With Mandatory Arbitration, Corporate America Opts Out of the Legal System
Over the last several years, an increasing number of companies have incorporated mandatory arbitration provisions into their customer contracts, requiring that consumer disputes be resolved by “neutral” third-party arbitrators rather than in a court of law.
This might not sound like a big deal, but as a recent three-part investigative series by Jessica Silver-Greenberg and Robert Gebeloff in the New York Times reported, arbitrations are highly problematic forums for individuals with few rules of evidence or discovery and almost no right to appeal the arbitrators’ binding decisions.
Arbitrators are often far from neutral, with an inherent bias in favor of the companies they rely on for repeat business. Additionally, mandatory arbitration provisions typically include bans on class actions, one of the few (if only) means for individuals to combat unfair business practices.
By preventing people from joining together to sue as a group, consumers are forced to litigate their claims individually. In cases where individual damages are relatively low, high litigation costs make it unlikely that an attorney will represent a single plaintiff against a deep-pocketed corporation.
Indeed, as a class action attorney, the first question I ask any client with a potential case is, “Is there a mandatory arbitration provision?” If the answer is yes, then it’s a simple business decision to pass on the case.
As the New York Times reported, mandatory arbitration provisions have been stunningly effective in ending consumer litigation against corporations. From 2010 to 2014, Verizon, which has more than 125 million subscribers, faced just 65 consumer arbitrations. Time Warner Cable, with 15 million subscribers, faced seven.
As Judge Richard Posner of the U.S. Court of Appeals for the Seventh Circuit noted in Carnegie v. Household International, “The realistic alternative to a class action is not 17 million individual suits but zero individual suits.”