This probably won’t shock you: five members of the U.S. Supreme Court really like mandatory arbitration.
Over the last few decades, the most important cases pertaining to arbitration heard by the Court have been decided 5-4 — with the dissenting four dissenting strongly.
“Mandatory arbitration” sounds complex, but it’s straightforward enough: instead of taking a company that has harmed you to court (filing a lawsuit), you are required to pursue your grievance in arbitration.
Straightforward, yes. Harmless, not in the least. Arbitrations take place in front of an arbitrator, not a judge and jury. Arbitration clauses require people to act individually, and prevent them from joining together in a class action. They are often costly. They happen behind closed doors. And, historically, they favor business interests over individuals.
That is, if they ever get far enough along to be resolved. Many just disappear.
Let me explain.
In the consumer, employment, medical and securities contexts, this phenomenon is known as “forced arbitration” because unaware individuals have the terms of arbitration clauses dictated to them by corporations (through contracts that individuals are required to sign).
The courthouse doors are slammed shut by these clauses. As a consequence, consumer, civil rights and other cases are thrown out of court.
So what happens then? Are large numbers of valid consumer and civil rights cases actually pursued in and resolved by arbitration, or do they just disappear? Is the Supreme Court really shifting disputes from one forum (court) to another (arbitration), or is it just getting rid of the cases altogether?
At the Ninth Circuit’s 2011 Judicial Conference, a few reporters got an unusual chance to interview Justice Anthony Kennedy. They asked him about the Supreme Court’s shrinking docket. Justice Kennedy responded, “A lot of big civil cases are going to arbitration. I don’t see as many of the big civil cases.”
Now it’s true that a lot of large commercial business-to-business cases are going (and have been going for years) to international arbitration. But have more civil cases involving cutting-edge statutory issues in consumer and civil rights law — the kinds of cases that the U.S. Supreme Court used to decide — been going to arbitration?
The answer largely appears to be no: consumer cases are simply not going to arbitration in any appreciable numbers.
Take the American Arbitration Association and its consumer docket. The AAA is named sole arbitrator in hundreds of millions of consumer contracts. (AT&T Mobility alone has over 60 million customers and requires its customers to take significant disputes to the AAA. Numerous other corporations with AAA clauses have tens of millions of customers.) So with the AAA specified in millions of consumer contracts, are large numbers of consumers rushing to arbitrate their disputes before the AAA?
Not so much. In 2010, the AAA’s complete consumer docket — every single case — for the entire country amounted to around 1,300 cases. Remember, that’s out of hundreds of millions of individuals bound to arbitration by their contracts. 1,300 cases.
The year before, the AAA consumer docket was even lower, in the 900s.
When the National Arbitration Forum was operating (a corruption scandal forced it to stop doing consumer arbitrations in 2009), it averaged a grand total of about 50 consumer cases a year over a five year period.
Each year, hundreds of thousands of consumers send complaints to the Federal Trade Commission or their state attorney general. Hundreds of thousands also file complaints with Better Business Bureaus or post them to online consumer complaint sites.
The reality is that there are millions of consumers in America with legitimate disputes against corporations.
But the one thing most consumers with disputes don’t do is navigate the unfamiliar (and often hostile and expensive) world of forced arbitration. As a federal district court noted in one recent case, while thousands of AT&T Mobility customers had expressed great unhappiness with the corporation’s behavior, only an “infinitesimal” number of its customers would or could in reality go through its arbitration system.
A ton of American consumers have claims, and many involve illegal acts by corporations. But so many of those claims never see the light of the day. Justice Kennedy can say that many important civil cases are going to arbitration. But for consumer cases, Justice Kennedy is wrong. Nearly all of the cases are not going to court, they are just going away.
This blog entry originally appeared on the Wexler Wallace Blog.
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