So the New York Times has just finished a three-part series on arbitration. For such lengthy coverage, the Times reveals almost nothing that will be new to those who have been following debates over the use of pre-dispute arbitration agreements. But if you haven't been following the issue, the Times series is a good place to start. It highlights some pressing recent issues, such as the use of arbitration to eliminate class action liability, while also touching on issues that often escape attention, such as judicial enforcement of contracts requiring religious arbitration.
Discussions about arbitration can be frustrating. For one thing, it is hard to have them without sending (often unintended) ideological signals. Those who highlight flaws in anti-arbitration arguments–even if simultaneously supporting greater regulation–are often characterized as "defenders" of "forced arbitration," as if the only valid choice is to justify or oppose (rather than investigate) the practice. Meanwhile, lawyers for large business interests have the irritating habit of presenting themselves as defenders of the common good, rather than as zealous advocates for corporate clients.
The attention on arbitration also seems a bit disproportionate, given the nearly-infinite ways that businesses use contracts to extract hidden value from employees and customers: incomprehensible warranty disclaimers, clauses limiting liability for damages, clauses requiring claimants to bring claims in remote and therefore expensive places, etc. Even if competition results in somewhat lower prices, that's cold comfort for those on whom the costs fall most heavily. For all its high-mindedness, the NY Times is no different. Have a legal claim arising out of Times digital products? The Times graciously lets you file a lawsuit, but you'll have to go to New York to do it, wherever you happen to live.*
I assume the NYT timed the series roughly to coincide with the Consumer Financial Protection Bureau's anticipated decision to regulate the use of arbitration clauses in consumer financial contracts. One likely regulation would ban the use of class action waivers. For better or worse, private individual and class action lawsuits have come to occupy a significant place in the U.S. regulatory system. Yet the Supreme Court has gradually interpreted the Federal Arbitration Act to let businesses decide whether they want to participate in this system; many have opted out. This is an extraordinarily consequential development, and political actors should assume responsibility for deciding whether to embrace or reject it. So whatever the CFPB ultimately does, the decision will be noteworthy, and welcome, as one of the too-rare moments when politically-accountable actors finally take responsibility for deciding the limits of arbitration.
*Well, probably. The Terms of Service say that "any action to enforce these terms shall" be brought in New York City. This is terrible, awful, no good, very bad drafting. The intent of the clause is apparently to channel all litigation to New York, whether brought by or against subscribers. But the clause is most plausibly read only to apply to breach of contract claims (i.e., those to "enforce" the Terms of Service), and this is just a subset of potential claims.
Comments
54 responses to “Dear NY Times: Thank You For Letting Me Sue Only 500 Miles From My Home”
Super post. I found myself confused at the end of the three lengthy articles as to whether the NYT reporters thought we (the customers) were being hoodwinked into agreeing to this provisions for $ 0 or whether they thought we were getting some small amount (but not enough), or whether they just thought as a matter of policy (and justice, fairness, public policy and all that other stuff) that arbitration clauses (and class action waivers) were just bad.
The most interesting part of the post though was the question of whether the NYT reporters think that this is something special about arbitration or whether they would extend their logic to all the other terms that we (well, most of us) regularly agree to without attempting to renegotiate (or even reading). Arbitration clauses, in many of these contracts, such as the NYTimes one that sends us to argue in NY City, are often going to be the least of our worries.
I find myself wondering whether you would argue that the proposed regulation preventing class-actions bans would fix most of the issues regarding these clauses. From what I understood, the NYT presented some fairly convincing (anecdotal) evidence that there is a major problem regarding the ‘neutrality’ of those heading arbitration proceedings. I find it extremely difficult to accept the legitimacy of these proceedings when it seems there is not even a pretense of providing just outcomes.
I wonder if these arbitration clauses can be considered unconscionable in certain circumstances as it prevents the individual from addressing their grievances in a forum where they could have a greater impact (aka within a class-action law suit as opposed to arbitration).
In practicality most individuals do not realize they have bargaining power within the contracts, if they have it at all, since the companies are usually much larger and more complex. Possible competition in the market does not help either as similar companies have similar clauses thereby removing that limiting factor on the corporation.
Obviously, as you note, corporations have found a myriad of ways to “extract hidden value” from the individual. Armed with this knowledge, is it possible for the layperson (or young inexperienced first year law student) to do anything to mitigate these concessions when signing/ agreeing to these contracts is unavoidable?
Christopher & DCLS: As a practical matter, the CFPB’s biggest issue relates to class actions, as individual consumers tend not to file claims in arbitration or in court. And while there are lots of cases in which consumers are defendants in debt collection cases, and there have been some horror stories about these disputes in arbitration, the picture isn’t much brighter in court. So addressing the enforceability of class action waivers is the most significant, though not the only, issue. With regard to bias, the NYT article highlights some true horror stories, although these sound so extreme to me that I suspect (and certainly hope) they are rare. Certainly the reporters made no effort to be neutral, and the kinds of arbitrator behavior they describe (e.g., heading off to lunch with one party’s lawyer) violate rules of arbitrator ethics and also the rules of most reputable arbitration providers. Technically, an arbitrator’s award can be vacated for bias; likewise, an arbitration clause that calls for a clearly biased arbitrator need not be enforced, both on unconscionability grounds and because such a process arguably does not count as “arbitration” in the first place. But this assumes that the individual and their lawyer has the resources to fight these battles.
Rachel: Probably not that much, although comparison shopping will sometimes reveal differences in the terms offered by different merchants. The fact that there is no negotiation, and often little market choice, is why many people think that contract law is not the right vehicle for policing standardized consumer and employment contracts.
“take it or leave it”
Do you think the CFPB’s forthcoming decision will spark a trend of greater regulation in the use of arbitration clauses generally? Or do you think we are too far along the path of using arbitration clauses–especially on consumer and employer contracts–to turn back now? (Or is it impossible to tell at this point?)
As I read through the three part series, I started by thinking ‘this is a legitimate problem’ and I only became more skeptical from there. The articles seemed to lack any real discussion of the benefits of arbitration, not just for parties involved but also for the state/society, and also how often these mightmarish cases come up. By the third part, it just felt a bit like Chicken Little.
My question for Prof. Weidemaier, is there empirical evidence on how often arbitration between a corporation and a consumer produces these seemingly egregious miscarriages of justice?
Also found it amusing that apparently the plaintiff’s attorney in the Italian Colors case has recently been given a bit of scolding by the courts in another case he brought against a credit card company. (http://www.forbes.com/sites/danielfisher/2015/11/01/new-york-times-expose-of-arbitration-clauses-leaves-lawyers-in-the-shadows/).
I also found the NYT articles to be inherently biased against arbitration without any real evidence besides anecdotal stories featuring sympathetic plaintiffs. However, I was taken aback by the third installment of the article regarding forced religious arbitration. I was especially surprised by the case of the family forced into religious arbitration when it was the son who had signed the contract with the arbitration clause, and not the family.
Could you expand a little bit on why the family had no recourse outside of the religious arbitration when they were not parties to the contract themselves? Also do you see the characterization of the courts by the NYT as favorable to continuing to allow these religious arbitration as accurate? I wonder if it is as equally blown out of proportion as the other two installments.
I keep thinking the issues of class action lawsuits and binding arbitration are getting conflated in the NYT piece… it seems like a clause banning a class action suits wouldn’t do the individual as much harm as a clause about binding arbitration. It is much easier for me to pass on a class action suit – the plaintiff lawyers don’t get the big paycheck, the plaintiffs can’t get the small one, and bad corporate behavior potentially goes unpunished. However, if you are bound to arbitration – especially religious arbitration – you’re blocked from justice as an individual in many more ways that hit closer to home. Your arbitrator could be buddy-buddy with your opponent, the rules of evidence sound like the wild west, and there’s no recourse for when things go wrong. More concerning, you often don’t have a choice as a consumer but to agree to these clause.
There is evidence about outcomes in arbitration, although it is mixed, and interpretation is difficult. Among other reasons, selection effects make it hard to know whether cases in arbitration differ in important ways from cases in litigation. And of course there are some extreme examples of judicial misconduct, too. But the examples of arbitration misconduct given by the NYT are clearly problematic, and would be intensely frustrating if not traumatic for the people involved. And there is a *lot* of research to indicate that people care quite deeply about fair process.
What are your thoughts on some of the defenses for forced arbitration? At what point should we as a society actually begin to care about the efficiency arguments? It seems like a lot of mudslinging goes into these pieces as they tell emotional one sided stories and ignore the benefits the system actually gets from forced arbitration. Do you think there are actually credible arguments to allow forced arbitration or should we be focusing more on individual rights over the efficiency of the system?
If you had the final say in the forthcoming CFBP decision, how would you decide the issue? (your discussion of the articles didn’t send a strong enough ideological signal for me to figure it out– good job!)
I am the short of person who is okay, for the most part, with allowing the terms of the contract to be binding, however unfair the terms seem to be, based on the fact that both sides agreed* to the terms and had some sort of power in the negotiations (namely for the individual to walk away from the contract). But in some of the cases highlighted by the Times, the individual for practical reasons does not have the option to walk away. This is seen with AT&T, Time Warner, and even the American Express case. Things like phone, internet, and acceptance of credit cards seem not to be luxuries anymore but utilities that happen make up a large portions of their markets. I think that for corporations that are situated in a monopoly or oligopoly, whether a de jure monopoly or a monopoly created by the FTC’s inability to do there job, should have their contracts found unconscionable when they put in these sorts of arbitration clauses. It just seems absolutely ridiculous and undemocratic to have people coerced into signing contracts out of necessity and forced to fund their own arbitration in front of an arbitrator who is in bed with the corporation who issued the contract. But hey, God Bless America.
Building on Rebecca’s question: If we are too far along on the path to arbitration ubiquity, what regulations would you recommend we put on arbitration clauses, or the way that arbitration is done in general? I think secularizing dispute resolution would be a good place to start, but I’m sure you have a number of ideas!
As you, Professor Weidemaier, and other commentators have pointed out, the NYT series does point out a troubling trend in denying individuals their “day in court”. All three articles present compelling stories as to why the shift towards arbitration has been especially bad for ordinary citizens seeking justice. By extension, the articles imply that these individuals deserve a jury trial or at least to see a sitting judge. The authors suggest that juries and judges would be more likely to see the injustice in these horror stories, and that there are procedural safeguards to ensure that bias and conflicts of interest do not figure prominently in either jury or bench trials. However, the judges and juries are not exempt from the same kind of bias described in many of the cited cases of arbitration. While there are procedural safeguards in place, we can all list off cases that have seen a court room that in our opinion, were decided in an unjust manner. Further, although the legal costs cited by the NYT series seem unfair, the costs of a full jury trial would be much higher. In addition to your concern that the NYT series has not addressed other ways that corporations take advantage of “the little guy”, the authors seem to laud the jury trial without acknowledging that there is inherent unfairness there as well.
The spokeswoman for American Express, quoted in the first article, mentioned that regulators have imposed significant remediations and fines on the company to address violations. How realistic is this view? Do you envision a method by which government regulators can investigate, hold companies accountable, and effectively compensate victims? Would this tend to reduce dramatic payouts for plaintiffs’ attorneys and decrease litigation costs, or instead result in a similarly inefficient system?
If arbitration is ineffective because consumers won’t bring low value claims, and class action suits favor plaintiff lawyers, leaving consumers with small damage rewards anyways, at what point do we look to an alternative to these methods to protect consumers and keep corporate behavior in check? The articles don’t really seem to address how effective class actions actually are at regulating corporate behavior anyway, so it seems like the focus should shift from class action bans to finding an actually effective means for keeping corporate behavior in check on a micro level if the concern is consumer protection.
J: I’d be fine with the CFPB banning the use of class action waivers. That’s my preferred outcome. If there are problems associated with class actions, the sensible thing to do is to address those problems directly, rather than to let businesses contract out of class action liability. As a regulatory device, litigation works by creating sanctions for misconduct, and sanctions don’t work too well when they are optional. And current law is especially perverse, because it essentially lets businesses opt out of class action liability only by agreeing to arbitrate. That’s nonsensical and bad for arbitration to boot.
Other commenters: These are good questions, and too many to answer individually (even if I had answers). Leaving aside issues associated with the class action, it seems to me that one of two things should happen: (1) Judges and regulators should insist that arbitration allow individuals to vindicate rights at some minimally adequate level or (2) we should frankly acknowledge that substantive rights are waivable and allow them to be expressly waived. But as the Supreme Court has interpreted the FAA, neither of these options obtains. Instead, unscrupulous businesses have reason to favor arbitration over litigation, because arbitration offers a practical (*not* a legal) way to obtain a waiver of substantive rights. This is the worst possible outcome. Not all businesses that use arbitration are unscrupulous, and there is no reason to think arbitration cannot adequately vindicate rights.
From a damage standpoint: neither class actions or arbitration adequately compensate a large amount of consumers for damages from small claims. Arbitration at least may be more effective in giving a small amount of consumers more complete compensation for large damages.
From a deterrence standpoint: Class actions hurt corporations – if the majority of class action claims have merit (do they?), then they would discourage corporations from being bad actors. Arbitration probably doesn’t have a great deterrent effect, especially if the effects are wide spread and relatively low-burden on individual consumers.
So, what is the virtue in class action suits and what is the virtue in arbitration?
Which of these goals do we value more?
Professor Weidemaier, I wanted to ask your opinion about how the confidentiality of arbitration would affect the use of previous arbitration awards in determinations of awards, but after a quick Google search, I see you’ve already addressed the issue of precedent and arbitration at length in at least two law journal articles. (I look forward to reading them when I am not reading for Contracts.) In Part II of the NYT series, Silver-Greenberg and Corkery write, “little is known about arbitration because the proceedings are confidential and the federal government does not require cases to be reported. The secretive nature of the process makes it difficult to ascertain how fairly the proceedings are conducted.” To what extent did confidentiality affect your study of arbitration’s use of precedent and the ability of the process to establish its own precedents? Do you think the NYT accurately characterizes the difficulties in identifying the inner workings of arbitration?
After reading the NYT articles my main problem with the arbitration system in practice today is that it seems to give many Americans little or no choice but to sign away their due process rights, or be forced to forgo some of the most fundamental societal activities such as having a job or going to school. Wouldn’t a relatively simple remedy be to outlaw (not enforce) arbitration provisions enacted before the claim or issue was raised? In this system when an individual had an issue with a corporation it could choose to partake in the arbitration system or take its issue to court. Wouldn’t this be a more fundamentally fair way to allow parties seeking to relief to decide what characteristics of a forum are important them (expediency of decision, general fairness, discovery procedures, likelihood of recovery…etc) and make a rationale decision? It seems like even many of the pro-arbitration persons interviewed in the NYT articles would prefer arbitration not be forced. Am I missing the benefits of forced arbitration that make it a preferable system for society at large?
If arbiters have an economic incentive to be biased towards repeat customers, does that not make the arbitration system inherently biased towards those who will use the arbiter in the future? One way to correct for such bias would be to disallow arbiters to be chosen wholly or in significant part by those who are repeat customers when litigating against non-repeat customers or customers who repeat significantly less with the arbiter. If we are forcing one party to not chose an arbiter, then have we created a system where the parties do not chose the arbiter like the current judicial system? It appears that without excessive and strict regulation and enforcement, the arbitration system cannot make unbiased decisions when it judges between parties who have unequal abilities to give future business to the arbiters. This assumes arbiters will always act in their best economic interest.
Since arbitration often occurs with strangers and the effects are often secret, there is little if any social cost felt by arbiters who are biased. Therefore, we rely on the internal mechanisms of morality of arbiters and our own legal system to overturn biased rulings. Depending on your worldview morality can be a weak or strong incentive. However, overturning an arbitration in court is as mentioned previously multiple issues.
In talking about arbitration clauses in general, I wonder if there are some mediums in which they do significant good. For example, some of the most villified users of arbitration clauses are hospitals–and yet, it seems as though an arbitration clause is an added layer of protection against malpractice suits that, it could at least be argued, deter doctors from taking risks inherent to good practice of medicine. In some situations, such as the hospital example, aren’t arbitration clauses the industry’s response to predatory plaintiffs? Or at least, isn’t it just as plausible that this clause is often inserted to protect the industry from overzealous consumers as it is to allow the industry to take advantage of them?
The UCC says its unconscionability provisions are based on the principle of preventing oppression and surprise. I think there is clearly room for debate on whether arbitration clauses are substantively oppressive. But is it possible to make a strong argument based on them being a surprise with today’s contracts?
Some of the people in the NYT articles mentioned how surprised they were to discover that they had agreed to an arbitration clause. But at least from my own experience with credit card companies, arbitration clauses are stated pretty openly, not any less visible than the rest of the terms in the agreement.
Don’t we want to encourage people to read the contracts that they sign? Judge Easterbrook, in ruling in favor of Gateway and its arbitration clause, noted that consumers who choose not to read the terms of a contract voluntarily assume the risks that they entail.
Making the argument that an arbitration clause is substantively unconscionable because of disparity in bargaining power, absence of meaningful choice, etc. is one thing, but I think it is a weaker argument to claim that the clause should be voided because they were surprised by it after having had the chance to read the terms before agreeing.
How simple it would be to assume that everyone reads, let alone understands, everything they sign. The reality of the situation is that arbitration clauses are generally “hidden” along with the many other provisions you have listed and barely glanced over by signees. Prior to the NYT articles, I was not aware of the detrimental aspects arbitrations can have (and I consider myself at least slightly well-versed in the law). How would a layperson know what the clauses are even talking about? At first glance, the response might be to just blame the person for signing in the first place- after all, there is no defense for ignorance. However, when the issue becomes more widespread, one must wonder who is truly in the wrong here.
Nevertheless, I find these arbitration clauses to be more of a constitutional due process issue. Arbitration was purposely designed to circumvent the law. There is no right to a judge or jury. There is no right to an appeals process. Due process is tossed out the window. Our entire legal system, one that has been fine-tuned throughout centuries, is no longer the proper place for issues of law. Now class actions are not allowed to be brought? What’s next, a ban on negligence claims? My question for you is do you see companies abusing these benefits of contractual clauses and is there a potential for a greater misfortune in the future? The NYT cases are seemingly rare, as many have pointed out, but there very well might be many more cases to come if these practices continue.
Professor,
In reference to your point about how arguments about arbitration often have ideological signals – how would you approach these kinds of debates- debates over structural changes which favor plaintiffs or defendants – in a way that isn’t so ideological? Is there a middle ground?
Assuming arbitration clauses and class action waivers continue to be upheld, do you think the current regulatory system in place is adequate in order to protect consumers from bad business practices?
It is clear that class actions are able to provide a strong check on businesses and add another incentive for businesses to serve customers best interest. However, without the ability of the consumer to bring suits in general or class actions against the business, it seems as if bad business practices become a strong economically rational choice for corporations.
I feel like arbitration clauses are positive in theory in that they can expedite the process for those involved instead of spending years and even more money than might otherwise be necessary were every case to be litigated in court. When put into practice though, plaintiffs wind up getting completely stomped over by defendants who have an obvious upper hand. Being able to choose the arbitrator, whom they often have close ties with due to their ongoing relationships through continuous dealings, is bound to present a bias in favor of the defendant, who by the very nature of most of these claims is already in a better situation financially to handle these types of disputes. I fully agree with the position that people should read documents before signing, but when lacking any sort of real choice in a matter, I think taking away a person’s right to a fair day in court is fundamentally inconsistent with the notions of justice.
The biggest issue I currently see with arbitration proceedings is that they are conducted almost entirely in secret. It seems that a huge benefit of our legal system is its ability to uniformly interpret and apply law (leading to relatively uniform outcomes in similar cases) through its use of authoritative precedent, which allows people to model their behavior (including in deciding whether to sue or not) based upon what they believe will likely occur in the future, as a result of what has occurred in the past. Secret arbitration allows for virtually the same case to be decided in many different ways. Without binding precedent, 100 individuals who were impacted in the same way by the same company could see their cases tried in 100 different ways and receive 100 different outcomes. This doesn’t seem like the desired result or very efficient for society. And without published decisions and outcomes, individuals have a diminished ability to effectively make informed choices and almost no ability to decide whether it is worth it to bring their arbitration claim in the first place. Is there any incentive for arbitrators to even decide the same case, brought before them twice, in the same way?
@Chris Murphy, With regard to potential benefits of forced arbitration, I think such benefits might occur more often in the context of a contract between two businesses on relatively equal footing. While neither probably intends to breach the contract, such disputes are a significant risk. By specifying in the contract that arbitration will be the sole dispute resolution mechanism, the parties receive several benefits.
First, in the event of a dispute, the forum for resolution would be guaranteed, removing uncertainty about whether, when and in what court a potential suit might be brought.
Second, arbitration is pretty much always going to be cheaper than litigation. Just as state enforcement of contracts in general encourages parties to contract (behavior which we generally deem useful to society), arbitration provides a similar guarantee of enforcement, providing similar assurances, but at a lower cost. You could argue that the lower cost of arbitration reduces the overall risk of entering into a contract, potentially enticing particularly risk-averse parties to contract when they otherwise might not.
Third, arbitration is generally going to be much faster than litigation. While this benefit is probably highly correlated with lower costs, the reduced amount of time spent on dispute resolution also frees up the parties to go about their business, engaging in new contracts and new societally useful behaviors, in theory.By binding themselves to arbitration at the outset, the parties can rely on an expedited resolution in advance, once a dispute arises.
I’m making a lot of assumptions. If the parties are on unequal footing in terms of bargaining power or financial resources (as in many of the anecdotes in the NYT articles), or if one of the parties doesn’t have much of a choice about whether to sign the contract or not, the benefits of predictable forum, reduced costs, and expedited resolution seem to pale in comparison to the risks of bias, incompetence, and (most importantly) depriving individuals of their substantive rights (as Prof. Weidemaier put it).
If we want to argue that arbitration clauses are unconscionable, can we look to standard industry practices in contracts disputes between companies? If arbitration clauses are as prevalent in contracts between corporations (i.e., contracts not involving individual consumers),this would suggest that corporations regard arbitration as a fair and efficient forum in which to negotiate disputes. Conversely, if arbitration clauses are not standard between companies, this would seem to evince an intent by corporations to take advantage of the diminished bargaining power of individuals against larger entities (by only inserting arbitration clauses into those types of contracts, knowing that individuals do not have the bargaining power to object).
@Chris Murphy, With regard to the potential benefits of forced arbitration, I think such benefits might occur more often in the context of a contract between two businesses on relatively equal footing. While neither probably intends to breach the contract, such disputes are a significant risk. By specifying in the contract that arbitration will be the sole dispute resolution mechanism, the parties receive several benefits.
First, in the event of a dispute, the forum for resolution would be guaranteed, removing uncertainty about whether, when and in what court a potential suit might be brought.
Second, arbitration is pretty much always going to be cheaper than litigation. Just as state enforcement of contracts in general encourages parties to contract (behavior which we generally deem useful to society), arbitration provides a similar guarantee of enforcement, providing similar assurances, but at a lower cost. You could argue that the lower cost of arbitration reduces the overall risk of entering into a contract, potentially enticing particularly risk-averse parties to contract when they otherwise might not.
Third, arbitration is generally going to be much faster than litigation. While this benefit is probably highly correlated with lower costs, the reduced amount of time spent on dispute resolution also frees up the parties to go about their business, engaging in new contracts and new societally useful behaviors, in theory. By agreeing to arbitration in advance, parties and predict and rely on this shorter time frame for conflict resolution as soon as an issue begins to arise.
I’m making a lot of assumptions. If the parties are on unequal footing in terms of bargaining power or financial resources (as in many of the anecdotes in the NYT articles), or if one of the parties has no real choice about whether or not to sign the contract, the benefits of a predictable forum, reduced costs, and expedited resolution seem to pale in comparison to the risks of bias, incompetence, and (most importantly) depriving individuals of their substantive rights (as Prof. Weidemaier put it).
It is obvious from multiple cases that the Supreme Court seems to be interested in preventing certain types of class action law suits because of the exorbitant costs of discovery as seen in cases like Twombly and Iqbal. How do you see the balance between concerns with this and the waiving of substantive rights, like protecting fundamental right to take one’s dispute to a court, arbitration playing out? Also, do you think the way in which the New York times characterized the effects of the arbitration clauses as depriving First Amendment rights was justified or an exaggeration? Finally, do you think arbitration disallows the citizens with claims from receiving compensation more often than having their claims heard in a jury trial?
I’m conflicted. Part of me feels that businesses, like all parties, should have the right to conduct themselves as they see fit, and consumers can elect to either enter into a contract or go elsewhere. Then, the market would regulate what people are asking for. However, many of these scenarios seem to prey on people who are desperate or have no means of informing themselves. The private nature of arbitration does not mitigate this issue. Some degree of regulation is probably necessary, but disallowing the clause infringes upon freedoms I would like to see protected, and may deter the progression of a better avenue of dispute resolution.
Per the NYT article as well as your own, it seems that the consumer essentially has very little choice in the process: sign the clause, or forego substantial aspects of participation in society. Further, if the consumer chooses to sign the contract, the fact that arbitration is so secretive means he likely has little idea what to expect and effectively no recourse. Beyond just not signing, is there anything the consumer can do to figure out what to anticipate should he find himself in an arbitration situation.
I shutter at the unconscionability arguments.
Are these terms unfair? Probably. You could even say they are exploitative.
However, for a term to be unconscionable, it seems to me like the bar should be much, much higher. Let’s take off our law student caps (by the way, Prof. Weidemaier, thank you for letting our class hijack your comments thread) and just think about what that means. To say a behavior is unconscionable means, essentially, that it goes so far beyond what a good and decent person do.
We want people to contract. We want people to contract for their own protection and advancement. We want people to contract for the good of the marketplace. And we we want state enforcement where it is proper. But these arbitration clauses, in my opinion, are terms that often are a more efficient means of relief and do not often deprive individuals of their rights. They’re hardly “unconscionable.”
Besides, if we’re being frank, a consumer does not have equal bargaining to a massive-scale vendor. Italian Colors needs Amex a lot more than Amex needs Italian Colors. Amex also naturally has a lot more litigation to deal with.
What surprised me the most in reading the New York Times series was how little of it was devoted to considering customers’ responsibility in actually reading the (not always) “fine print” of the contracts to which they agree.
On the one hand, it bothers me to even bring this up since I agree with the clear undercurrent in the series encouraging suspicion of corporations. I also think that companies acting unconscionably and taking advantage of customers, particularly those who do not have the education, resources, etc. to understand the writing in the contracts, is a major problem.
On the other hand, it also doesn’t seem right to remove all responsibility from the customer, particularly given our knowledge that the fine print exists and (less commonly) our knowledge of the prevalence of arbitration clauses. I am first off wondering what you think the individual customer’s responsibility is in all of this. In addition, do you think increasing customers’ sense of accountability or wariness in entering into agreements with companies might have any eventual impact on the business companies receive and therefore on the “justness” of the fine print they include in their agreements? Perhaps I am being too much of an idealist…
My question is on the ethics of writing arbitration clauses into these contracts. The NYT article mentions that once customers are blocked from class-action suits they usually drop their claims. It goes on to state that out of the 1,179 class-action suits that were pushed into arbitration, the court ruled in favor of the companies 4 out of 5 times. The article also mentions that in 2014 alone judges upheld 134 out of 162 class action bans. Assuming Mr. Kaplinksy and the other lawyers who first decided to write arbitration clauses into these contracts to protect these businesses knew those numbers when they first decided to do this, what are the ethical responsibilities as lawyers to not swing the legal tide so heavily in favor of big business?
Additionally is there no other contractual way to protect big business besides arbitration clauses?
If the CFPB ends up deciding to ban the use of class action waivers, I wonder what the next step will be for the businesses that have been successfully utilizing them to ban class action lawsuits. Since such a ban seems to be the clear motive behind these arbitration clauses, I imagine some other device would probably take hold to accomplish that purpose. I wonder how clauses like the Times’ jurisdictional provision relate to the concept of unconscionability that is behind the anti-arbitration clause argument. Do you think jurisidictional clauses will become more prevalent if arbitration clauses are, in essence, taken off the table–or is that already a common contracts practice for big businesses? Or are there other ways in which companies could (legally) restrict plaintiffs’ rights to get them into court?
I enjoyed reading both the NY Times arbitration article and this article very much. I believe the issue of corporations being able to use contracts in an advantageous or opportunistic way against less powerful individuals is an important one. I especially enjoyed you pointing out that businesses use contracts “to extract hidden value from employees and customers” in many other ways than just arbitration clauses. I believe that when corporations and businesses engage in these practices and individuals feel as if they are getting cheated by the system, they will be less likely to enter into such contracts in the future which will ultimately have a negative impact on society.
I look forward to reading and learning more about the subject.
It’s my understanding that some of Professor Weidemaier’s own research has dealt with the realities of precedent in arbitration. I didn’t catch the NYT addressing precedent directly, but they did raise the concern that companies – even when “defeated” in arbitration – have little incentive to change their behavior since the confidential nature of the proceedings means they aren’t likely to be held to what’s been decided in previous disputes and arbitrators themselves aren’t necessarily bound to abide by what’s been decided in like cases. To me, this is one of the more concerning and “unfair” things about arbitration – there’s little guarantee of equal treatment of the parties in an individual dispute, but also more broadly, of other parties similarly situated. I’m curious whether Professor Weidemaier’s identification of some precedent-setting behavior in arbitration leads him to believe this concern may be overstated.
Justice can be administered outside of the court, however it is not the place of the market to provide justice without oversight and transparency. Arbitration can be a valuable asset for the legal system and the NYT articles point out major flaws which need to be addressed. However all of the factors the NYT articles used to vilify arbitration are deterrable without foregoing the advantages of arbitration. If arbitration is to be an arm of justice, there must be legislative intervention. Good regulations protect stakeholders. Here the stakeholders are the people for whom a country was founded on rights and justice and those people’s rights and justice need protecting. Instituting rules for independence, licensing, group arbitration, laws applicable, publication of decisions, transparency, etc. would minimize the legitimacy of the concerns people have about “losing their day in court”. The complexities and expense of creating and instituting effective regulations could be sizable, would create barriers to entry for arbitrators, and the regulations themselves may make arbitration less efficient. Yet to prevent injustice it is the responsibility of those who are able to intervene to protect those being victimized.
“The attention on arbitration also seems a bit disproportionate, given the nearly-infinite ways that businesses use contracts to extract hidden value from employees and customers.” Well, best to start somewhere, and mandated Scientology arbitrators seems as good a place as any. But in the meantime, if I have a problem with the NYT: https://www.youtube.com/watch?v=otXGqU4LBEI
I hope to see Congress make a decision on this based on the interests of their voting constituents, but I am not confident they will. I am most concerned about forced arbitration by telecommunications companies. In most regions one company controls the entire market via the “last mile infrastructure” they have installed to bring Internet and phone services to residents and businesses. It appears every major telecom company requires their customers to agree to arbitration clauses, a forfeiture of customers’ rights to due process, without any option of a meaningful alternative. Internet and phone services have been classified as fundamental to everyday life, so much so that Congress and the FCC require telecom companies to abide by common-carrier regulations and provide those services without discrimination or subjecting customers to unreasonable “special” terms. The forced arbitration clauses of their service contracts seem to directly contradict the intent of Congress and the FCC (and likely violate Title II regulation, depending on interpretation of that language) by forcing customers to choose between forfeiture of their right to due process or forfeiture of their ability to utilize phone/internet services.
How might a consumer get around these arbitration clauses? It appears that the consumer is at a distinct disadvantage in terms of bargaining power when contracting with these big businesses. An individual is small peanuts to the corporations and, unless an entire movement against arbitration clauses occurs, I see it being extremely difficult to overcome the leverage that is possessed by the “bigger man”. In practical terms, is there anything that can be don from the consumer standpoint short of lobbying?
The Times coverage of the shift in the use of arbitration clauses signifies that yet again the Supreme Court is willing to bend over backwards for corporations. How can it be justifiable for a corporation to get away with taking away individuals’ constitutional right to have their day in court, just because the clause was hidden away in a contract that the individual probably would not even be able to attempt to understand, let alone challenge?
It seems logical that when someone signs a contract, it is up to them as a party to understand all of the terms they are agreeing to, but with these contracts, the individuals have basically zero bargaining power to begin with, and I do not even know if they have any power to change the contract.
I am imagining scenario where an individual is aware of a pesky arbitration clause in a contract they sign with a huge company, like Amazon or Bank of America. Where would they even begin to dispute that? It seems like there only option is to not do business with that corporation, but it limits them, as more and more companies are following suit. How is this fair for an individual to have to decide to either give up their right to litigation – a constitutional right – or instead chose not to engage in a contract with an increasing number of corporations? We are condoning the use of contracts that seem to be unconscionable, based on the extremely uneven bargaining power of the parties.
Additionally, by allowing companies to get away with taking away an individual’s constitutional right to their day in court by just inserting a clause in their contract, would that not also set the precedent that as long as its in the contract, no matter if its illegal or not, its has to be upheld in a court of law? Again this seems ridiculous! How are we allowing this to happen?
The disturbing aspect to me is how far this type of conduct by companies can go. What if we get to the point where a virtually all major companies insert these clauses? At that point, even if individuals were closely reading their contracts for these arbitration clauses to decide if they wanted to contract, it wouldn’t fix anything because competitors would be using the same sorts of clauses. So unless individuals are willing to refrain from contracting with any companies, there seems to be no choice but to agree to the contract with the knowledge you’ll likely never be able to bring about a successful claim. How far are courts willing to let this vast inequality in bargaining power go?
I found the argument that courts cannot mess with the religious arbitration clauses in order to protect religious freedom fascinating, but wonder how the courts can justify such arbitration clauses taking away the consumer’s religious freedoms? By allowing them their religious practice, they inevitably force their religion upon others who do not share their beliefs. Is this the court showing their preference of businesses over consumers or a consequence of not reading the fine print?
If consumers “wise up” or have someone looking out for them when they sign these contracts so that they push back against these companies that are using them to leverage uneven bargaining power will it effect how many agreements are actually made? I’m thinking of the contracts that those who are in need of care, like the elderly signing contracts to go into a home, who might be refused service if they try to protect themselves from these arbitration clauses. How would that effect the market and is there recourse for these individuals? It seems that it is clear certain groups are taken advantage of and how can we protect them if the whole market seems to be working against them when it comes to a service that they need.
Everyone is missing the forest for the trees. Taken in isolation, I believe that the class action waiver and arbitration clauses seem reasonable. However, when viewed in the larger context of the erosion of consumer protections, these are some of the most egregious.
Think of all the consumer unfriendly provisions in contracts that are enforced by courts:
~ liability waivers for things like negligence; ~ERISA subrogation clauses that refund employers in full but leave injured claimants often with nothing;
~ body attachments that create de fact debtors prisons on behalf of credit card companies and debt buyers;
~ enforcement of usurious interest rates
~ 2005 amendments to bankruptcy laws that favor creditors…
the list goes on and on. The court system is essentially rules in favor of business every chance it can get, and the benefits of rulings always go one way. The East India Company would be shocked at how easy corporate dominance over subjects has become. No longer is violence and mercenaries forces necessary to achieve its ends when all of the favorable laws are now statutory and judicially sanctioned!
I guess my biggest concern after reading the article was the private nature of the arbitration market. As the NYT pointed out all the economic incentives push the arbitration firms towards favoring the repeat players, and I cannot see how that could change under any system. Even if corporate lawyers weren’t allowed to sit in judgment of corporations, any person in that position would feel pressure not to loose business. It seems like the only alternative would be to regulate arbitration to the point that it became quasi-public by somehow reducing the demand to seek out business. Is this one of the reforms under consideration? And if not, are there other reforms being considered that would address this problem?
Took my 3yo to a bounce-house birthday party over the weekend. Before we could walk in we were presented with an ipad that contained a waiver and arbitration agreement that I was supposed to sign in order to get my daughter her bracelet to proceed into the place. Instead of signing with the stylus, I wrote on the signature line, “NO ARBITRATION” and hit Submit. I believe that under basic contract principles, I just rejected the arbitration clause and made a counteroffer, and by giving my daughter her bracelet they accepted my counteroffer. This probably wouldn’t have worked on a paper form (the person behind the desk would’ve immediately spotted it and not let me in) but worked just fine on the ipad where after I hit Submit the form and signature went away and were replaced by a confirmation screen.
It seems like the gradually erosion of consumer’s rights to class actions and litigation has turned on two basic assumptions: 1) customers are free to opt out of contracts or renegotiate terms they deem objectionable; and 2) all of these clauses are in plain language that the average consumer could understand if he took the time to read them. While I think the rationale undergirding both assumptions is fraught, it does beg the classic contracts question: shouldn’t a capable and un-coerced person be expected to read the terms of his or her contract? And if not, then how can we structure default rules and remedies that reflect that? Clearly, there is a common understanding that no-one reads the form contracts we’re all required to sign. The NYTs glosses over this assumption as going without saying.
Section 2-207 of the UCC codifies the assumption that contracts are not read when there is a battle of the forms. Maybe we need to go one step further and develop a new body of default rules governing the typical non-negotiated contracts discussed in the Times expose. It’s obviously a dangerous line to tread, and it should be approached with extreme caution. By I think that the law currently does not reflect the pervasive reality as it stands, and that’s being exploited by sophisticated parties to the detriment of many.