Arbitration

  • February 19, 2016

    by Nanya Springer

    As part of its Access to Justice series, ACS on Thursday hosted Director of the Consumer Financial Protection Bureau Richard Cordray for a discussion of how forced arbitration and other anti-consumer measures are harming average Americans. Cordray, the agency’s first director, has overseen the birth and growth of the CFPB, which sprung directly from the financial crisis of 2007-2008. During the ensuing years, the cumulative wealth of middle-income Americans fell drastically, and many families saw their net worth cut in half.  The CFPB, he noted, was forged to ensure “consumer financial markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.”

    A burgeoning threat to consumers is mandatory arbitration agreements. Cordray explained that originally, arbitration was used primarily “in commercial disputes between businesses that bargained with each other to create tailored contracts; it was rarely used in disagreements between businesses and consumers.” Over the last two decades, however, “banks started including arbitration clauses in their consumer contracts, requiring any disputes or disagreements to be resolved through private arbitration.” He noted that the attorneys who advised these banks specifically pointed out that arbitration clauses can be used to block class action lawsuits.

    To investigate the impact of increasingly common arbitration clauses, the CFPB undertook the most extensive study of consumer finance arbitration ever conducted, finding that tens of millions of consumers are subject to at least one mandatory arbitration clause—and most don’t even know it. Most importantly, the CFPB found that “arbitration clauses restrict consumers’ relief in disputes with financial service providers because companies are using them to block class proceedings in any forum – whether court or arbitration.”

  • January 29, 2016
    Guest Post

    by Ross Eisenbrey, vice president, Economic Policy Institute

    *This post originally appeared on epi.org.

    Employers are increasingly forcing employees to give up their right to sue in court and to accept private arbitration as their only remedy for violations of statutory and common law rights. Private arbitration can forbid class actions, limit damages, allow the employer to choose the arbitrator, and cut off appeals, resulting in a system unfairly tilted in the employer’s favor. As Stone and Colvin find, employees are much less likely to win in mandatory arbitration than in federal court: employees in mandatory arbitration win only about a fifth of the time (21.4 percent), whereas they win over one-third (36.4 percent) of the time in federal courts.

    Differences in damages awarded are even greater. The typical award in mandatory arbitration ($36,500) is only 21 percent of the median award in the federal courts ($176,426). While there are additional factors to consider in comparing the two systems, at the outset it is important to recognize that in a simple comparison, mandatory arbitration is massively less favorable to employees than are the courts.

                       

  • November 18, 2015
    Guest Post

    by Doron M. Kalir, Clinical Professor of Law, Cleveland-Marshall College of Law

    The fact that the Roberts Court is business-friendly is, by now, well documented. It is also no secret that the Court is generally hostile to the once-venerable institution of class actions. And most recently, as The New York Times ably demonstrated, the Court has moved to elevate arbitration as the preferred mode of dispute resolution. The accumulated effect of these three trends has been devastating: Millions of Americans – customers, employees, patients, and investors, among others – are routinely denied their fundamental right to have a day in court. Some call that the privatization of the justice system.

    DIRECTV, Inc. v. Imburgia, a case emerging out of an intermediate state court in California, is another case reflecting these trends. At first sight, it may not seem a likely candidate to become one of the Term’s blockbusters. Allegedly a typical state contract-interpretation case, it looks benign, almost boring to read. Yet it is anything but. It represents nothing short of a last-ditch effort by state courts to shield consumers from these emerging trends. Will it be successful or – as some predict – destined to fail? Only days will tell.

    The facts of the case are somewhat complicated. In 2007, Amy Imburgia contracted with DIRECTV to receive programming services. Predictably, her Customer Agreement contained an arbitration-only, no-class action clause. Unpredictably, it also contained language abolishing that clause should “the law of your state . . . find this agreement to dispense with class action procedures unenforceable.” And that is precisely what happened – the California Supreme Court held such provisions to be “unconscionable” and therefore unenforceable.

    Four years later, in AT&T Mobility v. Concepcion, the U.S. Supreme Court reversed the California rule. Class-action waivers in arbitration agreements, the 5-to-4 decision held, are enforceable, reasoning that the Federal Arbitration Act (FAA) preempts state law. Despite Concepcion, however, the California Court of Appeals ruled in this matter that the individual-only arbitration clause is still unenforceable. Why? The court reasoned that the term “the law of your state,” as included in this particular consumer contract, should not be interpreted to include federal interpretation of that law (the “Supremacy Clause” version), but rather only state law as interpreted by state courts.

  • November 11, 2015
    Guest Post

    by Adam Klein and Nantiya Ruan. Klein is a partner of Outten & Golden and Ruan is Of Counsel at Outten & Golden.

    Most veterans, like most Americans, believe that our Constitution’s Seventh Amendment protects their right to a jury trial in federal court when employers break the law.  Veterans returning to their jobs after service are in particular need of protection, as recognized by the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), which protects veterans’ reemployment rights and right to be free from discrimination because of their military service.  Yet, because so many employers mandate arbitration, having a court or jury hear employees’ claims is increasingly unavailable. 

    Forced arbitration agreements in employment relationships have garnered needed attention in recent years, most recently by the in-depth reporting of The New York Times this month. Despite extensive lobbying and media attention, forced arbitration is growing.  In 2014, 66 percent of U.S. companies had some form of arbitration clause for employees, customers, or both.[1]   Forced arbitration occurs when an employer conditions initial employment, continued employment, or receipt of employment benefits, including severance benefits, on the employee’s “agreement” to privately arbitrate all future claims against the employer.  Under employment arbitration, parties go before a privately hired arbitrator, usually a retired judge or attorney, who listens to evidence and issues a decision without a viable avenue for appeal. 

    Arbitration as a private system for handling disputes is too often an uneven playing field for employees: arbitration can be prohibitively expensive; agreements typically bar employees from bringing their claims as a group in a class action, which is the only way for many employees to challenge well-funded employers; employers effectively control the arbitration process, including the selection of arbitrators and the rules of that govern the proceeding; and there is no appeal from a bad arbitration decision. Adding to this imbalance is the U.S. Supreme Court’s recent decisions that make it extremely difficult to get out of forced arbitration agreements or class action bans.[2]

    Servicemembers hoping to escape forced arbitration agreements to pursue their USERRA rights in court are unlikely to be successful.  Recent case law in the Fifth and Sixth Circuits (as well as several district courts) have held that USERRA claims are subject to forced arbitration, in part because courts hold the statutory language of USERRA does not demonstrate a congressional intent to preclude arbitration.[3]

  • November 4, 2015
    Guest Post

    by Alex J. Luchenitser, Associate Legal Director for Americans United for Separation of Church and State

    In recent years, religious groups have attempted to use the legal system to impose their beliefs on others in a variety of areas, from health-insurance coverage and healthcare services, to discrimination in public accommodations and employment. Religious groups have typically done so by claiming that they have a statutory or constitutional “religious freedom” right to discriminate, deny services, or be exempted from laws or regulations.

    The New York Times exposes another way in which religious groups are attempting to foist their faith on those who might not share it. More and more frequently, religiously affiliated institutions are requiring people with whom they interact to sign contracts that require any disputes to be resolved through religious arbitration instead of the secular court system.

    Such religious arbitration is typically based on religious law, such as the Bible. Arbitration sessions are often opened with prayers. And the arbitrators are typically adherents of the religion of the entity that is being sued.

    Religious arbitration may make sense in some circumstances. Courts are prohibited from resolving disputes relating to certain internal affairs of a house of worship, including controversies that require interpretation of religious doctrine or involve the selection of ministers. In such situations, religious arbitration may provide the best chance for a disagreement to be resolved fairly.

    But religious arbitration clauses have spread far beyond contracts between houses of worship and their employees or members. The Times reveals that such clauses are being used by a variety of entities and businesses that serve the public, including substance-abuse programs, providers of vacation houses, flooring vendors, and even a sponsor of a fishing tournament.

    In these kinds of circumstances, religious arbitration functions as yet another means for religious groups to force the doctrines of their faiths upon people who do not share those beliefs, and to avoid legal rules that apply to others. Religious arbitration, in that context, is also suspect from a legal and constitutional standpoint.

    Although courts have generally upheld contractual clauses that mandate arbitration to resolve disputes, some of the reasoning underlying such decisions does not apply to religious arbitration clauses: Secular arbitrators usually must rely on the same legal principles that courts do; religious arbitrations follow religious law. Secular arbitrations are subject to limited review by the courts; courts cannot review religious arbitrations at all, however, because courts are barred from interpreting religious law. And secular arbitrators must be impartial; religious arbitrations, on the other hand, may be conducted by the very same religious groups that are being sued.