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.

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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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The Corporate Court: Making New Laws from Thin Air

The Roberts Court's troubling pro-business bias has long been evident in the cases it chooses to hear and in the decisions it renders. But one aspect of the Court's tendency to overreach in favor of corporate interests is its penchant for crafting new laws out of thin air, without the apparent need to do so.

For example, the dispute in AT&T Mobility v. Concepcion arose after AT&T offered customers a "free" phone but charged a sales tax of up to $30. When customers discovered the scheme and asserted their rights in court, AT&T sought to enforce a contract provision banning class actions and requiring all disputes to be settled in arbitration.

Applying California contract law, the Ninth Circuit Court of Appeals invalidated the provision as unconscionable because it allowed AT&T to defraud many consumers out of an amount of money so small that victims were unlikely to arbitrate individually. California law applied the same unconscionability principles to class arbitration prohibitions as it did to class litigation prohibitions.

Nonetheless, the 5-4 majority held that California law conflicted with the Federal Arbitration Act because California “disfavored arbitration.”

In his dissent, Justice Breyer stated that the Court should, “think more than twice before invalidating a state law that does just what §2 [of the FAA] requires, namely, puts agreements to arbitrate and agreements to litigate upon the same footing.”

The conservative majority in AT&T v. Concepcion rewrote the FAA to favor business-friendly arbitration over litigation, and prevent states from protecting consumers.

For more on the Roberts Court's history of overreaching, download AFJ's special report: How the Corporate Court Bends the Law to Favor the 1%.

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Disappearing Cases

Guest post by Paul Bland

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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Paul Bland Jr. is a senior attorney at Public Justice. He is 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 20 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 six different states. He is currently handling or assisting with appeals before the U.S. Court of Appeals for the Eleventh Circuit; the California, Florida, Kentucky and Nevada Supreme Courts; and the Maryland Court of Appeals. 

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Worst Decisions: A Tie for #1 - AT&T Mobility v. Concepcion

AFJ is counting down the 10 worst decisions of the Corporate Court's 2010-11 term. Yesterday, we looked at one of the two worst, Wal-Mart v. Dukes, which allows corporations to discriminate as long as they do so on an enormous scale

In our tie for the #1 slot, this case has profound ramifications for the millions of Americans who have to sign contracts to get a job, or to buy a product or service.

Worst Decisions of the 2010-11 Corporate Court Term: #1 (tie) AT&T Mobility v. Concepcion
Giving Corporations a License to Steal

In a 5-4 vote, the Corporate Court majority enacted sweeping protections for corporate wrongdoers. Consumers could once band together to access justice in court when defrauded by corporations.  After AT&T, each consumer will likely be forced to fight it out alone before a private arbitrator chosen by the company that cheated them. This divide-and-conquer strategy is favored by corporate scofflaws because they know isolated cases are often not worth bringing at all. A company may have reaped millions in ill-gotten gains, but what consumer would sue to regain damages like the $30.22 unlawfully charged to the Concepcións and other consumers in this case?

The majority achieved this radical result by transforming the 1925 Federal Arbitration
Act (FAA), which was enacted to protect arbitration among corporate equals, into one of big business’s most powerful shields against accountability. To activate the shield, corporate lawyers need only draft contracts that people must sign if they want to buy a product or service or get a job and which force consumers and employees into binding one-on-one arbitration when a dispute arises.

By re-writing an 86-year-old federal statute, five justices enabled AT&T to reap millions by advertising “free” cell phones to lure customers, unlawfully charging them a $30 sales tax, and hiding clauses in the service contract that forced consumers to waive their right to join a lawsuit with others defrauded in the same scheme.

California’s Supreme Court considered such adhesion contracts to be unconscionable, and struck them down. But where California judges saw injustice for consumers, the five conservative justices of the Corporate Court saw only burdens on corporate defendants.  Corporations will now be able to decide on their own which civil rights and consumer protections they want to obey, knowing that there will be no effective means available to their victims to obtain redress.

AT&T v. Concepción is tied for number one on AFJ’s Worst Decisions of the 2010-11 Corporate Court Term because nearly every aspect of Americans’ everyday lives is controlled by contracts that individuals must sign to get a job, or buy a product or service. After AT&T, these “license to steal” clauses will almost certainly appear with greater frequency.

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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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Senate Judiciary Committee Hears Testimony on Supreme Court’s Corporate Slant

Today, the Senate Judiciary Committee held a hearing on the Supreme Court’s ongoing pattern of putting the financial interests of corporate litigants above the rights of everyday Americans.

Chairman Leahy called the hearing to focus on three decisions from the recently-completed Court term: Wal-Mart v. Dukes, AT&T Mobility v. Concepción, and Janus Capital Group v. First Derivative Traders. These cases are representative of how, as Chairman Leahy described it, “the most business-friendly Supreme Court in the last 75 years” is eroding the legal protections American consumers and employees rely on, particularly in tough economic times.

Among the witnesses was Betty Dukes of Pittsburg, CA, a seventeen year veteran employee of Wal-Mart and lead plaintiff in the gender discrimination case broken up by the Court last week. Dukes remains upbeat in her hope that, even without the ability to fight Wal-Mart as a unified class, women subjected to the retail giant’s discriminatory culture and practices will one day obtain justice. However, she testified that many women will give up because it’s too hard to fight the company alone, and especially difficult to fight one’s own employer.

Professor Melissa Hart of the University of Colorado Law School testified to the common threads between the Wal-Mart and AT&T decisions. In both cases, the same five-vote majority of the Supreme Court interpreted procedural rules in ways completely different from their original meaning and with hostility to the class action device. As a result, no court has reached or will be likely to reach the substance of the claims made in those cases. Questioned by Senator Franken, Professor Hart stated that the Court’s interpretation of the Federal Arbitration Act of 1925 was inconsistent with its legislative history and purpose, and that allowing corporations to write class action bans into fine print contracts incentivizes small-dollar rip-offs of hundreds of thousands of hard working people. Franken has introduced the Arbitration Fairness Act in response to AT&T, which would amend the FAA and limit binding mandatory arbitration.

Senator Franken also took to task witness Andrew Pincus, the attorney who represented AT&T before the Supreme Court. Pincus, a partner at corporate defense giant Mayer Brown LLP, wrote in the New York Times and suggested in his opening statement that only plaintiffs’ attorneys looking to rack up huge fees would be hurt by the Court’s ruling. Franken noted that the average partner at Mayer Brown is paid over $1 million per year; Pincus, he said, is in no position to criticize others for a possible financial interest in the workings of the legal system.

Professor James Cox of Duke University School of Law testified on the likely fallout in the financial industry from the Court’s decision in Janus. The narrow and inapt definition adopted by the Court of who can “make” a false or misleading statement will greatly restrict the power of investors to recover damages and enforce anti-fraud laws. Only the Securities Exchange Commission will be able to go after many offenders, and even then there may now be loopholes. But the SEC, Cox explained, has only investigated, much less taken enforcement action, in 17% of resolved securities fraud cases, and it has been hesitant to take action against the biggest Wall Street firms. Connecting back to Wal-Mart, Senator Franken observed that the Equal Employment Opportunity Commission, the government body charged with pursuing workplace discrimination claims and to which many of Dukes’s colleagues may now have to turn, has a backlog of 80,000 claims to hear.

Senator Whitehouse observed that the procedural hurdles, arcane rules, and cramped statutory interpretations that characterize recent Supreme Court decisions might be summed up in two words: “corporation wins.” In closing, he extolled the role of jury in our constitutional design, and lamented the Court’s “steady addition of trouble, toils, and snares” between everyday Americans and their right to have their cases heard by their peers.

For complete analysis of how big business has fared before the Supreme Court, see AFJ's Corporate Court webpage.

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The Supreme Court's New Bank Bailout: Too Slippery to be Accountable

Faster than a TARP "stress test,” and maybe even more valuable, the Supreme Court’s latest handout to big business already has corporate defense attorneys scrambling to cash in for the lending industry. Banks, payday lenders, and others are now getting an unexpected bonus from the arbitration terms they’ve routinely slipped into consumer loan contracts for years: a bailout from paying back large groups of customers they’ve scammed.

While arbitration clauses have been part of the corporate defense strategy for some time, a California law kept judge and jury available to the state’s consumers in the form of a class action. Lenders couldn’t walk away from their biggest rip-offs. But in AT&T Mobility v. Concepción the Supreme Court invalidated that law based on the 1925 Federal Arbitration Act, a statute taken woefully out of time and context.

As The American Lawyer reports, within two weeks of the Supreme Court’s decision in Concepción high-priced litigation firms across the country rushed to the courthouse to “alert” judges about the ruling, or, perhaps more accurately, cash the check bearing Justice Scalia’s signature.

Dozens of class actions were in progress against banks and lenders when the decision came down. Even though the companies hadn’t tried to force these groups of customers into arbitration before, their lawyers now argue that the Supreme Court has given them a chance to wipe the slate clean.

In the pending cases, lawyers for the customers will argue the lenders have waited too long to try to force arbitration. In the next case, though, and the case after that, lenders will get off scot-free as the fine print on credit cards, home loans, payday advances, and most other consumer financial services swallows up the last real opportunity for everyday Americans to keep the industry accountable when it cheats them out of hard earned money.

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The Need for the Arbitration Fairness Act

Last month's Supreme Court decision in AT&T Mobility v. Concepcion was a major victory for big corporations facing class-action suits. More than that, it was a staggering blow to consumer, employment, and civil rights. Because of the Corporate Court's decision, corporations now feel free to force individuals into contracts where the individual relinquishes his or her right to pursue justice in the courts.

An editorial in the L.A. Times argues that Congress has an obligation to step in and protect consumers, employees, and anyone who hopes to hold corporations accountable for their misdeeds.

Underlying this legal debate about the interplay of state and federal law is a real-world concern: that consumers not be exploited by vastly more powerful merchants. Class actions allow injured consumers in California and other states who might not bring an action on their own to combine their claims and receive greater damages. (Opponents of class actions say the principal beneficiaries of such lawsuits are lawyers.)

With its narrow reading of the federal arbitration act, the court has put such remedies out of reach for many consumers. Fortunately, Congress can overrule the decision by amending the act to allow states to declare some arbitration agreements unconscionable.

Senators Al Franken (D-MN) and Richard Blumenthal (D-CT), along with Congressman Hank Johnson (D-GA) have introduced the Arbitration Fairness Act, which would eliminate forced arbitration clauses in employment, consumer, and civil rights cases, restoring one of an individual's most powerful tools when squaring off against a corporation in the courtroom.

Click here for the rest of the L.A. Times editorial.

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New York Times: "A Devastating Blow to Consumer Rights"

Today's New York Times editorial summarizes the blatantly pro-business decision in the Supreme Court case of AT&T Mobility v. Concepcion, and takes a hard stand against the blatant corporate bias on the Roberts Court.

Calling it "a devastating blow to consumer rights," the editorial rightly described the Corporate Court's decision "a dramatic example of judicial activism."

In his dissent, Justice Stephen Breyer highlights the damage to consumers: “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?” And he made clear that many rational couples would not press their own case for that amount if it meant “filling out many forms that require technical legal knowledge or waiting at great length while a call is placed on hold.”

We have already seen fallout from this decision, as corporations have moved to have class-action cases dismissed and forced into one-on-one arbitration. Citizens are being told that they gave up their right to have fair access to our courts when they purchased a product, or signed terms of service for some software, and the courts are now bound to agree.

The Times editorial concludes:

Unless Congress fixes the problem, the Supreme Court’s decision will bar many Americans from enforcing their rights in court and, in many cases like this one, bar them from enforcing rights at all.

Click here to read the full editorial.

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Constitutional Scholar Chemerinsky Slams Corporate Court’s AT&T Mobility v. Concepcion Decision

Erwin Chemerinsky, constitutional scholar and dean of the law school at UC Irvine, slammed the Supreme Court’s decision in AT&T Mobility v. Concepcion and its recent history of pro-corporate bias in a Los Angeles Times op-ed. Chemerinsky called AT&T Mobility “part of a disturbing trend of the five most conservative justices closing the courthouse doors to injured individuals.” Chemerinsky offered the following critique of the decision:

The high court's decision is particularly troubling because it is based on the Federal Arbitration Act, which states that contracts providing for arbitration are to be enforced except where state law deems them to be unenforceable. The California courts consistently have found that the arbitration clauses that preclude class-action remedies are unenforceable. The Supreme Court ignored this and explicitly said that it was important to protect defendants, such as corporations, from the in terrorem (“in fear”) effects of class action that pressure them into settlements. The court's conservative majority could not have been clearer that it was favoring businesses over consumers.

Chemerinsky placed the case in the context, calling AT&T Mobility “the third decision in the last three years in which the high court has found that arbitration agreements should be broadly read to prevent injured individuals from going to court.” He noted that all three were 5-4 decisions in which the Court’s conservative majority voted to shut the courtroom doors on everyday Americans.

Chemerinsky concluded by describing the long-term effects of the Court’s decisions.

The notion that an injured person has a right to his or her day in court is deeply ingrained in American culture. But the proliferation of arbitration agreements, and the Supreme Court's aggressive enforcement of them, means that it is increasingly a myth that an injured person can sue.

Click here more information on AT&T Mobility v. Concepcion and AFJ’s special report on the case.

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Corporations Rush to Kill Consumer Rights Following AT&T v. Concepcion Decision

Only three weeks have passed since the Supreme Court’s decision in AT&T Mobility v. Concepcion gave corporations a license to steal from the public.

As American Lawyer (subscription required) reports, that has proven to be plenty of time for corporations to rush to court and use the decision as a basis for throwing out lawsuits by consumers who claim that the corporations cheated them out of money.

In AT&T Mobility, the Supreme Court handed corporations a sweeping legal victory by allowing them to write clauses into the fine print of contracts that force consumers to give up their right to enter into class arbitration or litigation.

Arbitrating or suing as a class is essential to holding corporations accountable for wrongdoing because few people will arbitrate or sue as individuals if the corporation has wrongfully taken from them a relatively small amount of money. As a result, contract clauses that forbid class actions virtually guarantee that a corporation that steals a small amount of money from many people will escape justice.

In one example of AT&T Mobility’s effects, U.S. Bancorp moved in a San Francisco federal court to compel plaintiff consumers to arbitrate a dispute about overdraft fees. Plaintiffs claimed in their lawsuit that U.S. Bancorp wrongfully collected fees after automatically deducting automobile loan payments from checking accounts with insufficient funds. The AT&T Mobility ruling could prevent the plaintiffs’ class action suit from going forward, which would ensure that almost none of them would spend time and resources on individual arbitration.

The new power that the Corporate Court has granted to corporations may also extend to homeowners facing foreclosure. As ProPublica has reported, banks are increasingly writing language into the fine print of contracts that force homeowners to waive their rights to sue or fight foreclosure. The report identified eight banks and other mortgage servicers that target individuals facing foreclosure and include waivers of rights. As borrower attorneys noted in the article, “if a homeowner signs away their right to sue, they might be forfeiting the best leverage they have to get a lasting solution” to their financial difficulties. AT&T Mobility will encourage more banks and mortgage companies to take advantage of people struggling to keep their homes by using fine print to strip them of their legal rights.

The first three weeks under the Corporate Court’s AT&T Mobility regime demonstrate that the repercussions for everyday Americans are likely to be devastating for years to come if Congress fails to undo the decision and restore the balance of power between individuals and corporations.

Click here more information on AT&T Mobility v. Concepcion and AFJ’s special report on the case.

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