Thanks to contracts riddled with forced arbitration clauses, disputes are being pushed out of the court system and leaving consumers in the lurch when they attempt to sue against wrongdoing.
Arbitration is sold as a cost-efficient means to relieve the backlogged court system. Instead, it is crushing the legal system, benefitting the rich and allowing big businesses to infringe on people’s rights, according to trial team leader Craig M. Peters, with The Veen Firm, who sat down with Inside Counsel for an exclusive interview.
Peters is handling a case against a wealthy Bay Area institution, Green Valley Country Club, on behalf of members who refused to pay unlawful transfer fees and monthly dues. Through a series of procedural maneuvers, the country club has avoided having to answer in court for its unlawful conduct. As the vice president of Consumer Attorneys of California and having worked on countless cases where forced arbitration is a common clause in contracts for local businesses, he is trying to shed light on these issues.
The victims of Wells Fargo fraudulently opening 3.5 million bank accounts without customer approval, and of Equifax’s cyber breach, which exposed more than 143 million people, are forced to use each company’s preferred legal venue–binding arbitration. This is also happening on a local scale, where institutions are preemptively eliminating an individual’s access to the justice system, per Peters.
“A consumer can still hire an attorney to protect their rights, but that will be dependent upon whether an attorney is willing to take the case. If the case is forced into arbitration, the attorney may not be willing to front the cost because of the low chance of success since this system is designed in a way that is stacked against the little guy,” he explained.
If a consumer refuses to sign a contract with an arbitration clause, he or she will be refused the service. Whether it is banking, purchasing cell phones, applying for credit cards or using any of a myriad of other commonly used products and services, arbitration clauses are in nearly all the fine print in contracts. Companies will not negotiate them away because all their competitors insist on keeping them in their contracts as well.
Today, The Arbitration Fairness Act (AFA) prohibits pre-dispute arbitration agreements from being valid if it requires arbitration of an employment, consumer, antitrust or civil rights dispute. It also requires that a court, rather than an arbitrator, determine the validity and enforceability of an agreement to arbitrate. The Mandatory Arbitration Transparency Act (MATA) of 2017 prohibits enforcement of any pre-dispute forced arbitration provision that contains a covered confidentiality clause defined as communications that would violate a state or federal whistleblower statute, those involving tortious or other unlawful conduct disputes, or issues of public policy or concern. But, MATA establishes an exception if either party can demonstrate a confidentiality interest that outweighs the private and public interest in disclosure.
“It takes a lot of voices coming together demanding that their Seventh Amendment rights be held as sacrosanct as their First and Second Amendment rights.,” said Peters. “To date, a groundswell of vocal opposition to the US Supreme Court’s interpretation of the Federal Arbitration Act (FAA) and Congress’ unwillingness to prevent the privatization of our justice system have not materialized.”
According to Peters, despite a contract that required incoming members to pay a transfer fee, this club decided to change the rule (without the vote required by their bylaws) to charge this fee to outgoing members. Family A refused to pay the fee. Their matter was turned over to a collection agent. Family B took out a loan to pay the fee and to avoid having their credit ruined. The collection agent filed a lawsuit in court against Family A and Family A filed a cross-complaint against the collection agent and the country club for attempting to collect an invalid debt. Family B joined the suit with Family A, and the case was brought as a class action to include the numerous other former members who had been treated in the same unfair manner.
“The club then moved the court to send the case to arbitration, per the original contract language and Family A and B objected. The court held that the arbitration act applied per the FAA and it had to go to arbitration,” he said. “The club refused to have a single arbitrator hear the case. Instead, they insisted on a more expensive three-person arbitration panel, which was three times the cost.”
Over the course of the pending arbitration, and prior to their ruling, the defense attorneys referred six more arbitration cases to members of the three-person arbitration panel. The arbitration panel, despite the plain language of the contract regarding the payment of the transfer fee, found in favor of the defense and ordered the plaintiffs to pay defense costs in the amount of $57,000. Meanwhile, the case by the collection agent is pending.
“This is a recipe to give more power and control to those already in a position of power and control,” he says. “Not only can corporations like Wells Fargo rip off millions of consumers over small amounts of money (that turn into large amounts of money when multiplied by the millions), it also gives local corporations the ability to rip off consumers to the tune of thousands of dollars, while sending a message to other consumers to keep quiet and pay the money.”
Amanda G. Ciccatelli is a Freelance Journalist for Corporate Counsel and InsideCounsel, where she covers intellectual property, legal technology, patent litigation, cybersecurity, innovation, and more.