A l t h o u g h I t m a k e s c o m m o n s e n s e , a n d co n form s t o p o p u l a r
a t t i t u d e s , t h a t t h e c l a i m s o f c o n s u m e r s s h o u ld b e a r b i t r a t e d ,
r a t h e r t h a n l i t i g a t e d in c o u r t , t h e v o l u m e o f s u c h c a s e s h a v e
s o f a r b e e n n o t i m p r e s s i v e . T h e g r e a t e s t in c i d e n c e o f c o n
s u m e r - t y p e c a s e s a d m i n i s t e r e d b y A A A in r e c e n t y e a r s o r i g
i n a t e d w i t h t h e o f f i c e o f t h e C o n s u m e r P r o t e c t i o n D iv is io n o f
t h e A t t o r n e y G e n e r a l in t h e S t t r t e o f W a s h i n g t o n . F r o m t h e r e ,
i t s p re a d to a n u m b e r o f o th e r s ta te s w h e re la w e n fo rc e m e n t
o f f ic e r s , fo llo w in g th e W a s h in g to n e x a m p le , o b ta in e d c o n s e n t
d e c r e e s r e f e r r i n g p e n d i n g c o u r t *1 a c t i o n s t o a r b i t r a t i o n . A s t a f f
m e m b e r o f t h e A t t o r n e y G e n e r a l ' s O ffic e in W a s h i n g t o n g iv e s
a c a n d id a c c o u n t o f b o th t h e p o s itiv e a n d n e g a t iv e a s p e c ts o f
s e v e r a l k in d s o f e x p e r i e n c e w i t h co n su m er a r b i t r a t i o n in t h e
p a s t th r e e y e a rs .
COURT-ORDERED CO N SUM ER ARBITRATION
by Robert W exler*
The demands of consumer protection litigation test the abilities
of attorneys and the courts to remedy individual consumer disputes.
In addition, arbitration traditionally provides a practical alternative
for the resolution of disputes in the marketplace. Through the use of
arbitration clauses in numerous court orders the Washington State
Attorney General’s 'Office has explored new territory in consumer
protection.
In September, 1969 the Consumer Protection Division of the
Attorney General’s Office filed suit against Carpeteria,1 a Seattle
carpet firm. Carpeteria and its principals were charged with unfair
trade practices relating to the advertising, sales, delivery and installa
tion of carpets. The Consent Order filed on January 2, 1970 provided
for “. . . the repayment, reimbursement, return of deposits, and pay
ment of damages to those persons entitled thereto as a result of de
fendants’ breaches of contract as alleged in the complaint.”2 In ac
cordance with the Washington arbitration statute (RCW 7.04), the
court order included an arbitration clause which provided that “De
fendant . . . shall make offers in full settlement of each consumer
complaint filed with the Attorney General’s Office by January 15,
1970, which consumer complaint alleged injury caused by defendants’
* Mr. Wexler is cm the staff of the Office of the Attorney General in Wash
ington State.
1. Consent Order, State of Washington v. Carpeteria et al., No. 713326
(Superior Court, King County, Wash., Jan. 2, 1970).
2. Ibid., p. 11.
175
176 THE ARBITRATION JOURNAL
breaches of contracts alleged in the complaint herein, and all such
offers shall be transmitted to the individual complainants by January
30, 1970. As part of the same offer, said defendant shall agree that
any controversy or claim occurring out of or relating to such offer in
settlement of each complaint shall be settled by arbitration in accord
ance with the Rules of the American Arbitration Association and
judgment upon the award rendered by the Arbitrator(s) may be en
tered in any court having jurisdiction thereof.”3
Pursuant to the arbitration provision in the Order, 31 hearings
were held and claimants prevailed in all cases. The amount of con
sumer claims ranged between $25 and $1,975. The American Arbitra
tion Association appointed one attorney arbitrator to decide the legal
non-performance issues and one carpet expert arbitrator to resolve
factual issues relating to carpet defects and workmanship. The aver
age elapsed time between initiation and award was 31 days. In the
same jurisdiction, court delay between filing and judgment is about
one year.
The Attorney General’s Office utilized consumer arbitration for
the second time in State of Washington v. Dare To Be Great, et al.4
During the spring of 1971 Glenn W. Turner’s Dare To Be Great en
tered Washington State. As the Attorney General’s Office later alleged
in its Complaint: Dare To Be Great, through revival-type “Oppor
tunity Meetings,” acquired considerable sums of money from Washing
ton residents. The “Opportunity Meetings” of this Orlando, Florida
firm were replete with representations of easy and almost instant
wealth. Consumers were to achieve these new-found riches through
earning commissions by recruiting others. The right to recruit was sold
by one person to the next without any limitation. Four Adventure
levels constituted the marketing structure for Dare To Be Great. The
price of each Adventure included the costs and benefits of the levels
below it. Adventure I sold for $300, Adventure II for $700, Adven
ture III for $2,000, and Adventure IV sold for $5,000. All Adven
tures of the Dare To Be Great motivation improvement course offered
a motivation kit which included a cassette recorder, cassette tapes, a
motivation notebook and literature, and the opportunity to attend
motivation seminars. Dare To Be Great’s appeal was enormous.
On August 20, 1971 the Washington Attorney General’s Office
filed suit against Dare To Be Great, Glenn Turner Enterprises, and
Glenn W. Turner, individually. The lawsuit was filed pursuant to the
3. Ibid., p. 11.
4. Consent Order, State of Washington v. Dare To Be Great, Inc., et at.,
No. 203543 (Superior Court, Spokane County, Wash., Sept. 24, 1971).
COURT-ORDERED CONSUMER ARBITRATION 177
provisions of the Washington Consumer Protection Act (RCW 19.86)
and the Washington Proprietary School Act (RCW 18.82). The
Office of the Attorney General alleged that the Dare To Be Great
plan was, in reality, a pyramid sales scheme and would inevitably fail.
In addition, the Attorney General’s Office alleged that it required
compliance with the Washington Proprietary School Act, that the
defendants’ presentations at “Opportunity Meetings” included earn
ings misrepresentations, that Dare To Be Great agents directed pro
spective students to practice deception upon financial institutions, and
that a number of other unfair trade practices occurred as described
in the State’s Complaint. Having heard argument the Superior Court
judge granted a Temporary Restraining Order prohibiting “Oppor
tunity Meetings” and the sale of any Adventure level.
The Temporary Restraining Order continued in effect until a
Consent Order was agreed to on September 24, 1971. The Consent
Order provided rescission and refunds to Adventure III and IV con
sumers who had joined Dare To Be Great prior to September 24,
1971. The Order provided that the Attorney General’s Office, based
upon review of alleged misrepresentation, would make the exclusive
determination about rescission. Pursuant to the rescission provision
in the Order, Dare To Be Great returned approximately $363,000 to
Washington consumers. The Order provided that the defendants be
permanently enjoined from most of the practices alleged in the Com
plaint to be unlawful, and that violation of any provision of the
Order by the defendants or any of their agents would constitute an
unfair trade practice in violation of the Washington State Consumer
Protection Act (RCW 19.86).
Since rescission through the Attorney General’s Office applied
only to persons who joined Dare To Be Great prior to the Order’s
effective date, a practical remedy was needed for those consumers
seeking rescission who joined after the entry of the Order.
The remedy selected was arbitration conducted by the American
Arbitration Association (AAA). Glenn W. Turner, F. Lee Bailey—
Turner’s counsel from Boston—and Turner’s local attorney in Spo
kane, Washington agreed with Attorney General Slade Gorton that
arbitration by the AAA could be reasonably included within a consent
decree.
The arbitration clause is concise and comprehensive and pro
vides:
If any individual who purchases any adventure level of Dare To
Be Great following entry of this Order can establish that he was
induced to purchase because of any material misrepresentation or
178 THE ARBITRATION JOURNAL
unfair or deceptive practice on the part of defendants or their
agents, said individual shall be entitled to recover the cost of
purchase from defendants, subject to the right of offset for
commissions earned. The existence of such misrepresentation or
unfair acts or practices may be determined by binding arbitration
conducted by the local chapter of the American Arbitration As
sociation in which case any such claimant shall be entitled to
recover only the amount paid by him. The unsuccessful party
shall bear the cost of arbitration. In the event any claimant seeks
compensatory damages in addition to the amounts paid by him he
may proceed with whatever other judicial remedies are available
to him.6
The final sentence of the arbitration paragraph allows a con
sumer, if he chooses, the option of filing a suit in court and does not
force the use of arbitration. If a consumer chooses arbitration, how
ever, the defendant is bound by the Order to proceed.
As a reading of the Dare To Be Great Order indicates, the arbi
trators’ principal tasks in the arbitration hearings were to decide
factual questions and to determine a consumer’s motivation in joining
Dare To Be Great. Arbitration was well suited to the Dare To Be
Great case since a substantial number of claimants were anticipated
and factual questions could be expected to predominate in each
hearing. Almost all legal issues had been explicitly resolved in the
Order.
With the permission of the Arbitrator, the parties, and the AAA,
this writer observed a number of Dare To Be Great arbitration hear
ings. The following comments regarding consumer arbitration and
the advantages of court ordered arbitration are based, in part, on this
opportunity for personal observation.
Attorneys and others involved with arbitration often assume that
consumers are as familiar and secure with the arbitration process as
they themselves are. This assumption is largely unfounded. Most
consumers approach arbitration with little knowledge about the pro
cedure and, as a result, demonstrate some anxiety. The Consumer
Protection Division provided consumers basic information about the
arbitration process as it related to proceedings against Dare To Be
Great.
Since the Attorney General’s Office is not authorized by statute
to act as private counsel to consumers, there was some initial dif
ficulty in drafting a summary of arbitration rules. The office wanted
to be helpful to the consumer, while at the same time preserve its
statutory role and fairly consider the position of the defendants. This
5. Ibid., p. 9.
COURT-ORDERED CONSUMER ARBITRATION 179
dilemma was resolved by drafting a brief summary of the Consumer
Arbitration Rules of the National Center for Dispute Settlement of
the American Arbitration Association. The Attorney General’s Office
expected that many of the claimants were not likely to read or under
stand the arbitration rules as described by the National Center for
Dispute Settlement. In many cases the Attorney General’s summary
would be the only explanation of arbitration procedure that a con
sumer would read prior to the hearing. I t should be emphasized that
these suggestions, as elementary as they might appear to an attorney,
were of significant assistance to the consumer. The following sum
mary was drafted for the Dare To Be Great proceedings.
“Dare To Be Great arbitration hearings: Suggestions for con-
sinners.
“The Consumer Protection Division of the Attorney General’s
Office recommends the following list of suggestions to be used by
consumers in arbitration proceedings against Dare To Be Great.
“Careful preparation of your case is essential. These guidelines
are offered to help you organize your presentation for arbitration.
“ 1. According to the Rules of the American Arbitration Association
you may choose an attorney to be with you and represent you at
the hearing. Since significant sums of money are involved you
may wish to consider this option. The attorney will expect to be
paid for his services. If he can help organize your arguments,
however, his fee may be warranted. Or if you prefer, you may
appear without an attorney at the hearing.
“2. You should organize your case so that it can be easily under
stood by the arbitrator. Remember that he is not a member of
the Dare To Be Great organization and may not know about
the details of the Dare To Be Great business plan.
“3. The arbitrator will be especially interested in your alleged viola
tions of the specific provisions of the Consent Order. Try not to
discuss unrelated issues unless asked by the arbitrator.
“4. Bring all of the evidence with you to arbitration that relates to
your arguments. If it is available, the evidence should include a
copy of the enrollment form, cancelled checks, the appendix form,
and any other relevant written documents.
“5. You may ask witnesses to appear with you at the hearing to
present testimony. If witnesses are available their appearance may
substantiate your case.
“6. Arbitration is designed to be an informal proceeding. If you have
180 THE ARBITRATION JOURNAL
prepared your arguments carefully, you can feel at ease at the
hearing.”6
Pursuant to the arbitration clause provided in the Dare To Be
Great Order, the AAA in Washington State heard 77 cases between
December, 1971 and January, 1973. While a few persons had smaller
claims, most claimants joined at Adventure III and sought to re
cover the $2,000 investment. Some consumers joined at Adventure IV
and sought to recover the $5,000 investment. Given the explicit lan
guage of the Dare To Be Great Order, the preponderance of factual
issues over legal issues, and the large number of claimants, it appears
that arbitration included a number of advantages not ordinarily
available in court action.
The importance of court action by the Attorney General’s Office
should not be underestimated. It was through court action that rescis
sion was made available to certain consumers and that arbitration
was established for others in the Order. Once the legal guidelines
were established, however, consumers benefited through the alterna
tive of arbitration.
The Dare To Be Great arbitration experience underlines the
contrast between arbitration and court action. Arbitration can provide
advantages to the consumer and businessman alike:
1. Speed-. The average number of days elapsed between initia
tion of an arbitration demand and the issuance of an award was 60.5
days. The elapsed time in Superior Court in King County, State of
Washington for the same case is about one year. The delay experi
enced in other large cities is often more than one year. The average
length of each hearing was 1.5 hours while a similar case could take
days in court.
2. Economy. The initiation fee for each consumer was $50. This
cost was waived in hardship cases. The arbitration clause provided for
the defendants’ payment of the fee if the consumer prevailed. The
need for representation by an attorney was reduced since the issues
were mainly factual. Nonetheless, some consumers wanted the support
of legal representation and 30 claimants were represented by attorneys
at the hearings. Dare To Be Great was represented by counsel at
nearly every hearing. Court action, in contrast, may be expensive.
Attorney fees for pre-trial preparation and trial can be substantial.
3. Privacy: The arbitration hearing provides privacy to the par
ties, unlike a court trial.
4. Informality: The Dare To Be Great arbitration hearings were
informal, unlike a proceeding in court. The element of informality
6. Dare To Be Great arbitration hearings: “Suggestions for Consumers,”
drafted by the Washington Attorney General’s Office, March, 1972.
COURT-ORDERED CONSUMER ARBITRATION 181
is critical in consumer arbitration where the consumer is usually ap
pearing at arbitration for the first time.
5. Admission of evidence: The arbitrator may admit evidence
according to his discretionary test of relevance. The advantages of
arbitration’s view toward the admission of evidence are highlighted
when one considers the consumer’s limited investigative resources and
his ignorance of evidentiary rules. The arbitrator does not, of course,
forfeit his obligation to weigh and evaluate the evidence.
6. Choice of arbitrator: Prior to the hearing the AAA presented
a list of three arbitrators to each claimant and the counsel for Dare
To Be Great. This list included a brief biography of each arbitrator.
The claimants and the Dare To Be Great attorney were instructed
to cross out the name or names of those arbitrators that the party
believed could not listen impartially to the arguments. The remaining
names were to be listed in order of preference. In the Dare To Be
Great case, most of the lists were submitted unmarked to the AAA
which then selected the arbitrators on the basis of the available time
and the arbitrators’ work schedules. While parties to a lawsuit have
some discretion with regard to selecting a judge who will hear a given
case, the discretion is clearly expanded in arbitration.
7. Convenience: The arbitration hearings were set up for the
convenience of the parties. Arbitration allowed parties to select con
venient hearing dates and, in addition, the AAA had an interest
in the convenience of the hearing location. Since most of the claimants
live in the Seattle and Spokane areas, most of the hearings were held
in those two cities. Some claimants, however, live in other areas of
the State. The AAA was willing to hold hearings for their conveni
ence in Washington cities closer to their homes. In contrast, a
court’s ability to adapt to the convenience of plaintiffs and defendants
is sometimes limited.
The value of arbitration, needless to say, rests largely on the
quality of the arbitrator. The arbitrators in the Dare To Be Great
case came to the hearing well prepared, and showed extraordinary
patience with claimants who often attempted to introduce irrelevant
evidence. Since most are attorneys, the arbitrators were adept at
eliciting evidence and selecting critical issues.
In addition, the AAA’s Northwest Regional Director and his staff
provided excellent administrative assistance in the hearings.
In principle, the existence of an arbitration clause in a court
order is designed to create pressure for individual parties to resolve
disputes without the use of formal proceedings. The defendant, for
example, is aware that the consumer can easily proceed with arbi
tration if an equitable settlement is not achieved. In the absence of
an arbitration agreement, the defendant can find security in the prac-
182 THE ARBITRATION JOURNAL
tical problems faced by most plaintiff consumers. Consumers, for
example, are unlikely to file a Superior Court suit to recover a $700
investment. The arbitration clause did not, however, create sufficient
pressure for settlement in most of the Dare To Be Great cases. T his
resistance to settlement may have been the result of the position taken
by the defendants in this particular case.
The consumer prevailed in almost all of the Dare To Be Great
arbitration cases. One major problem, however, remained—collection
of the award. While Dare To Be Great paid some of the awards, the
defendants’ record, in general, showed an indifference to payment.
Consumers could proceed with collection procedures established by
the Washington arbitration statute (RCW 7.04). The claimants, how
ever, faced numerous practical problems—the expense of attorneys’
fees, the existence of the defendants’ funds in Florida but not in Wash
ington State, and the resulting enforcement difficulties and delays.
In an attempt to resolve the payment issue the Washington Attorney
General’s Office filed an Order to Show Cause against the defendants
in October, 1972. The defendants were ordered to show cause why
they had not paid certain arbitration awards and why the defendants
should not be held in contempt of court. Given numerous suits against
Dare To Be Great in other jurisdictions of the United States, the
payment and contempt issues remain unresolved as of this writing.
The arbitration concept cannot be faulted for the emerging prob
lems of payment in the Dare To Be Great case. Plaintiffs and de
fendants alike understand that the AAA’s authority, for example,
does not include the enforcement of its awards. The lesson learned is
that court ordered arbitration should include an explicit self-enforcing
mechanism. If practicable, as the Attorney General’s experience in
dicates, the order should include a strict payment schedule and in
centives for the defendants to pay the awards rendered.
In State of Washington v. Transmission Expeditors, et al.,7 an
automobile transmission repair suit, the Office of the Attorney Gen
eral included detailed provisions for arbitration proceedings and pro
tection of the State’s interest and the interest of consumers. The
arbitration provisions in the Transmission Expeditor case were in
cluded within a Judgment and Decree which contained Findings of
Fact and Conclusions of Law. Unlike the Dare To Be Great case the
Attorney General’s Office became an integral part of the settlement
procedure leading to arbitration. The Judgment and Decree provided:
Defendants shall restore to consumers all monies or property ac
quired by defendants as a result of the conduct herein declared
7. Judgment and Decree, State of Washington v. Transmission Expeditors,
Inc. et al., No. 747925 (Superior Court, King County, Wash., March
28, 1973).
COURT-ORDERED CONSUMER ARBITRATION
to be unlawful. The manner of such restoration shall subsequently
conform to the following procedure:
1. Consumers who believe they have been injured by con
duct herein adjudged unlawful will be asked to file a complaint
with the Attorney General’s Consumer Protection Division, within
six months of the date of this Judgment and Decree, which com
plaint shall include a statement of the adjustment which such
complainant feels would be appropriate.
2. Each such complaint which the Attorney General’s Office
believes to allege conduct within the scope of this Judgment and
Decree will be forwarded by said Office to defendant. . . .
3. Within 14 days of receipt of each such complaint defend
ant . . . will make a written offer of settlement to each complain
ant. As a part of each offer of settlement defendant . . . shall
agree that any controversy or claim occurring out of or relating
to such offer in settlement of each complaint shall be settled by
arbitration in accordance with the Consumer Arbitration Rules
of the National Center for Dispute Settlement of the American
Arbitration Association. Offers of settlement which are accepted
by complainants may be confirmed as arbitration awards and
shall be enforceable as such.8
In addition, the Order in State of Washington v. Transmission
Expeditors includes detailed provision for payment of arbitration
awards. O f critical importance is the incentive for the defendant’s
cooperation with arbitration. A portion of the penalty assessed against
the defendants is suspended “. . . pending compliance with the provi
sions of this Judgment and Decree, including the injunction, restora
tion, civil penalties and costs provisions of said Judgment and
Decree.”9
The Order in the case of State of Washington v. Midway Auto
Wholesale et al.10 also includes detail regarding arbitration procedures
and the suspended penalty incentive. In the Midway Auto Wholesale
case there were numerous problems relating to the sale of used cars.
Counsel for the defendant insisted that the arbitrator be an attorney
since the Judgment and Decree included complex legal stipulations.
The request was reasonable and the Judgment and Decree provides
that “The parties hereto agree that the arbitrator at such hearings
shall be a lawyer and a member of the Washington State Bar Associa
tion and have experience and background in auto mechanics.”11
In addition to the detailed recitation of arbitration procedure in
State of Washington v. Tri-City Tree and Shrubbery Service et al.,12
8. Ibid., pp. 7 and 8.
9. Ibid., p. 9.
10. Judgment and Decree, State of Washington v. Midway Auto Wholesale
et al., No. 758780 (Superior Court, King County, Wash., June 7, 1973).
11. Ibid., p. 18.
12. Consent Order, State of Washington v. Tri-City Tree and Shrubbery
Service, et al., No. 756549 (Superior Court, King County, Wash., August
1, 1973).
183
184 THE ARBITRATION JOURNAL
this Order included the following language establishing a trust ac
count for the protection of arbitration awards:
Within 30 days of the entry of this Order the defendant shall
pay to the Attorney General the sum of Two Thousand Dollars
($2,000) said sum to be placed in a trust account established by
the Attorney General. In the event defendants fail to pay and
satisfy any arbitration award as herein provided, the Attorney
General shall draw upon the aforementioned trust account in an
amount sufficient to satisfy such arbitration award and shall
forward same to the persons so entitled. Said trust account shall
be maintained for a period of one year from the date of entry
of this Order. In the event the balance of said trust account is
insufficient to pay any arbitration award as provided above,
defendant shall forward the Attorney General an amount to be
placed in the trust account sufficient to cover such award. One
year after the entry of this Order, all funds remaining in said
trust account shall be returned to defendants.13
The trust account provides excellent insurance for the payment
of arbitration awards.
The Attorney General’s Office has met little resistance among
defendants’ counsel to an arbitration provision. A defense attorney
may be able to avoid multiple suits against his client if arbitration is
an alternative. Since the facts in a consumer protection action may
differ among consumers, arbitration may provide the only practical
remedy for those aggrieved in the marketplace.
As United States District Judge Marvin E. Frankel explained,
“. . . the characteristics of what we may fashion [as arbitration clauses
in consent decrees] are wide open to the creative imaginations of
lawyers, clients and judges. We can expand or confine or exclude the
arbitral function as particular needs and relevant policies may dictate
in specific cases. There is no duty (or privilege) to be bound by
stereotypes or preconceptions.”14
The experience of the Washington State Attorney General’s Of
fice confirms the practicality of Judge Frankel’s observations.
13. Ibid., p. 6.
14. Marvin E. Frankel, United States District Judge, Southern District of
New York, in a paper delivered at a symposium arranged by the Com
mittee on Commercial Arbitration of the Section of Corporation, Banking
and Business Law at the Annual Meeting of the American Bar Associa
tion in San Francisco, California, on August 16, 1972. Printed in Business
Lawyer, January 1973, Vol. 28, No. 2, “Arbitration Clauses in Consent
Decrees.”
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