November 2nd, 2015|
Over the last few years, almost every agreement you have entered into for a cell phone, Internet service, credit cards, mortgage, nursing home, home purchase or online sale, contains an “arbitration clause.” This means that if you have a dispute over the agreement, the product or service, you are barred from going to a court of law to settle the dispute. You are required to give up your constitutional right to a jury trial and instead, an “Arbitrator,” usually chosen by the other side, will decide your fate. Class action lawsuits, generally the only way ordinary citizens can take on a corporation with enormous wealth and power, have been virtually eliminated in most states because of the “arbitration clause.” Lawsuits brought against cable companies over strange and unexplained fees that randomly appeared on bills, a travel booking website who engaged in hotel room price fixing schemes, extensive sex and race discrimination cases in the workplace, all thrown out of court because of the “arbitration clause” in the sales or employment agreement. By inserting the arbitration clause into a consumer sales agreement, the corporation is making it nearly impossible for a customer to challenge predatory lending, discrimination, price fixing and outright theft. William G. Young, a federal judge in Boston recently said in a New York Times investigation into arbitration clauses, “Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”
Our Constitution and decades of legal decisions made it possible for ordinary citizens to bring their grievances against giant corporations, or the more powerful and better financed, into a courtroom and allow a jury to decide the merits of the case. Now, the U.S. Supreme Court has conferred upon corporate America the right to ban class actions in all contracts. So if a too big to fail bank dupes millions of customers into buying insurance they are not eligible to use, resulting in billions in profit from such fees, the bank is fully insulated from a lawsuit by its millions of customers, or even from a single customer. The New York Times investigation found that of the 1,179 class actions that companies successfully pushed into arbitration, judges ruled in their favor 4 out of 5 times. The Arbitrator/judge is selected by the company and the deck is stacked against the customer. In most cases, the customer just drops the claim because of the cost involved. The Times investigation also learned that law enforcement has lost an essential tool for uncovering patterns of corporate abuse. Attorneys General in 16 states sent a letter to the Consumer Financial Protection Bureau warning of “unlawful business practices” that could flourish with the proliferation of class action bans and arbitration clauses. Even individual cases like the wrongful death of a child or nursing home abuse are being decided in a corporate conference room. This dramatic shift away from the civil justice system and into the secrecy of a conference room is mostly unknown to the public. F. Paul Bland, Jr., the executive director of Public Justice, a national consumer advocacy group, says this shift is attributable to the multiple clauses placed in a contract that no one reads. It strips people of their constitutional right to go to court. “Imagine the reaction if you took away people’s Second Amendment right to own a gun.”
The U.S. Supreme Court has warmly embraced the idea that arbitration clauses could outlaw class actions even if the class action was the only way to bring a case. This position effectively deprives victims of all legal recourse. Take Sprint for instance. Sprint has 57 million customers. They faced only 6 arbitrations from 2010 to 2014. Sprint customers were finding their monthly bills contained roaming charges were incurred while in their homes. The Sprint contract called for Arbitration. The case was dropped by the customers due to the costs involved and Sprint walked away with huge fees from the home roaming charges.
Few industries saw the value of the arbitration clause like financial firms. The Times investigation highlighted a series of lawsuits starting in 2009 which exposed an accounting scheme that more than a dozen banks were employing on debit cards they issued. The banks would change the order of transactions on a debit card, increasing the number of times they could charge overdraft fees, usually $35 each. The banks settled the case for more than $1 billion. Since then, 7 of the banks have added an arbitration clause. Since the 2008 financial meltdown caused by the financial services industry, revenue from all manner of obscure fees has become crucial to the bottom line. Now most if not all such disputes must be resolved by an arbitrator behind a closed door. Most large chain employers include in their employment contracts an arbitration clause that must be signed before employment. This prevents courts from hearing cases involving unfair labor practices, violations of minimum wage laws and discriminatory practices. Even N.F.L. cheerleaders have arbitration clauses in their contracts. The contract cheerleaders for the Oakland Raiders were required to sign mandates all disputes be arbitrated. And the arbitrator? None other than Roger Goodell, the N.F.L. commissioner. In some instances, the clause is nothing more than a joke to the employer. Many arbitrators will quietly admit the system makes it difficult to remain unbiased. Arbitrators interviewed by the Times said pressure to rule for the companies that give them business was real. Some companies go so far as to specify that all arbitrations will be handled by one firm. Anthony Kline, a California appeals court judge said, “This is a business and arbitrators have an economic reason to decide in favor of the repeat players.” Cliff Palefsky, a San Francisco lawyer who advocates for fairness standards in arbitration, says, “Once it’s forced, it is corrupted.”
Some find arbitration useful. It can be efficient, expedient and economically beneficial to both sides if done properly. And by properly I mean fairly, without a company shill as the sole arbitrator. A panel of three lawyers, one selected by either side and the neutral third agreed upon by the two appointed by each party. The Civil Rules, the Rules of Evidence and laws and precedent related to the topic apply. Facts and legal arguments are actually controlling. Just like in a courtroom. But the type of arbitration called for by almost all clauses bears very little resemblance to a courtroom. It is an alternative “justice” system where “justice” is often one sided. The Times investigation described a forced arbitration brought by a female ER doctor against a medical group that fired her. She had excellent evaluations and evidence that the practice had a pattern of denying women partnerships. When she arrived for the arbitration, she saw the arbitrator having a friendly conversation with the head of the medical group she was suing. During the arbitration, it became clear the practice withheld crucial evidence, destroyed audiotapes and a doctor changed testimony she had given, claiming her male colleagues had “clarified” her memory. The decision in favor of the practice contained multiple paragraphs directly from the medical practice’s arbitration briefs and required the ER doctor to pay legal fees of over $50,000.00, although the arbitrator did fine the practice $1,000.00 for failing to turn over documents – the cost of arriving at that particular decision was billed to the ER doctor at $2,000.00. Imagine what a fair minded jury would have done with that case. Would the specter of a trial judge and ultimately a jury have prevented the destruction of evidence and withholding of documents?
In a courthouse, either party has the right to an appeal. In the arbitration system, it is binding. Some organizations even take their disputes to Christian arbitration. The proceedings incorporate prayer and arbitrators like Peacemaker Ministries can consider scripture in arriving at a determination. One stunning example highlighted by the Times investigation sums it all up. A woman enrolled in a surgical technician program at Lamson College near Phoenix, a for profit college. The program cost $24,000.00 per year. The program’s enrollment officer had promised her she would easily find a job after graduation. When the student graduated, she could not find an internship or job. She began volunteering at Maricopa County Hospital where a surgical technician told her most hospitals refused to hire Lamson students because they are so poorly trained. Not long thereafter, Lamson shut down its program when it was unable to place enough students in internships. Two years after graduation, several students filed a lawsuit against the school and its owner, Delta Career Education Corporation, accusing them of fraud. The case was dismissed due to the arbitration clause in the enrollment agreements. Before the arbitration was conducted, the attorney general of Arizona had sued another Delta school for defrauding students in a criminal justice program. A federal class action lawsuit in Michigan had accused Delta of defrauding student out of millions in student loans. Delta ultimately settled both suits for more than $8 million. The arbitration in the Phoenix case was arbitrated by a lawyer who authored articles on how to limit one’s liability and avoid being sued. During the arbitration, the school’s head of admissions gave damning testimony about the pressure to increase enrollment so that almost everyone who applied got in, acknowledged overpromising on jobs and that, in reality, the placement rate was 20%. Teachers were instructed on “student retention.” Two teachers testified they were instructed not to flunk anyone, including students who failed to come to class because it would affect federal reimbursements. One teacher testified on behalf of the school saying that she warned the school that having too many students would dilute the quality of training, flood the job market and make the degree worthless. The school had only two witnesses testifying on its behalf, including the teacher who warned about the worthless nature of the degree. The arbitrator found in favor of the school, praising the for profit education system. He agreed the school engaged in “puffery” during the enrollment process but that the adult students should have been able to recognize it as puffery. He also directed the students who participated in the arbitration to pay $354,210.77 in legal fees to Delta for the “hardship” the students had inflicted on Delta and the school.
The use of arbitration has crept into nearly every aspect of American life, from having a baby, going to school, getting a job, buying a house, medical care and cemeteries. It has often served to erode justice and keep secret harmful and sometimes illegal behavior, protecting those whose conduct should be punished and punishing those who are true victims.