"Forced Arbitration Protects Sexual Predators and Corporate Wrongdoing"

Guest post by Emily Martin, General Counsel and Vice President for Workplace Justice. National Women's Law Center

Fox News.  Sterling Jewelers.  Wells Fargo. 

What do they all have in common?  For years, they successfully kept corporate wrongdoing secret, through forced arbitration.

Buried in the fine print of employment contracts and consumer agreements, forced arbitration clauses prohibit you from going to court to enforce your rights.  Instead, employees who experience harassment and discrimination, or consumers who are the victims of financial fraud or illegal fees, are sent to a private arbitration forum.  Frequently designed, chosen, and paid for by the employer or corporation, in arbitration everything is conducted in secret. People who suffered the same abuses often can’t join together to show how rampant a problem is and confront a powerful adversary—and people are less likely to come forward at all, because they have no idea they aren’t alone.

When Gretchen Carlson sought her day in court over sexual harassment allegations against Roger Ailes, her former boss at Fox News, Mr. Ailes’s lawyers had a quick response: send the case to forced arbitration.  After she filed suit, he also invoked a clause that reportedly required absolute secrecy: “all filings, evidence and testimony connected with arbitration, and all relevant allegations and events leading up to the arbitration, shall be held in strict confidence.” It was only because she resisted that clause through a creative legal theory that her allegations were made public—unleashing a tsunami of claims of sexual harassment by Ailes and others at Fox News.

Hundreds and maybe thousands of former employees of Sterling Jewelers, the multibillion-dollar conglomerate behind Jared the Galleria of Jewelry and Kay Jewelers, known for advertising slogans such as “Every kiss begins with Kay,” were allegedly groped, demeaned, and urged to sexually cater to their bosses to stay employed.  The evidence of apparent rampant sexual assault was kept secret for years from other survivors and the general public through gag orders imposed in forced arbitration.

The same thing happened at American Apparel, where employees and models were forced to arbitrate sexual harassment claims and keep the details secret, and the proceedings were reportedly a sham.

We don’t yet know if Hollywood producer Harvey Weinstein used forced arbitration to suppress allegations of his decades-long campaign of sexually harassing, abusing, and assaulting young assistants, temps, employees and executives at the Weinstein Company and Miramax.  But the clauses may well have played a role, and his nondisclosure agreements and secret one-by-one settlements worked to the same effect.

And forced arbitration clauses do not only hide wrongdoing in sexual harassment cases.  Corporations also use forced arbitration to isolate victims and cover up massive, widespread wrongdoing in the financial sector.

Scalia and arbitration law

That's the topic of The Bold Ambition of Justice Scalia's Arbitration Jurisprudence: Keep Workers and Consumers Out of Court by law prof. Katherine Stone. Here's the abstract:

Arbitration clauses have become a pervasive feature of modern life. The expanding scope of arbitration has become a cause for alarm amongst consumer and worker advocates, who see it as a judicial roll back of hard-won consumer and worker rights. Justice Antonin Scalia played a key role in the trend by which arbitration has largely displaced the civil justice system for ordinary Americans. Between 2006 and 2016, Justice Scalia authored six important Supreme Court decisions interpreting the FAA – no other Justice came close. Scalia’s singular contributions to arbitration law are implicated in three consolidated cases that are currently before the Supreme Court, and which pose the question of the impact of the FAA on workers’ rights to engage in collective activity to improve their working conditions. This article traces the Justice Scalia’s contributions to arbitration jurisprudence and considers the implications of the edifice he has created by these decisions.

Politico Got Two Statisticians to Look at the CFPB-OCC Arbitration Statistical Dispute

by Jeff Sovern

The story is headlined 'Plague on both your houses': Cordray, Noreika get scolding from statisticians. Excerpt:

" * * * There isn’t strong evidence either way,” said Bruce Meyer, a professor at the University of Chicago.

“There is weak evidence that says more than likely there is a positive effect on the cost of credit,” Meyer said of the OCC analysis. “But the accepted approach is you don’t crow about something unless you have stronger evidence.”

As for Cordray’s rebuttal, “it was wrong, too,” Meyer said. “You can say that there’s an 88 percent probability if you believe that the study that’s being quoted. There are always potential problems with research studies.”

* * * 

Campbell Harvey, a Duke University professor and a past president of the American Finance Association, scolded both the bureau and OCC for fighting over things like p-values, which can be hacked or manipulated. He called the OCC’s probability calculations “vague” and said agency researchers “left themselves open to criticism that they don’t understand basic statistics.”

But he also said both sides should stop bickering and rethink what’s important. In that light, he noted that the CFPB couldn’t rule out the chance, however remote, that an arbitration ban could increase the cost of consumer borrowing by more than 3 percentage points.

“By standard methods we wouldn’t consider this significant. That doesn’t mean that you ignore it,” Harvey said. “While it’s not significant at traditional levels, so what? It could be economically important.”

There's more in the article. Two statisticians is better than we had, but still only a small (you should forgive the expression) sample.  I wonder what others would say. I would also like to know more about what Harvey meant when he said that the agency researchers left themselves open to the criticism that they don't understand basic statistics.  The agency in question seems to be the OCC rather than the Bureau, judging by the earlier reference in the sentence to the OCC.

Times Op-Ed Shows How Markets Sometimes Fail to Curb Companies That Cheat Consumers

by Jeff Sovern

The piece is by Richard Coniff and is titled Why We Don’t Vote With Our Wallets. Excerpt:

[W]e get bored and look away from the dull crimes companies commit every day, like Wells Fargo foisting phony accounts and unwanted auto insurance on its customers. * * * Like Volkswagen selling “clean diesel” cars that ran clean only long enough to fool emissions testing equipment. * * *

* * * 

* * * Heavy discounting helped make scandal-ridden Volkswagen the world’s largest automaker in 2016. * * *

It is often striking to me how free marketers continue to believe that consumers always punish companies that cheat their customers when there is so much evidence to the contrary. As for Wells Fargo, the number of consumers who chose to maintain checking accounts there actually rose after the phony account scandal became public.

Credit Bureau Industry Still Seeking Caps on Damages After Equifax Breach

by Jeff Sovern

Much has been made of the fact that the day the Equifax breach became public, Congress held a hearing on bills that would have limited damages credit bureaus would have to pay for misconduct.  This past Tuesday, the Senate Banking Committee held a hearing titled Consumer Data Security and the Credit Bureaus (we posted a link to a report on the hearing from The Hill here). The witnesses included an attorney representing the industry trade group, the Consumer Data Industry Association: Andrew M. Smith, Partner, Covington & Burling LLP. Mr. Smith testified that the industry still seeks a cap on damages for liability under the Fair Credit Reporting Act.  Some other interesting thing that came up in the hearing: some committee members support the idea of flipping the default on credit freezes, so that the default would be that credit bureaus would not be able to disclose consumer information without consumer consent, rather than the current system in which credit bureaus can disclose information unless consumers freeze their files. There seemed to be agreement that, as we reported earlier in the week, the CFPB generally lacks authority over data breaches--but the CFPB and FTC are both investigating the breach, so it appears the CFPB believes it may have some jurisdiction in the area (if any readers know the basis for its jurisdiction, I hope they will post about it in the comments below; maybe the Bureau's UDAAP powers?). Mr. Smith opposed congressional action on credit bureau security breaches until after the FTC and CFPB concluded their investigations. On another point, when it was pointed out that an FTC study in 2013 found that about a quarter of consumers had errors in their credit reports, Mr. Smith took the position that only 2% of consumers had credit report errors because he defined errors as errors affecting the consumer (e.g., errors that would lead to a lender charging a higher interest rate or declining a loan altogether).  Another witness, Marc Rotenberg of the Electronic Privacy Information Center, argued that the credit bureau industry should provide freezes without charge because otherwise the industry profits from a harm that it itself makes possible.  Many of the senators from both parties were critical of Equifax; I continue to wonder whether  legislation will result or if this is merely political posturing.  

"Regulator Blasts Wells Fargo for Deceptive Auto Insurance Program"

The New York Times reports that "Wells Fargo engaged in unfair and deceptive practices, failed to properly manage risks and hasn’t set aside enough money to pay back the customers it harmed, according to a confidential report by federal regulators."

"The report, prepared by the Office of the Comptroller of the Currency and reviewed by The New York Times, criticizes Wells Fargo for forcing hundreds of thousands of borrowers to buy unneeded auto insurance when they took out a car loan, as well as its handling of the problems once they were detected."

The full article is here.

John Oliver on the Equifax Breach

 

or click here. If you don't have time for the whole segment, here is a 34-second excerpt about the arbitration snafu.

Law360 Reports Trump Nominates Joseph Simons to Chair FTC and Rohit Chopra to Serve as Commissioner

by Jeff Sovern

Rohit Chopra, of the Consumer Federation of America, recently served at the CFPB and obviously has experience with consumer protection issues. Simons, who formerly served as director of the FTC's competition bureau, is currently at Paul Weiss. I don't know what experience, if any, he has on the types of consumer protection issues the FTC has jurisdiction over. The Law360 story is here. 

More Tough Talk in the Senate About the Equifax Data Breach; Will It Lead to Changes in the Law?

by Jeff Sovern

Yesterday the Senate Banking Committee held a hearing on consumer data security. The Hill covered it, in a report headlined Senators bear down on credit reporting industry over data security.  Here is an excerpt:

“If they lose my data as Equifax did, or if someone submits to them data that is an error that undermines my credit score, the bureaus have no obligation or interest right now to work with me to try to get the credit score correct,” [Louisiana's Senator John] Kennedy continued. 

Kennedy warned the industry that it needs to “step up” and propose specific reforms that would help better protect consumers in the event of future breaches. 

“Your clients need to step up to the plate here and suggest some meaningful reforms, or reforms are going to be suggested to them,” Kennedy said. “My advice to you would be to step up to the plate and offer specific things that you and your clients are going to do to improve the situation. Not platitudes, not bromides — specific suggestions.”

* * *

"Most of the adults in Louisiana had their data stolen," Kennedy said Tuesday. "They’ve had to go to a lot of trouble to freeze credit. Some of them are going to have their identity stolen. It’s just not right."

One of the things that makes Senator Kennedy's remarks especially interesting is that he is one of the Republican senators who has said he is undecided about the CFPB arbitration regulation. His statements above suggest he is not content with how the free market has handled at least the consumer protection problem of the Equifax data breach.

ABA Consumer Protection Announcement on Volunteer Opportunities for Law Students

We received the following announcement:

ABA Section of Antitrust Law Consumer Protection Committee

Volunteer Opportunities for Law Students

The Consumer Protection Committee is the ABA’s premier group for developments in the law of privacy
and data security, false advertising, deceptive marketing, and unfair trade practices, providing timely
updates on law enforcement, rulemakings, and business guidance from the FTC, DOJ, CFPB, other federal
agencies, state attorneys general, divisions of the Advertising Self-Regulatory Council (NAD, ERSP and
CARU), and their international counterparts.

There are many ways for law students to get involved with the Consumer Protection Committee
including these great opportunities to write and speak on consumer protection issues.

• Consumer Protection Newsletter: We are seeking contributors for the next edition of the Consumer
Protection Committee newsletter, What’s in Store. If you would like to write a short article, please
contact Svetlana Gans at sgans@ftc.gov. Check out the Summer 2016 edition written entirely by
law students!

• Consumer Protection Case Updates: Contribute to bi-weekly consumer protection updates on the
latest consumer protection cases. If you or a colleague would be interested in joining the updates
team, contact Dan Blynn at DSBlynn@Venable.com. Here’s a short example of a case brief:
The U.S. District Court for the Northern District of Illinois grants defendant Quaker Oats
Company’s request for entry of judgment in two separate lawsuits that had been filed
regarding claims against the labeling of its oatmeal products as “heart healthy” and
“natural.” Defendant based its motions on the fact that the court previously had granted a
motion to dismiss a consolidated action, Gibson v. Quaker Oats Company, which had
involved identical complaints and allegations as the current disputes. As discussed in the
Gibson dismissal opinion, the plaintiffs’ respective failure-to-warn claims were meritless due
to federal preemption and the plaintiffs failed to allege the omission of a material fact.
Further, in Gibson, the plaintiffs did not allege that a reasonable consumer would interpret
“natural” as eliminating all pesticides “down to the molecular level.” As such, the Court
determined that dismissing these analogues cases was appropriate. (Kinn v. Quaker Oats
Co., No. 16-cv-10833, 2017 WL 3922068 (N.D. Ill. Sept. 6, 2017); Panitch v. Quaker Oats
Co., No. 17-cv-03460, 2017 WL 3922149 (N.D. Ill Sept. 6, 2017)).

• Consumer Protection Legislation Monitoring Project: Beef up your knowledge of state consumer
protection laws by reviewing new state legislative proposals and writing a quick description for
dissemination. If interested in participating, please contact Anna Chehtova at
Anna.A.Chehtova@tsocorp.com.