Corporate Paid Umpires?

Jan 16, 2014

The L.A. Times has an editorial today on a subject I've spoken about before – arbitration. It opens with a “what if” - what if the L.A.

Dodgers have “just won the pennant and are going to play the New York Yankees in the World Series. But the rules have changed: All games will be played in Yankee Stadium. And, there are new umpires, hired and paid for by the Yankees.” The opening concludes with the observation that 'with rules like that, the Dodgers wouldn't stand much of a chance.'

As I've explained before, arbitration is a legal process to resolve disputes between parties without using the court system. Provisions for arbitration are usually contained in a contract between two parties.

Those contract provisions set out the rules for the arbitration, including how an arbitrator will be chosen, which of the parties will pay for the arbitration services, and where the arbitration proceeding will take place. Originally enacted in the 1920's, the Federal Arbitration Act was a means to enforce arbitration provisions in contracts between large corporations - parties roughly on equal footing, with the business and legal expertise to knowingly waive the right to take disputes to court.

Arbitration isn't just for corporate equals any more. Arbitration provisions are now so common in consumer contracts, you would be hard pressed to find a single consumer, whether they know it or not, who is not subject to a mandatory arbitration clause in a consumer contract. If you have ever purchased or rented a cell phone, a car, or a computer, or have a credit card or bank account, you likely have unknowingly waived your right to take to court a dispute about that product, a service or a fee, and agreed to mandatory binding arbitration.

The U.S. Supreme Court, over the last few years, has repeatedly declined to void consumer contract arbitration provisions and uphold an individual's right, under the 7th Amendment, to have civil disputes decided by a jury. Last year the Court again sided with corporations, leaving consumers with no recourse, prohibiting consumers from using class action arbitration, and thereby giving corporations an arbitration free pass – no accountability, unless someone is willing to spend more money than they could ever hope to recover. Denied the ability to join other consumers in a class action, what sane consumer would spend thousands of dollars to regain a bogus $30 fee? Able to collect a bogus

$30 fee from tens of thousands of consumers who have no viable recourse, what corporation wouldn't put arbitration provisions in their contracts?

Montana's efforts to protect consumers from unknowingly waiving their constitutional rights to a civil jury trial through arbitration provisions have been among those rebuked by the U.S. Supreme Court. A Great Falls couple, the Casarottos, had a dispute with a national corporation regarding a franchise agreement. When they sought to have their dispute heard in court, the corporation invoked the arbitration clause in the agreement. The Casarottos argued that Montana's law required that in order to be valid, notice of arbitration clauses needed to be conspicuous, not merely buried in the fine print of the back pages of a contract. Montana's statutes required that notice of arbitration provisions had to be on the first page of a contract, in capital letters and underlined.

Because the required notice was not in the agreement, the Montana Supreme Court voided the arbitration provision and said the Casarottos could pursue their dispute in court. Writing for the Montana Court, Justice Trieweiler said “Presumably, therefore, the Supreme Court would not find it a threat to the policies of the Federal Arbitration Act for a state to require that before arbitration agreements are enforceable, they be entered knowingly. To hold otherwise would be to infer that arbitration is so onerous as a means of dispute resolution that it can only be foisted upon the uninformed. That would be inconsistent with the conclusion that the parties to the contract are free to decide how their disputes should be resolved.” Justice Trieweiler was wrong, the U.S.

Supreme Court upheld the arbitration provision, twice, voiding Montana's protective law.

Now, onerous mandatory, pre-dispute arbitration clauses can be foisted upon the uninformed, and the informed. Consumers are not on equal footing with corporations, and even informed consumers are presented with “take it or leave it” contracts. Corporations get to choose who the arbitrator is and where the arbitration takes place, and the cost of arbitration is often oppressive.

I talked last month about the possibility for some relief from abusive arbitration provisions for consumer contracts. The Consumer Financial Protection Bureau is studying the use of pre-dispute arbitration contract provisions in consumer financial products or services.

But, for any real relief we have to look to Congress. U.S. Sen. Al Franken and U.S. Rep. Hank Johnson have introduced the Arbitration Fairness Act (AFA) [S.878 / H.R.1844] to restore Americans’ rights. The AFA would eliminate forced arbitration in employment, consumer, civil rights, and anti-trust cases. It would reopen the courthouse doors to millions of Americans, replacing umpires beholden to the corporations that feed them with the true umpires provided for by our constitutions – juries and judges.

This is Al Smith for the Montana Trial Lawyers

LA Times, Leveling the legal playing field: Limit forced arbitration,0,3972210.story#ixzz2qVsqsW9y

Consumer Financial Protection Bureau - initial Arbitration Study

Petition to Consumer Financial Protection Bureau -

Take Justice Back - “The Fine Print” -

Arbitration Fairness Act of 2013 (AFA) [S.878] -