Classless Action

Tony and the Gang declare open season on consumers

April 30th 2011

AT&T Mobility vs. Concepcion won’t be as utterly destructive of the American form of government as last year’s horrible Citizens United decision, but it does immense damage to consumers in America, and, like Citizens United, tips the balance of power, already wildly out of whack, to the corporations.

The vote to drastically limit the ability of consumers to file and pursue class-action suits was five to four, and I probably don’t need to tell anyone which five voted in the majority. Tony Scalia wrote the opinion, and said that companies could force buyers to sign arbitration agreements. He didn’t even bother to conceal his intent, adding, “Arbitration is poorly suited to the higher stakes of class litigation.” Which is the whole idea.

Class action suits result when a large number of people have been injured by the actions of a company or other entity. The injury can be relatively minor, as was the case in AT&T Mobility vs. Concepcion, where AT&T was accused of overcharging by $30 for cellphone service. Or it can be life threatening and affect millions. Eventually America will have a Bhopal or a Chernobyl sort of disaster, and class-action would be the only sensible recourse in the wake, when people would be trying to recoup major damages suffered.

The problem isn’t arbitration itself. There are a lot of instances where arbitration provides a fair, low-cost and efficient solution to most disputes. It reduces strain on the court system, and most states have a least minimum requirements that you have to satisfy before you can hang up a shingle and declare yourself an arbitrator. A fair number of retired court officers, including judges, are supplementing their retirement incomes by being arbitrators and mediators.

But there is a number of very important differences between court cases and arbitration. First, arbitration depends on both parties entering in good faith. Courts presuppose that good faith is not necessary present in one or both parties, and proceed accordingly.

Courts are, on paper, impartial, devoted to giving each side equal rights. It doesn’t always work that way, of course, and much less so now that the Supreme Court has effectively given corporations rights over and above those of the people, but in a normal course of events, you can expect a fair hearing.

Then there’s the matter of appeal. If you have the resources, and feel that you might prevail, or at least get the decision mitigated, you can appeal to a higher court. It’s costly and its time-consuming, of course. And it’s one reason why corporations with major resources prevail as often as they do, no matter what the actual merits of the case may be.

Laws vary from state to state, but in far too many instances, arbitration can be massaged so it strongly favors one party, and even becomes a complete joke.

When a corporation demands that a prospective client or customer sign a point of sale agreement, that agreement may contain a waiver mandating that any disputes subsequent to the agreement must be submitted to arbitration.

Choice? Of course you have a choice! You can go to the competition, if any exists, and sign on with them. Of course, they’ll probably have a waiver about arbitration too…

This gives companies the whip hand. In California, a standard HMO contract not only demands that disputes go to arbitration rather than adjudication, but usually permits the arbitration board to be selected by the HMO. Until a few years ago, the parties to such negotiations were forbidden from discussing any element of the proceedings, including which party prevailed.

It’s a bit like going on trial, knowing that the prosecution had the sole right to select the judge and jury, and that nobody would ever be allowed to know how your case turned out other than yourself. Franz Kafka would have approved.

In California, the law was changed, and insurance companies were compelled to show who the prevailing party was in cases over the previous few years. Unsurprisingly, HMOs won 98% of their cases in arbitration. The only point that was surprising, in fact, was that they somehow managed to lose 2% of those arbitrations. That’s a bit like coming in third in a game of Solitaire.

Most states still permit that degree of confidentiality on the proceedings.

Then there’s the matter of appeal. Most states have some sort of process for satisfaction if the arbitration is openly unfair or the arbitrator is incompetent or bent. In California, it’s Civil Code 1280 et seq., §1286.2, which allows for invalidation of arbitration findings in the event of “corruption, fraud, or other undue means; bias or corruption by the arbitrator; the arbitrator exceeded his or her powers; or the arbitrator was guilty of misconduct that violated a party’s due process rights.” (John Barnes, There isn’t any remedy if it turns out that one or both parties were deliberately lying.

In most states, such invalidation cannot take place unless both parties agree beforehand to allow such appeal to be permitted as a part of the arbitration agreement.

Both parties. I’m having a little trouble envisioning an HMO, which has already selected the arbiters who will hear your case and demanded your silence about the proceedings under penalty of law, agreeing to recourse should the hearings turn out to be a complete joke. I’m guessing they would politely decline, saying that leaving an opening like that would just invite abuse from people, and we wouldn’t want anyone abusing the arbitration process. There’s only a minority of states where a party can unilaterally move to have the findings invalidated, and the burden of proof is on them to show why it should be so.

Normally, arbitration is meant to reduce the need for lawyers, but you can be sure that if you walk into a room to settle a dispute with an HMO, their representative will have a law degree and considerable specialized knowledge. Without a lawyer, you are bringing a water pistol to a nuclear war. That tips the scales even further, even if the arbiter is honest. Especially if he is honest.

Arbitration isn’t cheap. A good arbiter can charge up to $750 an hour in some instances. A bad one can also charge $750. Caveat emptor. And usually the parties split the costs irrespective of outcome.

In the case of AT&T vs Concepcion, the issue was a $30 charge that, if I read it correctly, Concepcion believed should be prorated against the cost of the overall package. It wasn’t clear if the overcharge dispute was for the entire $30 or just a portion, but not many people are going to shell out a couple of thousand in the hopes of winning $30.

It would be even more pointless to sue for $30 in court against a major corporation. Even if you somehow beat the high powered legal talent they would have available, and got court costs back, you would still be missing hundreds of man-hours and years of waiting for the case to wrap up.

Which is why there are class-action suits. Let’s say, hypothetically, that AT&T swindled half a million people out of $30 each. A class action suit would possibly result in a judgment of $15 million in actual damages, $5 million in administrative costs (such as mailing checks for $30 to everyone who had it coming) and legal costs, for a total around $20 million.

AT&T wouldn’t want to face half a million demands for arbitration—that would be a logistical nightmare that would dwarf even the gnarliest class action suit. But fortunately for AT&T, that wouldn’t happen, because with a non-returnable investment of at least $500 and no possibility of getting more than about $45 in arbitration (and the chances of that vanishingly small!) few people would bother.

You can expect arbitration waivers to show up in just about any purchase you make from now on, even just a toaster. You want the warranty on the toaster, you gotta sign the form and send it in, along with a questionnaire about your consumer habits for marketing purposes. And that warranty will include a waiver on legal redress.

So if the toaster is defective, catches fire, and burns down your house, killing your family and maiming you for life, your only hope is that you can convince their hand-picked arbitrator that the product was defective, and so you are entitled to your $24.99 back. And they will have a representative with ten years’ legal background who will point to the fine print in the warranty indemnifying them if the purchaser is foolish enough to put bread in the toaster and attempt to heat it.

In effect, this ruling permits all corporations to operate entirely outside of civil law, and gives most of them utter control over the methods of redress.

Having destroyed free elections and the first amendment with the Citizens United case, this outlaw court of fascistic thugs has just dismantled due process and legal accountability for corporations.

Good luck in the brave new world.

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