Outten & Golden: Empowering Employees in the Workplace

Posts Tagged ‘arbitration’

The Right to an Unfair Trial

Tuesday, November 10th, 2015

arbitration800

 

This cartoon was originally posted on JenSorensen.com on November 09, 2015 and the TheDailyKos on November 10, 2015. Reprinted with permission.

About the Author: Jen Sorensen is a political cartoonist, writer, and graphic journalist. Her work has appeared in the Village Voice, LA Times, Ms. Magazine, The Progressive, NPR.org, and alt-weeklies around the country. You can find more of her work here.

Save the Seventh

Friday, March 13th, 2015

Susan HarleyThe Seventh Amendment to the United States Constitution states, “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved …”

Even though we are all granted the right to a trial by jury in the U.S. Constitution, Big Banks and corporations regularly use fine print in contracts to trick consumers out of their right to a day in court. Forced arbitration means that if consumers are ripped off or otherwise harmed, they must use private arbitration proceedings to air their grievances.

If you’re already angry about forced arbitration and you want to do something to get these predatory terms out of financial products, skip to the end of this post for ways to get involved.

There’s plenty to be mad about. These expensive arbitration “tribunals” have no judge or jury. They are overseen by paid arbitration providers who are selected by the companies. Arbitration firms have a very good reason to guarantee repeat business for themselves by finding in favor of the corporations over the consumers. The findings of arbitration decisions are not public and the appeals process is very limited. Most likely, you will also be required to go to arbitration in another state!

If consumers were interested in choosing arbitration, they would enter into the decision after some harm has come to them. It would need to be an informed decision where they did so with a full understanding of the consequences of their choice to not go to court.

But that’s not how we’re all roped into signing (or even clicking) away our rights. It has been proven that consumers rarely understand that their contracts contain arbitration clauses and have little idea of the repercussions of having their complaints heard in a non-court venue.

And, even if you understood they were there and knew it meant you were losing your right to go to court, it’s not like your average adult can simply opt out of getting a checking account, taking out that student loan, or financing that car.

What about if those very same companies with arbitration clauses were systematically ripping off you and your fellow consumers – but only in small dollar amounts? The only way it makes sense for consumers to bring those cases is through class actions where those who have been harmed can band together to make a complaint about a company’s action. Makes sense, right? Except most arbitration clauses contain class action bans, which were unfortunately upheld by the U.S. Supreme Court in 2011. Now Big Banks basically have free rein to steal a few dollars here and there from all of their customers without worry of being held accountable.

Congress saw the unfairness of forced arbitration clauses and prohibited them in certain industries and in housing-lending contracts via the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Dodd-Frank tasked the Consumer Financial Protection Bureau (CFPB) — the brainchild of Elizabeth Warren — that was created by the same legislation with studying arbitration in all consumer financial contracts and determining whether consumers would be better served by prohibiting the practice.

The CFPB’s study is finally complete. It shows that consumers have little idea about arbitration clauses and how the fine print strips them of their constitutional right to their day in court. In fact, three out of four consumers surveyed as part of the study did not know whether they had an arbitration clause in their credit card agreements. And, of those who did have arbitration clauses, only seven percent understood that meant they had given up their right to their day in court.

Now it’s time for the public to get involved. Every person who’s even been steaming mad at Wall Street’s sticking it to the little guy and thinking they can weasel out of being held accountable needs to get involved.

Urge the CFPB to stand up to Big Banks and do the right thing. It’s certain that the U.S. Chamber of Commerce and its corporate cronies will do everything it can to keep unfair forced arbitration in consumer financial products, so we need as many people as possible to join this fight. There’s a whole toolbox of tactics we’d love to get you involved with, and it only depends on how much time you have to invest in protecting consumers.

Only have a second or two to take an online action? Easy!

What about a minute to share this social media meme? Great! While you’re at it, Tweet with the hashtags #CFPB and #ForcedArbitration.

If you have a lot to say on the subject and want to get your community fired up too, write a letter to the editor. We have ideas on what to say! There are even more ways to get involved. If you want to learn more, email: action@citizen.org.

You could be part of scoring a major win for our country by reclaiming the Seventh Amendment. Americans, take back your day in court!

About the Author: Susan Harley is the deputy director of Public Citizen’s Congress Watch division.

CFPB Hearing: Data on One Side, Empty Rhetoric on the Other

Wednesday, March 11th, 2015

GabeHopkinsLarge In today’s era of Big Data, analytics, and sabermetrics, the cheeky motto “in God we  trust, all others must bring data” has never seemed more relevant. Well, in the arena of  mandatory arbitration provisions in consumer contracts the data is in, and the verdict is  clear: mandatory arbitration is unfair to consumers and harmful to the public interest.

Yesterday, the Consumer Financial Protection Bureau officially released its long-  awaited report on the use of mandatory arbitration clauses in consumer financial  services contracts. At a field hearing in Newark, N.J., CFPB Director Richard Cordray  discussed the report’s essential findings, noting that it was “the most comprehensive empirical study of consumer financial arbitration ever conducted.”

I’ll briefly outline the results, but what was really interesting – and what I’ll discuss below – is the discussion among panelists at the hearing Tuesday.

The 768-page report, three years in the making, was mandated by Congress in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. It analyzed six different consumer financial markets to compare the relative value of arbitral forums and courts for resolving disputes between customers and service providers. The evidence led to several key conclusions:

  • Mandatory arbitration clauses affect tens of millions of Americans. In both the credit card and checking account sectors, half of all accounts were covered by such provisions. The CFPB estimates that 80 million credit card holders are subject to mandatory arbitration.
  • Consumers don’t know they’ve signed away their rights. In a survey conducted for the report, 75% of consumers did not know whether they were subject to mandatory arbitration clauses. Of the 25% who thought they did know fully half were wrong about the true nature of the contracts they had signed. The survey also revealed that only a small fraction of consumers actually understand what mandatory arbitration and class action bans really mean for their rights.
  • Consumers rarely act on an individual basis. Over a three-year period, consumers filed only 1,800 claims in arbitration and 3,500 individual claims in federal court. Evidence from small-claims courts showed that individuals rarely turn to that forum for redress, and that most activity in those courts was by companies filing debt-collection suits against consumers.
  • Consumer class actions work. Over a five-year period 420 class action settlements in federal court netted $2.7 billion in cash, fees, and other relief. Contrary to the familiar protests of industry advocates, only 18% of this money went to plaintiffs’ lawyers, meaning $2.2 billion accrued to the benefit of affected consumers, with approximately half paid directly to consumers in cash payouts. These settlements benefitted at least 34 million consumers across America, not to mention all those protected by the settlements’ deterrent value.
  • Companies use arbitration clauses to kill class actions. Companies rarely invoke arbitration clauses to move individual suits out of court. In contrast, such provisions are raised in nearly two-thirds of class actions, and almost all arbitration clauses prohibit class treatment in the arbitral forum.
  • Arbitration does not make financial services cheaper for consumers. There is no evidence for the claim that arbitration clauses make the cost of doing business cheaper for companies who pass those savings onto consumers. Indeed, after four large credit card issuers removed arbitration clauses from their form contracts under an antitrust settlement, they did not significantly increase costs or reduce access to credit compared to other unaffected companies.

At the hearing in Newark, Director Cordray’s overview of the report’s findings was followed by a panel discussion between advocates for the financial industry and consumer protection advocates, including Public Justice Executive Director Paul Bland.

Given the reams of empirical data contained in the report, the industry-side panelists had little ground to stand on. Their responses consisted largely of nit-picking about the report’s methodology and doubling-down on their belief that arbitration is cheaper, faster, and fairer for consumers. For example, Ballard Spahr attorney Alan Kaplinsky  cited “studies” and his own “personal experience” representing financial institutions to back up these claims. , but did not cite any specific study by name. . He protested that it’s too early to judge how consumers fare in arbitration compared to court because arbitration is “in its infancy,” ignoring the fact that the report analyzed three years’ worth of data from the nation’s largest arbitration provider.  He also raised the familiar bugbear of the predatory plaintiffs’ bar, which reaps untold profits from “frivolous” lawsuits without any real benefit for their clients. His most intriguing comment, if only for its irony, was that his clients in the financial sector are regulated well enough by the CFPB and other federal and state agencies. Leave enforcement to government actors, he argued, they are far better at protecting consumers than the private sector.

Probably the most interesting comments from the industry side of the aisle came from Louis Vetere, president and CEO of a New Jersey credit union. Though he also did not grapple directly with the report, he agreed with his ideological colleagues that arbitration was good for consumers. However, he also repeatedly clarified that his company did not mandate arbitration in its contracts, nor did it think doing so was proper. Rather, he preferred to offer arbitration as an option when disputes with depositors arose, ultimately accepting whichever forum the depositor felt most comfortable with.

The panel’s consumer advocates fired back on several fronts, refuting both the specific arguments made by the industry advocates, and pointing out the many systemic problems caused by mandatory arbitration. Jane Santoni, a consumer lawyer in Maryland, said that arbitration was never a better option for her clients. More troubling to her was the fact that she has had to turn away the majority of prospective clients who have meritorious claims because as individual cases they are simply untenable for her to take. From her perspective mandatory arbitration has an “astronomical chilling effect” on the civil justice system.

Myriam Gilles, professor at Cardozo School of Law, noted that deciding consumer law cases in the “hermetically sealed” forum of private arbitration rather than in public court proceedings undermines the common law system in which future decisions build upon past precedents. She also pointed out that companies put mandatory arbitration clauses in their contracts because it’s in their interests and is a matter of “common sense” from their perspective: as the report clearly bears out, arbitration is not about dispute resolution. It’s about avoiding liability.

Public Justice’s Paul Bland drove this point home in his remarks, noting that the innocent-sounding claim that arbitration is just about moving disputes to a simpler, easier forum is a “fairy tale.” He noted that mandatory arbitration prevented consumers from protecting themselves, particularly as marginal financial actors such as payday lenders move their practices online, burying arbitration agreements in tiny-text terms and conditions on obscure webpages, all to avoid answering to consumers and government overseers when they violate consumer protection statutes. Mandatory arbitration does little more, he argued, than permit companies to break the law with impunity by taking away people’s basic constitutional and statutory rights via mouse print contracts.

The hearing closed with comments from the assembled audience. Dozens of consumer advocates stood up and added further arguments against the use of mandatory arbitration. The points raised were remarkably varied, ranging from the practical – poor consumers can’t even afford the AAA’s $200 filing fee – to the theoretical – pre-dispute arbitration agreements violate consumers’ First Amendment right to petition for redress in a government court. One common refrain in the public comments, made in response to industry panelists’ claims that consumers enjoy the simplicity and informality of arbitration, is that if arbitration is such a good deal for consumers, it should be offered as a choice rather than being forced upon them as a condition of signing up for a credit card, cell phone or car loan.

Now that the data is in, the CFPB will soon announce what, if any, action it should take to regulate the use of mandatory arbitration provisions in consumer financial services contracts. Given the content of the report, the wealth of arguments supporting its conclusions, and the empirically bankrupt arguments from the other side, it is hard to imagine that the Bureau won’t come down hard on these clauses, perhaps even banning them outright. We here at Public Justice certainly hope that it does.

This post originally appeared at http://publicjustice.net/content/cfpb-hearing-data-one-side-empty-rhetoric-other. Reprinted with permission.

About the Author: Gabriel Hopkins joined the Public Justice DC Office in September 2014 as the Thornton-Robb Attorney. Before joining Public Justice he spent a year clerking on the New York State Court of Appeals for the Honorable Susan P. Read.  Gabriel attended New York University Law School and received his J.D. in 2013. While at NYU he worked with attorneys from the New York Civil Liberties Union to sue the New York Department of Corrections over its unconstitutional use of solitary confinement to discipline prisoners, securing significant relief from this practice for minors and the mentally ill in the prison system. He also summered at the New York Attorney General’s Civil Rights Bureau, and the Los Angeles civil rights firm Schonbrun DeSimone Seplow Harris & Hoffman, where he helped partner Paul Hoffman bring the landmark international human rights case Kiobel v Royal Dutch Petroleum to the US Supreme Court.

 

Outrageous Forced Arbitration Decision: Consumer Has to Arbitrate Case Involving Home Invasion and Severe Beating

Monday, December 8th, 2014

PaulBlandWeb-172I regularly hear consumer and workers’-rights advocates say this crazy thing to me: “the cases on forced arbitration are so bad, they can’t get any worse.” Um, wrong. A Missouri Court of Appeals recently issued a decision that bears me out on this point, in Johnson v. Rent-A-Center.

In this case, an 88-year-old “neighborhood staple”, Kenny Johnson, rents a refrigerator from Rent-A-Center. A guy from Rent-A-Center comes out to the consumer’s house twice to service the refrigerator. Then, the guy came a third time, the plaintiff alleges, wearing a Rent-A-Center uniform. And, according to the lawsuit and news reports, the Rent-A-Center guy, Eric Patton, seriously beat the man with gashes to his head and robbed him. He wasn’t discovered for three days. The assailant has been criminally charged.

So in the mouse print of the “agreement” the consumer had to sign to rent the refrigerator was a forced arbitration provision. The forced arbitration provision says that the arbitrator, not a court, will decide when the arbitration clause applies to some dispute. But in this case, the consumer makes a pretty strong point: he went to Rent-A-Center to get a refrigerator, he didn’t go there requesting that they send a guy to his house to beat him up and rob him.

Too bad, the court says. Listing some very pro-corporation U.S. Supreme Court decisions, the Missouri court holds that it has to enforce the arbitration clause, and let the arbitrator decide whether the dispute over the guy beating up the consumer is covered by the consumer’s contract about renting the refrigerator.  In fairness to the Missouri Court of Appeal, it directly stated that it was bound to follow a U.S. Supreme Court decision, “regardless of whether we agree with the reasoning expressed therein.”

Now, not to be overly cynical, but the arbitrators get paid in these cases by the hour. So if the arbitrator finds that the case can’t be arbitrated after thinking it over for an hour, the arbitrator only gets paid for an hour. (The typical arbitrator charges several hundred dollars an hour, in many big cities it’s more than $500 an hour.) If the arbitrator finds that the case CAN be arbitrated, though, they can bill LOTS of hours. So the arbitrator has a certain financial incentive to go with Rent-A-Center here.

The upshot of all this is a court decision whose reasoning is very defensible under the U.S. Supreme Court’s decisions, but the conclusion it reaches is unbelievably unfair to the consumer who was severely beaten and robbed. When a consumer signs a contract to rent a refrigerator, they think the contract is about renting a refrigerator.

If the consumer did think about the arbitration clause at all – and let’s face it, almost no one does – they would have thought: “well, this probably is talking about disputes like if the refrigerator doesn’t work or I don’t pay the rent.” No one in America would think that this was a contract that was going to decide what would happen if something unthinkable like this happens.

But welcome to 2014 America’s legal system, where the prevailing rule is that forced arbitration provisions are so favored by current law that they’ll be enforced even in situations where 1,000 people out of 1,000 would NEVER have imagined that they would be enforced. The Supreme Court’s jurisprudence of arbitration plays out, once again, as being wildly unfair and counterintuitive. It’s an outrage, but just one of far too many.

This article originally appeared in PublicJustice.net on December 5, 2014. Reprinted with permission. outrageous-forced-arbitration-decision-consumer-has-arbitrate-case-involving-home-invasion-a

About the author: F. Paul Bland, Jr., Executive Director, has been a senior attorney at Public Justice since 1997. As Executive Director, Paul manages and leads a staff of nearly 30 attorneys and other staff, guiding the organization’s litigation docket and other advocacy.

Department of Defense Expands Ban on Forced Arbitration for Servicemembers

Tuesday, September 30th, 2014

ellen tavernaToday the Department of Defense (DoD) issued a new proposed rule expanding important protections to servicemembers and their families from predatory lending. The new rule closes the loopholes in the Military Lending Act (MLA) that allowed many financial services to fall outside the scope and protections of the law and put servicemembers at financial risk.

In 2006, the DoD reported to Congress that “…predatory lending undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all-volunteer fighting force.” In response in large part to the DoD report, the MLA, bipartisan legislation passed by Congress and signed by George W. Bush in 2007, capped interest rates at 36 percent and applied other key consumer protections to certain forms of credit.

One very important consumer protection of the MLA includes a ban on forced arbitration clauses. Forced arbitration clauses are buried in the fine print of financial contracts and require servicemembers to resolve disputes with companies in a private system, outside of court. Arbitrators are not required to follow the law, and there is no public review to make sure the arbitrator got it right. In its 2006 reposrt, the DoD states that “Servicemembers should retain full legal recourse again unscrupulous lenders. Loan contracts to Service members should not include mandatory arbitration clauses or onerous notice provisions, and should not require the Service member to waive his or her right of recourse, such as the right to participate in a plaintiff class.”

Unfortunately, the MLA only covers a narrow subset of payday loans, auto title loans and refund anticipation loans and unscrupulous business often founds ways around the law. We applaud the DoD’s new proposed rule to expand the current military financial protections and the ban on forced arbitration to a wide range of high-cost loans made to active-duty servicemembers and their dependents.

We hope the Consumer Financial Protection Bureau (CFPB) follows the lead of the DoD to protect all consumers – both military and civilian.  The CFPB is required by the Dodd-Frank Act to study the use of forced arbitration and is authorized to issue a rule to limit or ban forced arbitration in all consumer contracts for financial services and products under its jurisdiction.  We encourage the CFPB to write a strong rule to eliminate forced arbitration clauses for the benefit of all consumers.

This blog originally appeared in Fair Arbitration Now on September 26, 2014. Reprinted with permission. http://www.fairarbitrationnow.org/department-of-defense-expands-ban-on-forced-arbitration-for-servicemembers/

About the author: Ellen Taverna is the Legislative Director at the National Association of Consumer Advocates. As NACA’s Legislative Director, Ellen identifies and monitors key legislative issues related to consumer justice and consumer financial services issues, organizes and coordinates NACA’s membership to promote these issues, attends various coalitions with other communities who share our agenda, communicates with members of Congress, and builds Hill and Administration contacts on specific legislative and regulatory issues. The issues that she focuses on include, but are not limited to, homeownership/foreclosure prevention, debt collection, payday lending and ensuring the regulatory implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act

 

CFPB Forced Arbitration Study To Go Foward As Consumer Survey Approved

Wednesday, September 10th, 2014

PaulBlandWeb-172Great news Monday. The Consumer Financial Protection Bureau can finally continue a crucial study on the effects of forced arbitration on consumers. Under the Dodd Frank Act, the CFPB has to complete a study as to whether the use of forced arbitration clauses by lenders is harmful to consumers. If the Bureau finds that forced arbitration is harmful, then it is required by the act to ban the use of forced arbitration by lenders.

We, among some others, had urged the Bureau to weigh the fact that very few consumers know anything about forced arbitration. While the clauses are justified under a bunch of rhetoric that consumers have supposedly agreed to them, in fact almost no consumers know about the rights they’ve supposedly waived. The Bureau decided it wanted to do a survey of consumers to find out what they do and don’t know about arbitration.

The Chamber of Commerce and corporate groups have vehemently argued that the Bureau should not consider whether consumers know anything about the rights that they use. So long as consumers formally have rights, banks argue, it doesn’t matter whether they know about their formal rights or not. I have been very critical of that position, arguing that of course it makes sense for the bureau to survey consumers. (We believe that the evidence overwhelmingly supports the Bureau banning arbitration in any case, but this is an additional reason.) Here’s something I wrote a while ago on this point: http://www.publicjustice.net/blog/cfpb-surveying-consumers-see-what-if-anything-they-know-about-arbitration

Anyhow, the consumer survey appeared to be slowing things down, because the Office of Management and Budget (picture the little trolls in Dilbert who work in accounting, slowing down everything and killing every good idea) was taking forever to approve this simple survey.

The roadblock has been lifted – the OMB has FINALLY gotten out of the way.

This blog originally appeared in Public Justice Righting Wrongs on September 10, 2014. Reprinted with Permission.

About the author: F. Paul Bland, Jr., Executive Director, has been a senior attorney at Public Justice since 1997. As Executive Director, Paul manages and leads a staff of nearly 30 attorneys and other staff, guiding the organization’s litigation docket and other advocacy.

As staff and senior attorney, he was responsible for developing, handling, and helping Public Justice’s cooperating attorneys litigate a diverse docket of public interest cases. Paul has argued and won more than 30 cases that led to reported decisions for consumers, employees or whistleblowers in six of the U.S. Courts of Appeals and the high courts of nine different states. Paul’s Twitter handle is @FPBland.

Paul has presented at more than 100 continuing legal education or professional conferences in more than 25 states; has testified in both houses of Congress, several state legislatures and administrative agencies; has been quoted in more than 100 periodicals throughout the country and has appeared in several radio and TV stories.

 

When merely considering your rights can get you fired!

Wednesday, September 3rd, 2014

Employers may be reluctant to admit that their policies are designed to shut workers out of our civil justice system.  But there is no denying their intent.

Consider this example.  Elizabeth is a widow with five children who came into my office this spring.  Since the death of her husband a few years ago, she immersed herself in her work to provide for her family. Elizabeth didn’t earn much at her job, but her work as a waitress was enough to support her children.  She had been working for a California-based restaurant chain for nine years.

During a Friday shift last year, Elizabeth was informed about a new kind of company policy – an arbitration agreement that she was told she had to sign and return by Monday.  Elizabeth tried to find an attorney over the weekend to explain the document to her, and when she couldn’t, she asked her employer for more time to review the agreement.  She was fired a few days later for missing the 72-hour deadline.  The company also fired several other employees for either declining to sign the arbitration agreement or not doing so by the company-imposed deadline.

Elizabeth’s case is not uncommon, but it underscores just how much “free choice” goes into these “agreements.” Remarkably, courts have held that terminating employees for not signing employer-mandated arbitration agreements is not illegal.  These and other decisions are beginning to reach their absurd conclusions, where courts enforce arbitration agreements without regard to the rights of the affected individuals, enforcement of our laws, or the administration of justice. As Judge Jack Zouhary (a George W. Bush appointee) recently wrote in an order compelling arbitration of an antitrust claim, “This Court is bound by case law’s pro arbitration bent … common sense plays no role.”

Compulsory private arbitration has been the favored corporate practice for years.  It is easy to understand why.  Highly-paid private arbitrators, whose livelihood often depends on the repeat business from the same large corporations, render “justice” to an aggrieved employee who almost certainly will never appear before them again.  The inherent disadvantage for low wage workers facing off against multi-million dollar corporate employers in any setting is obvious, but the disadvantage is compounded in an arbitral forum.  Despite this, our courts have generally enforced these “agreements.”

I often see aggrieved employees who have signed arbitration agreements without understanding the content or the significance of the document. They sign the documents that their employers put in front of them, in order to continue working and to feed their families.  In fact, most workers don’t learn what the term “arbitration” means until they consult with an attorney and learn that they have already signed away their right to seek justice in a court.

But the compulsory nature of these arbitration agreements is undeniable when we look at the employees that don’t blindly “agree” to an employer’s mandatory arbitration policy, or those like Elizabeth who merely ask for time to conduct a careful review and to consider their rights before agreeing to sign them away.  If there was any question whether such “agreements” are a condition of employment, Elizabeth’s experience offers the answer.

Are we beginning to see the end to these extreme practices? On July 31, President Obama signed an executive order prohibiting certain federal contractors from forcing their employees out of court and into arbitration in workplace discrimination cases.

Although this executive action is a step in the right direction, it does not go far enough. Congress continues to ignore this systematic denial of justice to our workers by failing to move forward on the Arbitration Fairness Act, which has been pending since last year.  The Act would ban forced arbitrations in employment and consumer settings. Until workers have a real choice in deciding where to claim their rights, the scales of justice will remain unbalanced.

This blog originally appeared in CELA Voice on August 26, 2014. Reprinted with Permission. http://celavoice.org/category/afshin-mozaffari/.

About the Author: Afshin Mozaffari is the founder and principal of Mozaffari Law. Mr. Mozaffari’s practice focuses on civil rights and employee rights litigation, including discrimination (based on race, religion, color, national origin, ancestry, physical or mental disability or medical condition, marital status, gender, sexual orientation, age, and pregnancy, childbirth or related medical conditions), sexual harassment, retaliation, disability accommodation, wrongful termination, and wage & hour. Prior to the founding of Mozaffari Law, Mr. Mozaffari represented numerous corporations, schools, and non-profits in employment law, torts, business litigation, and class action cases. He recently left the defense side to follow his long-held passion for representing the rights of employees and other individuals.

WORST SUPREME COURT ARBITRATION DECISION EVER

Thursday, June 20th, 2013

PaulBlandWeb-172So, today, in American Express v. Italian Colors, the U.S. Supreme Court said that a take-it-or-leave-it arbitration clause could be used to prevent small businesses from actually pursuing their claims for abuse of monopoly power under the antitrust laws. Essentially, the Court said today that their favorite statute in the entire code is the Federal Arbitration Act, and it can be used to wipe away nearly any other statute.

As Justice Kagan said in a bang-on, accurate and clear-sighted dissent, this is a “BETRAYAL” (strong word, eh?) of the Court’s prior arbitration decisions. You see, until now, the Supreme Court has said that courts should only enforce arbitration clauses where a party could “effectively vindicate its statutory rights.” Today, in a sleight of hand, the five conservative justices said that this means that arbitration clauses should be enforced even when they make it impossible for parties to actually vindicate their statutory rights, so long as they have a theoretical “right” to pursue that remedy.

The plaintiffs in this case, restaurants and other small merchants, claim that American Express uses its monopoly power over its charge card to force them to accept American Express’s credit cards and pay higher rates than they would for other credit cards. This is called a “tying arrangement” under the antitrust laws — American Express is alleged to be using its monopoly power over one product to jack up the price of another product to higher rates than it could charge in a competitive market.

For plaintiffs to prove this kind of case, they have to come up with hard evidence — economic proof — that costs hundreds of thousands of dollars. And each individual merchant has only lost, and thus can only hope to recover, a small fraction of that amount. The U.S. Court of Appeals for the Second Circuit recognized that if American Express’s arbitration clause (and particularly its ban on class actions) was enforced, that would mean that none of the small business plaintiffs could enforce their rights under the antitrust laws. And under a long line of Supreme Court cases, arbitration clauses are only enforceable when they permit the parties to effectively vindicate their statutory rights.

Today’s decision turns that rule on its head. According to Justice Scalia’s majority opinion, even if an arbitration clause would mean that no individual would ever actually be able to pursue an antitrust claim on an individual basis, the arbitration clause still has to be enforced. The law has changed dramatically — parties no longer have a right to “effectively” vindicate their statutory rights; they are left with the meaningless but formal right to pursue economically irrational claims if they choose to do so.

The decision is catastrophic for the antitrust laws, as well as for civil rights, consumer rights, and many other statutory rights. The decision is an unmitigated disaster, replacing adhesive contracts for an idea of actual law. The drafters of the FAA would not recognize what it has turned into.

Justice Kagan went on to state: “As a result, Amex’s contract will succeed in depriving Italian Colors of any effective opportunity to challenge monopolistic conduct allegedly in violation of the Sherman Act. … In the hands of today’s majority, arbitration threatens to become … a mechanism easily made to block the vindication of meritorious federal claims and insulate wrongdoers from liability.” Justice Kagan gets this one completely right. The entire point of the majority opinion is to use arbitration to insulate companies from any possibility of class action liability.

We used to have something called “The Federal Arbitration Act.” The Court today might as well have amended its real title to “The Federal Corporate Immunity Act.”

This article was originally printed on Public Justice on June 20, 2013.  Reprinted with permission.

About the Author: Paul Bland is a Senior Attorney at Public Justice.  He has argued and won more than 30 cases that led to reported decisions for consumers, employees or whistleblowers in four of the U.S. Courts of Appeals and the high courts of nine different states.

Employers: Be Careful What You Wish For - Your Motion to Compel Arbitration Can Lead to Expensive, Class-Wide Arbitration

Thursday, December 27th, 2012

In the wake of ATT Mobility v. Concepcion and Stolt-Nielsen v. AnimalFeeds,* many employers have sought to enact new arbitration agreements or to enforce arbitration provisions in older agreements to eliminate their employees’ ability to come together when seeking to vindicate their rights to enforce statutory protections for workers. Employers should be careful what they wish for, in seeking to compel arbitration. They may indeed wind up in arbitration – but unable to strike class allegations, and required to pay the full and exorbitant costs of class-wide arbitration. 

In a case on which Bryan Schwartz Law serves as local counsel for Richard J. Burch of Bruckner Burch, in Houston, Texas, the employer is now feeling the danger of a Stolt-Nielsen-based strategy seeking to compel individual arbitration in a putative, wage-hour class action. In the Laughlin v. VMWare case, in which VMWare employees assert they were misclassified as exempt employees and denied overtime and other compensation to which they were entitled, the company moved to compel arbitration based on an agreement which did not specifically provide for class-wide arbitration. 

Judge Edward Davila of the Northern District of California struck some of the more offensive provisions of the arbitration agreement under Armendariz v. Foundation Health Psychcare Services (2000) 24 Cal.4th 83, such as a provision which would have required Plaintiff to share the costs of arbitration. However, Judge Davila found these unlawful provisions severable (i.e., refused to kill the whole arbitration agreement). Perhaps most importantly, though, Judge Davila referred to the arbitrator the decision on the Stolt-Nielsen argument – namely, as argued by VMWare, the notion that class-wide arbitration cannot proceed where the parties’ arbitration agreement did not expressly consent to class arbitration. His initial decision from early 2012 is available here: 

http://www.bryanschwartzlaw.com/VMWare.pdf

In arbitration, AAA arbitrator LaMothe then rejected the employer’s Stolt-Nielsen motion to strike class allegations, notwithstanding the fact that the agreement did not expressly give permission to bring class allegations, finding the parties’ agreement intended to encompass all claims by Plaintiff Laughlin, including her class claims. The AAA order is available here: 

http://www.bryanschwartzlaw.com/Laughlin.pdf

In the last 18 months, numerous other arbitrators from JAMS, AAA, and other nationwide arbitration services have likewise denied motions to strike class allegations, employing similar reasoning. 

On review, Judge Davila confirmed the arbitrator’s partial final clause construction award allowing class allegations to proceed, meaning – in light of all the foregoing – that VMWare will now be forced to arbitrate a putative class action, and will be forced to bear all of the costs of doing so: 

http://www.bryanschwartzlaw.com/VMWare-12-20-12.pdf

Be careful what you wish for, employers. You may find that sometimes, allowing employees their day in court is better than the alternative. 

DISCLAIMER: Nothing in this article is intended to form an attorney-client relationship with the reader. You must have a signed representation agreement with the firm to be a client. 

*See our numerous prior blog posts relating to the subject of arbitration class waivers in light of Concepcion andStolt-Nielsen, including: http://bryanschwartzlaw.blogspot.com/2012/09/california-supreme-court-grants-review.html

http://bryanschwartzlaw.blogspot.com/2012/09/wage-and-hour-class-actions-sky-is.html;

http://bryanschwartzlaw.blogspot.com/2012/01/landmark-decision-by-national-labor.html

http://bryanschwartzlaw.blogspot.com/2011/05/civil-rights-lawyer-and-employee.html.

This post was originally posted on December 26, 2012 on Bryan Schwartz Law. Reprinted with Permission.

About the Author: Bryan Schwartz is an Oakland, CA-based attorney specializing in civil rights and employment law.

Separate and Unequal

Tuesday, September 20th, 2011

Cliff PalefskyCliff Palefsky of McGuinn, Hillsman & Palefsky disputes the assertion that sending a case to arbitration has no impact on substantive rights; that faulty premise, he contends, underlies much of the Court’s arbitration jurisprudence.

The Supreme Court has told us repeatedly that judges do not create public policy. Public policy, they say, must emanate from the Constitution or a statute passed by Congress. Docket clearing is not a public policy and the FAA did not and could not create a public policy that conflicts with the express mandates of the Constitution.

But if the goal of the Supreme Court’s jurisprudence on arbitration was to fulfill its judicially created public policy of “docket clearing,” it has failed.  In the past few Terms the Supreme Court has heard at least eight significant arbitration cases. Courts of appeals across the country are inundated with arbitration issues and trial courts are hearing contested motions to compel arbitration on a daily basis.  The reasons are obvious. Arbitration was always intended to be a voluntary process, or as the Court itself has declared, a matter of “consent and not coercion.”  It says that but it doesn’t really mean it. And parties who do not want to arbitrate and who do not trust the forum designed and imposed on them by a stronger party will use all available legal tools to avoid it. The mere act of forcing an arbitration program that you designed on an adverse party is inconsistent with the confidence in the process any justice system needs to succeed.  As a result of failing to distinguish between voluntary and coerced arbitration in its jurisprudence, the Court has actually dramatically increased the workload of the appellate courts and done serious damage to the Constitution and many of the most important laws passed by Congress.

But equally important, and ironic, is the fact that by further eliminating the safeguards of a fair arbitration process as the Court did this Term in Concepcion and last Term in Rent-A-Center v. Jackson, the Court has actually undermined the viability and integrity of the arbitration process and in doing so has done great harm to the credibility of all of the effective voluntary forms of ADR which might actually help provide more efficient justice to so many and help reduce the backlog in the courts.

Real consent was always intended to be the only check and balance necessary to ensure fairness and to keep these matters out of the courts. By ignoring and distorting the requirement of consent, the Court has opened the door to every permutation of abusive and unfair arbitration process.  As a fundamental concept, you can’t turn an adversarial system over to one side and invite it to design and control the process. It is thus no surprise that the abuses are getting all the attention and all of the positive attributes of voluntary ADR processes are lost in the noise.

It is easy to identify some of the ways in which the Supreme Court lost its bearings. It is also pretty easy to identify ways to make their future jurisprudence more faithful to the Constitution and restore the promise of voluntary forms of ADR.

It would be malpractice for any lawyer to tell a client that arbitration and our public court system are equivalent fora. Indeed, they are exact opposites in every material defining characteristic – public versus private, free versus costly, full discovery versus limited discovery, obligation to properly apply the law versus legal errors must stand, appeal versus no appeal. Arbitration is not just a change of venue, and it is not “just another forum”. And pretending that it is is the modernday version of “separate but equal”. The assertion that sending a case to arbitration has no impact on substantive rights is simply false as a matter of fact, yet that is the essential underpinning of much of the Court’s jurisprudence.  It isn’t even accurate to describe mandatory arbitration as a ‘justice system” because its goal is finality – not necessarily reaching the correct result. As the Court announced in Hall Street Associates v. Mattel, under the FAA even facially incorrect legal rulings must stand and the parties can’t even agree to expanded review to make sure the laws of Congress are properly applied. In a voluntary context, parties are free to flip a coin to resolve a dispute or agree to be bound by an incorrect ruling. But in a non-consensual setting, the weaker party is being deprived of the ultimate substantive right – the right to have statutes that were passed for its protection interpreted and enforced correctly – in other words, due process. Asserting that arbitration is ‘just another forum” disrespects the very reason for the creation of a public court system and the Supreme Court itself since arbitrators are not even required to properly apply Supreme Court precedent.

An agreement to arbitrate involves the waiver of several constitutional rights:  the First Amendment right of petition, the Fifth Amendment right to due process and the Seventh Amendment right to a jury trial.  And to be sure, there are numerous statutes that expressly provide for the right of access to a federal court, which is obligated to follow the law. But incredibly, the Supreme Court has never acknowledged the waiver of constitutional rights inherent in an agreement to arbitrate and has never specifically considered the constitutionally required standard for such a waiver. In every other context, the waiver of those rights must be ‘knowing and voluntary’.  The Court has repeatedly avoided this required analysis by ignoring the issue of consent entirely or by falsely proclaiming that the FAA requires courts to treat an arbitration clause as it would any other contract.

The FAA contains no such mandate, nor could it. It is a mere statute and does not have the power to reduce the constitutionally required standard for the waiver of constitutional  rights. When Congress passed the FAA in 1925 its express intent was to “permit” courts to enforce voluntary and otherwise valid arbitration agreements as they would other contracts. It certainly did not, and could not, mandate them to enforce involuntary and non-consensual waivers of constitutional rights. The FAA is only constitutional to the extent the underlying agreement is knowing and voluntary. Aside from the magical preemptive powers over state laws bestowed upon it, the Court has also granted it the power to trump the most fundamental dictates of the U.S. Constitution.

The surest way to fix much of what is wrong with the Court’s arbitration jurisprudence is to acknowledge that the order compelling arbitration and the entry of judgments obtained in arbitration are forms of state action in the performance of a traditional “public function.”  The Court needs to distinguish between truly voluntary agreements and “adhesion contracts,” which are really just a privilege extended to businesses to facilitate the inclusion of normal and customary commercial terms into a routine transaction. Adhesion contracts, especially in the employment context, are simply not sufficiently voluntary to support the waiver of constitutional and statutory rights. Adhesion contracts in most contexts are considered “procedurally unconscionable”. “Procedurally unconscionable” is the opposite of knowing and voluntary, and although an adhesion contract might be a vehicle for setting normal commercial terms, it can’t be an appropriate device for the forfeiture of constitutional and statutory rights.

The employment relationship is unique. The NLRA, the Norris LaGuardia Act, and numerous other federal statutes acknowledge both expressly or impliedly that agreements between companies and individual employees required as a condition of employment are not really voluntary. Indeed, most of these laws were passed because of the failure of the free market to protect workers.

It is interesting to compare the Court’s concern with the newly required “knowing” consent to class arbitration in Stolt-Nielsen S.A. v. AnimalFeeds International and Concepcion (when the issue is whether or not the corporation that created and crafted the arbitration agreement agreed to class arbitration), with its total lack of concern with consent when it is a consumer or employee objecting to the forced arbitration.  Similarly, the Court doesn’t hesitate to declare that arbitration is favored and ‘just another forum” with no impact on rights when it is imposed on a consumer, but at the same time to declare it a wholly arbitrary and inadequate process for the resolution of class actions – as Justice Scalia wrote in Concepcion.

Legal historians and academics are already looking at the Court’s arbitration jurisprudence as one of the low points in the Court’s history. And in that review, Concepcion will certainly be the lowest point . . . so far. In Concepcion, the Court spent most of its time explaining that it was improper to force a company to arbitrate a class action because of the deficiencies of arbitration – even though the lower court had done no such thing, but had instead merely held that the class action should proceed in court. The Court violated the express terms of the FAA and preempted state law protections of general application against unconscionable and unfair arbitration agreements and replaced them with nothing. It shockingly expressed concern for the unfairness to corporate defendants of having to be bound by an incorrect result while inflicting that unfairness on consumers and employees without any concern whatsoever.

Mandatory arbitration is a cancer in our justice system based on a phony public policy and legal and factual fictions.  In recent years Congress has passed numerous statutes prohibiting mandatory arbitration in many different contexts – for example, whistleblower claims under Sarbanes-Oxley, Title 7 claims against defense contractors, military lending agreements, auto dealer and farm contracts – while also expressly empowering the SEC and the new Consumer Financial Product Agency to prohibit mandatory arbitration clauses to protect investors and consumers.  Those, along with the Constitution, are the real contemporary public policies.  Public policy may encourage the truly voluntary use of alternative processes but it does not favor coerced and mandatory arbitration.  Never did and never will, no matter how many times they say it.

This post originally appeared on the SCOTUS Blog on September 14, 2011. Reprinted with permission.

About the Author: Cliff Palefsky is a nationally renowned employment and civil rights lawyer who has argued cases before the Supreme Court and testified before National and State legislative committees. He has been described as a “force of nature” due to his involvement in many of the leading cases and legislation that have come to define the field of employment law. Mr. Palefsky has contributed his knowledge and expertise to drafting the first pieces of legislation concerning worker privacy, drug testing and lifestyle discrimination laws. He is the founder of the National Employment Lawyers Association. Today, Mr. Palefsky serves as a partner to the San Franciscio Bay Area firm McGuinn, Hillsman & Palefsky.

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