If you have a credit card, bank account, or mobile phone, or if you have otherwise agreed to a form contract presented to you at any time in the last several years, it is likely that you have unknowingly agreed to forfeit your right to sue the other party. For example, if you were to comb through all the mail you have received from your bank, you would find your account agreement. Buried somewhere in the fine print, you'll find a "dispute resolution" or "arbitration" clause, which says that if you have a dispute with the bank, you cannot sue; you must resolve your dispute before an arbitrator instead of a court of law.
What is arbitration?
Arbitration works like this: let's say your bank overcharges you $500. If you have an arbitration contract, then you cannot sue and have your claim decided by a jury. Instead, your claim will be heard by a single individual who will decide all issues of fact and law. This person is hired by an arbitration company which is hired by the bank. The arbitration company, which gets a large portion of its income from the bank, can decide not to hire him any more for any reason at any time. He probably handles a lot of claims against the bank. He has met the bank's attorneys over and over in court. He has never met you, and you will probably not even have a lawyer if your claim is for $500. The arbitrator's decision will probably not be explained or published. His decision can only be overturned by the court if you can go to the time and expense of proving extreme misconduct on his part: if you can show that he understood the law correctly, and intentionally decided contrary to the law. It is not enough to merely show that he was wrong. Depending on the terms of the particular arbitration clause, you may have to pay the arbitrator and the corporation's attorneys. See also this article in Bloomberg Businessweek.
In addition, virtually all arbitration clauses also include a ban on bringing or participating in any form of class action. In the above example, it might be possible for you to get legal representation if you could show that many, many other people were also overcharged - the sum of all your claims together would be enough to warrant hiring an attorney. Arbitration clauses with class bans take away this option, forcing individual customers who have been wronged to face behemoth companies alone.
Often, customers never even know these provisions exist because they do not read the agreements. Customers are rarely asked to agree to all terms before opening their accounts, and the arbitration agreements are mailed later. Most people who do take the time to read their contracts lack the legal knowledge necessary to truly understand how arbitration works and what they are giving up. Even attorneys with full knowledge of these clauses often agree to them, simply because they have no other choice. Bank accounts, credit cards, and mobile phones are necessary in today's world, and you cannot get any of those without signing on the line and agreeing to the terms presented.
Has arbitration worked?
Arbitration may sound to you like a system that is much more prone to injustice than the system of judges and juries, and indeeed there is evidence to show that substantial injustice has occurred. The National Arbitration Forum (NAF), then one of the major arbitration companies in the U.S., was sued in 2009 by the Minnesota Attorney General on the grounds that it defrauded customers into believing that it was an impartial dispute resolution forum, when in fact the NAF was biased heavily toward its corporate customers. (See also this article in Bloomberg Businessweek.) One retired Chief Justice of the West Virginia Supreme Court, who worked briefly for the NAF as an arbitrator, is quoted as having described the company as "professionals in squeezing small sums of money out of desperately poor people." Other former arbitrators have reported that they were no longer given cases after rendering decisions against the corporations that hired NAF. Such abuses do not necessarily extend to all cases and all companies, of course, but the secrecy and structure of arbitration make injustice very difficult to detect.
Is there any way to avoid arbitration?
Sometimes a good and knowledgeable attorney can successfully argue that an arbitration clause should not be enforced, or can make a deal with a defendant to arbitrate on favorable terms or before an arbitrator whom the attorney believes is fair. In certain cases, a lawyer can successfully argue that the agreement to arbitrate was unconscionable - so unfair to the consumer agreeing to it as to "shock the conscience." Arbitration agreements are almost always contracts of adhesion, meaning that consumers have no meaningful choice but to agree. In addition, they generally take from the consumer any meaningful legal remedy for a company's misconduct. Attorneys for consumers argue that no reasonable consumer would agree to such onerous terms unless they did not understand them and therefore could not meaningfully agree, or were forced or tricked into agreeing. Because arbitration clauses, especially arbitration clauses with class action bans, essentially operate as a license to steal small amounts from many customers, these arguments are sometimes successful.
An experienced law firm is vital in pursuing any potential class claim against a corporate defendant. The class action attorneys at Wallace & Graham have years of experience fighting arbitration clauses and many other issues involved in class actions, and have successfully obtained class action or class arbitration status for several cases that involved arbitration clauses. Please feel free to contact us for a free consultation at 1-800-849-5291.
