Consumer Law & Policy Blog

Myriam Gilles on Arbitration Clauses After Concepcion

Myriam E. Gilles of Cardozo has written Killing Them with Kindness: 'Consumer-Friendly' Arbitration Clauses after AT&T Mobility v. Concepcion, forthcoming in Notre Dame Law Review.  Herer's the abstract: 

In AT&T v. Concepcion, the Supreme Court struck California’s so-called “Discover Bank rule” – a judge-made rule providing that arbitration agreements attended by class action waivers are unenforceable, if those agreements are contained in standard form consumer contracts. But, arguably, Concepcion leaves open and unresolved the viability of a state law challenge to a bilateral arbitration clause which is shown, in a particular case, to impose a forfeiture of the claimant’s ability to vindicate his state law rights. Meanwhile, in the context of federal claims, the Second Circuit in American Express III reaffirmed in light of Concepcion its earlier holdings that a class action waiver contained in an arbitration agreement is unenforceable if it is proven in the individual case that the arbitration clause at issue would force the claimant to shoulder such costs as would prevent the claimant from effectively vindicating its federal statutory rights. On both the state and federal levels, then, cost-based vindication of rights challenges remain a significant concern to corporate defendants looking to exculpate themselves from exposure to aggregate litigation.

All of this begs a question this paper seeks to answer: will the robust recognition of cost-based, evidence-backed vindication of rights challenges swallow up the basic ruling of Concepcion, rendering unenforceable arbitration agreements and class action waivers that the Supreme Court has held are otherwise to be enforced?

Two More Arbitration Articles

Rhonda Wassermanof Pittsburgh has written Legal Process in a Box, or What Class Action Waivers Teach Us About Law-Making, forthcoming in 44 Loyola University Chicago Law Journal, (2012).  Here's the abstract:

The Supreme Court’s decision in AT&T Mobility v. Concepcion advanced an agenda found in neither the text nor the legislative history of the Federal Arbitration Act. Concepcion provoked a maelstrom of reactions not only from the press and the academy, but also from Congress, federal agencies and lower courts, as they struggled to interpret, apply, reverse, or cabin the Court’s blockbuster decision. These reactions raise a host of provocative questions about the relationships among the branches of government and between the Supreme Court and the lower courts. Among other questions, Concepcion and its aftermath force us to grapple with the relationship between law and politics, the role of legislative history in statutory interpretation, the meaning of legislative primacy, the influence of federal agencies on the development of the law, and competing conceptions of the relationship between the Supreme Court and the lower courts.

And Roger Perlstadt of Florida adds Article III Judicial Power and the Federal Arbitration Act, forthcoming in 62 American University Law Review.  Here's his abstract:

Arbitrators determine facts and apply law to those facts to bindingly resolve disputes between two or more parties, a task normally reserved for judges. The Federal Arbitration Act (FAA) makes agreements to arbitrate disputes enforceable, including disputes that would normally be heard by an Article III judge, such as those arising under federal law or between parties of diverse citizenship. Accordingly, disputes subject to an arbitration agreement brought before a federal court for adjudication must instead, pursuant to the FAA, be resolved by an arbitrator. Yet, while Article III mandates that such disputes be decided by life-tenured and salary-protected judges, arbitrators — selected and compensated by one or more of the parties — enjoy neither protection. A literal reading of Article III thus suggests that sending federal disputes to non-Article III arbitrators under the FAA is unconstitutional. Although courts and scholars have roundly rejected Article III literalism and have adopted various theories justifying non-Article III adjudication of Article III disputes, whether the FAA is consistent with Article III has received little analysis. This article addresses that gap by applying the leading judicial and scholarly theories of non-Article III adjudication to the FAA, ultimately determining that none of them justify arbitration. While a legislative change could remedy the tension between Article III and the FAA, this article suggests that the better approach is simply to acknowledge the fundamental inconsistency of the FAA with Article III while recognizing that parties may waive their constitutional right to an Article III forum. Given that arbitration is a waiver of Article III rights, however, this article concludes that consent to arbitration must be determined under the standards used to determine waiver of constitutional rights generally, a fundamental shift from current FAA jurisprudence.

Jean Sternlight Paper on Arbitration of Procedurally Difficult Claims

Jean R. Sternlight of University of Nevada, Las Vegas has written Mandatory Binding Arbitration Clauses Prevent Consumers from Presenting Procedurally Difficult Claims, forthcoming in the Southwestern University Law Review. Here's the abstract: 

The longstanding debate over the benefits and detriments of mandatory arbitration in the consumer context has often focused on the wrong issue. Although we have now argued for almost twenty years over whether it is appropriate to require consumers to arbitrate rather than litigate claims against providers of products and services, too often commentators have asked whether consumers win or lose when they bring claims in arbitration, rather than whether consumers’ claims are suppressed or eliminated altogether as a result of companies’ use of mandatory arbitration clauses. The United States Supreme Court’s recent decision in AT&T Mobility v. Concepcion brings this claim suppression issue to the forefront by allowing companies to use arbitration clauses to insulate themselves from exposure to plaintiffs’ class actions.

While some urge that the elimination of consumer class actions is no big deal, in that consumer arbitration offers a more effective way for consumers to resolve their claims than do class actions, this Article suggests this analysis is deeply flawed. Although some 'procedurally easy' claims may effectively be resolved through individual arbitration (in actuality they are far more frequently resolved through complaints to customer service or through credit card chargebacks), 'procedurally difficult' claims cannot typically be resolved on an individual basis. 'Procedurally difficult' claims are those in which the consumer does not realize she has potentially been injured; the consumer does not realize that an injury she has suffered may be legally cognizable; the consumer’s claim is difficult and expensive to present, relative to the anticipated recovery; or the consumer seeks injunctive or other group relief. Claims for discrimination or fraud or regarding tainted food may often be procedurally difficult. While recognizing that, in theory, government agencies could protect consumers with procedurally difficult claims, the Article finds that in the United States such agencies are not sufficiently well-funded to protect many consumers. Thus, the Article concludes that Congress and/or administrative agencies such as the Consumer Finance Protection Board need to step in to protect consumers with procedurally difficult claims and assure they receive the legal protection they have been promised by our substantive laws.

Drahozal Paper: Arbitration Innumeracy

Christopher R. Drahozal of Kansas has written Arbitration Innumeracy, Yearbook on Arbitration and Mediation, (Forthcoming).  Here's the abstract: 

Arbitration innumeracy, as I use the phrase here, is the “inability to deal comfortably with the fundamental notions of number and chance” in evaluating arbitration, particularly consumer and employment arbitration. This article discusses a number of examples of possible arbitration innumeracy — cases in which statistics about arbitration are incomplete or outdated, misunderstood or misused. In particular, it examines empirical studies on: The use of arbitration clauses in credit card agreements; Outcomes in consumer arbitration; Arbitrator selection by the National Arbitration Forum; Class arbitration waivers in consumer arbitration clauses; The incentives of arbitrators and repeat-player bias; and Unintended consequences of restrictions on consumer and employment arbitration clauses.

Each of these topics illustrates a different issue of arbitration innumeracy, ranging from samples that are not representative of the population as a whole to comparisons that do not compare like cases. The sections of this Article put the issue in more complete empirical context and discuss briefly how the arbitration innumeracy impacts the policy debate over consumer and employment arbitration. For consumers of empirical data, avoiding arbitration innumeracy requires a sensitivity to basic statistical concepts and a willingness to look skeptically at empirical research, even when it confirms one’s previously held views.

For producers of empirical data, avoiding arbitration innumeracy requires a willingness to apply proper empirical techniques and, importantly, to recognize the limitations of one’s data. As empirical data becomes ever more important to the intensifying debate over consumer and employment arbitration, avoiding arbitration innumeracy is essential to making sound public policy.

Rutledge & Drahozal Paper on Arbitration Clauses

Peter B. Rutledge of Georgia and Christopher R. Drahozal of Kansas have written Contract and Choice, forthcoming in the Brigham Young Law Review.  Here is the abstract:

This paper contributes to an ongoing debate, afoot in academic, legal and policy circles, over the future of consumer arbitration. Utilizing a newly available database of credit card agreements, the article offers an in-depth examination of dispute resolution practices within the credit card industry. In some respects, the data cast doubt on the conventional wisdom about the pervasiveness of arbitration clauses in consumer contracts and the presence of unfair terms. For example, the vast majority of credit card issuers do not utilize arbitration clauses, and by the end of 2010, the majority of credit card debt was not subject to such an agreement. Likewise, while the use of class waivers is widespread in arbitration clauses, most clauses lack the sorts of unfair procedural terms for which arbitration is often criticized. The upshot of these and other findings is that consumers, in some respects, have more choice in their contracts than the literature suggests. Our work also responds to the suggestions of some scholars that businesses favor arbitration clauses in their consumer contracts but not their business-to-business agreements. On the contrary, our research suggests that the difference may not be as dramatic as previous research suggests. These results hold important implications for ongoing policy debates, including the work of the newly minted and controversial Consumer Financial Protection Bureau (“CFPB”). The CFPB has been charged with studying and, if appropriate, regulating the use of arbitration clauses in credit card agreements. Our findings signal a note of caution and suggest that a blanket prohibition on the use of arbitration clauses would be difficult to defend under principles of administrative law.

Stephen Friedman Paper on the Federal Arbitration Act

 

Stephen E. Friedman

 of Widener has written The Lost Controversy Limitation of the Federal Arbitration Act, 46 University of Richmond Law Review (2012).  Here's the abstract:

Despite Congress’s deliberate limitation of the Federal Arbitration Act (the “FAA”) to disputes arising out of a contract containing an arbitration provision, broader arbitration provisions are ubiquitous. Courts invariably enforce such provisions under the FAA. Notably, the Supreme Court has almost entirely disregarded the relevant language of the FAA and has ignored the conflict between the FAA’s narrow language and the broad language typically found in arbitration provisions. In so doing, the Court has quietly and inappropriately elevated the language of private agreements above the language of the statute.

In this article, Professor Friedman first identifies the origin of the Court’s disregard for the FAA’s language. Second, he describes the conflict between the narrow language of the statute and the broad language found in arbitration agreements. Third, Professor Friedman describes and critiques both the judicial disregard of this conflict and the corresponding expansion of the FAA’s scope. Finally, he urges courts to focus on the language of the FAA to limit the statute’s scope to only those controversies that Congress intended.

Commonweal: Holding All the Cards

Here.  A comment on arbitration, among other consumer issues.

National Roundtable on Consumer and Employment Dispute Resolution: Consumer Arbitration Roundtable Summary Report

Here, authored by Thomas Stipanowich of Pepperdine, Nancy Welsh of Penn State University, Lisa Blomgren Bingham of Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) and University of Nevada, Las Vegas, William S. Boyd School of Law, and Lawrence R. Mills. Here's the abstract

Building upon the work of the ABA Dispute Resolution Section's Consumer Arbitration Study Group, a National Roundtable on Consumer Arbitration was held in February, 2012, at Pepperdine University and was co-sponsored by Pepperdine School of Law, the Straus Institute for Dispute Resolution, and Penn State University, Dickinson School of Law. This Summary Report and its attachments: 1) summarize the discussions at the Roundtable and the Planning Committee’s conclusions; 2) provide an overview of related empirical studies and the range of dispute resolution programs and processes available to resolve consumer disputes; and 3) include an annotated list of key resources. Several work groups have been formed to carry on the work of this National Roundtable. A second National Roundtable focusing on employment dispute resolution will take place in September, 2012, at Penn State University, Dickinson School of Law.

What is Governor Romney's Position on Mandatory Predispute Arbitration Clauses?

by Jeff Sovern

That's the question I put to my research assistant.  He couldn't find an answer.  As far as he could tell from checking media reports and the governor's web site, Governor Romney has not spoken out on arbitration clauses in consumer contracts, the Concepcion case, etc.  Governor Romney has criticized the Dodd-Frank Act, which outlaws arbitration clauses in mortgage loans and calls for a CFPB study on arbitration clauses, but his criticism of the statute has been in general terms and given the scope of that statute, it is difficult to be certain that general opposition to the law means that he opposes the specific provisions on arbitration. Can anyone point me to comments by the governor on arbitration clauses in consumer contracts that my research assistant might have overlooked?  I inquired of the governor's campaign about ten days ago but haven't heard back.

If, as I believe, Governor Romney has not taken a position on mandatory predispute arbitration clauses, that would be a telling statement about public awareness of the issue.  My guess is that presidential candidates are forced to take positions on most issues of federal law (and many that are not federal, though this one is) that reach a certain threshhold of public concern; if the governor has not said anything about arbitration, that suggests that people are just not very aware of the arbitration issue, despite coverage by the media and the recent Supreme Court cases.  That view is supported by something I learned from listening to the audio version of The Occupy Handbook, editd by Janet Byrne, which consists of dozens of essays by leading journalists and academics, among others, including Paul Krugman, Robin Wells, Michael Lewis, Robert Reich, Amy Goodman, Barbara Ehrenreich, Gillian Tett, Scott Turow, Bethany McLean, Brandon Adams, and Tyler Cowen.  It includes a lot of economics and politics, and some discussion of consumer issues--chiefly, relief for homeowners who are underwater or in foreclosure--but I didn't notice any references to arbitration (though class actions were mentioned briefly).  The conclusion I come to is that arbitration is still well under the public's radar .

Two Articles from the Kansas Law Review on Arbitration

Maureen Weston of

 Pepperdine has written The Death of Class Arbitration after Concepcion?  Here's the abstract:

In AT&T Mobility LLC v. Concepcion, the Supreme Court potentially allowed for the evisceration of class arbitration, and indeed most class actions, in consumer and employment settings where contracts contain a pre-dispute arbitration provision that only authorizes claims brought in an individual capacity or that expressly bans representative class actions in arbitration or court (“class action waivers”). The debate over the enforceability of class action waivers, which had been percolating for years in both state and federal courts, came to the forefront in Concepcion when the Court agreed to review application of the California Supreme Court’s ruling in Discover Bank v. Superior Court, which deemed some class action waivers in adhesion contracts unconscionable, exculpatory, and thus illegal under California law. In a 5–4 decision, the Concepcion Court stated that California’s judicial rule invalidating class action waivers as unconscionable “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress [in the FAA].” Therefore, according to the Court, the FAA preempted the California law.

In light of Concepcion, a number of state and federal courts have enforced class action waivers in consumer arbitration contracts over objections that the waivers effectively immunize defendants from liability or violate state law standards of unconscionability or public policy.

This Article examines the implications of Concepcion on the future of class actions, in court or arbitration, and analyzes the federalism issues at stake in the Court’s interpretation of FAA preemption of state law. First, it sets forth the regulatory framework governing arbitration under the FAA and key Supreme Court decisions involving questions of class arbitration prior to Concepcion. Then, it analyzes Concepcion and the decision’s scope and parameters. It also contemplates Concepcion’s impact, examining how federal and state courts have since interpreted Concepcion’s application to challenges to class action waivers in cases involving statutory claims at the state and federal level. This is followed by an introduction of potential legislative responses, and an argument that the Concepcion decision, based on a dated and deluded conception of arbitration, improperly guts the FAA savings clause, violates the reserved role of states under the FAA to “regulate contracts, including arbitration clauses, under general contract law principles,” and threatens the ability of parties in some cases to vindicate their statutory rights. The Article concludes by advocating for a narrow construction of the decision and the guarantee of a procedural option by which rights, which sometimes require collective action, can be meaningfully vindicated.

And David Horton of Loyola Los Angeles weighs in with Arbitration and Inalienability: A Critique of the Vindication of Rights Doctrine.  That abstract reads:

Courts and scholars have long struggled to harmonize the Federal Arbitration Act and other federal statutes. Currently, judges invalidate arbitration clauses that prevent a plaintiff from vindicating her public law rights. This principle, the vindication of rights doctrine, is an arbitration-specific application of the statutory waiver rule: the idea that parties cannot prospectively waive congressionally-created entitlements. However, because the policy basis of the statutory waiver rule has never been clear, jurisdictions disagree about how to implement the vindication of rights doctrine. In this contribution to the Kansas Law Review’s Perspectives on the Current State of Arbitration Law Symposium, I seek to understand the statutory waiver rule and the vindication of rights doctrine by situating them within a larger context: the debate over inalienability. Infants, sexual services, body parts, and basic civic duties cannot be exchanged for consideration. I consider whether common justifications for these fissures in the market — concern about information failures, externalities, and commodification — can explain why future federal statutory claims are immune from freedom of contract. I conclude that, to some degree, each rationale for inalienability also underlies the statutory waiver rule and the vindication of rights doctrine. Nevertheless, I argue that these principles are best explained as an attempt to preserve the distinctive qualities of congressional lawmaking in an era where private parties exercise legislative-like power. I claim that courts can further this goal by nullifying one-sided arbitration clauses that do not serve arbitration-related purposes and thus are blatant attempts to rewrite the public laws.