Sandra Day O'Connor, who
said the court "utterly fails to recognize the clear congressional intent underlying the
Federal Arbitration Act."
But the court repeatedly invoked the new policy as it expanded mandatory arbitration
throughout the nation's commercial life - even when civil rights were at stake.
The court had long maintained that arbitrators "may be wholly unqualified" to decide civil
rights cases and similar legal matters, said Justice Hugo Black.
But in 1991, the justices ruled 7 to 2 that Robert Gilmer, a 62-year-old financial services
manager replaced by his 28-year-old protege, must take his age discrimination case to
arbitration.
The ruling cleared the way for companies in every industry to prohibit their employees from
going to court with their grievances.
HIDDEN WAIVERSIn its rulings, the Supreme Court has treated arbitration clauses as
ordinary contracts between consenting parties.
But for individuals, the clauses are much more. They are waivers of the constitutional right
to a jury trial. And in all contexts other than arbitration clauses, federal courts have
consistently ruled that such waivers must be "knowing, voluntary and intentional," says
Jean Sternlight, a law professor at the University of Missouri.
Yet thousands of medical patients, credit cardholders, homeowners and employees give
up that right every day without even knowing they have done so.
Many mandatory arbitration clauses are tucked into shipping materials. Some lurk in the
dense pages of bills and bank statements. Often the clauses appear in tiny type.

Exhibit D
In 1992, the Bank of America started slipping mandatory arbitration clauses into bills sent
to its credit card and account holders. Customers who continued to use their card or
account, said the notices, would agree not to sue.
But a group of cardholders sued the bank, arguing that the so-called "bill stuffers" were
unfair and deceptive. In 1998, the California Court of Appeal in San Francisco ruled in their
favor, becoming one of the few courts in the nation to say that a business imposing
arbitration on its customers "must clearly and unambiguously show" that they have agreed
to waive their constitutional right to a jury trial.
For a while, the decision discouraged bill stuffing in the state. But in July, Berkeley resident
Darcy Ting and other phone customers received "Dear AT&T Customer" letters. If they
made one more long-distance call, the letters said, they would have to resolve all disputes
of more than $5,000 in arbitration.
Ting was outraged. She led a class-action suit against AT&T in federal court in San
Francisco.
"Why should I lose my rights?" asked Ting. "It is really unfair."
PROHIBITIVE FEESFiling a case in California Superior Court typically costs from $90 to
$185.
If the complaint involves discrimination, a state agency such as the California Department
of Fair Employment and Housing or the federal Equal Employment Opportunity
Commission might take the case for free. In certain employment disputes, the state Labor
Commission might take the case, also for free.
But mandatory arbitration can require thousands of dollars to file a case. As a result, some
people must pay fees they cannot afford or drop their legal complaints.
Lorraine Aho had to make that choice earlier this year in her wrongful firing case against
Maxager Technology in San Rafael.
The American Arbitration Association ordered her to pay a $3,000 filing fee,
plus any fees the arbitrator might charge. Her attorney, Mary Dryovage, says the fees
could have topped $50,000.
"We told them to forget it," Dryovage says. "I wasn't going to let one of my clients get into a
situation of having to declare bankruptcy to pursue her case."
Some arbitration firms charge less. Several courts, including the California Supreme Court,
have ruled that employers must foot the bill in employment discrimination cases.
But American Arbitration Association, the nation's largest arbitration firm with more than
140,000 cases each year, charges up-front fees ranging from $500 for claims under
$10,000 to more than $7,000 for claims above $1 million in commercial cases.
NO CLASS ACTIONSMandatory arbitration agreements often prohibit class actions,
lawsuits that combine many claims so awards are large enough to cover legal fees and
other costs. Class actions help people of modest means afford litigation and, although
subject to abuse, enforce consumer protection and civil rights laws.
The National Arbitration Forum has assured potential clients that its rules will shield them
from class actions and improve "the bottom line."

Exhibit D
FleetBoston Financial Corp., Citigroup Inc. and MBNA Corp. recently barred credit card
customers from joining any class actions against the companies, including suits already
filed but not yet "certified" by courts.
NO JUDGESAlthough many arbitrators are former judges, they are rarely required to
follow the law. Some arbitrators are not even lawyers.
In 1997, Carl Posey's defamation and wrongful firing case against PaineWebber Inc. was
assigned to a panel of three arbitrators in Nashville, Tenn. Two of the arbitrators weren't
lawyers. The third, the panel's chairman, showed up wearing a white T-shirt and a khaki
vest adorned with fishing lures.
"I remember asking the case administrator, "Where did you get these guys - off a
barstool?' " says Posey's attorney, Jeffrey Liddle.
After a full day of opening statements, the panel asked if the lawyers could go through the
statements again. It soon became clear that the arbitrators would never grasp the case's
nuances, says Liddle, so they agreed to quit.
A second panel was appointed. But when its chairman, a nonlawyer, leaped to his feet to
stop Posey from getting documents he was legally entitled to, Liddle sensed more trouble.
After a three-hour discussion, the second panel also quit.
Ultimately, the case was filed in federal court and settled.
"They just had a total misunderstanding of what we were about," says Posey, who had to
pay the arbitrators $10,000 for the aborted hearings.
PaineWebber, now UBS PaineWebber, declined to comment.
LOST RIGHTSAlthough supporters of arbitration praise the system's swift resolution of
disputes, critics say speed and efficiency come at a price: the loss of rights guaranteed in
court.
In 1999, San Francisco investment banker Nicholas Prassas sued Smith Barney Inc.,
claiming the bank fired him for not lying about campaign contributions that could have
disqualified the firm from doing a bond deal with the state of Hawaii.
Smith Barney forced Prassas into arbitration, preventing the allegations from being aired in
open court. During the case, his attorney says, the firm turned over few documents and
gave superficial answers to his written questions. When the attorney tried to take
deposition testimony from witnesses,
the arbitrators stopped him.
Left with scant information to make his case, Prassas settled without a hearing.
"It was awful," says Prassas. "There seemed to be no rationale behind the arbitrators'
decisions."
Smith Barney, now Salomon Smith Barney, declined to comment.
SMALL AWARDSIn many cases, arbitration agreements limit the size of awards.
In July, for example, AT&T's customer notice said disputes with the company would go to
arbitration rather than to court and that the company would only pay for faulty phone
service or direct damages to property - not for indirect, punitive or other damages normally
allowed by law.

Exhibit D
Award limits can make finding an attorney difficult. In December, the California Research
Bureau, the Legislature's research wing, reported that almost a third of the medical
patients who go to arbitration don't have attorneys.
Cliff Palefsky, a San Francisco attorney who has led the legal opposition to mandatory
arbitration, says he has advised many women - particularly securities industry
professionals - not to pursue a discrimination case in arbitration.
"The high costs, the amount they could win and the chances of winning all militate against
pursuing it, because of the damage it could do to their careers," he says. "It breaks my
heart to have to give someone with a good case that kind of advice."
NO EXPLANATIONThree years ago, after Sherri Warner lost her discrimination and
wrongful firing suit in mandatory arbitration, a San Francisco arbitrator not only charged
her nearly $16,000 for his time, he ordered her to pay her opponent's legal fees of more
than $207,000.
The fee award would probably not have been allowed in court, and it forced Warner into
bankruptcy. But after her lawyer, Stephen Gorski, asked the arbitrator to explain his
decision, the arbitrator refused when reminded no rules required him to do so.
Arbitrators rarely issue written opinions, making requests for review virtually impossible.
The National Association of Securities Dealers generally limits arbitration opinions to the
names of the participants and their attorneys, the claims asserted and the outcome. In
some cases, major clients of arbitration firms have prohibited arbitrators from even issuing
opinions.
MCI Telecommunications Corp., for example, agreed in 1994 with Endispute, which later
merged with Judicial Arbitration and Mediation Service now JAMS, that awards "shall not
include any findings of fact or conclusions of law."
As a marketing company pointed out in its 1996 lawsuit against MCI, an arbitrator's finding
that MCI had engaged in "willful misconduct" would have exposed the company to
increased liability under federal regulations.
UNENFORCED ETHICS CODESIn recent years, mounting complaints about arbitration
have prompted the nation's largest arbitration firms to adopt fairness standards.
Starting in 1995, for example, American Arbitration Association agreed to abide by
"protocols" for running arbitrations in employment, consumer and health care cases. In
health care, the association said it would accept only cases that people had voluntarily
agreed to submit to arbitration after the dispute arose.
But the standards are not enforceable, and the association seems to ignore them.
In 1999, for example, Maureen Alexander filed a complaint against Blue Cross of
California, claiming that a doctor removed her gown during a routine checkup and, for no
apparent reason, poked her breasts and pelvic area with a pin, according to court papers.
Blue Cross forced her into arbitration, and American Arbitration took the case, even though
Alexander said she didn't know she had signed an arbitration clause.
The arbitrator failed to apply the association's health care rules, including requirements for
sharing documents and other information, and ruled against Alexander.

Exhibit D
She sued Blue Cross to overturn the award, claiming the arbitrator was biased and ignored
applicable laws, but she lost. She then sued the American Arbitration Association for
breaching its own protocols, but a federal court dismissed her suit earlier this year.
Meanwhile, in a separate case last year, American Arbitration Senior Vice President
Robert Meade submitted a sworn affidavit saying the organization "does not require
compliance with the (health care) protocol for cases we administer."
In other cases, the association has also failed to require its arbitrators to follow the
consumer or employment protocols.
American Arbitration spokeswoman Kersten Norlin says the association enforces the
protocols unless a case "doesn't fall under one of the defined categories. You may have an
employment arbitration clause involving a health care company, for example. So it's not
always black or white."
Palefsky says that's nonsense.
"The protocols," he says, "are all just a marketing ploy."
THE LAST BARRIERSOn Wednesday, attorneys for the Equal Employment Opportunity
Commission will appear before the U.S. Supreme Court on behalf of 27-year-old Scotty
Baker.
In November 1992, Baker's white Corolla flipped off a rain-slickened highway near his
home in South Carolina. He walked away with a bump on his head, but a week later
started to have periodic seizures.
In 1994, he filled out an application for a job cooking at the Waffle House in Columbia. He
got the job, but turned it down. A few weeks later, he applied for a similar job at the Waffle
House in West Columbia.
The manager hired him on the spot, without asking Baker to complete an application.
When Baker mentioned his seizures, the manager just said, "Show up for work at 7 a.m.,"
Baker says.
About two weeks into the job, Baker suffered a seizure, and the manager fired him. The
manager said, "It's bad for business to have you spazzing out in front of the customers,"
says Baker.
Eight months later, he consulted a lawyer about suing Waffle House for discriminating
against a disabled employee. That was when he learned about the arbitration clause at the
bottom of the application he had filled out for the Waffle House in Columbia.
In barely readable type, a four-line paragraph said any dispute involving the company
would go to binding arbitration.
Baker says he never saw the arbitration clause. Besides, the clause was on the application
he had completed at the first Waffle House, not at the Waffle House in West Columbia
where he worked.
But arbitration was his only recourse. And he would have to pay half the costs, including
the arbitrator's fees. Out of work and seeking reinstatement to a job that paid $5.50 an
hour, Baker couldn't afford it.
In 1996, the Equal Employment Opportunities Commission sued Waffle House in the U.S.
District Court in Columbia, S.C., claiming the company had violated the Americans with

Exhibit D
Disabilities Act by firing Baker for his seizure. Waffle House, as expected, moved to force
the case into arbitration.
Waffle House and its attorneys declined to comment on the case.
When a federal judge ruled that Baker wasn't bound by any arbitration agreement, Waffle
House appealed. In October 1999, the appeals court reversed the ruling, deciding not only
that Baker must go to arbitration, but that the "strong policy favoring arbitration" barred the
EEOC from suing Waffle House for damages and, in effect, doing an end run around the
agreement.
The court, though, also acknowledged the EEOC's congressionally mandated duty to
protect the public's interests. The agency could, therefore, seek an order stopping Waffle
House from illegally firing any disabled workers.
That is the issue now before the U.S. Supreme Court. Can a federal watchdog like the
EEOC use every means provided by Congress, including suing for damages, to enforce
the laws against employment discrimination and other civil rights violations?
"I can't imagine the court will stop the EEOC from enforcing the law," says Carrington, "but
who knows? And if workers have to protect themselves from discrimination without the
EEOC, to bargain for their own rights, then that means they don't have any rights."

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SUPREME COURT RULINGS EXPANDING THE ROLE OF ARBITRATIONIn a series of
controversial rulings since 1983, the U.S. Supreme Court has encouraged companies to
impose mandatory arbitration on the public. But critics say the rulings seriously
misinterpret the Federal Arbitration Act. .
-- Federal Arbitration Act
For years courts allowed people to back out of arbitration agreements. In 1925, Congress
passed a bill making arbitration agreements as enforceable as any other contract. During
congressional debates, the bill's supporters assured critics that the new law would apply
only to "merchants" who entered agreements voluntarily.
..
1983 -- New policy favoring arbitration
In the mid-1970s, fears of a litigation explosion prompted judges and companies to push
arbitration as an alternative to lawsuits. In 1983, without explanation, the high court
concluded that the Federal Arbitration Act had created a "liberal federal policy favoring
arbitration.". 1984 -- Trumping state laws
Citing that "federal policy," Chief Justice Warren Burger wrote for the court that arbitration
clauses preempt state laws protecting the public's right to go to court. In dissent, Justice
Sandra Day O'Connor said the decision Ð"utterly fails to recognize the clear congressional
intent underlying the (Federal Arbitration Act)." .
1985 -- Fair and competent
In a case enforcing an arbitration agreement in an antitrust action, the high court called
arbitration just as fair and competent as the legal system. Justice John Paul Stevens
disagreed, calling arbitration "despotic decision making." .
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1989 -- Ignoring consumer protections
Reversing an earlier ruling, Justice Anthony Kennedy wrote for the court that a securities
firm could force a disgruntled customer into arbitration, even though arbitrators might not
enforce the consumer protections of securities laws. Justice Stevens compared the
decision to "an indefensible brand of judicial activism." .
1991 -- Lost civil rights
The high court ruled that an employee must take an age discrimination case to arbitration,
breaking with its longstanding position that civil rights cases were too important and legally
complex to handle in arbitration. .
1995 -- Undermining state protections
The Supreme Court held that states could not limit mandatory arbitration with, for example,
laws ensuring that consumers, employees and others understand the rights they are giving
up by agreeing to arbitration. .
2001 -- Covering employees
Earlier this year, the high court ruled for the first time that the Federal Arbitration Act
applied to all employees, except transportation workers.

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STARK DIFFERENCE BETWEEN COURT AND ARBITRATIONAdvocates of arbitration
say the process is swift, efficient and inexpensive. But critics say arbitration can mean high
filing fees, unqualified arbitrators,
lost legal rights, limited awards and no appeals. .
FEESCourt: Filing a case in state Superior Court costs from $90 to $185, depending on
the amount claimed.
Arbitration: Filing fees for arbitration can cost thousands of dollars, depending on the case
and the arbitration firm. Fees for hearing rooms and the arbitrator's time can run tens of
thousands of dollars more and discourage individuals from pursuing a case. .
JUDGESCourt: Judges or other judicial officers hear cases.
Arbitration: Many arbitrators are former judges, but some are not even lawyers. Arbitrators
are rarely required to follow the law and are regulated in only two states. .
PICKING JUDGESCourt: Judges are usually assigned according to a rotation or by a
presiding judge.
Arbitration: Parties select arbitrators, usually from a list compiled by an arbitration firm.
Firms offer parties various methods of striking names from the list and reducing them to
one. If the parties cannot agree, the firm may designate an arbitrator. .
INDIVIDUAL RIGHTSCourt: The right to a fair process is protected by legal safeguards
such as discovery, testimony and evidence rules.
Arbitration: Court rules do not apply, meaning the arbitrator - sometimes guided by an
arbitration agreement or the rules of an arbitration firm - controls the process. .
AWARDS Court: Judges and juries decide how much an injured party should receive.

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Arbitration: Awards are generally lower than in court, and arbitration agreements
sometimes limit the type of damages an individual can recover. .
APPEALS Court: Judges' decisions are public record and subject to appeal.
Arbitration: Most decisions by arbitrators are confidential. They cannot be appealed and
are subject to judicial review only in narrow circumstances.
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CIVIL RIGHTS TAKE A BEATING
The stories of three people who discovered how hard it is to fight mandatory arbitration. .
-- No arbitration, no job
For three years, Donald Lagatree worked as a legal secretary at a Long Beach firm,
receiving regular bonuses and pay raises. Then in June 1997, the firm asked him to agree
"that any claims arising out of or relating to my employment . . . shall be resolved by final
and binding arbitration."
When Lagatree refused, the firm fired him.
Several months later, he took another secretarial position, this one at a Los Angeles law
office. On his first day, he was handed a letter to "confirm" the deal, including his
agreement to take all disputes to arbitration.
Again Lagatree refused to agree to arbitration, and, once again, he was fired.
He sued both firms for wrongful termination and lost in the state courts. The federal Equal
Employment Opportunity Commission is pursuing the case before the U.S. Court of
Appeals in San Francisco.
The right to go to court "just seemed too important to give away," said Lagatree. .
-- Even egregious decision stands
Rosalind Smith says her co-worker ogled her breasts, licked his lips and gyrated against
her from behind. He complimented her "onion-shaped butt," bragged of his sexual prowess
and repeatedly asked for "a one-night stand."
When Smith, a secretary at a Pennsylvania social services agency, finally complained to
her supervisor, she was fired. In 1999, she filed a claim against the agency and her co-
worker, charging them with sexual harassment and retaliation.
At the formal hearing, her co-worker admitted asking her for a one-night stand and making
vulgar comments about her body. But the arbitrator ruled against Smith.
So she went to federal court, seeking to overturn the arbitrator's decision.
The judge acknowledged that her case met all the requirements for proving sexual
harassment. And when she argued that the arbitrator was simply wrong about the law, the
judge agreed.
But courts are prohibited from overturning even the most egregious decision by an
arbitrator, unless it makes virtually no sense at all.
In declining to reverse the ruling in Smith's case, the judge wrote that he could not
"conscientiously conclude that the arbitrator's . . . decision exceeded all bounds of
rationality." .

Exhibit D
-- "Plaintiffs have themselves to blame'
Three years ago, when Gabriel Martinez lost his job with Scott Specialty Gases Inc. in
Fremont, he and his wife sued the company in Alameda County Superior Court, claiming
the firm had fired him illegally and ruined their lives. The company responded that Martinez
was bound by the arbitration agreement he had signed when he started work.
Although Martinez insisted that he had repudiated the agreement when it was presented to
him, the court ordered him to arbitration.
Martinez appealed, and late last year the state Court of Appeal in San Francisco ruled
against him and his wife.
Then the court informed Martinez that by pursuing his case in court, he had waived his
right to take the case to arbitration. Martinez was left with no recourse against his former
employer, either in court or in arbitration.
"While perhaps genuinely regretting this now, . . . " the court wrote, "plaintiffs have
themselves to blame for their predicament."
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THE FINE PRINT
Waffle House's policy requiring parties to settle disputes through arbitration - and give up
their right to a jury trial - appears in small, barely readable type at the bottom of its
employment application form. An excerpt: .
"The parties agree that any dispute or claim concerning Applicant's employment with
Waffle House, Inc. . . . or the terms, conditions or benefits of such employment, including
whether such dispute or claim is arbitrable, will be settled by binding arbitration."
Waffle House's employment application form (shown actual size at right)
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ABOUT THE SERIES Today:
Lost Rights. Mandatory arbitration clauses tucked into the fine print of bills, bank
statements and other documents deprive people of their legal rights -- with the approval of
the U.S. Supreme Court.
Monday: Conflicts of Interest. Some arbitration firms have financial interests in their clients,
creating the appearance of conflicts that would never be tolerated in court.
Tuesday: Compromised Judges. The lure of potentially high-paying jobs as arbitrators
prompts some judges to try to impress arbitration firms in ways that undermine confidence
in the courts.
E-mail Reynolds Holding at [email protected]

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