marvinrinco: Why Arbitration is Rigged Against Consumers

Monday, 1 July 2013

Why Arbitration is Rigged Against Consumers

The United States Supreme Court put arbitration back in the news yesterday, by deciding a case in favor of American Express and against a restaurant (American Express v. Italian Colors Restaurant). The restaurant had a $40,000 claim, but to prove it would cost about $1M. They wanted, therefore, to proceed as a class action with others similarly aggrieved by American Express policies, as that is what class actions are made for: allowing small claimants to aggregate to make justice economically viable.

Justice Scalia, writing for the majority, says boo hoo and too damn bad if the courthouse doors were slammed in their face due to a contract:

“Respondents argue that requiring them to litigate their claims individually—as they contracted to do—would contravene the policies of the antitrust laws. But the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.”

Justice Kagan, writing in dissent, calls Scalia’s on what he did:

Here is the nutshell version of this case, unfortunately obscured in the Court’s decision. The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract’s arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool’s errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.

And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.

I won’t get into further details, as it is covered elsewhere, such as here:

The Supreme Court Just Made It Easier for Big Business to Screw the Little Guy (Mother Jones)

Details: American Express v. Italian Colors Restaurant (SCOTUSBlog)

SCOTUS Decision in American Express v. Italian Colors (CivPro and Fed Courts Blog)

I write instead to briefly explain why pro-consumer groups hate arbitration agreements that are forced onto consumers in the fine print of countless agreements.

Corporations appear regularly in front of arbitrators, but unlike judges, litigants get to actually pick who they appear before. True, the choice of arbitrator must be done with the consent of the consumer, but the consumer is likely to appear only once and not be the frequent flyers that corporations are.

Arbitrators have, therefore, two customers in front of them; one that regularly hires them to arbitrate and the other appearing as a one-off. Who does the arbitrator want to make happy?

You might think that the arbitrator would just do what is fair, but fair is a flexible term. Arbitrators know that if a defendant-corporation deserves to be hammered in the verdict, and they do exactly that in their decisions, then the company is likely to blacklist the arbitrator from their “approved” list.

If you were corporate counsel, wouldn’t you be tracking which arbitrators have given favorable verdicts and which ones not? Wouldn’t you be selecting only the favorable ones? Wouldn’t you have an “approved” list?

And if you are an arbitrator, wouldn’t you want to be on that list with a constant flow of business?

The consumer, of course, doesn’t have the advantage of appearing often, and even with counsel, the counsel is unlikely to be have as much business in front of the arbitration company as the corporation.

There are times, of course, when a plaintiff may want to arbitrate, such as circumstances where speed is of the essence due to age, or the cost of experts exceeding the value of the case. That’s fine, so long as it’s elective.

But that isn’t what’s happening lately as corporations rush to put compulsory arbitration agreements in every consumer contract they can find.

Congress should act to reverse this decision. Given the staggering sums of money that corporations give to candidates, of course (courtesy once again of the Supreme Court in Citizens United v. Federal Election Commission), that is unlikely.