Fact-checking American Express claims about forced arbitration

March 31, 2015

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A recent article by Orange County Register Watchdog Columnist Teri Sforza explains some of the harm done to consumers and employees from forced arbitration, drawing in part on AFJ’s short documentary Lost in the Fine Print. The film details the story of Alan Carlson, the owner of Italian Colors restaurant in Oakland, California, who tried to challenge American Express’s high “swipe fees” in court. A forced arbitration clause buried in the fine print of American Express’s terms of service kept Alan from being able to vindicate his rights.

Alan Carlson

Marina Hoffmann Norville, a vice president at American Express, told the paper her company recently made changes to its forced arbitration policy to keep customers satisfied.

But how significant are the changes for consumers?

For the past decade, companies have been free to make claims about their arbitration policies with little factual support or scrutiny. There was no way to know what the typical arbitration process looked like, if customers were able to take advantage of seemingly consumer-friendly clauses, and whether consumers were actually winning cases in arbitration. But all that changed earlier this month, when the Consumer Financial Protection Bureau released its comprehensive, in-depth study of forced arbitration. Now, consumers are able to fact-check company claims.

So we decided to fact-check American Express. Is its arbitration clause as consumer-friendly as the company implies?

The answer is a resounding no.

American Express touts its new opt-out policy, which gives customers 45 days from when they first use a new card to opt out of the agreement’s arbitration provision. While “agreeing” to forced arbitration is as easy as swiping your Amex card, opting out is a bit more onerous. To even find the provision, customers have to get to one of the last pages of the cardmember agreement—just past the “governing law” and “assigning the agreement” sections. Customers then have to print, sign, and snail mail a rejection notice to a P.O. box in El Paso.

It’s unsurprising that consumers rarely take advantage of these opt-out provisions. According to the CFPB’s study, though over a quarter of credit card contracts include a similar provision, not a single consumer of the 570 interviewed had opted out. Only three consumers reported being given an opportunity to do so—but those three were mistaken. None of them actually had a contract which would have allowed them to opt out.

We did find one place where American Express is an industry leader: conducting forced arbitration in secret.

 Only two credit card issuers of the 66 examined by the CFPB expressly includes a confidentiality or non-disclosure clause in its forced arbitration provision. American Express, which mandates that “[t]he arbitration will be confidential,” is presumably one of them. These clauses prevent wrongdoing from being exposed and remedied on a large scale. Consumer laws, which protect us all from fraud and discrimination, vindicate critically important societal goals. They should be enforced in the full sunlight of the courtroom—not in a private tribunal that American Express closes off to the public.

The rest of Amex’s arbitration clause is similarly unfriendly to consumers. The company provides a carve-out from forced arbitration for small claims court, as do 99 percent of credit card contracts. But like the opt-out clauses, these provisions rarely help consumers; they are more likely to be used by companies trying to collect debt. In 2012, looking at selected states and large cities, the CFPB was only able to identify—at most—39 small claims cases brought against American Express by a consumer.

Like 40.9 percent of credit card forced arbitration clauses, American Express’s includes a right to appeal an arbitrator’s decision—but only to three more arbitrators. The company is also unusual in that it “will consider in good faith making a temporary advance of your share of any arbitration fees.” Over 40 percent of credit card contracts require the issuer to do so.

If American Express truly wants a consumer-friendly arbitration policy, it should give its customers the right to choose whether or not they arbitrate—not in the form of an arcane opt-out policy, but after a dispute arises. If arbitration is as fair, quick, and affordable as proponents claim, it’s hard to imagine why customers would turn it down.

• Tell the CFPB to prohibit forced arbitration in consumer financial products
• Tell the music streaming service Spotify to stop using forced arbitration

How Spotify Lets Your Rights Get Lost in the Fine Print - and What You Can Do About It

March 26, 2015

Nan Aron | President, Alliance for Justice

The moment you sign up for the music streaming service Spotify, you lose some very important rights - and Spotify wants to bury what you're losing in the fine print.

Spotify specifies that when listeners click "sign up," they agree to its terms and conditions - found on a separate page of the Spotify website. Buried in the fine print of those "terms and conditions of use" is a forced arbitration clause. As the ad says, that means if you have a dispute with Spotify, you have to take your case to a decision-maker at a firm they choose - not a judge or jury. In addition, if Spotify violates the rights of thousands, even millions of its listeners, they can't band together to seek justice.

Interested in learning more, see the full text of Nan's piece at the Huffington Post.

Retailer tries to hold customer’s money hostage to forced arbitration

By Trevor Boeckmann
AFJ Dorot Fellow
As we detail in our short documentary Lost in the Fine Print, forced arbitration clauses have become omnipresent in American society.  They’re used by companies to prevent consumers from having the chance to stand up for their rights in court when they’re harmed.  Yet most of these clauses are buried deep in the fine print of contracts and terms of service.

Now Walmart, already a corporate bad actor in so many ways, has taken this strategy to a whole new level.  They found a way to hold a customer’s money hostage until she agreed to forced arbitration.

KTRK-TV in Houston reports that on Black Friday, local shopper Maria Selva tried to buy a new TV at the big-box retailer. Walmart had sold out of the TV by the time Selva came to purchase it, but employees gave her a coupon, and had her pay in full.

She thought she could just pick up the TV at a later date.  But after she’d already paid, she was given a notice telling her she had to register online.  When she went online, she found that registering the coupon meant agreeing to forced arbitration.  She refused to accept the terms, and contacted Walmart to ask for a refund.

Walmart said no.

Instead, the company told her she would have to agree to forced arbitration, receive the TV, and return the TV.  Only then could she receive a refund.

It wasn’t until KTRK contacted the company that Walmart finally relented and issued a refund.

The consequences of forced arbitration can be great.  In Lost in the Fine Print we document the stories of Nicole Mitchell and Debbie Brenner, victims of discrimination and fraud who were never allowed to defend their rights in court.

Walmart isn’t the only company that has tried to find creative ways to impose forced arbitration.

Take General Mills, for example.  Last spring, we told you about their new arbitration policy, which purported to force consumers into arbitration if they entered a company contest, printed a General Mills coupon, or even “liked” Cheerios on Facebook.

But public pressure forced General Mills to back down.  Now we’re putting the pressure on other companies.  Join our campaign to end forced arbitration and protect everyday Americans.

Watch one consumer’s battle against Walmart and forced arbitration

Scalia on retirees losing their health insurance: “I can’t feel bad about it.”

By Trevor Boeckmann

AFJ Dorot Fellow

It’s no surprise to see the majority on the United States Supreme Court siding against consumers, employees, and everyday Americans. In the past, we’ve told you about the Court upholding forced arbitration clauses that keep those harmed by big businesses out of court, preventing women from banding together to stop employment discrimination, and allowing employers to impose their religious views on employees.

At some point, one would think the majority would start to feel bad about how their actions affect us. Apparently not.

This week, the Court heard oral arguments in a case involving health insurance for retirees.

 M&G Polymers USA, LLC v. Tackett involves a chemical company in West Virginia that had a series of collective bargaining agreements with its employees’ union. At issue was a clause in the agreement that said retired employees “will receive a full company contribution towards the cost of [health] benefits.” The union argued the benefits were guaranteed for life. The company argued it could take away these benefits whenever it chose—which it did in 2007.

As Professors Susan Cancelosi and Charlotte Garden wrote in a previous post: “The equitable case for retirees is compelling: they devoted their working lives to their employer with the expectation that they would then have health insurance to see them through their retirement.” Compelling, unless you’re Justice Antonin Scalia.

During oral argument, Justice Scalia mused:

 You know, the nice thing about a contract case of this sort is you can’t feel bad about it.  Whoever loses deserves to lose. I mean, this thing [the duration of the health benefits] is obviously an important feature.  Both sides knew it was left unaddressed, so, you know, whoever loses deserves to lose for casting this upon us when it could have been said very clearly in the contract.  Such an important feature.  So I hope we’ll get it right, but, you know, I can’t feel bad about it.

 Justice Stephen Breyer was quick to disagree:

Well, you know, the workers who discover they’ve been retired for five years and don’t have any health benefits might feel a little bad about it.

Listen to the comments of Justice Scalia and Justice Breyer:

This is nothing new for Justice Scalia.  Last year, he compared the LGBT community to “child abusers” and referred to the Voting Rights Acts as a “perpetuation of racial entitlement.”

And if the majority sides with the chemical company, that won’t be anything new either.

Don't let Microsoft clip our rights

 The computer giant is trying to force us into forced arbitration

Microsoft, the company that gave us Vista, Ctrl-Alt-Delete and Clippy, has something in store for us that’s even worse.  The company has been phasing in forced arbitration clauses in its “services agreement.”

That means if you are harmed by a Microsoft product or service, you can’t stand up for your rights in court.  Instead, you have to take your case to an arbitrator hired by Microsoft.  Arbitrators do not need to be lawyers or follow precedent, yet their word is nearly always final and unappealable.  One study found that such arbitrators rule for the businesses that hire them 94 percent of the time.

Microsoft also won’t let you band together with others the company has wronged and bring a class-action suit – often the only way to stop a corporation from cheating millions of consumers.  The latest version of the services agreement makes this ban even more strict.

One can see why Microsoft might be fond of forced arbitration.  In a 2003 e-mail, company founder Bill Gates used the following terms to describe what it was like to use one of his own products:

 disappointed, backwards, unusable, totally confusing, strange, pathetic, completely odd, weird, scary, crazy, slow, garbage, not usable, crapped up, crap, absolute mess, craziness, terrible.

Microsoft joins a lengthening list of big businesses that are taking away our rights when we’re harmed by their products and services.  Public outrage forced General Mills to back down.  But odds are you’ve clicked through at least one contract with a forced arbitration clause in the fine print. They are showing up everywhere, from credit card contracts to the Instagram terms of use.  And in the case of Microsoft, using one of the affected products means you’ve consented to surrendering your rights.

Perhaps the best indicator of just how bad a deal forced arbitration is for consumers is the sneaky way big businesses force it on us.

Take Microsoft’s latest email announcing the changes.  “Our users' needs are at the center of everything we do,” says the happy little email. “That's why we are updating the Microsoft Services Agreement.”  But there’s no mention of forced arbitration in the email itself.  And there’s no mention of it in the FAQ that supposedly offers the “highlights.”

No, you have to click on the link to the fine print and scroll down to Section 10 before you find out what Microsoft is taking away.  If forced arbitration is so great, why does it have to be forced?  Why not offer it on a voluntary basis?  And why aren’t companies bragging about it instead of tucking it away in those long, long “agreements” that few of us have the time to read?

There is a solution.  The Arbitration Fairness Act would put an end to these outrages.  If you don’t want your rights “clipped” by the company that gave us Clippy – or by all the other corporations on the forced arbitration bandwagon – tell your Members of Congress to pass the Arbitration Fairness Act.

 Read more about forced arbitration

AFJ: Roberts Court again expands corporate power to deny access to justice

Alliance for Justice President Nan Aron released the following statement today in response to the Supreme Court decision in American Express Co. v. Italian Colors Restaurant:

Today, a majority of the Supreme Court expanded the power of major corporations to deny Americans access to justice.  In upholding American Express’s forced arbitration clause, the Court’s majority has denied small businesses harmed by large corporations’ monopolistic practices the ability to stand up for their rights.  American Express admits this will deny plaintiffs any hope of compensation for valid legal claims, but, as Justice Kagan wrote, the majority says:  “Too darn bad.”

It is the latest in a series of decisions that make it significantly more difficult to hold big businesses accountable for their actions. Congress must act to ensure that the rights our laws secure for all Americans are not subsumed by arbitration clauses and a corporate-friendly Court.

Read more about Forced Arbitration

Read more about the Roberts Court’s bias toward big business 

Consumer Financial Protection Bureau strikes blow against forced arbitration

For many of us it may be the most important contract we ever sign.  It’s the contract that sets the terms for what often is our single largest investment – our home.

Richard Cordray

But what happens if the bank that holds our mortgage tries to cheat?  What if they improperly hide fees, or raise rates or even try to foreclose on the property illegally?  Banks have sought to protect themselves by inserting “forced arbitration” clauses into mortgages and home equity loans.

As we’ve noted previously on this Blog, under forced arbitration, consumers who buy defective products or are overcharged for services are barred from taking their cases to court.  Instead, they must use a private arbitration firm chosen and paid for by the business itself.  These clauses also often ban class actions, which allow individuals to band together to bring their common claims.

Having a dispute settled by arbitration is like playing a baseball game in which the other team hires, fires – and pays – the umpires.  One study of top arbitrators for one major arbitration firm found that they rule for the corporations that hire them 93.8 percent of the time.

One of the reasons we refer to the current Supreme Court majority as “The 1% Court” is its enthusiasm for inflicting forced arbitration on consumers.

But Congress drew the line at home mortgages.  Section 1414 of the Dodd-Frank Wall Street Reform and Consumer Protection Act bans forced arbitration in mortgage disputes.  Regulations implementing the law had to be issued by an agency created by that law – the Consumer Financial Protection Bureau.  Those regulations took effect June 1. Section 1028 of the Act also mandates that the CFPB study and report to Congress on “the use of agreements providing for arbitration . . . in connection with the offering or providing of consumer products or financial services.”

You remember the CFPB.  That’s the agency Republicans hate so much that they’ve vowed to filibuster anyone President Obama nominates to run it unless the President agrees to eviscerate Wall Street reform.  That includes the current agency director, Richard Cordray, named to the position through a recess appointment that was called into question by a ruling of the D.C. Circuit Court of Appeals.

The new forced arbitration regulation makes clear what this fight and the other fights over President Obama’s nominees really are all about.  They're about Republicans who can’t stand Wall Street reform or consumer protection or anything that gives everyday Americans a fighting chance against corporate special interests.

That’s why the fights ahead over Cordray, and President Obama’s nominees to the D.C. Circuit and his  nominees for posts like Secretary of Labor, Environmental Protection Agency Administrator and the National Labor Relations Board, are so important.  That’s why, if Senate Republicans refuse to allow yes-or-no votes on these nominees, the Senate majority needs to revisit reforming Senate rules.

Arbitration Fairness Act would reopen courthouse doors for millions of Americans

AFJ released this statement today on the reintroduction of the Arbitration Fairness Act:

Coast Guard delivers supplies to the
"cruise from hell"

Federal legislation introduced on May 7 to ban the increasingly common practice of forced arbitration “is urgently needed to reopen the courthouse doors to millions of Americans,” according to Alliance for Justice President Nan Aron.

Aron commended Sen. Al Franken (D-Minn.) and Rep. Hank Johnson (D-Ga.) for reintroducing the Arbitration Fairness Act, which restores Americans’ rights to have their day in court. Those rights have been undermined by the increasing use of forced arbitration and a series of recent Supreme Court decisions, most notably AT&T Mobility v. Concepcion.

“From cell phone purchases to nursing home agreements, to gaining employment, consumers and employees are being forced to accept arbitration clauses – and to potentially cede their civil and labor rights – in every aspect of their lives.

Sen. Al Franken

Rep. Hank Johnson

“For example, anyone who saw the pictures of conditions aboard the Carnival Cruise ship Triumph after it was disabled by a fire knows why it was dubbed ‘the cruise from hell,’” Aron said.  “But those passengers may have a hard time suing.  When they bought their tickets, there was a forced arbitration clause in the fine print.”

Under forced arbitration, consumers who buy defective products or are overcharged for a service are barred from taking their cases to court.  Instead, they must use a private arbitration firm chosen and paid for by the business itself.  Forced arbitration clauses also often ban class-action suits, which allow individuals to band together to bring their common claims.

In addition to Carnival, the photo sharing service Instagram uses forced arbitration – and some fear Instagram’s parent company, Facebook, may be next.  The practice is also spreading to employment contracts, threatening to make it nearly impossible for workers to sue over race, sex or age discrimination.

“Having a dispute settled by arbitration is like playing a baseball game in which the other team hires, fires – and pays – the umpires,” Aron said.  She noted that a study of top arbitrators for one major arbitration firm found that they rule for the corporations that hire them 93.8 percent of the time.

“The forced arbitration system gives corporations a free pass to break the law,” Aron said.  “The Arbitration Fairness Act would revoke that free pass.”

Read more about forced arbitration

● An overview of forced arbitration 
● AFJ’s report Arbitration Activism
● AFJ reports on AT&T Mobility v. Concepcion
● Press release from Rep. Johnson
● Press release from Sen. Franken
● Letter of support from AFJ and more than 40 other organizations

Republican-led House Subcommittee attacks plaintiffs’ access to court

On March 13, the House Subcommittee on the Constitution and Civil Justice held an oversight hearing to examine “litigation abuse,” the new buzz-word for “tort reform” – which, in turn, is a euphemism for denying access to justice.

Rep. Trent Franks (R-AZ)

The Subcommittee focused on ways to limit so-called “forum shopping,” cy pres settlements (discussed further below), and financing civil litigation. However, Rep. Jerrold Nadler (D-NY), the ranking member, criticized the panel on its failure to recognize that in many cases, large corporate defendants are engaged in actual wrongful and negligent activity that harms individuals whose only recourse is through the courts.

First, Chairman Trent Franks (R-AZ) framed “forum shopping” as the practice by which plaintiffs-attorneys choose the most favorable jurisdiction. However, Rep. John Conyers, Jr. (D-MI) responded by highlighting the many ways corporations have been successful in “forum shopping through legislation,” such as the so-called Class Action Fairness Act of 2005 (CAFA) and through contract clauses which force plaintiffs to use a forum chosen by the very people they are suing.  In other words, civil defendants force victims to sue in the courts most friendly to corporate interests.

Second, Theodore Frank, President of the Center for Class Action Fairness, raised objections to cy pres awards.  These are awards given to charities when the plaintiffs are dead or unknown. Frank claimed these awards, rob victims and unjustly reward plaintiff attorneys. However, Joanne Doroshow, Executive Director for the Center for Justice and Democracy, defended the practice as a necessary tool that holds malfeasant civil defendants accountable by imposing liability where responsibility is clear but the victims are unknown or otherwise unavailable.  The alternative would be a de facto reduction in the amount a defendant must pay just because victims had died or could not be found.

Third, the Republicans criticized the use of third party ligation financing (TPLF) in which lenders provide money to finance litigation and use of contingency fee lawyers by state attorneys general. However, Doroshow pushed back, arguing that TPLF enables injured victims to get a day in court rather than to be forced to take a low ball offer because they cannot afford to put food on the table.

John Beisner, a corporate attorney with Skadden Arps and the U.S. Chamber of Commerce’s Institute for Legal Reform, was hostile to the practice of state attorneys general hiring  outside counsel on a contingency fee basis to represent the state in civil litigation.  Beisner worried that the use of private counsel would give rise to conflicts of interest and loss of public trust. Reps. Nadler and Conyers said the practice allows under-resourced and understaffed state attorneys general offices to enforce state and federal laws at no cost to the taxpayer. Beisner also characterized these arrangements as a “pay-to-play” relationship.

Rep Ted Deutch (D-FL) exposed the hypocrisy of this argument by asking Beisner why the Chamber of Commerce heavily contributes to state judicial races while opposing plaintiff practices that finance litigation without directly affecting the justice system. Rep. Deutch pointed out that the financing agreements in no way influence the actual courts, unlike the Chamber’s practice of pouring money into state judicial races.

Wednesday’s hearing represented another thinly-veiled attempt to protect corporate defendants from taking responsibility for their wrongdoing while raising more  barriers to  victims’ access to justice. As Professor Doroshow pointed out, litigation abuses are a real concern – but many of the most flagrant abuses are committed by corporate defendants burying overmatched individuals in frivolous motions and procedures designed to delay and deny justice.  

As we have noted elsewhere on this blog perhaps the greatest “litigation abuse” is the expanding practice of forcing Americans to sign away their right to litigate at all through forced arbitration clauses with class action waivers.

Learn more about efforts to protect Americans’ access to court at Take Justice Back and at AFJ’s 1% Court Campaign. 

Will cruise passengers be victimized again – by forced arbitration

As they suffered in sweltering heat, walked through sewage and defecated in plastic bags, some of the passengers aboard the Carnival Cruise Lines ship Triumph probably were thinking “At least when we finally get home we can sue the b-----ds.”

The Carnival Triumph in happier times
(including working toilets)

Well, they can try – and some already have.  But the U.S. Supreme Court has made it a lot harder than it should be. 

It appears that Carnival is far better prepared to prevent lawsuits than it was to contain the damage aboard the Triumph.  In the fine print that comes with every ticket, there is a clause that bars most lawsuits.  Instead, passengers must go into forced arbitration.  In addition, when passengers buy a ticket for a Carnival Cruise they give up their right to be part of a class-action suit – though again, one law firm is going to try anyway.

As we explained in a previous post to this blog, and in our 2011 report, Arbitration Activism, this means the deck is stacked against the passengers at every turn.  And in keeping with its role as “The 1% Court” the Supreme Court majority has upheld forced arbitration, and the ban on class actions, in one outrageous case after another.

The Carnival Cruise fine print makes exceptions for individual suits in cases of “personal injury, illness or death.”  In one of the suits brought so far, a passenger cites severe dehydration and bruises suffered while on “aggressive food lines.”    

But passengers whose suffering extended only to enduring heat, stench, limited food and no toilets may be out of luck.  As for the validity of any class action, presumably Carnival could appeal all the way to the Supreme Court – and we know what that is likely to mean.

IT’S EVEN WORSE FOR THE CREW

There is another group that endured worse suffering than the passengers.  As Josh Eidelson points out in Salon, even when nothing goes wrong, conditions on cruise ships can be hell for the crew.  And there is almost nothing they can do about it.

Citing the work of Prof. Ross Klein, the author of Paradise Lost at Sea: Rethinking Cruise Vacations, Eidelson writes: 

Carnival is technically registered in Panama, a country whose laws Klein charges “have been changed to satisfy Carnival’s needs and interests. Because Carnival means a fair amount of money to their national treasury.” Effectively, for cruise workers, says Klein, “there aren’t any real labor regulations.” (He noted that one lawsuit that was brought against Carnival in the U.S. ended with a settlement requiring future such disputes be pursued through an arbitration system, effectively requiring potential worker plaintiffs to shell out tens of thousands of dollars in transportation and legal fees.)[Emphasis added.]

President Obama’s other audience

Will the Supreme Court help America complete its journey

 – or throw obstacles in the way?

When President Obama gave his second inaugural address Monday, it’s estimated that one million people gathered on the National Mall to hear him.  Tens of millions more heard the speech on television, radio or online.

But there also was a much more select audience – an audience of nine, seated just a few feet from the president.  Because several issues the president raised will be profoundly affected by actions of the United States Supreme Court, in some cases, within the next few months.

The president said:

Our journey is not complete until our gay brothers and sisters are treated like anyone else under the law, for if we are truly created equal, then surely the love we commit to one another must be equal, as well.

And, in marking civil rights landmarks, the President pointedly included “Stonewall” along with Seneca Falls and Selma.

The Supreme Court can speed the journey, by voting to strike down the so-called Defense of Marriage Act, and upholding the ruling by the 9^th Circuit Court of Appeals that California’s Proposition 8 is unconstitutional.  Or the court can make it a much longer, more tortuous journey by upholding discrimination.

The president said:

We the people declare today that the most evident of truth that all of us are created equal -- is the star that guides us still; just as it guided our forebears through Seneca Falls and Selma and Stonewall; just as it guided all those men and women, sung and unsung, who left footprints along this great mall, to hear a preacher say that we cannot walk alone; to hear a King proclaim that our individual freedom is inextricably bound to the freedom of every soul on Earth.

And he said:

Our journey is not complete until no citizen is forced to wait for hours to exercise the right to vote.

The famous march from Selma to Montgomery was a march for the right to vote – a right won with passage of the Voting Rights Act of 1965.  But now, a challenge to a key provision of that law could significantly setback the progress won by Dr. King and those who marched with him.

The president said:

Together we discovered that a free market only thrives when there are rules to ensure competition and fair play.

But over and over again, the Supreme Court majority has bent those rules to favor corporate special interests at the expense of the rest of us, something documented in detail in our First Monday documentary, Unequal Justice.

This term, the Court may bend the rules again, when it returns to the issue of forced arbitration in the case of American Express Co. v. Italian Colors Restaurant.

And, of course, the president alluded to the tragedy of gun violence:

Our journey is not complete until all our children, from the streets of Detroit to the hills of Appalachia to the quiet lanes of Newtown, know that they are cared for and cherished and always safe from harm.

The Supreme Court already has made that part of the journey more difficult.  The right-wing activist majority radically reinterpreted the Second Amendment, discovering an individual right to bear arms where none existed before.

Chief Justice John Roberts administers the Oath of Office

--White House photo

But even Justice Antonin Scalia did not close the door to all regulation of guns.  And whatever Congress may do in response to the Newtown tragedy, the Supreme Court may well have the final word.

That’s why something President Obama did not mention is at least as important as all of the subjects he raised in an excellent inaugural address: the need for a progressive judiciary – on our federal district courts, on our circuit courts of appeals and on the United States Supreme Court.

The REAL danger in Instagram's new Terms of Use: forced arbitration

Perhaps you’ve read about the controversy over new “Terms of Use” from the photo-sharing service Instagram, which now is owned by Facebook.  Under the terms, if you use Instagram it is free to sell your photos, your likeness and pretty much anything else it knows about you to advertisers – without any further consent on your part, and without compensating you.  And if, by some chance, you’re under 18, Instagram assumes that when you click “accept,” at least one parent has read over the terms and agreed to them on your behalf.

The ensuing furor prompted Instagram to issue a statement saying, in effect, well, yes, that’s what we said, but it’s not what we meant. The company then withdrew that particular language.

But, as a Reuters story points out, that’s not even the scariest part of the new Terms of Use.

This is:

EXCEPT IF YOU OPT-OUT AND EXCEPT FOR CERTAIN TYPES OF DISPUTES DESCRIBED IN THE ARBITRATION SECTION BELOW, YOU AGREE THAT DISPUTES BETWEEN YOU AND INSTAGRAM WILL BE RESOLVED BY BINDING, INDIVIDUAL ARBITRATION AND YOU WAIVE YOUR RIGHT TO PARTICIPATE IN A CLASS ACTION LAWSUIT OR CLASS-WIDE ARBITRATION. [Caps and boldface in original].

Once the new terms take effect, existing users will have only 30 days to opt out.  New users will have only 30 days after they join. And if you want to opt out, you’ll have to have to do it by snail mail.  The only other choice: Cancel your Instagram account.  But, according to lawyers who are suing Instagram, if you do that, you lose all rights to photos you've already uploaded.

“A FREE PASS TO BREAK THE LAW”

If these terms take effect as planned on Jan. 16, Instagram will be the latest in a long line of companies to block your fundamental right to justice by forcing you into a system where the deck is stacked against you at every turn.  And if Instagram can get away with it now, will Instagram’s parent company, Facebook, try it next?

As we said in our 2011 report, Arbitration Activism, the arbitration system gives corporations “a free pass to break the law.”  In keeping with its never-ending deference to corporate special interests, the right-wing majority on the U.S. Supreme Court effectively rewrote federal law, issuing decision after decision helping big business make the most of that free pass.

For starters, facing off against a corporation in arbitration is like playing a baseball game in which the other team hires, fires – and pays – the umpires.  So it’s no wonder a study of top arbitrators for one major arbitration firm found that they rule for big business 93.8 percent of the time.  In addition:

● Filing fees often are higher in arbitration; that can discourage individuals from suing, particularly over relatively small dollar amounts.

● Rules of discovery are fashioned by the arbitration firms and, yes, by the big businesses that hire them.

● It’s almost impossible to appeal.

● Proceedings are secret; they don’t even have to produce a transcript.  As we note in Arbitration Activism “corporations can prevent negative publicity, keep their wrongdoing secret, and avoid emboldening other customers and workers from bringing legal action.”

● Perhaps most serious, arbitration clauses, like the one from Instagram, prohibit class-action suits - like the one that's just been filed against Instagram over the new Terms of Use.  When millions of people are cheated out of relatively small amounts per person, each can’t go through a cumbersome arbitration process to get her or his money back.  The only hope for justice – and the only real deterrent to fraud – is a class-action.  But the Supreme Court has upheld the prerogative of big business to deny consumers that right.

And it’s not just consumer issues.  Arbitration, and with it the ban on class-actions, is spreading to employment contracts, threatening to make it nearly impossible for workers to sue over race, sex or age discrimination.

CONGRESS CAN FIX THIS

The Arbitration Fairness Act of 2011 would bar forced arbitration in most civil rights, consumer, and employment discrimination cases.  The bill never got out of committee.  We hope members of the new Congress will try again.

In the meantime, if you use Instagram, be sure to write out that opt-out letter and mail it to Instagram, LLC ATTN: Arbitration Opt-out 1601 Willow Rd. Menlo Park, CA 94025.

The Disingenuous Defense of Forced Arbitration

Andrew Pincus argued before the Supreme Court that corporations should be able to immunize themselves from class actions...and won.

In AT&T Mobility v. Concepcion, the Court ruled that corporations can impose arbitration processes on aggrieved customers and deny them the ability to bring class actions. Re-writing an 86-year-old federal statute, the five conservative justices ruled that AT&T could advertise “free” cell phones to lure consumers and then charge them a surprise $30 sales tax without being susceptible to suit, thanks to fine print in the “take-it-or-leave-it” contract that AT&T imposes on its customers.

Recently, Pincus has written in the New York Times and the National Law Journal that Concepcion is “transforming the way disputes are resolved throughout the country” – a transformation which is, he suggests, to the benefit of everyone except plaintiffs’ attorneys. Pincus is correct that a transformation is underway (just this week Microsoft announced that it, too, is inserting clauses in its user agreements to force individual arbitration in response to the Concepcion decision), however, the benefits accrue primarily to Pincus’ corporate clients.

Nearly every aspect of Americans’ everyday lives is controlled by “take-it-or-leave-it” or “adhesion” contracts. We sign them to buy products and procure services. As Amalia Kessler, a Stanford Law professor put it recently, in order to avoid such contracts “[y]ou would have to live in a cave somewhere.” And now in the wake of Concepcion, those contracts also serve to surrender our civil rights and protections as consumers.

Corporations Force Arbitration on Consumers, but Opt Out for Themselves

The New York Times recently published an article on the ramifications of AT&T Mobility v. Concepcion during the one year since the Supreme Court issued its decision. Drawing on a recent report recent report (.pdf download) issued by Public Citizen and the National Association of Consumer Advocates, the article noted that:

since Concepcion, judges had cited the decision at least 76 times as a reason to prevent potential class-action lawsuits from moving ahead. In some of those cases, the judges made clear that they were ruling against the plaintiffs through gritted teeth, explaining that Concepcion basically made it impossible to come to any other decision.

 The article summarized the views of Taylor Lincoln, a co-author of the Public Citizen study:

Many well-known arbitration companies have a pro-business bias, he said, because corporations pay the arbiters. But the real agenda of Concepcion’s champions, he added, is to block collective legal action — the kind that gets a company’s attention by affecting the bottom line. Justice Stephen Breyer echoed that notion in his dissent in the Concepcion case — it split the Supreme Court 5 to 4 — when he quoted from a 2004 decision written by Judge Richard Posner of the United States Court of Appeals for the Seventh Circuit: “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30."

That corporations force arbitration on consumers in order to block collective legal action is unmasked by a recent study that reveals that

Fortune 1,000 corporations are significantly less likely to arbitrate contract disputes today than they were in 1997.  In the 1997 study, 85% of companies reported using arbitration in commercial contract disputes at least once during the prior three years.  In 2011, however, only 60 percent of companies so reported.

The most common reasons given by survey respondents… for not using arbitration included: the difficulty of appeal, the perception that arbitrators tend to compromise, the concern that arbitrators may not follow the law, a lack of confidence in neutrals, and high costs of arbitration.

Thus, while corporations force arbitration on consumers, with the blessing of the Supreme Court’s pro-business majority, they are increasingly hesitant to use arbitration to resolve their disputes with other corporations.

Of course, the concerns about commercial arbitration are all serious concerns for consumer arbitration as well – particularly, the impartiality of arbiters that corporations repeatedly appear before, the higher costs of arbitration, minimal access to evidence, closed-door proceedings, and narrow grounds for judicial review.  AFJ explored many of these problems in our report, Arbitration Activism (.pdf download).

As awareness grows of the harm to consumers forced into arbitration, the federal government has begun to take action. The Consumer Financial Protection Bureau recently issued a Request for Information to assist it in conducting a study of pre-dispute arbitration agreements, as mandated by the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010. The period for public comment ends June 23, 2012.

One Year Later: The Consequences of AT&T Mobility v. Concepcion

Douglas Bellows was illegally harassed by a debt collector, but he will never have his day in court. Lourdes Cruz was charged fees for unwanted services by AT&T, but she will never have her day in court. Mack Green was cheated out of wages and benefits by his employer, but he will never have his day in court. Nor will the numerous other individuals with legitimate claims that Bellows, Cruz, and Green each sought to represent. All thanks to the Supreme Court’s decision AT&T Mobility v. Concepcion, which was issued one year ago today.

On April 27, 2011, the Court’s decision brought one chapter in the Concepcions’ legal saga to an end, but for the millions of Americans who are bound by take-it-or-leave-it contracts with cell phone companies and credit card companies, and with their corporate employers, the profound implications of the decision remained to be seen at that point. Now, a year later, it has become clear that the Court’s decision in Concepcion has had a dramatic effect on everyday Americans’ ability to access justice through the courts.

The Court held in Concepcion that the Federal Arbitration Act (“FAA”)’s favorable treatment of contractual arbitration clauses preempts state laws aimed at protecting consumers and employees from unconscionable class action waivers. As a result, AT&T was able to avoid the legal and financial consequences of defrauding thousands of customers out of $30 for supposedly “free” phones, simply by including a provision in their service contracts that mandated arbitration and forbade class actions. The ruling left customers with no real recourse to recover their money from the company, because no one could reasonably be expected to bring an individual claim to recoup $30.

As feared, the case has had wide-ranging effects on the ability of consumers and employees to vindicate their rights in court and recoup ill-gotten gains from companies. The impact has been felt particularly in the financial services, telecommunications, auto sales, and employment contexts.

For instance, Douglas Bellows filed a class action against Midland Credit Management, a debt collector, alleging the use of harassing and abusive tactics to collect a debt in violation of the Fair Debt Collection Practices Act. After Concepcion, Bellows was forced into individual arbitration based on a clause in his take-it-or-leave-it credit card agreement.

Lourdes Cruz filed a class action against AT&T Wireless for charging $2.99 per month for “roadside assistance service,” although she had never requested or consented to such a service, under Florida’s unfair trade practices law. The Eleventh Circuit held that in light of Concepcion, Florida law was preempted by federal law and Cruz was forced into individual arbitration.

Mack Green and fellow shuttle bus drivers sued SuperShuttle for misclassifying them as franchisees rather than employees, thereby denying them benefits and overtime pay to which they were entitled, while charging them illegal “franchise fees.” After Concepcion, the Eighth Circuit forced the drivers into individual arbitration by upholding the class action waiver and mandatory arbitration clauses in their employment contracts, which the drivers alleged were unconscionable under state law.

These are just a few of the scores of suits (.pdf download) that have been dismissed by the lower courts in the twelve months since Concepcion was decided.

Of course, Concepcion was not written in a vacuum. Over the past several years, the Roberts Court has issued decision after decision forcing litigants into arbitration, in circumstances far afield from what Congress had in mind when it passed the FAA in 1925. The FAA was intended to counteract judicial hostility toward arbitration, by placing arbitration agreements “upon the same footing as other contracts.” The assumption was that the agreements would exist in negotiated contracts between parties with relatively equal bargaining power.

However, beginning in the 1980s and picking up significantly under the leadership of Chief Justice Roberts, the Supreme Court has radically expanded its interpretation of the FAA, applying it to take-it-or-leave-it (or “adhesion”) contracts in the consumer and employment contexts. Furthermore, rather than treating arbitration agreements as no less valid than other contracts, the Court has privileged arbitration agreements as super contracts not susceptible to ordinary contract defenses (such as unconscionability).

Continuing this trend, in January, the Court upheld the arbitration clause that the so-called credit repair company CompuCredit inserted into its take-it-or-leave-it contracts with consumers, thereby preventing consumers from filing a class action lawsuit in court. This decision, Compucredit v. Greenwood, was particularly outrageous because the statute at issue, the Credit Repair Organization Act (“CROA”), specifically requires companies like CompuCredit to inform their customers: “You have a right to sue a credit repair organization that violates the Credit Repair Organization Act.” Nonetheless, the Court found that this provision of the CROA only creates the right to receive the statement, not an underlying right to sue. As Justice Ginsburg wrote in dissent, in a statute designed to prevent credit repair organizations from unfair and deceptive practices, Congress certainly did not intend to allow those organizations to deceive consumers by telling them they had a right that they do not have – i.e., the right to sue.

As others have documented, when individual arbitration is the only path left open to aggrieved consumers and employees, the result is not a whole lot of arbitration – the result is a whole lot of nothing, as few individuals will choose or be able to navigate the unfamiliar terrain of the arbitration system. Meanwhile, corporations are left to operate with impunity, ripping off Americans in ways big and small.

In the end, the losers are the American system of justice and the American people.