March's Lowdown

March 2013, Volume 15, Number 3

Edited by Jim Hightower and Phillip Frazer


Arbitration sounds fair, but forced arbitration is the exact opposite

Corporate kangaroo courts have quietly usurped our constitutional right to trial by judge and jury

Being wronged by a corporation is painful enough, but getting your day in court is no picnic either. Aside from having to go up against a deep-pocket corporation's pack of snarling lawyers, the judicial system itself is cumbersome, slow, and costly. And to us uninitiated outsiders, a courtroom's cult-like rituals, punctilious language, and black-robed authoritarians are intimidating. No wonder so many of the workers, consumers, small businesses, and others who get stomped on by the corporate powers shy away from taking their legitimate grievances into those chambers.

Luckily, though, a less formal, alternative system is available to render justice in disputes between corporations and aggrieved citizens. Arbitration, it's called, allowing two conflicting parties to choose a neutral third party to review facts, hear-out both sides, and make a ruling to resolve the conflict. "Faster, cheaper, and more efficient!" exclaim effusive proponents of the arbitration process.

Fine, but does it deliver justice? It could, for the original concept of voluntary, face-to-face resolution of conflict--without the elaborate structure of lawyers, judges, and juries--makes sense in many cases. But remember what Mae West said of her own virtue: "I used to be Snow White, then I drifted." Likewise, today's practice of arbitration has drifted far away from the purity of the concept.

All you really need to know about the present process is that it's the product of years of conceptual monkeywrenching by corporate lobbyists, Congress, the Supreme Court, and hired-gun arbitration firms looking to milk the system for steady profits. Good luck at getting even a crumb of justice from that cabal.

For the past three decades (and the last one in particular), they have steadily been perverting the arbitration alternative by corporatizing the process. First and foremost, these fixers eliminated choice from arbitration, turning a voluntary process into the exact opposite: Mandatory. Let's take a quick spin through it:

  • Unlike courts, arbitration is not a public system fully subject to such measures as conflict-of-interest laws, but a private business;
  • Far from being neutral, so-called "third-party" arbitrators are--get this!--usually chosen by the corporation involved in the case;
  • Major corporations are constantly in arbitration against consumers, workers, and others, and they generally handpick arbitrators from firms with proven records of favoring the corporation--worse, some of these "neutral" umpires are actually under contract with corporations that engage in multiple cases;
  • The corporation also gets to choose the city or town where the case is heard, allowing it to make the case inconvenient, expensive, and unfair for individuals bringing a complaint;
  • Arbitrators are not required to know the law relevant to the cases they judge, follow legal precedents, or even be lawyers (though most are);
  • Normal procedural rules for gathering and sharing evidence and safeguarding fairness to both parties do not apply in arbitration cases;
  • Arbitration hearings and the arbitrator's deliberations are closed to the media and the public;
  • Arbitrators need not reveal the reasons for their decisions --so they are not legally accountable for errors, and their decisions set no legal precedents for guiding future corporate conduct;
  • Even if an arbitrator's decision is legally incorrect, it still is enforceable, carrying the full weight of law; and
  • There is virtually no right to appeal an arbitrator's ruling.

A third way

You don’t hear much about it, but there is another path to justice for some consumers who’ve been wronged by a corporation: Small claims courts. ... [read more]

That 10-point litany adds up to a kangaroo court! So who in the world would choose such a rigged system? No one. Which is why corporate America has resorted to brute force and skullduggery to drag you into their arbitration wringer.

By "force," I mean that practically any business relationship you have with a corporation (customer, employee, supplier, franchisee, etc.) begins with you signing away your Seventh Amendment right to go to court over any corporate mistreatment you might later suffer. This perfunctory, boilerplate agreement mandates, compels, forces you into the stacked-deck arbitration game, ominously termed "Binding Mandatory Arbitration" (BMA).

By "skullduggery," I mean that corporations don't alert you to the fact that their contracts strip you of your right to a fair jury trial--one of the most important constitutional guarantees an American citizen has. Rather, the forced arbitration proviso is usually secluded in the tiny type of pre-printed, take-it-or-leave-it, non-negotiable contracts. No corporate representative who wants to stay employed will say to you: "By the way, Bob, before you sign, let me draw your attention to page four, subsection nine (d), paragraph six, which says...."

This is like the Field of Dreams: Build a ballpark and they will come. ----A corporate arbitrator, marveling at the nightmarish ‘ballpark’ of biased, forced arbitration that literally compels consumers, workers, and others to come to it rather than taking corporate wrongdoers to court.

By "you," I mean you, me--everyone of us who: Takes a job, gets a credit card, subscribes to cable TV, buys an insurance policy, rents an apartment, purchases nearly any new product (from a cell phone to a house), has a home remodeled or car repaired, enters a nursing home, enrolls in a for-profit degree mill, becomes a franchisee or corporate supplier, or signs up with a landscaping service.

If you seek justice because you've been gouged by your bank, discriminated against, sexually harassed, unfairly fired, cheated on wages, sold a shoddy product, denied health coverage, or otherwise been harmed by a corporation--you'll most likely find that you're barred from the courthouse door. To your astonishment, you'll learn that the indecipherable legalese on that piece of paper you unwittingly signed ("It's just a standard form," you were assured at the time) has shackled you to the corporation's own privatized court.

One-sided justice

Where did binding mandatory arbitration come from? Planet Greed. For the first 138 years of our nation, BMA was not considered legal (much less right). Until 1925 federal judges felt, almost uniformly, that no one should have to surrender their right to take their case before a judge and jury. So, many courts refused outright to enforce contracts that compelled arbitration. Corporate interests, however, wanted an end run around pesky workers, suppliers, and others who sometimes sued them, so they went to Congress, which dutifully passed the Federal Arbitration Act of 1925. It required judges to enforce BMA agreements--but it limited the enforcement to agreements between businesses.

Almost immediately, however, corporate lawyers began pecking at that limitation. By the 1980s, the Supreme Court itself had become corporatized enough that it and other courts were ignoring the 1925 restriction, marching consumers, workers, and others out of the courthouse and into the inferno of corporate arbitration.

Inferno? Let's measure it by the numbers. Unbeknownst to them, the vast majority of Americans today are bound by at least one BMA clause, and many people are tied to multiple versions of them. In 2008, the University of Michigan Journal of Law Reform published a study of 21 major corporations, finding that 93 percent of their employment contracts and 77 percent of their consumer contracts contained compulsory arbitration clauses.

Since these things are written by corporate lawyers, it's no surprise that they stack the deck, load the dice, and grease the skids in favor of corporations. But--wow!--the percentage of rigged wins is flabbergasting, damning... and disgusting.

A 2000 Washington Post survey of cases involving First USA Bank, then the nation's second largest credit card company, revealed that arbitrators ruled for the bank 99.6 percent of the time. In 2007, a Public Citizen report revealed that one giant firm, the National Arbitration Forum, hired out its private adjudicators to hear some 34,000 consumer-versus-bank cases in California during the previous four years, and they ruled for the financial giants 95 percent of the time. Even more incredible, the City of San Francisco discovered in a 2008 lawsuit that of 18,045 cases brought by the financial powers against overwhelmed California consumers, NAF's private judges sided with the corporations 100 percent of the time.

Brand name riggers of the justice system

Practically every national brand name you’ve ever heard of now slips predatory arbitration provisions into their customer terms-of-service agreements and/or employment agreements. Not only do these sneaky inserts strip away your constitutional right to take them to court (peremptorily immunizing them from any wrongs they do to you), but many of the boilerplate provisions also arbitrarily ban you from joining with other small claimants in class actions to hold them accountable. ... [read more]

Supremely shafted

Unfortunately, the Supreme Court is still messing with us, still systematically undermining the Seventh Amendment by herding us ever deeper into the darkness of these backroom corporate courts. The same supreme wrecking crew of Alito, Kennedy, Roberts, Scalia, and Thomas that smashed our People's democratic sovereignty with its infamous Citizens United decision, has also been siding with corporate America to sledgehammer the People's right to judicial fairness.

For example, in real courtrooms, it's common for many wronged employees or consumers who have the same complaint against a corporate rip-off to roll their small cases into one big one. This "class action" process saves money and time, because instead of 100 cases needing 100 law firms, judges, and juries, only one of each is needed. Makes sense. But common sense is a feared foreigner in ArbitrationLand, and--surprise!--nearly all BMA agreements ban class actions.

In 2010, the supremes took this ban to extremes, declaring that even if an agreement is silent on the use of class-action arbitration, class actions are still disallowed, forcing each individual to battle the goliaths alone. In a 2011 consumer case against AT&T, the Court majority ruled that even when a class-action ban in a BMA clause is so "unconscionable" that it violates state law, the corporate miscreant can nonetheless ban the class from arbitration and compel each claimant to go it alone.

This June, the Court's corporate supremists are expected to stretch the primacy of private arbitration even farther--so far that corporations could openly and willfully violate our antitrust, civil rights, and other landmark laws enacted to protect the less powerful. The case pits American Express against a group of its own small business customers that accept AmEx credit cards. The restaurateurs, retailers, and others say the powerhouse financial firm flagrantly runs roughshod over them by using its monopoly position to make them pay excess "swipe fees" on charge card transactions. Each merchant is gouged by a few thousand dollars a year, but proving their claims in court could cost about $1 million each, making solo suits cost-prohibitive. Thus, to see justice done, they filed their lawsuit as a class.

"No you don't," barked AmEx lawyers, pointing to fine print in the corporation's contract with merchants that (1) requires disputes to go to arbitration, and (2) prohibits "any claims from being arbitrated on a class action basis." The upshot? If the Court agrees with AmEx, the one-sided bit of corporate boilerplate it slipped into its standard-form contract would allow it and every other corporation to use their private judicial system to nullify an Act of Congress. In other words, by corporate fiat, America's antitrust laws (and, by extension, other basic laws) would be superseded by a piece of mumbo-jumbo that private businesses put in BMA agreements.

[An "aha!" tidbit: The US Chamber of Commerce, which claims to be the unrelenting defender of small business, has put its own legal muscle firmly behind AmEx in this case, strenuously pushing the Court to let the credit card colossus hammer the little guys.]

Supreme Court corporatists--who don't ever seem to visit reality, much less live anywhere near it--have a ridiculous rationale for forcing us into compulsory arbitration: "Mutuality of assent." This doctrine blithely assumes that the parties in an agreement have actually agreed. A corollary assumption is that the terms in the document have been read and comprehended before signing.

One clue that this is not true for BMA agreements is that they invariably reside in the fine print, the very definition of which is "deliberately obscure." Again, it's the corporation that dictates the take-it-or-leave-it provisions, writes them in what might as well be ancient hieroglyphics, and has every incentive to keep the other party from fully understanding what they're signing, thus maintaining the corporate entity's position of superior power.

"Well," scold the system's rationalizers, "a consumer is free to go next door and buy a product that doesn't have an arbitration clause." Ha! Twenty years ago, maybe, but the clauses are now nearly industry-wide, making comparison-shopping virtually futile. Plus, these agreements often contain yet another nasty sting--a provision allowing the corporation to change the terms of the contract any time for any reason --so why read today's terms if they will disappear tomorrow?

As the consumer watchdog group, faircontracts.org, bluntly puts it, mutuality of assent has been rendered "a fiction in the law" that "makes a mockery of consumer freedom in a free market."

[One more curious tidbit: The same corporations that hail mandatory arbitration as a fair, faster, and cheaper venue than courts, almost never choose to apply it to themselves. As the authors of a 2007 academic study dryly noted: "Companies value, even prefer, litigation as a means for resolving disputes with peers. Systematic eschewing of arbitration clauses also casts doubt on the corporations' asserted belief in the superior fairness and efficiency of arbitration clauses. [Corporate] assertions that mandatory consumer arbitration is justified because it provides consumers with a superior form of dispute resolutions thus appear to be disingenuous." In fact, most BMA clauses specifically provide that while other parties must go to corporate court, the corporation itself retains the option of going to a real court. Odd, eh?]

Justice for hire

Private firms like the National Arbitration Forum and JAMS (Judicial Arbitration and Mediation Service) have hundreds of lawyers, professors, ex-judges, and others on their rosters to hire out as "third party" referees in BMA cases. But a relatively small number of them do the heavy lifting, sometimes handling dozens of cases a day (a phenomenon grossly referred to as "bulk arbitration"). In 2007, Public Citizen profiled NAF's busiest bulker, Joseph Nardulli, a corporate lawyer in Irvine, California. He holds the record: An astonishing 68 cases disposed of in a single day!

One reason Nardulli can pop 'em out so quickly is that he seems predisposed to accept the bank's argument. On that day, banks won all 68 cases he adjudicated, and he awarded every dime of the $919,306 they asked for. Another reason is that very little "due process" is involved. Most cases are handled through what NAF calls "document hearings," but no hearing is held. Rather, the arbitrator simply reviews whatever documents the contesting parties submit. In all, Public Citizen found that Nardulli handled 1,332 cases in a four-year period, with the corporate entities winning 97 percent of them and collecting $15,039,081 of the $15,602,571 they sought.

NAF's corporate biases and conflicts of interest have proven so outrageous that the Minnesota attorney general sued it for consumer fraud, deceptive trade practices, and false advertising. The case was so strong against the privately-held firm that it had to agree in 2009 to being banned from handling any more consumer arbitrations (though it still arbitrates other disputes). In a bizarre press release, NAF tried to put a sheen of respectability on its tarnished reputation by reasserting what had just been ruled false. "[The] fairness of arbitration is ensured by the independence of the national arbitrators."

How independent can arbitrators be if they take fees of up to $10,000 a day (and pocket a million or more a year) by rendering arbitration rulings that please the corporate party? The lure of such cash is having a seamy, ethically degrading impact on some in the real judiciary. A California superior court judge, for example, makes a tidy $179,000 a year, but here come the national arbitration firms, recruiting big-name jurists to join their rosters. Having that $10,000-a-day possibility waved at them gives some judges an ethical twitch--at least tempting them to go over to the privatized judicial business.

In 2000, in a three-part series on the rise of manda\0x00tory arbitration, the San Francisco Chronicle reported about an arbitration provider who helps coach judges on ways to alter what they do on the bench so they become more attractive to the private system, including taking more corporate cases, working on their arbitration skills, and developing an expertise in something like credit card law.

More alarming are cases of judges crafting their rulings to please arbitration firms. The Chronicle, for example, reported on a California woman who sued her boss for sex discrimination. But a BMA clause stuck in her contract said she could only go to arbitration, even naming JAMS as the firm that would provide the arbitrator. Through a long process, her case finally came before the state court of appeals, which ruled against her. Later, she learned that while her case was pending, one of the justices had accepted an offer to join JAMS as an arbitrator.

Demonstrating the depths to which the ethics of justice are being pulled by the forced arbitration industry, the president of JAMS expressed shock--not at what looked to be a judge's grubby conflict of interest, but that he was being criticized for it: "It's inconceivable to suggest that a pre-eminent jurist who has served on the bench for more than 20 years with an impeccable reputation for nonbias... would compromise his record in any way."



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