The U.S. Supreme Court has made it tougher on consumers who have disputes with huge corporations. Some see it as indication of the corporate takeover of our legal system. The high court handed down another pro-corporate decision in which the requirements imposed by a private company trump state law. The Federal Arbitration Act (FAA) is the reason that corporations are able to get away with this sort of thing. This statute, enacted 90 years ago, was never intended to affect consumer disputes. The FAA requires folks who enter an agreement containing an arbitration clause to go to arbitration. As a result they are not allowed to file a lawsuit in civil court and they have no opportunity to have their case heard publicly before a judge and jury. Instead, parties to the contract are required to present the case before a “professional,” known as an “arbitrator,” in a closed-door meeting. Unlike a judge, an arbitrator is not required to follow the law or to be unbiased. It’s a totally unfair system that gives the corporate world a huge advantage over ordinary folks.
What is particularly egregious about this system is that when it comes to issues between corporations and consumers, it is the corporation that hires the arbitrator. Quite often, the corporation has an ongoing client-contractor relationship with the arbitrator. This system stacks the deck against consumers. The current case involving a customer of DirecTV originated in California in September of 2008. According to the complaint, DirecTV acted improperly in assessing “early termination fees” (in some cases, as much as $480) for customers who decided they didn’t want the company’s service any longer. The service contract contains the infamous “arbitration clause,” which reads as follows:
In the unlikely event we cannot resolve any disputes under this Plan that you [the customer] and we [DirecTV] have, you and we agree to resolve those disputes through binding arbitration or small claims court instead of through courts of general jurisdiction.
The clause goes on to state that customers can only bring action against the company individually – not as a group. However, at the time Amy Imburgia signed her service contract, DirecTV’s service contract included the phrase: “unless the law of your state prevents it.” In this case, a California statute bars the use of contracts that unfairly allow one party to escape liability – including those that prohibit class action lawsuits over “adhesion” (non-negotiable) contracts, particularly when such cases involve relatively small amounts.
In 2011, the high court made a ruling in another case, AT&T Mobility v. Concepcion, that has an effect on subsequent cases. In that case, a couple sued the telecom giant, asserting that AT&T had engaged in false advertising, stating that free cell phones were included in their wireless plan. As was the case with DirecTV, AT&T’s contract required unhappy consumers to submit their cases to arbitration, and prevented them from filing class-action lawsuits. This clause was also in violation of California law. However, when the case came before the U.S. Supreme Court, a majority of the court ruled that federal law, the FAA, took precedent over the California statute. It didn’t take DirecTV long to use that ruling in an effort to get the class-action lawsuit against the company dismissed. Shortly after the Concepcion decision, corporate counsel for DirecTV argued that it had not moved to compel individual arbitration because they had believed the clause to be unenforceable under California law.
The Supreme Court ruled that federal law overrides state law – and as a result, consumers will have to accept arbitration. This is only the most recent in a series of rulings that stack the deck against consumers in favor of corporations. It has the effect of eroding the Americans people’s faith in the judicial system. Plaintiffs’ attorney Harvey Rosenfeld of Consumer Watchdog told the Washington Post:
The Supreme Court has taken away Americans’ only right to obtain justice: their day in court. The more the U.S. Supreme Court allows big corporations to evade accountability, the less confidence Americans have in the judicial branch and the rule of law.
Justice Ruth Bader Ginsburg wrote a study dissent. She stated in her dissent:
It has become routine, in a large part due to this court’s decisions, for powerful economic enterprises to write into their form contracts with consumers and employees no class-action arbitration clauses…[this ruling has] again expanded the scope of the FAA, further degrading the rights of consumers and further insulating already powerful economic entities from liability for unlawful acts.
Justice Clarence Thomas also dissented on the grounds that the FAA should not apply to proceedings at the state level. For now, corporate greed continues to rule the day. Termination fees of a few hundred dollars are significant to individual consumers – but such amounts don’t amount to much to the giants in Corporate America. Those amounts add up, however – and increasingly, consumers are finding it costlier to pursue such claims than to simply accept their loss. That’s what Corporate America is counting on and so far they are winning the battle. That’s why congressional races are so important. I wonder why some candidates don’t see the arbitration issue as a winning issue.
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