The Wall Street Journal: Big Companies Are the Victim Because Consumers Want to Enforce their Rights.

May 09, 2012

The Wall Street Journal’s May 4 Opinion page brought me some pause.  Not for its crafty wordplay (indeed, the “plaintiffs lobby” was a pretty clever way to portray plaintiffs’ attorneys some kind of back-room, self-interested, policy-buying dealmakers, and somehow the WSJ has managed to turn “tort” into another type of four-letter word), but for the dishonest way in which it portrayed mandatory binding arbitration as helpful to both consumers and large corporations.

In “The Tort Bar Bureau” piece, the WSJ argues that mandatory binding arbitration clauses, which effectively close the courthouse doors to consumers and force them to submit to a dispute resolution process that gives them few, if any, of the protections afforded by our legal system, provide consumers with “cost-effective and quick justice” and “benefit” consumers, as well as companies.

But such an opinion clearly ignores the reality of what it means to be a consumer.  While arbitration may provide a speedy dispute resolution process in some instances (such as between two businesses or parties of similar size with similar resources), it is patently unfair and one-sided when David the Consumer goes up against Goliath the Large Corporation.

In a world dominated by online click-wrap agreements, lengthy cell phone service contracts, and cable contracts you agree to just by watching your television, recent polling shows that, when it comes to contracts, almost two-thirds of consumers fail to read them.  And when it comes to mandatory binding arbitration clauses, most consumers fail to understand them: over three quarters of consumers polled believe that they can still sue a company if they have a dispute, and nearly two-thirds have absolutely no recollection of seeing anything about arbitration in those contracts.

Some may argue that our legal system puts the onus on consumers to read and understand agreements they enter into (or not enter into them at all).  Touché.  But consider this: large companies, not individual consumers, are repeat players when it comes to arbitration and often times select (and pay!) the arbitrator.  Even if a customer suspects bias in the arbitration process, the standard of review for an arbitration award is extremely narrow (that is, if you are a consumer, you’re most likely stuck with the arbitrator’s decision).

This, of course, isn’t even taking into account the fact that consumers may have to travel to a far-away place to arbitrate their individual claim and pay their own arbitration costs, or that most arbitration awards are confidential – and have absolutely no precedential value guiding the company’s future conduct.

But what makes arbitration so unfair is that it essentially allows individuals and companies to evade liability if they successfully defraud each and every one of their customers for a relatively small amount individually, but that when put together would amount to millions.

Unfortunately, however, the Supreme Court’s decision in the AT&T Mobility v. Concepcion case allows corporations to ban class actions, both in court and in arbitration. So where an individual suffers at $30 injury, she has to bring her claim in arbitration.  The time it would take a consumer to prepare her “case” for arbitration, combined with the cost, would far exceed the potential $30 in recovery.  Consequently, there is little incentive to arbitrate. As a result, low-cost frauds go unchallenged and unnoticed, and companies reap the rewards of crafty in-house legal departments to improve their bottom lines.

The WSJ seems to take the side that such an alleged pervasive fraud is tolerable.  As the WSJ explains, the company would be victimized if consumers got together to enforce their rights: “The tort bar would love to see every dispute settled by class actions, which give them enormous leverages over companies to settle rather than endure the costs of going to court.”  Whether or not this is what the “tort bar” actually wants,[1] one thing is for certain: the WSJ wants corporations to be able to evade their liability to you – the consumer – when it cheats you, and your fellow consumers, out of your hard-earned money.

 


[1] I can assure you – it is not.  Far too many court decisions have chided counsel for bringing frivolous lawsuits, and attorneys are bound by ethical and procedural rules that prohibit this type of conduct.

Photo Credit: Kevin Dooley

 


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