CL&P Blog

Milberg Firm Files Class Action Against NAF

The claims include UDAP and FDCPA violations, as well as breach of contract.  Milberg's statement is here while the complaint is here (hat tip to Ray Warner).

Debate on Forced Arbitration With Alan Kaplinsky

by Deepak Gupta

This week, the Legal Talk Network hosted a debate over mandatory arbtiration between me and Alan Kaplinsky, a corporate defense lawyer known for pioneering the use of arbtiration clauses by banks and lenders. 

I was surprised by how open Alan was about the real purpose of forced arbitration: to foreclose any possibility of class actions alleging that his clients have violated consumer protection laws, and to avoid being held accountable by juries. You can listen to a podcast of the debate at at this link, or download it as an MP3.  (Coincidentally, in another one of this week's podcasts, you can hear U.S. District Judge William Young of Boston, a well-regarded trial judge, discuss the implications of mandatory arbtiration for the future of the civil jury trial.)

Alan's repeated attempt in our discussion to use empirical studies to prove the legitimacy of forced arbtiration reminded me of a really excellent law review article that I've been meaning to plug here.  It's a piece called Mandatory Arbitration and Fairness, by David Schwartz of the University of Wisconsin, and it appeared earlier this year in the Notre Dame Law Review. Professor Schwartz makes a persuasive case for the view that the empirical question is the wrong question to be asking in the first place, and that it's a mistake for consumer and civil rights advocates to get bogged down in the empirical debate. It gets the "burden of proof" wrong, and it stands in the way of more meaningful and fundamental questions about fairness. "Interposing [the] empirical question as a hurdle to legislative reform would be a strategic victory for mandatory arbitration supporters," Schwartz writes, "because there is a good likelihood that a definitive answer is years away, and perhaps unattainable."

Bank of America Abandons Mandatory Arbitration

CNBC is reporting that Bank of America will no longer require that consumer disputes involving credit cards, among other matters, be resolved by arbitration. 

More on NAF, AAA, and Forced Arbitration

Yesterday, during NPR's All Things Considered, reporter Wade Goodwyn and host Madeleine Brand discussed the recent developments involving NAF and AAA, as well as the Arbitration Fairness Act. Goodwyn also filed another story this morning including excerpts from the testimony at yesterday's House Oversight Commitee hearing. Marketplace also had a shorter piece including an interview with Public Citizen researcher Taylor Lincoln. (The latter piece also quotes a credit industry expert who claims that making arbitration voluntary would increase the cost to consumers, but says nothing about the extent to which the threat of class actions would deter credit card companies from overcharging consumers or engaging in other unfair practices.)

NPR on the Shakeup in Consumer Arbitration

Amy Scott of Marketplace had a very brief report this morning on the NAF and AAA pullout from forced arbitration of consumer debt disputes.  For a more detailed report on forced arbitration, see this story from a few weeks back by NPR's Wade Goodwyn.

AAA Joins NAF in Quitting Arbitration of Consumer Debt Disputes

by Deepak Gupta

The Wall Street Journal is reporting that the American Arbitration Association "will stop participating in consumer-debt-collection disputes," at least--according to an unnamed AAA official quoted in the story--"until some standards or safeguards are established."  I'm not sure what that caveat means, but it suggests a lobbying strategy, consistent with AAA's prior positions, to get Congress to adopt minimum standards instead of making arbitration truly voluntary.  It's also unclear whether the AAA's withdrawal will extend beyond consumer debt, as NAF's does, to include other forms of consumer or employment disputes. AAA doesn't currently handle a lot of collection cases--certainly nowhere near as many as NAF. 

Whatever the scope of AAA's pullout, this is big news in the battle over arbitration fairness.  And the timing is no coincidence. The news follows close on the heels of the Minnesota AG's lawsuit against NAF, the resulting consent decree, and today's report from the House of Representatives. Indeed, the Minnesota Attorney General released a letter to the AAA on Sunday asking it to take this very step. The announcement also appears to have been deliberately released on the eve of tomorrow's House oversight hearing.  Even before the news from AAA, the tort deformers at Point of Law were forced to concede that consumer arbitration is "in retreat" and "has taken a big hit in the political and PR world."

So far the Journal appears to be the only news outlet reporting on the AAA announcement. The Chicago Tribune and the San Francisco Chronicle, among other papers, had additional coverage today on the victory over NAF. You can learn more about the arbitration fairness legislation pending in Congress here.

So what happens now in consumer disputes involving NAF and AAA clauses?

House Oversight Committee Looks Into Forced Arbitration

The Domestic Policy Subcommittee of the House Oversight and Government Reform Committee will hold a hearing tomorrow afternoon entitled "Arbitration or ‘Arbitrary’: The Misuse of Arbitration to Collect Consumer Debts." The witnesses are Minnesota Attorney General Lori Swanson, Michael Kelly of the NAF, co-blogger Paul Bland, Christopher Drahozal (a pro-forced-arbitration law professor), and Richard Naimark of the AAA. In light of this week's developments, it promises to be a very interesting hearing. Lucy Colby has the details at the Fair Arbitration blog.

In advance of tomorrow's hearing, the Committee has released this staff report, which documents numerous problems with NAF's handling of consumer cases.

Consent Decree in Minnesota v. NAF

Here's the consent decree that Richard mentions in the post below.  And here's the text of the press release from the Minnesota Attorney General's office:

Minnesota Attorney General Lori Swanson and the National Arbitration Forum—the country’s largest administrator of credit card and consumer collections arbitrations—have reached an agreement that the company would get out of the business of arbitrating credit card and other consumer collection disputes.

“I am very pleased with the settlement. To consumers, the company said it was impartial, but behind the scenes, it worked alongside credit card companies to get them to put unfair arbitration clauses in the fine print of their contracts and to appoint the Forum as the arbitrator. Now the company is out of this business,” said Swanson.

Swanson sued the National Arbitration Forum on Tuesday, alleging that the company--which is named as the arbitrator of consumer disputes in tens of millions of credit card agreements--hid from the public its extensive ties to the collection industry. The lawsuit alleged that the Forum told consumers and the public that it is independent and neutral, operates like an impartial court system, and is not affiliated with and does not take sides between the parties. The lawsuit alleged that the Forum worked behind the scenes, however, to convince credit card companies and other creditors to insert arbitration provisions in their customer agreements and then appoint the Forum to decide the disputes. The suit also alleged that the Forum has financial ties to the collection industry. The suit alleged that the company arbitrated 214,000 consumer arbitration claims in 2006, nearly 60 percent of which were filed by laws firms with which the Forum is linked through ties to a New York hedge fund.

Under the settlement, the National Arbitration Forum will, by the end of the week, stop accepting any new consumer arbitrations or in any manner participate in the processing or administering of new consumer arbitrations. The company will permanently stop administering arbitrations involving consumer debt, including credit cards, consumer loans, telecommunications, utilities, health care, and consumer leases.

NAF Exits Consumer Arbitrations

by Richard Alderman

In a major victory for consumers, the nation’s largest arbitration firm involved in adjudicating delinquent credit-card debt has agreed to pull out of the business. As reported by BusinessWeek, the move was announced today by Minnesota Attorney General Lori Swanson, who had filed suit against the National Arbitration Forum, alleging fraud, deceptive trade practices, and false advertising.

Under the terms of the consent decree, signed by the AG and NAF officials, the arbitration firm by the end of this week will stop accepting new consumer arbitrations of any sort. These include arbitrations over disputed credit-card debt as well as new lines of business the NAF has moved into, such as arbitrating consumer debts in healthcare, telecommunications, utilities, mortgages, and consumer leases. The only business NAF can now be involved with is in arbitrating Internet domain disputes, a business it has long been in.

The question now is where will all these arbitrations go, and will more lawsuits follow them.

Massachusetts Supreme Court Strikes Class Action Ban, Rejects Texas Law

by Deepak Gupta

Just before the holiday weekend, the Massachusetts Supreme Judicial Court issued an opinion in Feeney v. Dell Inc., holding that a statutory right to participate in class action lawsuits may not be be foreclosed by a provision in a consumer contract compelling individual arbitration. The court reached that conclusion based not on unconscionabilty doctrine, but on Massachusetts public policy. It emphasized the strong state policy in favor of class actions and relied on cases such as the First Circuit's decision in Kristian v. Comcast Corp., 446 F.3d 25, 54 (1st Cir. 2006), which reject class action bans because of their interference with consumers' ability to vindicate statutory rights: "Allowing companies that do business in Massachusetts, with its strong commitment to consumer protection legislation, to insulate themselves from small value consumer claims creates the potential for countless customers to be without an effective method to vindicate their statutory rights, a result clearly at odds with our public policy."  The decision joins the rest of the state and federal appellate courts in holding that the Federal Arbitration Act does not preempt its holding, relying on the analysis of the Ninth Circuit and the Illinois Supreme Court.

The Feeney opinion is also noteworthy for its choice-of-law analysis. The Dell contract at issue specified that Texas law--which appears to allow class action bans--would apply.  The court held that Massachusetts' fundamental policy in favor of class actions for small-value consumer claims outweighed Texas's interest in blocking consumers' access to the courthouse doors.  As the court put it, "[w]e likewise have little trouble concluding that the interest embodied in this policy--the protection of large classes of consumers and the deterring of corporate wrongdoing--is materially greater than Texas's interest, which the defendants identify as 'minimizing its companies' legal expense.'"  Massachusetts joins a growing chorus of courts that reject corporate efforts to use choice-of-law clauses to enforce otherwise impermissible class bans.  Another recent example of this trend is the Third Circuit's decision in Homa v. American Express.