Think You Can Take It To Court? Think Again

It controls your checking account; it governs your brokerage account; it’s in those “terms” on the internet to which you clicked “Accept”; it’s in the contract with your cable company, your cell phone service; it’s probably in your mortgage’s fine print or any other loan agreement; it’s even in the contracts you signed with local merchants such as a gym or a tanning salon; and you can be sure it governs every credit card in your wallet or handbag.

What we are writing of, as if it were a fungus or invasive species, is the fine print to which you effectively agreed when you signed on for any of these services — terms that stipulated that any dispute may be resolved only by arbitration, a process whereby an arbitrator will be assigned to hear the claims of parties to a dispute and will have the sole power to decide who wins. You have agreed not to have the option of refusing arbitration and instead taking a case to court, no matter how serious, and the arbitrator’s ruling is binding, blocking you from any further resolution should a ruling go against you.

In a long and stealthy campaign of which the public has been barely aware, American businesses have succeeded in effecting a stunning transformation that denies us our traditional rights.

As for stealth, say you fill out an application for a new credit card. The form says nothing about how disputes are to be handled. Some time after you are accepted, you receive a small booklet of fine print. You probably threw it away, along with the "privacy" pamphlet that tells you everyone to whom the company will hand out your "personal information". But there it is, a section titled something like “Dispute Resolution” that spells out the arbitration process. But you never signed anything agreeing to this, right? However, you will find language elsewhere in the booklet such as, “If you do not accept these terms, contact us immediately and we will cancel your order for service” or, in the case of a credit card, “If you continue to make purchases on your Super Advantage card, this will constitute accept of these terms”.

Arbitration is as old as a 1925 statute signed by Calvin Coolidge. In theory, it is a simper process than the crowded courts and saves everyone time and money. But that assumes that arbitration is conducted fairly. In fact, the deck is stacked against the individual consumer. In the near universal case, the arbitrator is chosen by the company or organization with which you have a dispute. The arbitrator likely handles all complaints against that company, day in and day out. If that arbitrator rules for the customer more than a token number of times, it can expect to lose that company as a client.

Companies that field arbitrators for clients claim fairness. In response to the San Francisco city attorney suing the National Arbitration Forum Inc., one of the biggest such firms, alleging that it favors corporations over consumers, NAF said, "there is simply no truth to accusations that Forum arbitrators, who are experienced trial attorneys and retired judges, would risk their considerable reputations by issuing biased awards."

If that’s so, it seems the customer is always wrong. A 2011 “Frontline” documentary that touched on arbitration said that less than 10% of decisions are in favor of the consumer or an employee, but even that seemed an exaggeration to an interviewee from the Center for Justice and Democracy who said, “they’re almost always won by the bank or credit card company”. The documentary showed the example of First USA, a company that handles credit card transactions that had won 19,618 cases in arbitration. And how did those using the cards make out? How many cases did they win? 87.

Moreover, the arbitrator merely announces who won and who lost. Justifications are not offered. Most rulings are held secret.

The great majority of disputes concern financial transactions and are relatively small, but as a condition of hiring, employees are now routinely required to sign agreements that any dispute will be handled by arbitration with no access to the courts. A notorious case was that of Jamie Leigh Jones, who in 2005 went to Iraq to work for KBR, then part of Halliburton, where, assigned to an all male barracks, she was raped four days after arrival. Having signed an employment contract with an arbitration clause, she was blocked from going to court against the company. It took four years and the intervention of Sen. Al Franken (D, Mn) to break free and have her civil suit accepted and tried in a Houston court. She lost; her testimony was viewed as “embellished”, said one account. But the point should not be lost. There was no disagreement about her being raped, yet arbitration was allowed to quash one of the most serious felonies.

As might be expected, Congress has done little. Franken at least succeeded in pushing through the Senate a provision that forbade the military from entering into contracts with suppliers that bar employee recourse to the courts in cases of workplace sexual assault, battery and discrimination. But as it is an amendment to the defense appropriations act that must be renewed every year, its hold is tenuous.

Or take the example of of the the Fairness in Nursing Home Arbitration Act. Nursing homes regularly insulate themselves from the courts with arbitration clauses. The act sought to void such mandatory provisions, at least at federally funded nursing homes. Consider the gravity of what can happen in these facilities, where residents die as a matter of course and possibly under questionable circumstances, some of these companies being notorious for abuse and neglect. It would seem to be a circumstance where arbitration should be an option, but with access to the courts permissible. Yet the bill, introduced in August last year, was not enacted.

Arbitration may be less costly than going to court, but building a case with lawyers can be expensive nonetheless. Yet in 2011, the U.S. Supreme Court, as one of its several moves against class actions, refused to allow consumers and employees to band together so as to share those costs. So companies like Charles Schwab & Co. are inserting fine print for its customers that forbids them from banding together in class actions. If the company — which dispenses investing advice — sells you and others some rotten apple that wipes out your savings, it's you on your own against a company holding $2 trillion in assets.

In March the Court threw out an $875 million class action suit that subscribers had brought against Comcast, the nation's biggest cable company, not on the merits of the case or their lack, but saying once again that a group lacked the evidence to prove it was a class. Each subscriber should go up against Comcast individually.

And now, in a case recently heard before that court, a group of merchants had banded together to sue American Express over its credit card policies. They argued that the arbitration clause in their contracts made it too costly for each merchant to challenge the card company separately, as well as to contest one by one each of several disputes an individual merchant might have rather than gather them in a single complaint. The U.S. Court of Appeals for the Second Circuit had ruled in their favor, had then upheld the merchants’ case twice, and the Obama administration joined the case when it moved to the Supreme Court.

Yet the comments and questions by the conservative justices gave indication that they could not see why arbitration was too costly and questioned why the merchants thought they had a right to form a class to challenge their contracts. If the ruling, expected in June, goes against the merchants, it will further entrench arbitration as inescapable.

So the grip of large corporations on consumers, their employees and small businesses is ever tightening. That pride of of a free society, a trial by a jury of one’s peers, is being progressively taken away.