Arbitration Everywhere, Stacking the Deck of Justice

[HisMajestyBOB]

Interesting article from the NYTimes on how large companies are able to use their disproportionate power and influence to block class-action lawsuits in favor of arbitration. The article is too long to copy-paste here, but it's worth a look. Thought the lawyers here might interested in chiming in:

Arbitration Everywhere, Stacking the Deck of Justice
http://www.nytimes.com/2015/11/01/business/dealbook/arbitration-everywhere-stacking-the-deck-of-justice.html

On Page 5 of a credit card contract used by American Express, beneath an explainer on interest rates and late fees, past the details about annual membership, is a clause that most customers probably miss. If cardholders have a problem with their account, American Express explains, the company "may elect to resolve any claim by individual arbitration."

Those nine words are at the center of a far-reaching power play orchestrated by American corporations, an investigation by The New York Times has found.

By inserting individual arbitration clauses into a soaring number of consumer and employment contracts, companies like American Express devised a way to circumvent the courts and bar people from joining together in class-action lawsuits, realistically the only tool citizens have to fight illegal or deceitful business practices.

Over the last few years, it has become increasingly difficult to apply for a credit card, use a cellphone, get cable or Internet service, or shop online without agreeing to private arbitration. The same applies to getting a job, renting a car or placing a relative in a nursing home.
Continue reading the main story
Beware the Fine Print

This is the first part in a series examining how clauses buried in tens of millions of contracts have deprived Americans of one of their most fundamental constitutional rights: their day in court.

Among the class actions thrown out because of the clauses was one brought by Time Warner customers over charges they said mysteriously appeared on their bills and another against a travel booking website accused of conspiring to fix hotel prices. A top executive at Goldman Sachs who sued on behalf of bankers claiming sex discrimination was also blocked, as were African-American employees at Taco Bell restaurants who said they were denied promotions, forced to work the worst shifts and subjected to degrading comments.

Some state judges have called the class-action bans a "get out of jail free" card, because it is nearly impossible for one individual to take on a corporation with vast resources.

Patricia Rowe of Greenville, S.C., learned this firsthand when she initiated a class action against AT&T. Ms. Rowe, who was challenging a $600 fee for canceling her phone service, was among more than 900 AT&T customers in three states who complained about excessive charges, state records show. When the case was thrown out last year, she was forced to give up and pay the $600. Fighting AT&T on her own in arbitration, she said, would have cost far more.

By banning class actions, companies have essentially disabled consumer challenges to practices like predatory lending, wage theft and discrimination, court records show.

"This is among the most profound shifts in our legal history," William G. Young, a federal judge in Boston who was appointed by President Ronald Reagan, said in an interview. "Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach."

...article continues...

[The Brain]

How is a legal agreement "opting out of the legal system"? And if the agreements aren't legal what's the problem?

[Martinus]

I love how American articles never ever acknowledge or compare the situation to other Western countries in cases like this. For example, under EU consumer protection law, exclusive arbitration clauses are illegal in standardized contracts with consumers.

[Martinus]

How is a legal agreement "opting out of the legal system"? And if the agreements aren't legal what's the problem?

Private arbitration is more expensive, it is commercially oriented and more oriented in producing an equitable, rather than predictable, standardized result. It is great for contracts between professionals, especially in non-standard, sophisticated transactions. It is not really appropriate when one party is a private consumer and the matter concerns a standard service or product being provided.

[alfred russel]

Private arbitration is more expensive, it is commercially oriented and more oriented in producing an equitable, rather than predictable, standardized result. It is great for contracts between professionals, especially in non-standard, sophisticated transactions. It is not really appropriate when one party is a private consumer and the matter concerns a standard service or product being provided.

You are giving a euro centric view of legal vs arbitration systems in a thread about american systems.

[Syt]

IIRC one of the (many) complaints over here against the TTIP free trade agreement between Europe and the US is that any disputes between corporations and countries are to be settled via arbitration, not the courts system?

[Martinus]

IIRC one of the (many) complaints over here against the TTIP free trade agreement between Europe and the US is that any disputes between corporations and countries are to be settled via arbitration, not the courts system?

This is a different thing, though.

[Martinus]

Private arbitration is more expensive, it is commercially oriented and more oriented in producing an equitable, rather than predictable, standardized result. It is great for contracts between professionals, especially in non-standard, sophisticated transactions. It is not really appropriate when one party is a private consumer and the matter concerns a standard service or product being provided.

You are giving a euro centric view of legal vs arbitration systems in a thread about american systems.

The article is saying exactly the same thing as I did - that the US arbitration system is more costly and less likely to follow precedent. Care you explain how this is "eurocentric" too?

[The Brain]

How is a legal agreement "opting out of the legal system"? And if the agreements aren't legal what's the problem?

Private arbitration is more expensive, it is commercially oriented and more oriented in producing an equitable, rather than predictable, standardized result. It is great for contracts between professionals, especially in non-standard, sophisticated transactions. It is not really appropriate when one party is a private consumer and the matter concerns a standard service or product being provided.

Good or bad they're part of the American legal system and I don't see how employing them means you are opting out of that system. Should the law be changed? Possibly, but that's a different question.

[Martinus]

How is a legal agreement "opting out of the legal system"? And if the agreements aren't legal what's the problem?

Private arbitration is more expensive, it is commercially oriented and more oriented in producing an equitable, rather than predictable, standardized result. It is great for contracts between professionals, especially in non-standard, sophisticated transactions. It is not really appropriate when one party is a private consumer and the matter concerns a standard service or product being provided.

Good or bad they're part of the American legal system and I don't see how employing them means you are opting out of that system. Should the law be changed? Possibly, but that's a different question.

Well, it's the same argument as the one arguing that Muslims who are using sharia courts in the countries like Canada or Sweden are opting out of the legal system.

It is not technically true, but both cases raise questions around not-fully-voluntary submission to jurisdiction of courts that consider matters on other basis than purely national law - which is a cause for concern when dealing with private individuals.

[Martinus]

Btw, I am assuming (perhaps wrongly) that there is no ordinary venue of appeal from American arbitration courts to common courts - and you can only challenge an arbitration court ruling if it blatantly violates the fundamentals of American legal system. Could any American lawyers comment?

[Martinus]

There is also an issue of conflict of interest involved - most established arbitration institutions treat big business as their customers and compete for jurisdiction. This is less of a concern when two big businesses are litigating in front of an arbitration tribunal, but when there is a big business vs. a private individual, there could be a tendency to rule in favour of an "established customer".

[DontSayBanana]

Btw, I am assuming (perhaps wrongly) that there is no ordinary venue of appeal from American arbitration courts to common courts - and you can only challenge an arbitration court ruling if it blatantly violates the fundamentals of American legal system. Could any American lawyers comment?

That's my problem with arbitration clauses: not so much requiring parties to attempt arbitration, but forcing parties to accept the arbitration as final before the proceedings.  In a tort-happy country like the US, I'm fine with limiting the ability to sue, but limiting the right to appeal a decision leaves a bad taste in my mouth.

[grumbler]

There is also an issue of conflict of interest involved - most established arbitration institutions treat big business as their customers and compete for jurisdiction. This is less of a concern when two big businesses are litigating in front of an arbitration tribunal, but when there is a big business vs. a private individual, there could be a tendency to rule in favour of an "established customer".

This is my objection to arbitration, more than the idea the arbitration is less predictable because not obliged to follow precedent.  The arbitrator cannot really be impartial if having to arbitrate between the party that decides whether or not to continue to employ them based on that party's satisfaction with the outcomes, and a third party who reactions to an adverse outcome are irrelevant to the arbitration firm.

If there was a mechanism to ensure impartiality (like a pool of arbitration companies paid from a pool of funds provided by each company that wanted to include binding arbitration in contracts, with the actual arbitrator chosen randomly from those specializing in that field), then I'd be happier with it. 

I'd note that the Federal Arbitration Act of 1925 appears to create a strong climate in favor of arbitration clauses.  This doesn't seem to be anything new.  I know I've been signing contracts with arbitration clauses for years.

[Martinus]

Btw, I am assuming (perhaps wrongly) that there is no ordinary venue of appeal from American arbitration courts to common courts - and you can only challenge an arbitration court ruling if it blatantly violates the fundamentals of American legal system. Could any American lawyers comment?

That's my problem with arbitration clauses: not so much requiring parties to attempt arbitration, but forcing parties to accept the arbitration as final before the proceedings.  In a tort-happy country like the US, I'm fine with limiting the ability to sue, but limiting the right to appeal a decision leaves a bad taste in my mouth.

But then arbitration wouldn't be arbitration but more like mediation.