Arbitration
clauses are how big businesses escape class action lawsuits that hold
them accountable to their customers. Despite ongoing efforts to ban
mandatory arbitration clauses and class-arbitration waivers, this
month the Supreme Court came out strongly in favor of the practice,
upholding a coercive mandatory arbitration provision against
consumers.
In
DIRECTV,
Inc v Imburgia,
California residents signed service contracts with DirecTV that
contained a mandatory arbitration provision and a class arbitration
waiver. The policy said that if the “law of your state” makes
class arbitration waivers unenforceable, then the whole arbitration
agreement is unenforceable too.
California,
at the time, was one of those states with laws making class-action
waivers illegal. Specifically, in 2005, the California Supreme Court
decided Discover
Bank v Superior Court,
which
called such agreements “consumer contract[s] of adhesion” and
“unconscionable under California law [that] should not be
enforced.”
In 2008, two consumers sued DirecTV because of illegal early
termination fees. The case dragged on in court for three years.
But
then, in 2011, the Supreme Court of the United States, in AT&T
Mobility LLC v Concepcion,
ruled that the Federal Arbitration Act – a national law that
directs how and when arbitration clauses may be used – invalidated
the Discover Bank
ruling.
DirecTV asked the judge to send its case to mediation, but the judge
refused. DirecTV appealed that decision all the way to the Supreme
Court.
Instead
of supporting consumers against the “take-it-or-leave-it” tactics
of a major corporation, the Supreme Court said Concepcion
applied even to contracts written before it was decided and the “law
of your state” could only include state laws not later invalidated
by the courts.
Justice Ruth Bader Ginsberg's dissent sums up the situation:
“These
decisions have predictably resulted in the deprivation of consumers’
rights to seek redress for losses, and, turning the coin, they have
insulated powerful economic interests from liability for violations
of consumer protection laws. . . .
“Today,
the court holds that consumers lack not only protection against
unambiguous class arbitration bans in adhesion contracts. They lack
even the benefit of the doubt when anomalous terms in such contracts
reasonably could be construed to protect their rights.”
The
Supreme Court's decision gives service providers all the cards when
it comes to mandatory arbitration. Together with Concepcion,
this case has essentially said that states are not allowed
to regulate the arbitration provisions of contracts signed by their
citizens.
Companies must
not have the power to unilaterally mandate arbitration provisions,
and in so doing shield themselves from the corrective power of class
action lawsuits. Since the Supreme Court has demonstrated it is
unwilling to protect consumers, it will have to fall to Congress to
amend the Federal Arbitration Act.
