Washington, DCThe recent Supreme Court ruling (Apr. 27, 2011)—where companies and/or employers can now require consumers to arbitrate disputes individually rather than joining forces in a consumer fraud class action, for instance, could have far-reaching implications for everyone. What does this decision mean to the typical consumer? Attorney George L. Garrow, Jr. of The Garrow Law Firm in Washington, DC, weighs in…
LawyersandSettlements (LAS): How will this decision affect the typical consumer?
George Garrow (GG): This Supreme Court creates a significant future hurdle for consumers with small disputes against service companies. It appears that most of these consumers will no longer have the option of joining a class action with other similarly situated individuals to challenge unfair consumer practices; rather, if they signed an agreement (most likely unknowingly) with such a service company and it contained an arbitration clause, they probably will have to arbitrate these disputes individually rather than filing a legal action.
LAS: What happened with the court’s ruling on AT&T vs. Concepcion last week?
GG: Liza and Vincent Concepcion sued AT&T, alleging that the cell phone carrier defrauded millions of customers in California by advertising phones as "free," then adding an additional $30 charge that it did not disclose prior to the purchase. AT&T sought to dismiss the case by invoking a forced arbitration clause (the "small print" that we all complain about) in the contract that contained a class-action ban. The lower courts ruled in favor of the Concepcions and rejected AT&T's request, holding that the class-action ban was unconscionable under California law because it would exculpate the company from accountability for wrongdoing. In a 5 to 4 ruling that broke down along political lines, the Supreme Court ruled that such arbitration clauses are valid because they serve a role in reducing legal actions and streamlining the dispute process.
(The Concepcions signed up for AT&T service in 2002; the company advertised a free cell phone, but charged $30.22 in sales taxes.)
The problem is, the average consumer who is defrauded of $30 will likely not proceed to arbitration against AT&T—it isn't worth the time, effort and personal expense. The only effective means of recourse in such circumstances is a class action, where thousands of people can band together and go against a corporation. It's really the only way a corporation can be prevented from defrauding thousands of consumers.
LAS: Will this ruling give more power to companies and corporations?
GG: It means that corporations, in an attempt to avoid litigation, can "slip" into their regular consumer agreements an arbitration clause that most consumers will hardly notice. Once the consumer accepts the service, s/he will be forced to arbitrate all disputes rather than joining others in a class action. Arbitration is a process where you file a claim against someone—in this case the phone company or video rental company, for example, and you have a streamlined legal action. It doesn't sound bad, but most consumers are not going to file such a claim that involves significant time, energy, money and maybe hiring an attorney, to get back $75 that the credit card company took from you.
With a class action, a small group of aggrieved consumers can convince a law firm to file a group action to include everyone who lost the $75, and all similarly situated consumers join that legal action without paying a large sum to an attorney, or spending months or years fighting the claim by yourself. So with this ruling, corporations most likely will include arbitration clauses in most consumer transactions, from credit cards and cell phones to internet services, and then include more fees in the fine print. If you disagree with these fees—you believe, for example, that the corporation did not disclose these fees in advance, you cannot join with others to fight this in court; instead, you must fight it alone in an arbitration by yourself or with your own lawyer. That places the corporation in an enviable situation of being able to make millions unfairly without fear of being challenged by consumers in a class action.
LAS: Can this ruling affect other areas of law, besides consumer fraud?
GG: The belief is that corporations will add arbitration clauses to many other consumer-based services so that a consumer will never be able to file a legal action for any dispute. Taking it a step further, this ruling could affect a range of business transactions that involve larger sums of money for a consumer. For instance, say you and your family have to place a loved one into a nursing home. At a time when you are under a lot of stress, you are asked to sign a series of admission documents. Included in those documents is a waiver that prevents you from filing a legal action if the nursing home injures your loved one. You will wind up signing a release that relegates any nursing home dispute that you may have to arbitration. This process could severely limit the value of your claim.
LAS: Even something traumatic, such as a serious injury in a long-term care facility?
GG: Yes. The allegation might be that the nursing home is responsible for a serious injury or even death of a loved one due to negligence. Years from now the nursing home will go back to the admission documents that you signed, and say you cannot sue us in court, because many years ago you waived any right to sue.
LAS: How can a Nursing Home dupe the public and get away with that?
GG: The nursing home will put a clause in the admission contract that might not be understood by loved ones under stress. They might not even see it or appreciate what it means. It might say, 'If there is a dispute or if you believe we are negligent in the care of your loved one, you waive the right to seek judicial redress of those claims and instead, you have to pursue an arbitration process.'
They may also state that the American Arbitration Association will be the 'tribunal' or the entity that will have these claims addressed. This association is used mostly by corporations and they have a pro-corporation, pro-defense outlook. Their rules (the rules that would govern the arbitration process) favor business and not the consumer.
LAS: Are these clauses already in effect?
GG: Absolutely. These clauses are being used in a number of areas now. We aren't talking about $30 anymore—maybe millions of dollars are at stake. And this Supreme Court ruling, while not specifically focused on such areas as nursing home transactions, will make it difficult to fight 'no litigation' clauses in a range of business areas.
Let's go back to the nursing home example: I agree to handle your family's case—your loved one died as a result of negligence by the nursing home. The admissions agreement your family signed 10 years ago while you were agonizing over the decision to place mother or father in the nursing home contained an arbitration clause that you don't even remember signing. When I file that lawsuit in a courthouse where the nursing home is located, in the same jurisdiction in fact, the defendant's attorneys will immediately file a motion to dismiss the complaint, claiming that 10 years ago, you waived the right to seek judicial redress of the claim. Your only option is to arbitrate with the nursing home; that is, participate in a somewhat informal quasi-judicial process to get justice. This is the problem: in most cases, it's the threat of a lawsuit in front of a jury that forces the nursing home to deal with you fairly. Now, that threat possibly will be gone in a range of cases.
LAS: Is there anything that can be done to fight and overturn this ruling?
GG: We attorneys that handle the claims of consumers are fighting the legality of these arbitration clauses in court; but now we must convince our legislators to make them illegal. It is not fair for a corporation to take advantage of consumers in this way, and in the process, unfairly gain millions of dollars in fees because consumers don't have an effective way of challenging their unlawful actions.
LAS: Who stands to gain?
GG: The decision is a deference to corporations that are engaging in numerous transactions with consumers. One of the arguments is that companies need to be able to conduct business in this manner when they are dealing with thousands of consumer transactions.
We don't agree with that because it is unfair to consumers, and often it preempts state law.
LAS: So can the state law trump this new arbitration decision?
GG: Prior to this Supreme Court ruling, at least 20 states already struck down these arbitration clauses that banned class actions. These states did not permit a corporation to enforce an arbitration clause that prevented a consumer from filing a group lawsuit with other consumers. Unfortunately, this ruling would appear to preempt these state laws and allows bans against such class actions. So again, if you are upset that the cable company charged you a $50 fee that you knew nothing about, you cannot file a legal action or join with others to file a class action; instead, now you must arbitrate this matter in a proceeding that probably is mandated in the corporation's contract that you signed years ago when you picked up that cell phone at the store in the mall after work. Prior to this ruling, perhaps it was possible that a certain cell phone company would not have included such an arbitration clause in that hard-to-read-contract. After this ruling, every consumer contract will probably have such an arbitration clause.
LAS: Who pays for arbitration?
GG: The consumer might have to pay a fee to participate in this process to get justice from the company. And you might decide that you need an attorney to deal with the company.
LAS: How can this ruling pose a threat to public privacy?
GG: Well, it's important to understand that for now, this ruling primarily appears to affect consumer transactions with companies that provide services of which we all partake on a daily basis—the cell phone, internet and perhaps the utility companies, just to name a few. Public privacy rights are not immediately addressed. But the fear is that this ruling will embolden corporations in other business areas to use arbitration clauses and prevent the right to judicial redress. Say you are applying for a job and submit private information to the corporation. You, the potential job applicant, are told that your information will not be shared—but you later find out that the potential employer did shared your information with another firm. But you cannot file suit in court because you signed a waiver that says, 'If you have some objection with this process, you won't be able to sue us in a court of law…you must arbitrate,' or words to that effect.
LAS: As a plaintiff attorney, will your work load decrease?
GG: I think that corporations just received a windfall in this ruling that will significantly decrease the number of consumer class actions. Anyone handling these actions will have to fight a battle just to enter the war. But we attorneys have lots of battles to fight on behalf of clients. The real loser is the consumer who is forced to accept that cell phone or internet service contract loaded with invisible fees, and when he or she finds out about those unfair fees and wants to do something about it, the only option will be to proceed under the rules established by the corporation. The courthouse door will be closed.
LAS: Do you predict more companies adding arbitration clauses to their contracts?
GG: You'd better believe that every corporation dealing with consumers will use arbitration clauses. Unless there is legislation by congress to change this, consumers again will be stuck with the bills.
George L. Garrow, Jr. is an attorney in The Garrow Law Firm, PLLC, where he represents individuals seriously injured as result of medical negligence, nursing home abuse, and pharmaceutical and automobile torts. He practices with a network of attorneys handling cases for consumers and other injured citizens throughout the country. Through his membership in various legal associations, he also works to support the individual's right to trial by jury and to receive adequate compensation for injuries resulting from corporate abuse and misdeeds. He has taught business law as an adjunct instructor. Additionally, Mr. Garrow works with a nonprofit group devoted to providing positive role models to children. A frequent media commentator on legal and social issues, he writes a blog on consumer safety called The Injury Law Report (www.injurylawreport.com). Mr. Garrow received his JD degree from the University of Virginia Law School and an AB degree from Dartmouth College.
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