Several weeks ago, I blogged about “Hot Coffee,” a new documentary airing on HBO, that exposes the radical ways in which tort reform advocates are taking Americans’ rights hostage, much to the obliviousness of the typical American. “Hot Coffee” focuses on four legal obstacles that tort reform has placed in the way of ordinary people.
One of those roadblocks is mandatory pre-dispute arbitration. The term is a mouthful but “Hot Coffee” powerfully explains this kind of arbitration through the story of Jamie Leigh Jones. Jones was an employee of Halliburton subsidiary Kellogg, Brown & Root (KBR), working in Iraq. She sued Halliburton/KBR for a brutal rape and false imprisonment that, she said, took place at the hands of her coworkers.
But Halliburton/KBR wouldn’t let Jones get her day in court. As soon as she filed in court, Halliburton asked that her case be forced out of the court system into arbitration. When Jones had signed on with Halliburton, she signed a lot of paperwork, including an agreement stating that, if she ever sued Halliburton, Halliburton had a right to force the case into arbitration.
Halliburton managed to keep Jones in arbitration until Sen. Al Franken got a law passed that prohibited defense contractors from enforcing such arbitration agreements. Jones finally got her day in court and last week she lost, a Texas jury finding against her. Now, a number of commentators in the legal blogosphere are using Jones’ loss to undermine “Hot Coffee’s” critique of arbitration.
Despite the Jones verdict, however, mandatory pre-dispute arbitration agreements remain a bad idea. They cost consumers billions. They encourage dishonest and sharp practices by business. They are profoundly un-American.
First off, I should probably be clear about what I mean by “mandatory pre-dispute arbitration.” I’m referring to a private system for dispute resolution. There are no jurors, there are no jury trials in arbitration. Either a single arbitrator or a panel of arbitrators hears your case and decides it. Either one or both of the parties to arbitration pays the arbitrator a fee to hear the case, fees that vastly exceed what it costs to file a case in court.
Who are these arbitrators? They may or may not be lawyers. There really are no legal requirements for who can be an arbitrator.
If the lack of credentialing requirements makes you worried if you’ll get a fair hearing in arbitration, you should also be worried because there’s no right of appeal. If you lose in our civil justice system, you can appeal to a higher court. But if you lose in arbitration, there is no authority higher than your arbitrator.
It used to be the case that if an arbitrator came up with a completely off-the-wall ruling, you could appeal to a court under a “manifest disregard of the law” standard. If you could show that the arbitrator’s ruling was in manifest disregard of the law, you could get a court, a real court with judges and jurors, to overturn the arbitrator’s decision. But the US Supreme Court, in the 2008 decision of Hall Street Associates, LLC v. Mattel, Inc., took away this grounds for appeal. You can no longer appeal an arbitrator’s decision to a Court — even when you can show that the arbitrator manifestly disregarded the law (in other words, completely ignored the law) in reaching his or her decision.
Of course, even if the “manifest disregard of the law” standard were still around, it would be an uphill climb to prove that your arbitrator disregarded the law because arbitrators very rarely write any written opinions explaining their decisions. If an arbitrator does not write an opinion explaining her decision, it is very hard to prove that the arbitrator made a legal error.
The widespread acceptance of tribunals that do not write down or explain their opinions represents a pretty radical break with the Anglo-American tradition of jurisprudence. America, like England (and a lot of former English colonies), has a “common law” system of justice. The common law tradition can be contrasted with the “civil code” system of justice that exists in continental Europe and virtually everyplace else.
In both traditions, a legislature, or some other authority, may promulgate a code of laws that people must follow. But legal codes usually speak in sweeping generalities; there are always ambiguities and questions of how to apply the codes in particular cases. This work of applying the verbiage of legal codes to the facts of particular disputes is the province of judges (and, well, arbitrators).
In the civil system, followed in continental Europe, judges make their decisions and those decisions apply in the case before them and for the case before them only. The judge’s decision has no weight of precedent; there is no requirement that the judge’s decision be followed in other cases. By way of contrast, in the common law tradition, judge’s decisions form precedents. These precedents must be followed in later cases.
The net result of the common law tradition is that America and other common law countries have a much richer body of law than countries who follow the civil code system. In the common law system, there is a lot more guidance out there on what is legal and what is not. There is also a lot more debate on what legal rules are good ones and what ones are bad.
The body of precedent that develops in a common law country helps people avoid litigation, by allowing them to know what they can do and what they cannot. The body of precedent in a common law country represents what economists call a “public good.”
But increasingly, due to the ubiquity of arbitration, we are moving toward becoming a civil code country. Congress will pass a law and relatively few of the cases will make it into the courts because of mandatory pre-dispute arbitration agreements. This was happening, for instance, with the Sarbanes-Oxley whistleblower law that Congress passed in the wake of the Enron collapse; many whistleblowers were getting pushed into arbitration under employment agreements that they signed, the same way that Jamie Leigh Jones was. This pattern stifles the doctrinal development of the law. Fortunately, last summer the Dodd-Frank financial reform law invalidated arbitration agreements that require the arbitration of whistleblower claims.
But arbitration remains ubiquitous in other areas – such as contract disputes with your phone company or bank. Walling these areas of life off from the courts means that the law will become ossified. A century from now, we’ll still be following the same law in that field of human life that we are today because the number of legal precedents issued by courts will either completely stop or slow to a trickle. That may not sound like much but go take a look at the contract law of the nineteenth century and decide whether you’d want that law followed today.
Arbitration also affects your pocketbook. It’s a virtual certainty that you have entered into a number of mandatory pre-dispute arbitration agreements. Your contracts with your cell phone company, your credit card company (although credit car companies are moving away from arbitration in some cases) and your mortgage lender likely contain arbitration clauses.
So if you discover that, say, AT&T is ripping you off by adding bogus extra charges to your bill, in complete violation of your contract, you can’t head into court to sue AT&T. You have to head to arbitration.
If the bogus charges that AT&T levies against you are part of a scam that rips off other AT&T cell customers, you might think, “No problem, I’ll head to arbitration and I’ll have my lawyer file a class action arbitration against AT&T. That will teach them. AT&T will have to end this fraudulent policy and refund us all the overcharges.”
If we were living in the halcyon days of 2010, such a tack might have worked. But, if you’re an AT&T customer, your contract with AT&T contains a clause that forbids you from bringing a class action in arbitration. And in April 2011, in the case of AT&T Mobility v. Concepcion, the US Supreme Court upheld the anti-class action provision in AT&T’s cell phone contracts.
So, now, if AT&T does something to rip you off on your cell phone bill, you have to go it alone in arbitration. But if AT&T only rips you off for $30 or so what lawyer is going to want to take your case? $30 won’t pay your lawyer. The only way a lawyer would take on your case is if she could aggregate all the $30 overcharges into a class action. That would mean real money that would make the issue worth fighting over and that would force AT&T to play by the rules.
Justice Breyer pointed out this obvious truth in his dissent in AT&T Mobility, where he wrote: “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”
So mandatory pre-dispute arbitration means that your cell phone carrier can get away with completely fraudulent charges against you and you have absolutely zero remedy because, if the fraud is small enough, you won’t be able to attract a lawyer to take on your case.
Is it any surprise therefore that, according to this recent study by the Commerce Department, Americans are overcharged on their phone bills by $2 billion a year in “mystery fees”?
Mandatory pre-dispute arbitration. So far as consumers and employees are concerned, it’s still a bad idea.