Hope Springs Eternal: Senators Franken and Blumenthal and Representative Johnson Combat AT&T v. Concepcion

May 20, 2011

Shortly after Supreme Court ruling in AT&T v. Concepcion was released, many consumer advocate attorneys (and even professors) claimed that the ruling was “the end of class action litigation.”  While some groups have already come forward in attempting to distinguish the Supreme Court case from other scenarios likely playing out in state and federal courts around the Nation, Senators Al Franken (D-Minn.) and Richard Blumenthal (D-Conn.), together with Representative Hank Johnson (D-Ga.) announced that they will be introducing legislation to “restore consumers’ rights to seek justice in the courts.”

Senator Franken announced his bill (S. 987, and House counterpart H.R. 1873), providing the following commentary:

Workers and consumers should never be forced to give up their rights to get hired for a job, or to get a cell phone. . . .  I’ve introduced the Arbitration Fairness Act to ensure that workers and consumers have the right to choose arbitration over litigation, instead of being forced into it by corporations.

The bill, fist introduced in 2007, would ban forced arbitration clauses in employment, consumer, and civil rights cases.

Senator Franken has been an outspoken opponent of mandatory arbitration in the past, stating that past court decisions involving mandatory arbitration have denied individuals their “precious day in court.”

The Concepcion opinion, authored by Justice Scalia, seemingly ignored federalism precedent by finding that California’s Discover Bank Rule, Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005), was preempted by the Federal Arbitration Act.  Concepcion, 130 S. Ct. 1740, 179 L. Ed. 742, 753-54 (Apr. 27, 2011).  Then, relying on a factual record that was woefully inadequate, he cited to the district court’s admission that the plaintiffs might have been “better off under their arbitration agreement with AT&T than they would have been as participants in a class action, which could take months, if not years, and which may merely yield an opportunity to submit to a claim for recovery of a small percentage of a few dollars.”  Id. at 758-59.

The reason why attorneys (like myself) and lawmakers (like Mr. Franken) emphasize that one’s day in court is “precious” (be it individually or represented by a named plaintiff in a class action) is because very few individuals are actually “better off” using binding mandatory arbitration.

Why?

For starters, most consumers do not even know they have binding arbitration clauses contained in agreements they have with companies.  In a report that was published in September 2009, Public Citizen estimated that, while 75 percent of the companies they surveyed instituted mandatory binding arbitration in its contracts with consumers, 79 percent of consumers expected that they could sue a company if they had a dispute, and 64 percent had “no recollection of seeing anything about arbitration in the terms of agreement for goods and services.”  Consumers are likely unaware that they have agreed to arbitration because the terms are purposefully tucked in paragraphs of fine print, provided in a form contained within a stack of forms, and not clearly discernable. Worse, many compnies, don’t start off with arbitration agreements, but send the clauses to consumers at some random point with their bills along with other extraneous information that usually finds its way to the recycling bin.  Little do the consumers know that, by continuing to accept the services from the company, cable TV for example, they are deemed to be “agreeing” to arbitration, a factual and legal fiction if there ever was one.

Second, arbitration often times requires plaintiffs to travel to a forum selected by the corporation, which may not only be inconvenient for the plaintiff, but also prohibitively expensive to get to.  Seee.g.Nascone v. Spudnuts, Inc., 735 F.2d 763, 765 (3d Cir. 1984) (holding that the language “venue for any proceeding . . . shall be Salt Lake County, State of Utah,” constituted a mandatory forum selection clause); Milk N’ More, Inc. v. Beavert, 963 F.2d 1342, 1345-46 (10th Cir. 1992) (holding that the language “venue shall be proper under this agreement in Johnson County, Kansas” constituted a mandatory forum selection clause).

Third, businesses – not the consumers – are “repeat players” in arbitration, and some claim that because arbitrators are dependent on the goodwill of repeat litigants, they may create rules that, “though neutral when taken at face value, may favor creditors.”

Fourth, arbitration is costly, and if the amount in dispute is low enough (take, for example, the $30 at dispute in Concepcion), consumers will have little incentive to submit to arbitration.   In this context, who is better off, a consumer who has to submit to an arbitration proceeding that costs more than he or she can possibly recover, or one who garners some recovery by benefitting from a class action?  The answer is obvious.

By the same token, because the cost of arbitration is so prohibitive, even if the stakes are high the consumer may not be able to afford it:

A claimant must pay steep filing fees just to initiate a case—seldom less than $750. These fees do not cover the arbitrator’s hourly charges, which are generally in the range of $200 to $300 per hour, split between the parties. All these fees must be deposited in advance, and almost always amount to thousands of dollars. Because the claimant has usually sustained a serious loss in the dispute with the business—foreclosure on a home, firing from a job, termination of a franchise or dealership—most individuals covered by an arbitration clause cannot afford these costs and are forced to drop their cases.

The observations of unfairness do not end there: most arbitration is confidential and has no precedental value guiding the company’s future conduct, the standards for successfully appealing an adverse arbitration decision are incredibly difficult, plaintiffs submitting to arbitration have limited remedies available to them (for example, they cannot obtain an injunction or receive punitive damages), and have no “discovery” process to allow plaintiffs to gather documents to support their claims.

In short, the notion that consumers are “better off” with mandatory arbitration, as the majority of the Supreme Court seems to believe, has no basis in reality.  As the sponsors of S. 987 and H.R. 1873 clearly recognize, the only ones who are better off are giant corporations, who have now been enabled to get away with more shenanigans, with no practical redress for consumers.

Photo credit: Rachel Lewis

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