Kudos to MSNBC’s Red Tape Chronicles for reporting again on a quiet but important consumer issue.  As the good people at Public Justice explain, the U.S. Court of Appeals reversed a federal court’s dismissal of a claim brought against a who’s who of credit card companies, claiming that they colluded to require subscribers to take to arbitration any dispute with each company. (Public Justice posted a copy of the case, Ross v. B of A in pdf; you’ll find it in the linked post.)

As I’ve noted before, the problem with arbitration clauses isn’t arbitration, as much as the limitations on claims and rights that consumers face in that forum. In credit card cases, for example, a common feature of the arbitration clause is that it prohibits class actions.  When a class action ban is enforced in a credit card case, it gives free license to banks to rip off small amounts from millions of consumers. When a credit card company dings you five dollars illegally, you simply can’t afford to do anything about it by yourself. And if you’re one of five million card holders, congratulations, the bank pulled in $25 million illegally and did so simply by making it impossible for consumers to enforce their rights.

So this case–which is in the early stages–may lead to a re-balancing. After all, if the banks got together to collude in a way that prevented consumers from opting out of arbitration clauses, they should be held to answer.

David Sugerman

Somehow I’m not surprised. But this report summarizes a new study indicating that employers fare better than employees when an arbitration result is challenged in court. The author describes the employees’ chances in arbitration reviews as “snowballing futility.” Nice phrase; horrible condition.

Congress is set to revisit the mandatory arbitration system abuses. Those who benefit from mandatory arbitration describe it as a fair, cheap, fast, less formal dispute resolution system. It’s often more expensive. Sometimes it’s faster, but often not. Whether arbitration is quicker depends on the speed of the various States’ court systems.

But the real lie is that it’s fair. While that is true at times, there is a perception–based on data points like this one–that it’s closer to a ring toss game at a carnival. What looks to be a fair and even chance at taking home that big teddy bear is just an illusion.

David Sugerman

As Congress considers changing rules on mandatory arbitration clauses, here’s an account of how Chamber of Commerce is gearing up to protect business interests. The point that is missing from all this is in the fine print.

Those of us who oppose mandatory arbitration generally do so because of the provisions that you don’t see because they are obscured, much like the dangerous part of the iceberg that lies below the water line.

An agreement to arbitrate by itself isn’t so much of a problem, so long as the parties truly agree. But when the agreement to arbitrate includes common features that strip one party of their rights, it isn’t an agreement that we should tolerate.

What sorts of rights get stripped? Well, in consumer cases the right to recover attorney fees if you prevail. Or the ability to pursue a small claim through a class action, which is the only way anyone can do a small claim. Or the right to a truly neutral third party decision-maker. And affordable arbitration, without expenses and fees that make it impossible to pursue a claim.

It’s easy to see a sound compromise. If the Chamber truly wants mandatory arbitration, it will agree that all the nasty iceberg provisions should be outlawed. As an Oregon trial lawyer, I don’t oppose trying cases in arbitration, so long as that’s what a consumer truly agreed to and–this part is important–so long as consumers rights aren’t stripped away.

David Sugerman

As noted in a marvelous on-line LA Times piece, mandatory arbitration clause abuse has reached a new high. Or is that low?

Peggy Garrity writes about the terrible case of the woman who claimed to have been drugged and raped by her co-workers while employed in Iraq by KBR, the contractor and former Halliburton subsidiary. Read it. And then try to defend the outcome. Here’s the url:

http://www.latimes.com/news/opinion/sunday/commentary/la-oe-garrity3mar03,0,5040973.story

The sad piece is that the judge felt compelled to order arbitration because the contract signed by the woman purported to require arbitration of her claims for sexual harassment and sexual assault. This after the woman was held in isolation in a freight container and after medical evidence obtained by a doctor mysteriously disappeared.

I suppose it’s naive to hope for a Popeye moment (”That’s all I cans stand, ’cause I can’t stands no more”) from a federal judge. But still, that thin hope springs, even for those of us horribly jaundiced by the day to day in the trenches. When the judge couldn’t go so far as to say, “Enough,” in this case, it sent a message to all the corporate interests that push form contract clauses. All bets are officially off when you can “waive” your right to a jury trial in a rape case.

You’ve signed them too, I imagine, as they’re buried in that credit card offer, cable circular, or the employment agreement that you signed. What’s horrifying is that they offer no choices to employees and consumers. You want the job? You surrender your rights. End of story.

If this one isn’t extreme enough for a court to refuse arbitration, we’re in for a hell of a lot of hurt before we get this thing turned around.

David F. Sugerman