Arbitration Clauses: The Slow Silent Death of Equal Justice Under Law

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Arbitration Clauses: The Slow Silent Death of Equal Justice Under Law

Over the lintel of the U.S. Supreme Court are these words: Equal Just Under Law. That’s the cherished hope and the dream of a fair and impartial judicial system, namely, that blind lady holding the scales of justice. Yet, those hopes and dreams are more frequently stillborn because of arbitration clauses buried in contracts for a myriad of services and products. The average consumer, blindly signing the form contract and never reading the fine print, does not know that by doing so, he or she has just signed away their constitutional right to a jury trial on significant issues.  They also do not know that courts—banned from the administration of justice by the contract forced on the consumer by the seller—are powerless to do anything about it later.

Arbitration clauses are simple, like arsenic. And just as deadly. They started obscurely, in 1925, in the Federal Arbitration Act, a law designed to apply only to businesses. Unfortunately, crafty corporate lawyers and greedy companies have found ways to expand the use of arbitration clauses. They now can be found in employment contracts, nursing home contracts, OB-GYN office contracts, many consumer purchase contracts, and private school contracts. The list is endless, and no contract seems immune.

The clause usually says that the parties to the contract agree to resolved any and all disputes arising out of the contract by arbitration. And it is usually deep in the fine print. Moreover, even if you saw the clause and had some inkling of what it really meant, your only real option is to not sign the contract. But what if you desperately need the job?  What if the nursing home that has about killed grandmother says they will not continue treatment unless you sign the arbitration clause it just faxed over to you?

And therein lies the rub.  Arbitration and its cousin, mediation, can be helpful tools if both parties have equal bargaining power and if both honestly and truly and voluntarily want to be at the arbitration table. But coerced arbitration, and that is what exists mostly in the U.S. now, is antithetical to those ideals. They are coerced. They are not bargained. They are often hidden. And they are surely not voluntary.

Why did arbitration clause grow in use? They grew because corporations want to stop consumers from suing them. They wanted to get beyond the reach of the jury, which is the great leveler between you and corporate America.

How were the clauses sold to us in the first place? Basically, we were lied to. Arbitration touts many alleged benefits. It is supposed to be cheaper. It is supposed to be faster and less cumbersome than court cases. It is secret, thus allowing parties to settle their disputes privately.  The arbitrator is a neutral party. You can do it without an attorney. Of course, most were not sold to us at all, but merely inserted in your contract when you were not looking. And, all turned out, in the main, to be generally untrue.

Did the benefits really pan out? Absolutely not. Large corporations still use attorneys in arbitration. They are masters at delay. So, arbitration cases can drag on for years. The secrecy did not help, as corporations used it to divide and conquer individual claimants, and to hide how the cases were decided. They hid precedent, basically. The lack of discovery and subpoena power hurts those with less money and legal skills. The arbitrators are often beholden to the companies for work, they are not neutral, and they are not bound by any rules of evidence or law.  And as to cost, that too was a pipe dream.  Arbitrations can cost many times over the amount you are disputing.   No one spends $5,000 over a $500 claim. The end result: the corporation keeps your $500 and you are out of court.

What about this neutrality thing? Arbitrators are supposed to be neutral. They are often not. They work time and again for the same corporations or the same mediator firms or the same law firms, usually the ones who represent corporate America. If they rule too often in favor of the consumer, they will not be hired again.

So, how then does the arbitrator decide the case? Any way they want. They do not even have to provide a reason. They can simply rule in one party’s favor and name an amount. They do not have to apply the law, although they are supposed to do so. They can decide the case any way they see fit.  They can also hold you responsible for letting yourself be ripped off. They can apply the law, some law, part of the law, or none of the law. They can go by “gut feel.” They can use their defaults, which may be giving you 20 percent or less of your claim if you have clearly proven your case.

Arbitrators may apply the “sophisticated user” defense to blame you for your own loss. One awful defense thrown up by companies is that you are a sophisticated user. You should have caught us robbing you. You are smart and sophisticated enough to have caught us early, before we robbed you blind. Thus, it is your fault. Amazing. But used often.

Arbitrators often split the baby. Remember Solomon and the baby? In reality, he did not split the baby. He only threatened to do so, to expose the real mom. When arbitrators split the baby, usually giving the consumer a much smaller award and thus keep the company happy, he or she has done substantial injustice. Five percent justice is not justice at all.

Arbitrators become used to the bad conduct they see. Juries, by and large, tend to be outraged at thieving fraudulent conduct, especially when it is done over and over again. They punish such behavior. Arbitrators, on the other hand, have seen the conduct over and over again, from the corporations they are hired by, and just are not outraged at it. Conduct that would certainly draw a punitive damages award from a jury are decided as if this was the company first time ripping you off, not its 500th time.

What if the result is contrary to law and wrong? As Justice Elena Kagan has said in a recent dissent, “Too darn bad.” You cannot appeal except in the rarest of circumstances. Thus, most attempts to appeal are dismissed, often by judges who hate what the law commands them to do, but who are bound by that law.

Can it get any worse? Oh yes, some consumers who went to arbitration found themselves stuck with large attorney fee awards. Yes, the arbitrator can order you to pay the $52,000 in attorney’s fees that the corporation ran up in defending your $500 claim.

For specific examples of just how bad, see

Arbitration Everywhere: Stacking the Deck of Justice, and

“In Arbitration, A Privatization of the Justice System,”

And, yes, it is getting much worse. More recently, corporations have expanded their use of arbitration clauses to ban class actions. In other words, consumers with small injuries or small losses can no longer band together and seek redress from the company.   In other other words, companies can steal $10 or $20 from you, and you can do nothing about it.  And if they steal from enough consumers, they end up stealing billions. Courts find themselves dismissing more and more class actions because of the no class action bans.    And for the same reasons that they can do nothing about arbitration clauses.

So, what can I do? Go to the one place you are not powerless—go to your state and federal legislators.  Speak out about the growing erosion of the Constitution, and the right to trial by jury especially. Ask them pass laws that prevent you from waving a claim or cause of action before that claim or cause of action accrues in the first place. Ask them to protect the right to a jury trial.  And to limit the reach and expansion of arbitration clauses that were designed in 1925 to apply only to businesses. You have rights. Exercise them. Become part of various groups that are opposing the use and expansion of arbitration clauses and class action bans.

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