Wells Fargo v. Watts: Federal Judge Assails Arbitration Fairness

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In a stinging rebuke to recent Supreme Court decisions that demonstrate an implicit faith in arbitration, United States District Judge Max O. Cogburn has observed that “arbitration under the Federal Arbitration Act is a process that, although retaining the appearance of constitutionality by involving the courts in confirming an award, does not even attempt to retain the appearance of fairness.” Memorandum of Decision and Order at 1, Wells Fargo Advisors, LLC v. Watts, No. 5:11-cv-00048 (W.D. N.C. Mar. 9, 2012). The full opinion is available here. This bleak assessment of arbitration arose in connection with Wells Fargo’s motion to confirm an arbitration award. Although the at-issue arbitration award was confirmed, the award of attorney’s fees was not.

It appears that Judge Cogburn was affronted by Wells Fargo’s counsel challenging the court’s authority to “refuse to enforce an illegal contract.” Id. Judge Cogburn proceeded to catalogue the inequities attendant to arbitration, noting defendants’ built-in advantage over plaintiffs in arbitration and Wells Fargo’s counsel’s testimony that she has never lost any of the 30 to 40 arbitrations she handles each year. Id. at 2. Judge Cogburn punctuated his written opinion with this stark statement: “Now there’s a level playing field.” Id. The confirmation of the arbitration award was a Pyrrhic victory, at least for the defendant’s lawyers, as the award of attorney’s fees was wholly vacated.

As to the adhesive arbitration agreements that have become more prevalent since last year’s decision in AT&T Mobility v. Concepcion, Judge Cogburn observed that the “argument that the parties voluntarily agreed to arbitration and that the process saves money is also disingenuous.” Id. He went on to explain that, “[s]ince financial institutions and large employers have virtually all of the available lending capital and a large number of the jobs, individuals have no recourse but to agree to an arbitration clause,” and “since the individuals seldom win and are forced to reimburse costs and attorney fees, the only ones saving money are large institutions like the claimant.” Id. at 2-3.

While not binding authority, Judge Cogburn’s candid decision will no doubt be invoked to cut through the platitudes that so often accompany arbitration discussion and analysis.