2013 KUFM Commentaries 

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Holiday Cheer - Mandatory Arbitration Fixes?, December 17, 2013
Supreme Court Fireworks – July 2, 2013
Balls and Strikes? - June 4th, 2013
Is Mandatory Arbitration Fair? - May 7th, 2013



Holiday Cheer - Mandatory Arbitration Fixes? 
December 17, 2013

It's that time of the year when when many of us are out buying gifts as part of our holiday celebrations. The vast majority of those will be purchased with debit or credit cards. Later this month and continuing next month the statements for those cards will be arriving – in mailboxes or in-boxes across the state. And, if you have a dispute with the bank – such as additional fees being tacked on that you didn't know about that caused you to go over your limit and incur even more charges – you will likely find that buried in the fine print of your account agreement is a provision requiring that all disputes with your bank must go through arbitration.

Arbitration is a legal process to resolve disputes between parties without using the court system. Provisions for arbitration are usually contained in a contract between two parties. Those contract provisions set out the rules for the arbitration, including what parts of the contract will be subject to arbitration, how an arbitrator will be chosen, which of the parties will pay for the arbitration services, and where the arbitration proceeding will take place.

Congress passed the Federal Arbitration Act in the 1920's as a means to enforce arbitration provisions in contracts between large corporations. At the time that made sense - corporations would be on roughly equal footing, having the business and legal expertise to knowingly waive the right to take disputes over contracts to court.

Arbitration provisions have steadily proliferated into all contracts, to the point now where you would be hard pressed to find a single consumer, whether they know it or not, who is not subject to a mandatory arbitration clause in a consumer contract. If you have ever purchased or rented a cell phone, a car, or a computer, you probably have unknowingly waived your right to take to court a dispute about that product, and agreed to mandatory binding arbitration. The same goes for services, chances are your credit cards, bank accounts, retirement accounts, and other services have a mandatory arbitration clause that waives your right to pursue a remedy in court.

Now, arbitration itself is not necessarily bad. Arbitration can be an easy, low cost way to resolve disputes over products and services that parties can agree to - once a problem arises. The problem is that when agreement to arbitration is mandatory and required before any dispute arises, the consumer is always at a disadvantage. Mandatory, pre-dispute arbitration clauses can never be fair, when the parties do not have equal bargaining power, equal experience in arbitration, equal ability to understand contract language, particularly the ramifications of the rights being waived, and an equal ability to insist on clauses being included or excluded in the contract.

Arbitration procedures now severely weight the scales of justice toward large businesses and away from consumers, employees and small businesses. Consumers are not on equal footing with corporations, they are presented with “take it or leave it” contracts and the arbitration process is weighted in favor of the corporations - the corporations get to choose who the arbitrator is and where the arbitration takes place, and the cost of arbitration is often oppressive.

The U.S. Supreme Court, over the last few years, has repeatedly declined to uphold an individual's right, under the 7th Amendment, to have civil disputes decided by a jury. Given the Court's decisions and the financial realities that inhibit individual arbitrations, consumers have tried to band together and bring class action arbitrations. While no individual could afford to spend thousands of dollars to recover $30, thousands of consumers could find an attorney to take a case with a percentage from each consumer's $30 to pay the attorney's fee. This year the Court again sided with corporations, leaving consumers with no recourse, and giving corporations an arbitration free pass – no accountability, unless someone is willing to spend more money than they could ever hope to recover.

Now, after all that “coal in your stocking” reporting, there is reason for a little cheer this holiday season - the possibility for some relief from abusive arbitration provisions for financial contracts, like bank and credit contracts. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, charges the Consumer Financial Protection Bureau with studying the use of pre-dispute arbitration contract provisions in consumer financial products or services. The Bureau is in the process of conducting that study right now. It has compiled a preliminary study, started having public hearings last week and proposed a course for further investigation before reporting to Congress. There is even a petition out there to urge the Bureau to stand up for consumers and fight to stop forced arbitration in consumer financial contracts.

Congress is also looking at reigning in forced arbitration provisions in other consumer contracts. U.S. Sen. Al Franken and U.S. Rep. Hank Johnson have introduced the Arbitration Fairness Act of 2013 (AFA) [S.878 / H.R.1844] to restore Americans’ rights. The AFA would eliminate forced arbitration in employment, consumer, civil rights, and anti-trust cases.

Links to more information on these efforts can be found at at our website – www.monttla.com – or in the written version of this commentary at www.KUFM.org.

This is Al Smith for the Montana Trial Lawyers wishing you a merry Christmas and a safe and happy New Year!


Consumer Financial Protection Bureau - initial Arbitration Study
http://files.consumerfinance.gov/f/201312_cfpb_arbitration-study-preliminary-results.pdf

Petition to Consumer Financial Protection Bureau -
https://www.change.org/petitions/revoke-banks-license-to-steal-stop-forced-arbitration

Take Justice Back - “The Fine Print” - http://www.takejusticeback.com/TheFinePrint

Arbitration Fairness Act of 2013 (AFA) [S.878] - http://beta.congress.gov/bill/113th-congress/senate-bill/878?q=%7B%22search%22%3A%5B%22S.878%22%5D%7D


Supreme Court Fireworks –  July 2, 2013

With so many things happening in Montana and across the country affecting the civil justice system, I had a hard time picking a topic for tonight. The U.S. Supreme Court ended it's term in June with a bang. There was the Windsor case striking down the federal Defense of Marriage Act, and the Perry case that the Court sidestepped but in effect allowed the nullification of California's Propisition. The Court rejected a key provision of the Voting Rights Act in Shelby County, and sidestepped a decision on affirmative action, with indications that the law will change to strictly scrutinize racial classifications. Then there was the Bartlett case in which the Court expanded protections for the corporate makers of generic drugs. Let me see if I can tie them all together.

Thursday is Independence Day – the day we celebrate our declaration of independence from England. After securing independence, our founders set out to form a governing structure. They tried governing our new country under the Articles of Confederation, but found that a system of strong state powers and relatively weaker federal powers didn't work well. In 1787 our Constitution was adopted, to be ratified by the states in 1789 with the assurance that a Bill of Rights would be proosed and ratifed, and those first ten amendments were ratified in 1791.
One of our core constituional rights is embodied in the Fifth Amendment, which provides in part that no person shall be “deprived of life, liberty, or property, without due process of law” - often referred to as the Due Process clause. This amendment was in reaction to abuses by the sovereign.
In the Windsor case the divided Court found that a federal law that denied federal benefits to same sex persons married legally under a state's laws violated the Fifth Amendment. The majority in effect found the federal law to be an abuse of power by the sovereign.

When we bestow near diety status on the genius of our founding fathers, we tend to forget that in the Constitution black slaves were counted as three fifths of a person, of course that was only for tax and Congessional representation purposes. There was no need to protect slaves from being denied the right to vote – slaves couldn't vote.

In the voting rights case, upholding States' powers under the Tenth Amendment over individuals' rights to be free from racial discrimination under the Fifteenth Amendment, the majority of the Court decided 180 plus years of institutional racism has been eradicated in the past 50 years. As Justice Ginsburg noted in her dissent, the majority throwing out the preclearance part of the law “when it has worked and is continuing to work to stop discriminatory changes is like throwing away your umbrella in a rainstorm because you are not getting wet.”

Most of us remember our grievances that led to the American Revolution as being against King George.  What most of us don't remember, or never learned, was that many of our grievances were with King George carrying out the bidding of the few corporations that dominated colonial America, like the East India Company – the original tea partiers threw its tea into Boston Harbor. In 1776 we declared our independence not only from British rule, but also from the corporations of England that dominated and controlled us, and extracted wealth from us.
Another of the rights insisted upon in order to assure passage of our constitution was the right to trial by jury in civil matters – the Seventh Amendment. It is the means by which we hold our government accountable. It also ensures that all men and women are entitled to a redress for wrongs done by others, including corporations. As John Adams once said about jury trials, "We have not envisioned a better fortification from being ridden like horses, fleeced like sheep, worked like cattle and fed like hounds."
There is more than a bit of irony that as we celebrate our independence this year, we are experiencing ever more of the corporate dominance that we rebelled against at our nation's birth. Our country's founders retained a healthy fear of the threats posed by corporate power and sparingly granted corporations a limited business role. As Thomas Jefferson said, "I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country."
The moneyed interests of corporate power have been chafing at the reigns of the the civil justice system and the right to trial by jury since our country's inception. In the Barlett case corporate power won, again. The Court held that state laws could not be used to hold a generic drug manufacturer responsible for the harms its products cause. What harm? “Sixty to sixty-five percent of the surface of Karen Barlett's body deteriorated, was burned off, or turned into an open wound" due to the drug - too bad, too sad according to the Court's majority.

It seems the Windsor and Perry cases are exceptions to this Court's rule that government and corporate might rules.

It's hot and dry out there, please heed all fire warnings and have a safe and happy Fourth!
This is Al Smith for the Montana Trial Lawyers Association.



Balls and Strikes?
June 4th, 2013

Last month I spoke about how mandatory, pre-dispute arbitration clauses in consumer and employment contracts can never be fair, because the parties do not have equal bargaining power, equal experience in arbitration, equal ability to understand contract language, particularly the ramifications of the rights being waived, and an equal ability to insist on clauses being included or excluded in the contract.

I gave examples of how the U.S. Supreme Court has failed to uphold an individual's right, under the 7th Amendment, to have civil disputes decided by a jury, instead it has sided time and again with corporations in upholding mandatory pre-dispute arbitration provisions. These included cases where state courts and U.S. Circuit courts have upheld consumers' rights, and the U.S. Supreme Court has sided with the corporation, leaving consumers with no recourse, and giving corporations an arbitration free pass – no accountability, unless someone is willing to spend more money than they could ever hope to recover.

The idea that the U.S. Supreme Court would side with corporate interests over individual's constitutional rights comes as no surprise to many of us who monitor Supreme Court decisions. But, if you are intellectually honest, you have to always question whether your conclusions are based upon your biased perceptions, or whether they are indeed based on facts.

So, are there any facts to back up the conclusion of many that the U.S. Supreme Court is, in political parlance, “business friendly?” Many of us perceive the court under Chief Justice Roberts, as allowing corporations to spend freely in elections, protecting corporations from class actions and human rights suits, and favoring arbitration over actions brought under the 7th Amendment as the way to resolve many disputes. For many, the perception is that these rulings have destroyed legitimate claims for harm from faulty products, discriminatory practices and fraud.

A study published in April in The Minnesota Law Review, takes a comprehensive look at some 2,000 decisions from 1946 to 2011. The study relied on a simple formula – it looked at cases with a business on one side and an individual, or group of individuals, on the other side. A vote for the business was counted as a pro-business vote.

The 36 justices who have served on the court the past 65 years were ranked by the proportion of their pro-business votes. Current Justices Roberts, Scalia, Thomas, Kennedy, and Alito were in the top 10, with Roberts and Alito the two justices most likely to vote in favor of business interests of all those 36 justices.

Part of the reason for this, the study concluded, is that the Roberts Court is hearing more cases where the business lost in the lower court, and reversing more. Unlike the Montana Supreme Court that hears every case where at least one of the parties requests an appeal, the U.S. Supreme Court gets to choose which appeals it hears, and it chooses the business cases it wants to hear. The Roberts Court is more likely to reverse a case when the lower court decision was anti-business. Along those lines, the Court is also more likely to affirm cases in which the lower court decision was pro-business.

The “business friendly” bent of the Roberts court is also found in looking at amicus, or friend-of-the-court, briefs filed in support of petitioners asking for Supreme Court review. SCOTUS BLOG contributor Adam Chandler found that in the past three years, pro-business groups accounted for more than 75% of the top 16 groups filing amicus briefs. The U.S. Chamber of Commerce was tops, and the most successful filer. Parties asking the U.S. Supreme Court to review their cases get their wish 1% of the time. Parties supported by a Chamber amicus brief asking for review get their wish 32% of the time. That's right, businesses with Chamber amicus support are 32 times more likely to get their case heard by the U.S. Supreme Court.

Those of you that remember Chief Justice Roberts' Senate confirmation hearing in 2005 may also remember that several times he likened the role of a justice to that of a baseball umpire. He closed with “And I will remember that it's my job to call balls and strikes and not to pitch or bat.” Applying these recent factual compilations to a baseball analogy, it's easy to see why you would want to be on the U.S. Chamber team when Roberts is the umpire – you get strikes called in your favor 32% of the time, as opposed to the league average of 1%.

There is some hope with ending abusive mandatory arbitration provisions, and restoring Americans’ 7th Amendment rights. U.S. Senator Al Franken and U.S. Representative Hank Johnson have introduced the Arbitration Fairness Act of 2013. The Act would: eliminate forced arbitration in employment, consumer, civil rights, and anti-trust cases; ensure that the decision to arbitrate is truly voluntary; and, would restore fundamental rights created by state and federal constitutions and laws.

Links to the Act, and to the studies referenced above can be found in this commentary posted in the Commentary section of the mtpr.org homepage, and at our website – monttla.com. Five minutes is a short time for these issues, please check them out fully for yourself, if you're so inclined.

This is Al Smith for the Montana Trial Lawyers Association.

Minnesota Law Review Study
http://www.minnesotalawreview.org/wp-content/uploads/2013/04/EpsteinLanderPosner_MLR.pdf
NYT Article - Corporations Find a Friend in the Supreme Court
http://www.nytimes.com/2013/05/05/business/pro-business-decisions-are-defining-this-supreme-court.html?ref=business&_r=1&
Review of Amicus Filings
http://www.scotusblog.com/2013/04/cert-stage-amicus-all-stars-where-are-they-now/
Roberts Confirmation Statement
http://www.cnn.com/2005/POLITICS/09/12/roberts.statement/
Arbitration Fairness Act of 2013 (AFA) [S.878 / H.R.1844]
http://www.govtrack.us/congress/bills/113/s878/text
http://www.franken.senate.gov/?p=news&id=2203


Is Mandatory Arbitration Fair? - 
May 7th, 2013

I've spoken before about arbitration. It is a legal process to resolve disputes between parties without using the court system. Provisions for arbitration are usually contained in a contract between two parties. Those contract provisions set out the rules for the arbitration, including what parts of the contract will be subject to arbitration, how an arbitrator will be chosen, which of the parties will pay for the arbitration services, and where the arbitration proceeding will take place.
Congress passed the Federal Arbitration Act 85 years ago as a means to enforce arbitration provisions in contracts between large corporations. At the time that made sense - corporations would be on roughly equal footing, having the business and legal expertise to knowingly waive the right to take disputes over contracts to court.
Pretty boring stuff for most of us, so how does arbitration affect those of us that aren’t owners or executives of corporations? Well, arbitration provisions have steadily proliferated into all contracts, to the point now where you would be hard pressed to find a single consumer, whether they know it or not, who is not subject to a mandatory arbitration clause in a consumer contract.
If you have ever purchased or rented a cell phone, a car, a computer, or even the radio you’re listening to, you probably have unknowingly waived your right to take to court a dispute about that product, and agreed to mandatory binding arbitration. The same goes for services, chances are your credit cards, bank accounts, retirement accounts, and other services, such as auto and appliance repairs, have a mandatory arbitration clause that waives your right to pursue a remedy in court.
You may be thinking that our state consumer protection laws would protect you from oppressive arbitration provisions. Unfortunately, the U. S. Supreme Court has consistently ruled that the federal arbitration act preempts and voids state laws that are aimed at protecting consumers from arbitration provisions.
Arbitration procedures now severely weight the scales of justice toward large businesses and away from consumers, employees and small businesses. Consumers complain that they are not on equal footing with corporations, that they are presented with “take it or leave it” contracts and that the arbitration process is weighted in favor of the corporations - the corporations get to choose who the arbitrator is and where the arbitration takes place, and the cost of arbitration is often oppressive.
Let me give you a real life example. A man bought a customized truck after specifically asking the dealer if it had ever been damaged. The dealer lied. When the man found the defects, he returned the truck to the dealer, asked for his money back, but was forced to sue for the $3,600 he had paid up front for the truck. The contract contained a mandatory arbitration clause. The arbitrator found in favor of the man and awarded him the full $3,600. But the one-day arbitration cost $5,000, which was split between the man and the dealer. The man also had to pay a $750 filing fee to commence the arbitration. After paying those fees, the man walked away with about $350 to replace the $3,600 he put down on the truck. Had he been able to sue in state court, he would have received attorney fees and costs after he proved that he was in the right, and he would have recovered his entire $3,600.
Now, arbitration itself is not necessarily bad. Arbitration can be an easy, low cost way to resolve disputes over products and services that parties can agree to - once a problem arises. The problem is that when agreement to arbitration is mandatory and required before any dispute arises, the consumer is always at a disadvantage. Mandatory, pre-dispute arbitration clauses can never be fair, when the parties do not have equal bargaining power, equal experience in arbitration, equal ability to understand contract language, particularly the ramifications of the rights being waived, and an equal ability to insist on clauses being included or excluded in the contract.
Now some of you might be thinking, wouldn't the U.S. Supreme Court uphold an individual's right, under the 7th Amendment, to have civil disputes decided by a jury? Sadly, in recent years the Supremes have sided time and again with corporations in upholding mandatory pre-dispute arbitration provisions.
Given the financial realities that inhibit individual arbitrations, consumers have tried to band together and bring class action arbitrations. In the seminal case, thousands of cell phone users tried a class action arbitration to try to recover an allegedly improper $30 charge by the corporation. No individual could afford to spend thousands of dollars to recover $30, but thousands of consumers could find an attorney to take the case on a contingency basis – no fees unless the attorney won, and then a small percentage of the $30 from each would pay the attorney's fee. The contract, however, not only mandated arbitration, it also banned class actions. State courts and the 9th Circuit upheld consumers' rights to arbitrate as a class. The U.S. Supreme Court sided with the corporation, leaving consumers with no recourse, and giving corporations an arbitration free pass – no accountability, unless someone is willing to spend more money than they could ever hope to recover.
This is Al Smith for the Montana Trial Lawyers Association.