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The Disingenuous Defense of Forced Arbitration

Andrew Pincus argued before the Supreme Court that corporations should be able to immunize themselves from class actions...and won.

In AT&T Mobility v. Concepcion, the Court ruled that corporations can impose arbitration processes on aggrieved customers and deny them the ability to bring class actions. Re-writing an 86-year-old federal statute, the five conservative justices ruled that AT&T could advertise “free” cell phones to lure consumers and then charge them a surprise $30 sales tax without being susceptible to suit, thanks to fine print in the “take-it-or-leave-it” contract that AT&T imposes on its customers.

Recently, Pincus has written in the New York Times and the National Law Journal that Concepcion is “transforming the way disputes are resolved throughout the country” – a transformation which is, he suggests, to the benefit of everyone except plaintiffs’ attorneys. Pincus is correct that a transformation is underway (just this week Microsoft announced that it, too, is inserting clauses in its user agreements to force individual arbitration in response to the Concepcion decision), however, the benefits accrue primarily to Pincus’ corporate clients.

Nearly every aspect of Americans’ everyday lives is controlled by “take-it-or-leave-it” or “adhesion” contracts. We sign them to buy products and procure services. As Amalia Kessler, a Stanford Law professor put it recently, in order to avoid such contracts “[y]ou would have to live in a cave somewhere.” And now in the wake of Concepcion, those contracts also serve to surrender our civil rights and protections as consumers.

The ruling in Concepcion has had widespread detrimental effects in the year since it was issued. Countless consumers have been cheated out of their money and their rights as lower court judges, at times reluctantly, enforce contractual terms that lead to dismissal of their cases from court, leaving unfair arbitration procedures as their only avenue for possible redress.

Pincus lauds this development, noting that, with the Corporate Court’s assurances in Concepcion, companies are increasingly using arbitration in their “customer agreements, supplier agreements and employment agreements [and] [s]ome are even considering inclusion of arbitration agreements in their securities offerings.”

It should come as no surprise that corporations prefer individual arbitration over class action litigation in disputes with consumers, employees, or securities purchasers – in other words, when they control the game. However, a recent survey of Fortune 1000 companies suggests that when it comes to their disputes with other companies, they are dramatically less likely to use arbitration than they were in the past. The survey reveals that only 60% of companies in 2011 reported using arbitration in commercial contract disputes, a considerable drop from the 85% that reported doing so in 1997. Is it possible that corporations have grown wary of arbitration when they aren’t calling all the shots?

After all, certain arbitration firms have been found to rule for the corporation that hired them a whopping 93.8% of the time.

In addition to this “repeat player bias,” the problems with arbitration, particularly in the consumer and non-unionized employment context, are myriad:
  • Arbitration proceedings are secretive, to the detriment of both the plaintiffs and the public. 
  • Arbitration can be prohibitively expensive, since filing costs often exceed those of state or federal courts. Those costs can increase depending on the value of the claims. 
  • The discovery process in arbitration is deficient, as corporations are often the ones setting their own rules for discovery. 
  • Federal law makes it nearly impossible to appeal, much less reverse, the decision of an arbitrator.
Yet Pincus persists in touting the supposed advantages of arbitration. He writes, “Most injuries suffered by consumers and employees are individualized and too small to attract a lawyer’s services. Our courts are expensive, overburdened and virtually impossible for nonlawyers to navigate. For these claims, it is arbitration or nothing.”

But Pincus has it exactly backwards. As Judge Richard Posner of the Seventh Circuit Court of Appeals recognized – and as Justice Breyer repeated in his Concepcion dissent -- “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.” The idea that, when class actions are unavailable, 17 million individual claims will be pursued through arbitration is equally unlikely (a reality that corporations count on), and Pincus’ claim that social media will allow plaintiffs’ lawyers to “agglomerate enough individual claims to support the costs of litigating these claims” through arbitration – yet somehow not through litigation – is preposterous.

Equally disingenuous are Pincus’ claims that “the high rate of settlement, without regard to the underlying merits, undermines [the] deterrence justifications” of litigation and that corporations consider class action lawsuits as simply the “cost of doing business.” This claim raises a question Pincus does not address: If corporations are not worried about class actions, why are they fighting so hard to block them?

Furthermore, a jury award is not the only thing that can affect a corporation’s bottom line. Settlements can be plenty costly, as can the bad publicity that the public filing of the suit and succeeding steps in litigation can bring (thus corporations’ preference for low-profile resolution of claims through arbitration).

Finally, let us not forget that our courts are not inherently slow or inefficient; many of them are simply dramatically understaffed. Nearly half of all Americans live in a district or circuit with judicial vacancies for which there are pending nominees. The answer to this crisis is not to divert Americans to a flawed system of dispute resolution, but to demand that those vacancies be filled promptly and with the best legal minds our country has to offer.