Consumer Law & Policy Blog

More Coverage of Rent-A-Center v. Jackson

by Deepak Gupta

 Last week, I blogged about Rent-a-Center v. Jackson, a very important arbitration case that will be argued before the U.S. Supreme Court on April 26. My post focused on the bottom-side amicus briefs in the case, particularly a brief of arbitrators and arbitration scholars supporting the plaintiff/respondent. You can read more coverage of the case at Text & History, PrawfsBlog, and ContractsProfBlog.  The Virginia Law Review's online component has just published an interesting essay by David Horton (Loyola Law School, Los Angeles) called "The Mandatory Core of Section 4 of the Federal Arbitration Act."  Here's an abstract:

This Essay . . . argues that parties cannot arbitrate the issue of whether the arbitration clause is unconscionable, even when there is "clear and unmistakable" evidence of their intent to do so, because courts possess the exclusive right to decide whether all or part of an arbitration clause is valid. The judiciary's monopoly on settling this matter arises from Section 4 of the FAA, which provides that if the "making of the arbitration agreement" is "in issue," the "court shall proceed summarily to the trial thereof." In fact, Section 4 only allows a court to submit a case to arbitration if it is "satisfied that the making of the agreement for arbitration . . . is not in issue." This language bars parties from contracting around the judicial duty to evaluate "the making of the arbitration clause." Moreover, this reading dovetails with the FAA's legislative history, which reveals that the statute's proponents cited this layer of judicial protection to allay concerns about privatizing a customary governmental function.

Should A Company's Hand-Picked Arbitrator Get to Decide Whether It's Fair for the Company to Hand Pick the Arbitrator?

by Deepak Gupta

Even prominent arbitrators agree: Decisions about whether arbitration clauses in the consumer and employment context are unconscionable shouldn't be left entirely in the hands of arbitrators themselves. Instead, courts must be able to step in and prevent abuses.

That’s the upshot of an amicus brief filed yesterday by 23 nationally prominent professional arbitrators and arbitration scholars in Rent-A-Center v. Jackson, a case that will be argued before the U.S. Supreme Court on April 26.

It was one of seven friend-of-the-court briefs filed Wednesday by a broad coalition of civil rights organizations, labor unions, and consumer groups. Although the Rent-A-Center case has so far received little media attention, the case could radically alter the landscape of access to the civil justice system for consumers, employees, and franchisees.

As many readers of this blog are probably aware, Section 2 of the Federal Arbitration Act makes arbitration agreements "enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The Supreme Court has made clear that one of the grounds encompassed in that savings clause is unconscionability under state law. So one would think that courts would lack power to enforce, i.e. compel arbitration under, an unconscionable arbitration agreement.  But, as I'll explain below, Rent-a-Center's legal theory challenges that very proposition.

SCOTUS Takes Arbitration Case, Justice Department to Increase Fair Credit Enforcement, and Repoed Toddler

by Jeff Sovern

A few recent consumer law reports: The SCOTUS Blog has reported that the Supreme Court has granted cert in what could be an important arbitration case.  Here's their description:

Docket: 09-497
Title: Rent-A-Car, West, Inc. v. Jackson
Issue: Whether the district court is in all cases required to determine claims that an arbitration agreement subject to the Federal Arbitration Act (“FAA”) is unconscionable, even when the parties to the contract have clearly and unmistakably assigned this “gateway” issue to the arbitrator for decision.

• Opinion below (9^th Circuit)
• Petition for certiorari
• Brief in opposition
• Amicus brief of the Pacific Legal Foundation

One reason this may be significant is that arbitrators have an incentive to rule that such a contract is not unconscionable, since if the arbitrator finds the contract unconscionable the arbitrator would have to terminate the arbitration, thus eliminating the possibility of additional fees from the case, while if the arbitrator denies the unconscionability defense, the arbitrator can continue hearing the matter, and reap additional fees.  Consequently, a ruling that arbitrators can decide such matters is likely to reduce the number of contracts found unconscionable even in cases where such a finding would be warranted. 

The Times reports that the federal Department of Justice is creating a new unit to focus on unfair lending practices and especially reverse-redlining.  Among the reasons this seems like a particularly good move: First, it is difficult for private plaintiffs to bring successful actions under the Equal Credit Opportunity Act, and second, the subprime crisis has lent credence to claims that reverse redlining is common.

From time to time a car is repossessed with a child inside.  Here's another report on such an act.  Imagine how frightened the child must have been.  The UCC forbids self-help repossessions that breach the peace; this one, with a police helicopter search and chase involved, sounds like it qualified.

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.