Mr. Chairman, I am proud to have worked with Senator Grassley as an original co-sponsor of S. 1020, the Motor Vehicle Franchise Contract Fairness Act. And I am pleased that you have placed this bill on the agenda. This is one of those rare bills that has garnered a strong showing of support from both Republicans and Democrats. At last count, we had 50 cosponsors, including 10 members of this Committee, five from each side, and the majority and minority leaders of the Senate, Senators Lott and Daschle. I hope the Committee reports this bill today and that the full Senate passes it promptly. The bill had 252 cosponsors in the House when it passed on the suspension calendar Tuesday. This bill has overwhelming bipartisan support in Congress, and it should become law.

Mr. Chairman, Senator Grassley and I have come together to work on this issue for one simple reason: fairness. The more we learn about mandatory, binding arbitration, the more we are convinced that we have to introduce legislation to give auto dealers a fair shake in their disputes with manufacturers. The Motor Vehicle Franchise Contract Fairness Act is much overdue legislation that will ensure that auto dealers are not forced into arbitration to resolve their disputes with auto manufacturers.

Let me be very clear. I absolutely believe we should encourage arbitration and mediation in cases where they can be helpful. But one of the most important pillars of our justice system is the right to take a dispute to court. Arbitration can be a very efficient and credible way to resolve a dispute, but only when all parties know and understand the full ramifications of agreeing to arbitration. And, in addition, very importantly, they voluntarily waive their right to go to court in an individual case.

Mandatory, binding arbitration provisions in contracts negotiated before a dispute arises are particularly troubling when the parties have unequal bargaining power. Because in those cases, voluntary, knowing and intelligent waivers of a constitutional right are simply not possible. Unequal bargaining power has been a historical theme of auto dealer franchise agreements. In most cases, there is no negotiation between the manufacturer and dealer. The dealer has no choice but to accept the terms of the agreement offered by the manufacturer, or just lose the dealership.

Senator Grassley held a hearing in March in the Courts Subcommittee on the issue of contractual binding, mandatory arbitration. At that hearing, William Shack, a Nevada auto dealer, testified about his troubling experience with mandatory arbitration. Among other things, his testimony highlighted another inequity in the mandatory arbitration process sometimes imposed by manufacturers. He noted that in his case, both the arbitrators and those that manage the process and choose the arbitrators all owe their economic well-being to the manufacturer. In other words, the auto manufacturers have control over the supposedly neutral arbitration process. And what’s the result? Yet another imbalance of power. The manufacturer not only has an advantage over the dealer, it has power over the arbitrators.

The bottom line is that mandatory binding arbitration is often not a fair process. Auto dealers, and as I’ll discuss more in a moment, all parties subject to mandatory arbitration, deserve the option of having their case heard in court.

Every American has the constitutional right in both criminal and civil cases to a trial by jury. The right to a jury trial in civil cases is contained in the Seventh Amendment. Of course, constitutional rights can be waived, and crowded court dockets and the expense of litigation lead many litigants in civil cases to seek alternative ways to resolve their disputes.

As I said, I do believe we should encourage arbitration and mediation in cases where they can be helpful. At the same time, we need to remember the constitutional foundation of our civil justice system. And we need to remember the important statutory and even constitutional rights and policies that the courts are sometimes best suited to enforce. That’s why S. 1020 seeks to protect the right of auto dealers to seek relief in the courts. It’s time for Congress to restore this fundamental constitutional protection.

Over the years, dealers have relied on the states to pass laws designed to safeguard their rights against overreaching manufacturers. I’m proud to say that Wisconsin was the first state to take such steps to protect auto dealers. In 1937, Wisconsin enacted an automobile franchise statute to protect Wisconsin auto dealers from having their dealerships canceled without cause. In fact, Wisconsin has one of the strongest laws to protect franchisees, as I learned first hand during my years in legal practice before I entered public service. Today, every state except Alaska has enacted statutes to safeguard auto dealers from unfair automobile and truck manufacturer practices.

But bad news for auto dealers came in the form of a 1984 Supreme Court decision. Under the Federal Arbitration Act (FAA), as interpreted by the Supreme Court in the 1984 Southland case, arbitrators are not required to apply the particular federal or state law that would be applied by a court. So one party – in this case the auto or truck manufacturer – can use arbitration to circumvent laws specifically enacted to protect the other party. Many states have also created their own alternative dispute resolution mechanisms and forums with access to auto industry expertise that provide inexpensive, efficient, and non-judicial resolution of disputes. These state dispute resolution forums, with years of experience and precedent, are greatly responsible for the small number of lawsuits between dealers and manufacturers in my state. But mandatory binding arbitration effectively renders these specific state procedures and forums null and void. It destroys a perfectly good and apparently fair system.

For my colleagues who complain that the federal government too frequently tramples on states’ rights, this should be one of the strongest reasons for why you should support this bill. It’s time to stop interfering with the intent of state laws. Congress can stop this interference and protect states’ interests by enacting a federal law against mandatory binding arbitration in auto dealer franchise disputes.

I might add that the problem goes far beyond what auto dealers have experienced in their contracts with manufacturers. Some consumers who buy cars have also experienced this problem in their contracts with auto dealers. In fact, in a whole variety of contexts, parties with little bargaining power are being forced in effect to waive their right to go to court. That is not right. I would like to see mandatory, binding arbitration provisions banned altogether. When people are essentially forced to give up their constitutional rights in order to have a job, conduct a business, or take out a loan, that is not right, and we have to do something about it.

I recognize that this bill addresses the problem in only one narrow area. I have introduced other bills dealing with mandatory arbitration provisions in employment contracts and in credit card agreements, and I will continue to work on that legislation. I hope that we will have a chance to debate and vote on them in the future. For now, however, we have an area where these provisions have been shown to be more and more prevalent, and where we have a chance to establish the principle that mandatory arbitration clauses are unfair and should not be effective.

Now there are some who argue that the protections of the bill should not be available to auto dealers who themselves put mandatory arbitration in their contracts with consumers. I believe this argument has merit and while I don’t intend to offer an amendment at this time, I hope we can work on this issue further before the bill reaches the floor. In this case, the old maxim, “what’s good for the goose is good for the gander” seems to apply quite well.

Mr. Chairman, I am pleased that many members on both sides recognize the fundamental unfairness of mandatory, binding arbitration clauses in auto dealer franchise agreements. I urge my colleagues to support this bill’s passage. It’s one of the most important things we can do to level the playing field in this vital area of our economy. Thank you, Mr. Chairman.