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Corporate Coup: Arbitration Clauses Deny Justice To Consumers

Do you read the fine print? Buried within many of the contracts you agree to when using a product like a cellphone or a credit card is a clause that is denying you your chance at justice.

An in-depth investigation by The New York Times reveals the growth in the use and power of so-called “arbitration clauses,” which allow corporations to evade judicial review and class action lawsuits for their misconduct by forcing consumers into private arbitration to resolve disputes.

Private arbitration is highly favorable to businesses when compared to class action lawsuits. Not only does it favor the powerful who can hire top-tier lawyers and arbitrators, it is often undesirable for the victim because corporations in the credit card, cable or telcom space are committing crimes that appear to be, financially speaking, on a small scale on the individual level.

Corporate malfeasance such as fraudulent fees and service charges, wage theft, and discrimination is unlikely to compel the average person to go through a lengthy arbitration process that will likely cost that person thousands or tens of thousands of dollars. Hence, the value of a class action lawsuit, where hundreds of individuals can band together and pool their resources to approach a big business on a more equal footing.

Due to no federal agency tracking class action lawsuits, the Times itself compiled and analyzed the available legal data and found that between 2010 and 2014, corporations won four out of five times when they tried to push a total of 1,179 class action cases into private arbitration. According to the Times, judges upheld class action bans in 134 out of 162 cases in 2014 alone.

But why? The reason for the legal outcomes is just as troubling as the outcomes themselves. The Times claims that the crippling of class action lawsuits was the result of an organized effort by a gang of corporate lawyers, one of whom has reached the commanding heights of US legal authority:

More than a decade in the making, the move to block class actions was engineered by a Wall Street-led coalition of credit card companies and retailers, according to interviews with coalition members and court records. Strategizing from law offices on Park Avenue and in Washington, members of the group came up with a plan to insulate themselves from the costly lawsuits. Their work culminated in two Supreme Court rulings, in 2011 and 2013, that enshrined the use of class-action bans in contracts. The decisions drew little attention outside legal circles, even though they upended decades of jurisprudence put in place to protect consumers and employees.

One of the players behind the scenes, The Times found, was John G. Roberts Jr., who as a private lawyer representing Discover Bank unsuccessfully petitioned the Supreme Court to hear a case involving class-action bans. By the time the Supreme Court handed down its favorable decisions, he was the chief justice.

The gang of corporate lawyers that included John Roberts represented companies such as Citigroup, Bank of America, Sears, JPMorgan Chase, General Electric, Toyota, and Discover and began organizing the effort to kill class action lawsuits in 1999. The effort included a meeting in June of that year at the New York law offices of WilmerHale.

The lawyers allied with the US Chamber of Commerce and poked, prodded, litigated and lobbied for more than a decade to neutralize class action lawsuits for their clients.

The effort eventually paid off with two precedent-setting cases on class action bans – AT&T v. Concepcion and American Express v. Italian Colors Restaurant – being decided after John Roberts became Chief Justice of the Supreme Court in 2005.

Today, consumers have been effectively prevented from seeking justice through class action lawsuits in many instances thanks to the arbitration clauses in contracts. John Roberts and his corporate comrades succeeded in making the rich and powerful even more rich and powerful. Their corporate coup prevailed in shredding one of the few mechanisms left for holding Big Business accountable.

Dan Wright

Dan Wright

Daniel Wright is a longtime blogger and currently writes for Shadowproof. He lives in New Jersey, by choice.