The arbitration scam

December 2, 2015

David Bliven explains a subtle but powerful tool for corporations: the growing use of binding arbitration clauses to prevent class-action lawsuits.

WITH VERY little fanfare, corporations have managed to erode a fundamental constitutional protection in recent years: the ability to file a lawsuit, guaranteed by the First Amendment as the right of the people to "petition the government for a redress of grievances."

If you've ever "agreed" to the terms and conditions on an Apple product, you have experienced this firsthand--though you might not realize it.

But it's not just Apple. Banks, cell phone companies and many other businesses have begun forcing customers and employees to accept binding arbitration--and to forego their right to sue--in the event of any dispute.

"This is among the most profound shifts in our legal history," said Boston federal judge William G. Young in an interview with the New York Times. "Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach."

As described in the Times' three-part series called "The Privatization of Justice," businesses have tried to impose binding arbitration clauses for many years. But two Supreme Court rulings in 2011 and 2013 paved the way for their widespread implementation.

Chase's corporate towers in Rochester, New York
Chase's corporate towers in Rochester, New York (Kristen Cavanaugh)

Outrageously, the Chief Justice in those rulings was John Roberts, who had previously worked as a lawyer for Discover Card advocating against class-action lawsuits and in favor of the imposition of binding arbitration.

The result of those rulings is a fundamental power shift from class-action lawsuits, which can enable large numbers of people to come together to get back small individual amounts--perhaps, for example, tens or hundreds of dollars from a bank that imposed illegal overdraft fees--to arbitrations, in which those people must press their claims as isolated individuals against a multibillion-dollar corporation.

Not surprisingly, the Times notes, many individuals don't bother pursing their rightful claims anymore under binding arbitration. These claims might be relatively small, but once transposed over millions of customers, the move toward arbitration has resulted in a shift of millions of dollars--if not billions--back to corporations.

THERE ARE many other advantages of class-action lawsuits versus arbitration. First, very few lawyers would take cases in which only a few hundred or a few thousand dollars were at stake. Such "small claims cases" are normally handled by the individual themselves--though in cases going against a corporation, there's a well-schooled corporate lawyer on the other side of the table.

Then there are the expert and other litigation costs often necessary to prove one's claim. If only $500 were at stake, it would be illogical to spend $50,000 in expert witness fees. Class-action lawyers can do that when they are representing many people, but individuals in arbitration can't, drastically increasing the odds of losing.

Arbitrations often lack the many protections regular court proceedings provide, such as the ability to appeal an adverse ruling, the ability to have courts issue subpoenas (arbitration "judges" often have no power to force witnesses to appear or necessary documents to be produced) or even the ability to have a record of the proceedings.

In fact, as the Times notes, many corporate arbitration clauses even require that Biblical law be applied to the hearings or that a "Christian" arbitrator reside.

Even more sinister are added provisions in arbitration clauses providing that if the claimant loses, s/he must pay the legal fees of the corporation--sometimes resulting in hundreds of thousands of dollars in legal fees. Likewise, such clauses can require litigants to pay upfront retainers and related fees to even hire the arbitrator, resulting in many thousands of dollars in costs that one wouldn't face were the case tried in court.

Not only is there no requirement for arbitrators to be judges, there is often no requirement that they even be lawyers. Thus, in theory, an arbitrator could be completely biased or make clear errors of law, and often, there is no remedy for the miscarriage of justice within the process. Indeed, because the corporations pay the arbitrators, most arbitrators know their continued employment is often dependent on corporate-friendly rulings.

The Times' "Privatization of Justice" series describes how the implementation of binding arbitration clauses was engineered by corporate lawyers in conjunction with representatives for numerous major corporations, banks and financial institutions--the ultimate class conspiracy. The explicit purpose was to end class-action lawsuits and steer consumers into corporate-friendly arbitration panels whose boards are paid for by the corporations themselves.

Many major lawsuits against corporate malfeasance were class-action lawsuits. This includes discrimination cases as well as sexual harassment cases--in which the individual damages may not be that great, but if the discrimination was against a class of employees, this translates into millions and even hundreds of millions of dollars, making it worth it for major plaintiff's law firms and experts to be involved. With the end of class-action lawsuits, we could see civil rights lawsuits decrease to a trickle.

DEFENDERS OF arbitration argue that they are mutual agreements between companies and their customers or employees. In reality, people have little choice in the matter. If one wants to buy a cell phone, for instance, one will quickly find that all major cell phone providers have binding arbitration clauses in their sales contracts. The same is true for employee contracts.

Consumers and workers are effectively being contracted out of the legal system--often unwittingly. The situation has grown so bad that even doctors and hospitals are increasingly requiring patients to sign arbitration agreements (thus opting out of medical malpractice cases) as a precondition for treatment.

The ominous presence of binding arbitration has even reached the international scale in trade agreements such as the Trans-Pacific Partnership, which establish private arbitration tribunals unaccountable to any national government.

There are other examples of a similar dynamic of getting people to waive their rights to the regular legal process playing out in the courts themselves. For example, there is an increasing push to implement "drug treatment courts," which require defendants to plead guilty and waive all their rights just to get into the program. Many courts are beginning to implement referrals to arbitration and mediation--with some judges even refusing to hear cases until the parties "at least try" to resolve the case first.

The move toward arbitration within the legal system must be seen as the inevitable logic of the capitalist system itself. Corporations have been scheming for decades to scale back--or completely eliminate--rights of the 99 Percent.

That's why we must continue to defend ours rights--but also fight simultaneously to end the capitalist system. Otherwise, we will find ourselves locked into a perpetual cycle of the rights won today being stripped tomorrow.

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