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Forced Arbitration

Jan 14
Written by: SuperUser Account
1/14/2015 2:40 PM
“The first thing we do, let’s kill all the lawyers.”  
- W. Shakespeare, King Henry VI, pt. II, Act IV, scene 2, line 72.

Many people who hate lawyers take the above-quoted line as evidence that they are in good company (with no less than Shakespeare himself).  However, as others have pointed out over the years, the line is not meant to reflect Shakespeare’s own opinion.  Instead, Shakespeare has the line uttered by a villain, discussing the first thing he should do after overthrowing the government and implementing a dictatorship.  As Supreme Court Justice John Paul Stevens wrote in a Supreme Court opinion, the line “was spoken by a rebel, not a friend of liberty.”  Justice Stevens continued: “[a]s a careful reading of that text will reveal, Shakespeare insightfully realized that disposing of lawyers is a step in the direction of a totalitarian form of government.”  In other words, villains see lawyers, and the rule of law they help enforce through the Courts, as a barrier to the villains’ ability to do as they wish.  The rule of law means that no one, including the rulers and the powerful, are above the law.  Thus, it is not surprising that the powerful and villainous would want to “opt out” of the rule of law, whether it be by killing all the lawyers or, as seen below, hamstringing the courts.  What would be surprising is if the rest of us sat back and let the powerful and villainous “opt out” of the rule of law without so much as complaining about it.  Yet that is exactly what is happening with regard to something called “forced arbitration.”  

Forced Arbitration
Forced arbitration is a term for a contract provision (almost always buried in the fine print) that requires that disputes between the parties be resolved by an “arbitrator,” rather than courts and juries.  There is generally no right to public access for arbitration, so the arbitrators essentially act in secret.  These arbitrators are paid by the hour and do not even have to possess legal training.  Their decisions are binding on the parties and are almost entirely unchallengeable, meaning that even if you can show that the arbitrator clearly made the wrong decision, no one can do anything about it.  In contrast, if a judge makes a mistake at trial, a party can appeal the outcome of the trial to a higher court.

The “forced” part of “forced arbitration” comes from the fact that companies include arbitration provisions in their contracts with consumers, buried in the fine print, that require the consumers to agree to arbitrate a wide variety of issues that may come up in the future between the consumer and the company.  No one has any issue with arbitration when both parties already know about the dispute and both agree that they would prefer arbitration over going through the court system.  But forced arbitration is imposed before any potential disputes arise, when consumers have no reason to be concerned about what may happen if the company they are doing business with starts violating their rights.  Entire industries, such as credit card companies, banks and insurance companies, include arbitration clauses in all of their contracts with consumers that prevent consumers from being able to go to court even where there is a clear violation of law by the companies.  Many employers impose forced arbitration upon their employees as a condition of employment, requiring the employees to arbitrate any workplace discrimination that occurs.

If arbitrators were neutral and trustworthy, this may not be an issue, but bias in favor of large companies is common, and indeed arbitration is designed to make sure the bias exists.  The large companies that use forced arbitration have numerous disputes with consumers, while any individual consumer rarely has more than a single dispute with a company.  Because the large companies also have a massive role in choosing the arbitrator for a case, and the arbitrator is paid by the hour by the large company, the arbitrator knows that a ruling in a consumer’s favor will likely hurt the arbitrator’s ability to get picked as an arbitrator in future cases.  In short, the arbitrator’s own personal livelihood is largely tied to keeping the large companies happy.  This leads to the widespread view that arbitration is entirely ineffective at enforcing the rights of the little guy, essentially gutting a lawyer’s ability to help consumers fight against abuses by large companies.  “The first thing we do, let’s kill all the lawyers” indeed.  

Pushing Back Against Forced Arbitration
It is surprising that we in the United States have been as tolerant of forced arbitration as we have been, as it has slowly and insidiously become standard practice by many industries.  The justice system in this country has been carefully developed over the years to give fair and neutral outcomes to disputes under the rule of law.  The fairness and predictability of the American justice system is the envy of the world, capable of giving us the certainty in our dealings with each other that has helped produce the strongest economy in the world. 

Compare doing business in the U.S. with doing business in Dubai:  In the U.S., any dispute would normally be resolved by neutral courts and juries, under a system of evidentiary rules that promote fairness – the rule of law.  It doesn’t matter who is more powerful or who is related by blood to whom.  In contrast, in Dubai, the most important fact in determining a dispute is whether the dispute is with a company that is owned or invested in by one of the royal family.  If so, no matter how strong the case, you are very likely to lose.  That kind of uncertainty makes doing business in Dubai much more risky than doing business in the U.S. (unless, of course, you are a member of the royal family).  That is why you would be a lot more hesitant to do business in Dubai than you would be in the U.S.  Yet abandoning the American justice system for a system much closer to the United Arab Emeritus is exactly what forced arbitration is.  And the companies – the repeat players – are the equivalent of the “royal family” under forced arbitration.

In part because of the secretive nature of arbitration proceedings, it has been very difficult for consumer advocates to make the case against forced arbitration to those who aren’t personally affected by forced arbitration clauses.  Fortunately, there are several organizations working to bring wider recognition to forced arbitration.  The following video on forced arbitration was produced by the non-profit Alliance for Justice.  The video offers a very persuasive and accessible presentation of the issues surrounding forced arbitration, designed to educate the general public and energize lawyers representing consumers.

Civil Justice’s Work Against Forced Arbitration
We at Civil Justice are also doing our part to fight against forced arbitration.  For example, Civil Justice has recently authored an amicus brief in the U.S. Circuit Court for the Fourth Circuit in a case called Jones v. Dancel.  This case is an action challenging an arbitration award as a result of forced arbitration clauses in consumer contracts with the defendants in the case.  The defendants in the case violated the Credit Repair Organizations Act and made hundreds of millions of dollars from consumers doing so.  The Credit Repair Organizations Act was passed by Congress to combat the exact type of abuses engaged in by the defendants, and Congress specifically decided that a consumer would be entitled to “any amount paid” by the consumer to a violator of the Credit Repair Organizations Act.  Basically, Congress said, if a Credit Repair Organization violates the statute, they have to return any money that they took from the consumer. 

A group of consumers sued and were forced into arbitration because of the fine print in their contracts.  Although the arbitrator correctly found that the defendants in the case had violated the law, he refused to award damages, relying on a tortured analysis that would never be accepted by any court.  Yet, because this was arbitration, rather than a court case, the consumers have a very high burden to meet to overturn the decision.  Indeed, the U.S. District Court, when deciding whether to overturn the arbitrator’s decision (with clear error by the arbitrator and hundreds of millions of dollars in unjust profits by the defendants at stake), issued a two-page opinion stating that after a “cursory review,” the District Court could not overturn the arbitrator’s decision because of the high burden that would need to be met to do so.  In other words, after Congress recognized a threat to consumers large enough to warrant passing a federal law, and carefully considered a chose a remedy for consumers when that law was violated, forced arbitration took away the courts’ ability to do anything more than a “cursory review” to make sure the law is being enforced.  

Civil Justice’s brief argues that the courts must be more involved in making sure that arbitrators are following the law than a “cursory review,” particularly where violations of federal law have occurred.  The matter is currently being considered by the Fourth Circuit, which has accepted Civil Justice, along with the Public Justice Center and Maryland Consumer Rights Coalition, as amici.  For more information, including copies of the relevant filings, please see our litigation page.

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