Minnesota Sues a Credit Arbitrator, Citing Bias

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In fact, the Minnesota lawsuit cites e-mail deliberations on how to respond to BusinessWeek's question on whether there was an ownership connection. "Ultimately the National Arbitration Forum gave the reporter an incomplete and misleading answer, layered in lawyer speak," the lawsuit says.

The suit alleges that in 2006 and 2007, Accretive created several private equity funds under the name Agora ("forum" in Greek) to invest $42 million in NAF in exchange for a 40% stake and governance rights. Also in 2007, the case alleges, Accretive acquired the operations of collection law firms Wolpoff & Abramson, Eskanos & Adler, and Mann Bracken, partly funded by the Small Business Administration. Accretive named that division Axiant. Accretive's Web site, Accretivetechnology.com, names Axiant as a division, but makes no mention of Agora.

NAF executives were concerned enough about the public-relations damage that could come from the company's ties to Accretive and Axiant, the lawsuit says, that they planned to unwind the deal should it become public.

Swanson's suit claims that in 2006, 125,000 consumer debt-collection cases, or 60% of the cases NAF handled, came from those three law firms. "The Forum conceals its affiliations with the collections industry through extensive affirmative representations, material omissions, and layers of complex and opaque corporate structuring," the suit charges.

Debt Collection in Other Industries

The suit asserts that NAF founder Edward Anderson told Accretive managers before the sale of the investment stake that "the Forum is one of a kind; there is no competitor nor is there likely to be one.…The barriers to entry are insurmountable." In a copy of a "Strategic Vision" document that is an exhibit to the complaint in the case, Accretive says that with its assistance NAF will enter new industries. "NAF sits at the center of a broad arbitration ecosystem," the document states. Since Accretive's investment, NAF has moved into health-care and mortgage collections, the suit alleges.

The suit alleges Accretive has also helped NAF develop "talking points" and a plan to lobby members of Congress on how to kill or weaken the federal Arbitration Fairness Act, a bill currently in Congress that would curb the use of arbitration.

A number of tactics are used to encourage credit-card companies and other creditors to file arbitration claims with the NAF, the suit alleges. The Forum drafts clauses for them, advises creditors on arbitration legal trends, refers them to debt-collection firms, and even helps creditors draft claims against consumers, the suit contends. In one solicitation cited in the case, NAF says "The customer does not know what to expect from arbitration and is more willing to pay," and that "you [the creditor] have all the leverage [in arbitration] and the customer really has no choice but to take care of the account."

Berner is a senior writer in BusinessWeek's Chicago bureau.

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