Corporations Force Arbitration on Consumers, but Opt Out for Themselves

The New York Times recently published an article on the ramifications of AT&T Mobility v. Concepcion during the one year since the Supreme Court issued its decision. Drawing on a recent report recent report (.pdf download) issued by Public Citizen and the National Association of Consumer Advocates, the article noted that:

since Concepcion, judges had cited the decision at least 76 times as a reason to prevent potential class-action lawsuits from moving ahead. In some of those cases, the judges made clear that they were ruling against the plaintiffs through gritted teeth, explaining that Concepcion basically made it impossible to come to any other decision.

 The article summarized the views of Taylor Lincoln, a co-author of the Public Citizen study:

Many well-known arbitration companies have a pro-business bias, he said, because corporations pay the arbiters. But the real agenda of Concepcion’s champions, he added, is to block collective legal action — the kind that gets a company’s attention by affecting the bottom line. Justice Stephen Breyer echoed that notion in his dissent in the Concepcion case — it split the Supreme Court 5 to 4 — when he quoted from a 2004 decision written by Judge Richard Posner of the United States Court of Appeals for the Seventh Circuit: “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."

That corporations force arbitration on consumers in order to block collective legal action is unmasked by a recent study that reveals that

Fortune 1,000 corporations are significantly less likely to arbitrate contract disputes today than they were in 1997.  In the 1997 study, 85% of companies reported using arbitration in commercial contract disputes at least once during the prior three years.  In 2011, however, only 60 percent of companies so reported.

The most common reasons given by survey respondents… for not using arbitration included: the difficulty of appeal, the perception that arbitrators tend to compromise, the concern that arbitrators may not follow the law, a lack of confidence in neutrals, and high costs of arbitration.

Thus, while corporations force arbitration on consumers, with the blessing of the Supreme Court’s pro-business majority, they are increasingly hesitant to use arbitration to resolve their disputes with other corporations.

Of course, the concerns about commercial arbitration are all serious concerns for consumer arbitration as well – particularly, the impartiality of arbiters that corporations repeatedly appear before, the higher costs of arbitration, minimal access to evidence, closed-door proceedings, and narrow grounds for judicial review.  AFJ explored many of these problems in our report, Arbitration Activism (.pdf download).

As awareness grows of the harm to consumers forced into arbitration, the federal government has begun to take action. The Consumer Financial Protection Bureau recently issued a Request for Information to assist it in conducting a study of pre-dispute arbitration agreements, as mandated by the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010. The period for public comment ends June 23, 2012.

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One Year Later: The Consequences of AT&T Mobility v. Concepcion

Douglas Bellows was illegally harassed by a debt collector, but he will never have his day in court. Lourdes Cruz was charged fees for unwanted services by AT&T, but she will never have her day in court. Mack Green was cheated out of wages and benefits by his employer, but he will never have his day in court. Nor will the numerous other individuals with legitimate claims that Bellows, Cruz, and Green each sought to represent. All thanks to the Supreme Court’s decision AT&T Mobility v. Concepcion, which was issued one year ago today.

On April 27, 2011, the Court’s decision brought one chapter in the Concepcions’ legal saga to an end, but for the millions of Americans who are bound by take-it-or-leave-it contracts with cell phone companies and credit card companies, and with their corporate employers, the profound implications of the decision remained to be seen at that point. Now, a year later, it has become clear that the Court’s decision in Concepcion has had a dramatic effect on everyday Americans’ ability to access justice through the courts.

The Court held in Concepcion that the Federal Arbitration Act (“FAA”)’s favorable treatment of contractual arbitration clauses preempts state laws aimed at protecting consumers and employees from unconscionable class action waivers. As a result, AT&T was able to avoid the legal and financial consequences of defrauding thousands of customers out of $30 for supposedly “free” phones, simply by including a provision in their service contracts that mandated arbitration and forbade class actions. The ruling left customers with no real recourse to recover their money from the company, because no one could reasonably be expected to bring an individual claim to recoup $30.

As feared, the case has had wide-ranging effects on the ability of consumers and employees to vindicate their rights in court and recoup ill-gotten gains from companies. The impact has been felt particularly in the financial services, telecommunications, auto sales, and employment contexts.

For instance, Douglas Bellows filed a class action against Midland Credit Management, a debt collector, alleging the use of harassing and abusive tactics to collect a debt in violation of the Fair Debt Collection Practices Act. After Concepcion, Bellows was forced into individual arbitration based on a clause in his take-it-or-leave-it credit card agreement.

Lourdes Cruz filed a class action against AT&T Wireless for charging $2.99 per month for “roadside assistance service,” although she had never requested or consented to such a service, under Florida’s unfair trade practices law. The Eleventh Circuit held that in light of Concepcion, Florida law was preempted by federal law and Cruz was forced into individual arbitration.

Mack Green and fellow shuttle bus drivers sued SuperShuttle for misclassifying them as franchisees rather than employees, thereby denying them benefits and overtime pay to which they were entitled, while charging them illegal “franchise fees.” After Concepcion, the Eighth Circuit forced the drivers into individual arbitration by upholding the class action waiver and mandatory arbitration clauses in their employment contracts, which the drivers alleged were unconscionable under state law.

These are just a few of the scores of suits (.pdf download) that have been dismissed by the lower courts in the twelve months since Concepcion was decided.

Of course, Concepcion was not written in a vacuum. Over the past several years, the Roberts Court has issued decision after decision forcing litigants into arbitration, in circumstances far afield from what Congress had in mind when it passed the FAA in 1925. The FAA was intended to counteract judicial hostility toward arbitration, by placing arbitration agreements “upon the same footing as other contracts.” The assumption was that the agreements would exist in negotiated contracts between parties with relatively equal bargaining power.

However, beginning in the 1980s and picking up significantly under the leadership of Chief Justice Roberts, the Supreme Court has radically expanded its interpretation of the FAA, applying it to take-it-or-leave-it (or “adhesion”) contracts in the consumer and employment contexts. Furthermore, rather than treating arbitration agreements as no less valid than other contracts, the Court has privileged arbitration agreements as super contracts not susceptible to ordinary contract defenses (such as unconscionability).

Continuing this trend, in January, the Court upheld the arbitration clause that the so-called credit repair company CompuCredit inserted into its take-it-or-leave-it contracts with consumers, thereby preventing consumers from filing a class action lawsuit in court. This decision, Compucredit v. Greenwood, was particularly outrageous because the statute at issue, the Credit Repair Organization Act (“CROA”), specifically requires companies like CompuCredit to inform their customers: “You have a right to sue a credit repair organization that violates the Credit Repair Organization Act.” Nonetheless, the Court found that this provision of the CROA only creates the right to receive the statement, not an underlying right to sue. As Justice Ginsburg wrote in dissent, in a statute designed to prevent credit repair organizations from unfair and deceptive practices, Congress certainly did not intend to allow those organizations to deceive consumers by telling them they had a right that they do not have – i.e., the right to sue.

As others have documented, when individual arbitration is the only path left open to aggrieved consumers and employees, the result is not a whole lot of arbitration – the result is a whole lot of nothing, as few individuals will choose or be able to navigate the unfamiliar terrain of the arbitration system. Meanwhile, corporations are left to operate with impunity, ripping off Americans in ways big and small.

In the end, the losers are the American system of justice and the American people.

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Corporate Court Favors Forced Arbitration. Again.

Yesterday, the Supreme Court handed down its decision (.pdf download) in Marmet Health Care Center v. Brown and a consolidated case, ruling once again that everyday Americans may be barred from court and forced into arbitration by the corporations that have caused their injuries.

In these consolidated cases, three patients died allegedly due to the negligence of their West Virginia nursing homes. Surviving family members patients attempted to bring suit in state court, although the patients had signed contracts with the nursing homes that included forced arbitration provisions. The plaintiffs successfully made the case before the West Virginia Supreme Court that the forced arbitration clauses were both unconscionable under state law and against the public policy of West Virginia.

The U.S. Supreme Court has now stepped in and vacated that decision. The Court, in an unsigned opinion, reiterated its holding from last term’s AT&T Mobility v. Concepcion that “when state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the [Federal Arbitration Act].”

This case serves as yet another example of the Supreme Court’s consistent interpretation of the Federal Arbitration Act (“FAA”) in a manner that favors big business and hurts everyday Americans. As Alliance for Justice has detailed in our report, Arbitration Activism: How the Corporate Court Helps Business Evade Our Civil Justice System, the FAA was meant to place arbitration agreements “on the same footing” as any other contract, and was intended to apply primarily to business contracts between parties of roughly equal bargaining power.

The Supreme Court, however, has applied the FAA to all sorts of employment and consumer contracts, including “adhesion contracts” in which the employee or consumer has no real ability to bargain with the corporate party. By upholding forced arbitration in this context, the Corporate Court is actively erecting barriers to justice for the 99% in order to protect the 1%.

Some in Congress, however, are attempting to tear down some of these barriers. The prevalence of forced arbitration in the nursing home business led a bipartisan group of senators, including Sens. Herb Kohl (D-WI) and Mel Martinez (R-FL) to introduce the Fairness in Nursing Home Arbitration Act in 2009. This bill would eliminate forced predispute arbitration in nursing home contracts, ensuring Americans like the plaintiffs in Marmet get their day in court.

Alliance for Justice supports the Arbitration Fairness Act as introduced by Sen. Al Franken (D-MN), which would ban predispute, forced arbitration in cases involving civil rights, consumer contracts, or employment contracts. AFJ will continue to fight to make sure that arbitration remains a valuable way for parties to settle their disputes in a fair an expeditious fashion, but not as a way for powerful corporations to force consumers and employees from enjoying their ability to enforce their rights in court.

Click here to read more about AFJ’s work on arbitration fairness.

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AT&T Aftermath: Companies Get to Judge Their Own Compliance with Wage Law

The Corporate Court's decision in AT&T Mobility v. Concepcion set a dangerous precedent, and is forcing everyday Americans out of the courthouse. AFJ takes a look at some of the cases impacted by the decision.

Case: Quevedo v. Macy’s, Inc.

Carlos Quevedo worked at a Macy’s in California.  When he was terminated, Macy’s did not promptly pay him his final wages as required by state labor law.  Quevedo filed a lawsuit on behalf of himself and all other victims of Macy’s practices.  But Macy’s required all new employees to agree to use its so-called “InSTORE” dispute resolution program, which culminates in binding arbitration proceedings and requires workers to waive any right to form a class.  The court brushed aside Quevedo’s argument that the arbitration clause was unconscionable, and ruled that, after Concepción, Quevedo could not even use California’s Private Attorney General Act, a law which lets citizens stand in the shoes of state law enforcement officials, to take Macy’s to court for its illegal practices.

Click here for more on the aftermath of the Court's AT&T decision.

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AT&T Aftermath: Sleazy Employment Contract Uses Arbitration to Escape Paying Minimum Wage

The Corporate Court's decision in AT&T Mobility v. Concepcion set a dangerous precedent, and is forcing everyday Americans out of the courthouse. AFJ takes a look at some of the cases impacted by the decision.

Case: D’Antuono v. Service Road Corp. 

Dina D’Antuono was an exotic dancer at a club in Connecticut.  She and other dancers, after working for a few months, were taken aside during a shift and told they needed to sign a contract.  It said the dancers weren’t entitled to minimum wage and worked only for tips.  It also contained an arbitration clause that banned class actions, shifted fees onto losing plaintiffs, and imposed a six-month time limit on filing claims.  D’Antuono sued the club owners under the Fair Labor Standards Act to recover wages she and other dancers were owed.  Citing Concepción, the judge ruled that it didn’t matter whether or not the dancers would, as a practical matter, be able to vindicate their rights through arbitration, and threw the case out of court.

Click here for more on the aftermath of the Court's AT&T decision.

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AT&T Aftermath: For-Profit College Misleads Potential Students

The Corporate Court's decision in AT&T Mobility v. Concepcion set a dangerous precedent, and is forcing everyday Americans out of the courthouse. AFJ takes a look at some of the cases impacted by the decision.

Case: Bernal v. Burnett

Krystle Bernal enrolled in Westwood College Online’s fashion merchandising program in 2005. In 2010, she and others filed a lawsuit against Westwood based on misrepresentations made in high-pressure sales pitches by “academic counselors,” including the total cost of education at the school, the job and salary expectations for graduates, the accreditation of the school, and the transferability of credits. The school’s enrollment documents, however, contained an arbitration clause with a class action ban. Bernal argued that the nature of the fraud claims and the need for testimony by company insiders made repeated individual trial or arbitration of the case totally impractical. The judge observed that while Concepción dealt “a serious blow to consumer class actions and likely foreclosed the possibility of any recovery for many wronged individuals,” the court was bound by the Supreme Court’s ruling that forced arbitration contracts are valid regardless of public policy implications.

Click here for more on the aftermath of the Court's AT&T decision.

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AT&T Aftermath: Servicemembers Denied Benefits Are Denied Their Day in Court

The Corporate Court's decision in AT&T Mobility v. Concepcion set a dangerous precedent, and is forcing everyday Americans out of the courthouse. AFJ takes a look at some of the cases impacted by the decision.

Case: Wolf v. Nissan Motor Acceptance Corp.

Matthew Wolf is a captain in the Army Reserve JAG Corp who was deployed oversees in late 2007.  A year earlier, Captain Wolf leased a new car through Nissan on a 39 month lease, and paid about $600 in advance costs.  The Servicemembers Civil Relief Act provides that when called to active duty, reservists and National Guard members are entitled to terminate automotive leases and recover a portion of upfront costs paid.  Nissan, however, refused to refund any portion of Wolf’s payments.  Wolf filed a class action on behalf of himself and all other servicemembers whose rights Nissan would not honor.  However, Nissan’s lease agreement contained an arbitration clause with a class action waiver.  The district court held that, in light of Concepción, the FAA and its “policies favoring and promoting arbitration” required solitary arbitration, even if it hindered the policy goals behind the SCRA.


Click here for more on the aftermath of the Court's AT&T decision.

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AT&T Aftermath: No Public Accountability for False Claims about Smartphone Speeds

The Corporate Court's decision in AT&T Mobility v. Concepcion set a dangerous precedent, and is forcing everyday Americans out of the courthouse. AFJ takes a look at some of the cases impacted by the decision.

Case: Arellano v. T-Mobile USA, Inc.

Stacie Lee Arellano bought a “MyTouch 4G” smartphone from T-Mobile, and signed a two year contract for service. But, according to Arellano, the phone and T-Mobile’s network don’t actually provide “4G” service or speeds, just a rebranded “3G” connection. Questionable “4G” labeling is an ongoing problem in the cellular industry,  and Arellano sought to represent a class of consumers in seeking damages and injunctive relief against T-Mobile’s advertising. Arellano argued that the contract’s class waiver was unenforceable because it would preclude any possibility of obtaining an injunction to prevent T-Mobile from continuing to deceive the general public. The district judge ruled that “perhaps regrettably, this argument was rejected” by the Supreme Court’s Concepción decision.


Click here for more on the aftermath of the Court's AT&T decision.

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AT&T Aftermath: Sham Credit Repair Business Takes Money, Runs, Escapes

The Corporate Court's decision in AT&T Mobility v. Concepcion set a dangerous precedent, and is forcing everyday Americans out of the courthouse. AFJ takes a look at some of the cases impacted by the decision.

Case: Day v. Persels & Assocs. LLC

Miranda Day wanted to pay off her debt and rebuild her credit, so she enrolled in CareOne’s credit counseling service.  She sent CareOne $1,274.34 to put towards her debt, but they never paid her creditors or contacted them to negotiate for better terms, and eventually Day had to file for bankruptcy.  She then took CareOne to court under the Credit Repair Organizations Act and Florida law on behalf of herself and other victims.  However, buried in the paperwork and electronic forms she filled out was an arbitration clause that prohibited class actions.  Before the AT&T decision, Day argued that the ban on class arbitration was unconscionable and void under Florida contract law, but after the decision, Day conceded the Supreme Court had defeated her argument.


Click here for more on the aftermath of the Court's AT&T decision.

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AT&T Aftermath: Debt Collector Escapes Public Trial of Violations of Federal Law

The Corporate Court's decision in AT&T Mobility v. Concepcion set a dangerous precedent, and is forcing everyday Americans out of the courthouse. AFJ takes a look at some of the cases impacted by the decision.

Case: Bellows v. Midland Credit Mgmt. Inc.

Douglas Bellows alleged that Midland Credit Management, a debt collector, made harassing and abusive attempts to collect a debt in violation of the Fair Debt Collection Practices Act.  Bellows filed suit on behalf of himself and others subjected to Midland’s tactics, but his HSBC credit card agreement contained an arbitration clause which also banned class actions.  Bellows argued that his rights were protected by California’s Discover Bank rule.  The judge waited until the Supreme Court issued its decision in AT&T Mobility v. Concepcion, and then ordered Bellows to pursue his claim in solitary arbitration.

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