New Jersey bar disavows court-annexed arbitration.

The New Jersey State Bar Association wants to eliminate mandatory court-annexed arbitration, according to a report released late last year by its Ad Hoc Committee on Arbitration. The bar began the study when it learned that from 2000 to 2001, parties rejected awards in almost 75 percent of the cases arbitrated in the state.

"To maintain a system that demands the time, effort, and costs of arbitration as a substitute for good lawyering is nothing short of bureaucratic waste," the report concluded.

The state's court-annexed arbitration program, in place since 1983, requires that certain cases must enter arbitration before the parties can file de novo appeals and have their day in court. The program applies to all auto negligence cases with noneconomic loss claims less than $15,000, personal injury cases valued at less than $20,000, and commercial cases except for certain complex ones. Arbitrators are assigned to cases from a pool of retired judges and lawyers with at least seven years' experience in personal injury or commercial law.

Court-annexed arbitration--like mandatory arbitration, now required by clauses routinely included in credit card applications, car dealer contracts, HMO treatment release forms, and more--may not provide a fair forum for consumers and small businesses, the committee found. The report noted conflicts of interest stemming from arbitrators' insurance company connections: In some cases, arbitrators represented the same carrier in other cases.

"The latter [problem] echoes one of ATLA's concerns about mandatory arbitration: 'repeat-player bias,'" said John Vail, senior counsel for the Center for Constitutional Litigation in Washington, D.C. "For example, a defendant HMO will hire an arbitration company, and the company will handle every case for the HMO. The company is unlikely to have more than one case with any given individual consumer. The arbitration company [and its arbitrators] make their money handling these cases, and if they rule against the HMO 100 times, they won't be hired again."

While court-ordered arbitrators work for the court, not a private arbitration company, "this study concurs that the New Jersey system is subject to that kind of bias," said Vail.

The report also found the rejection rate of arbitration awards by defendants, especially by the insurance industry, to be three to four times that of plaintiffs. For example, de novo appeals for trial filed by defendants in auto cases increased from 55 percent in 1987 to over 82 percent in 2003. "This statistic reflects either unremitting and increasing dissatisfaction with the system, or worse, a conscious abuse," the report said.

It singled out one insurer in particular. "The Allstate Insurance Co. files a de novo appeal in every single arbitration," the report said. Insurers claim that arbitrators hand out excessive awards; plaintiffs say an arbitration award, "while it may begin to form the basis for further discussion, is always the high point of any negotiations with the carrier seeking a substantially lower payout," the report said.

The committee concluded that mandatory court-annexed arbitration does not reduce costs, accelerate dispositions, or eliminate backlog: "By and large, [it] is a futile exercise that substitutes for better communication between the lawyers and, indirectly, the clients."

The bar recommended halting mandatory court-annexed arbitration except as ordered by existing legislation (and trying to repeal those statutes), as well as establishing an alternative dispute resolution program. It would include several options, such as early neutral evaluation, mediation, and nonbinding arbitration with an opportunity to opt out.

"Different cases and different lawyers require different approaches to the resolution of disputes that underlie litigation in the modern world," the report said.