Unclear on the concept

by Ted Frank on February 27, 2008

Bizarro-Overlawyered hasn’t quite gotten the hang of how to put forward their propaganda campaign to deprive consumers of the choice of arbitrating disputes.

A New Orleans woman, Patricia Dicorte, says she got ripped off by her contractor in May 2007, so she took him to an arbitrator, and in July 2007—a fraction of the time it would take in a civil suit of that magnitude—she had an arbitration ruling in her favor for $219 thousand. Unfortunately for her, she then took it to the cesspool of Orleans Parish Courts for enforcement, and Democratic Judge Yada Magee—a colleague of the cousin of the contractor—violated the Federal Arbitration Act and threw out the arbitrator’s ruling. (Dennis Woltering, “Despite arbitrator’s ruling woman still fighting contractor”, WWL-TV, Feb. 25). This will eventually be reinstated on appeal at some unnecessary expense, but somehow Kia Franklin is advertising this fiasco as an example of problems with arbitration (!), rather than as a problem with the judicial hellhole of New Orleans. (If the judge isn’t willing to give a fair ruling for the consumer in something as straightforward and administrative as arbitration judgment enforcement, what makes Franklin think that the consumer would have had a better chance with that judge in a civil trial?)

Judge Magee is best known for railroading negligence findings for 1800 plaintiffs against Dow Chemical in bogus silicone breast implant litigation in 1997, a decision thrown out by a Louisiana appellate court in 2002. Spitzfaden v. Dow Corning Corp., 833 So.2d 512 (La. App. 2002).

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Arbitration and “coercion”
05.30.08 at 3:41 pm

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1 federalist 02.27.08 at 8:22 pm

In cases like these, perhaps it is simply time to abrogate judicial immunity.

2 Scote 02.27.08 at 8:55 pm

“to deprive consumers of the choice of arbitrating disputes.”

What a load of cr*p. Consumers are never offered the “choice” of arbitration, they are told “sign this or take a hike,” where no meaningful alternatives exist. Consumers are never offered a choice of contracts, one with arbitration and one without.

While I can see you can argue the good points of some kinds of arbitration, pretending it is a consumer choice is so blatantly false that it completely trashes any shred of credibility you may have had on the issue.

3 Ted 02.27.08 at 9:01 pm

“Sign this or take a hike” is still a choice. The anti-arbitration legislation would deprive me of the choice of signing contracts that offer me lower prices in exchange for mandatory arbitration. A bill banning Burger King from serving hamburgers still restricts consumer choice, even if I’d never eat at Burger King.

4 wavemaker 02.27.08 at 9:37 pm

When faced with the facts, pound on…

5 Todd Rogers 02.27.08 at 10:01 pm

sign this or take a hike has a choice within it…in this instance, the disjunct “or” clearly qualifies the statement as one in which a choice is available. Whether or not it’s a meaningful one is perhaps more at debate here. I go with Ted on this one. I had a choice just last night. I was at Hotel X. I was logging in to their WiFi to check mail. I hit “Home” and was taken to their WiFi sponsor’s welcome page. They wanted $9/day for the service. So far, so good. I ponied up, and decided to actually read the T&C before I checked the “I submit to your T&C” box. Guess what was contained right there? Any guesses? A BA clause…what do you know. And at that moment, I made a choice. Choice A: Pay money, agree to T&C, log on, check mail, get caught up, surf web…or, ehh-heh OR B: Wait until a later time when I can either “borrow” some one’s open Wifi router signal or wait until I get back to my office/home and do the same. I opted for $9 and accepted the risks (risk: n. Inherent component of free-market business transactions) associated with doing this.

And one more thing. I was in the process of purchasing about $15K worth web advertising recently from a well known career board. Their multi-page set of T&C had a BA clause. One of our in-house attorneys was not too hip on the BA and told me it would be wise to negotiate it out. I told the sales rep, drop the BA clause or we don’t buy. Guess what the T&C (the one with my signature on it) does not have within it?

But, that’s ok; keep livin’ the dream…and respond back with some nice ad hom or comment about my “drivel.”

6 Joe Bingham 02.27.08 at 10:21 pm

“to deprive consumers of the choice of arbitrating disputes.”

What a load of cr*p. Consumers are never offered the “choice” of arbitration, they are told “sign this or take a hike,” where no meaningful alternatives exist. Consumers are never offered a choice of contracts, one with arbitration and one without.

While I can see you can argue the good points of some kinds of arbitration, pretending it is a consumer choice is so blatantly false that it completely trashes any shred of credibility you may have had on the issue.

Scote, please describe to me a situation in which you were literally forced to sign an arbitration contract. I’m finding it hard to envision.

7 Nate 02.28.08 at 12:37 am

Todd, so you were able to negotiate out of one BA clause, good for you. How’d that work out at Hotel X? What about Hotel Y? Or credit card companies A through G?

Here’s a question, was the web-advertising contract more expensive sans BA clause? Or was it just in there because most people would overlook it. And to Ted, when was the last time you were offered the two options?

Maybe you can just walk away, but when there is no other option, and a vast disparity in bargaining power, the situation becomes a little more murky. Case in point, the wifi. So your options are go home, agree to the BA, or steal some bandwidth. To me, that appears more then mildly coercive.

But to the main point of the article, wow. I’m normally sympathetic to Tortdeform, but epic fail, as the kids are calling it these days.

8 Ted 02.28.08 at 12:47 am

Nate, I don’t understand your question. I prefer binding arbitration, because it lowers my costs and increases my wages. The alternative only benefits consumers who plan to be deadbeats or to bring frivolous lawsuits. Since I plan to be neither, binding arbitration is to my advantage. Well-informed consumers understand this.

9 jkoerner 02.28.08 at 8:30 am

I agree with Ted. The only people who should have a problem with BA are those who want a jackpot jury award, i.e. trial lawyers. BA is perfectly fine for getting quick and fair compensation if you have been otherwise wronged for much less than the cost of full-blown litigation.

10 Joe Bingham 02.28.08 at 9:06 am

“So your options are go home, agree to the BA, or steal some bandwidth. To me, that appears more then mildly coercive.”

Um. You appear to see the fact that anyone else owns property to which you don’t have a right as coercive. That’s a little creepy.

11 Nate 02.28.08 at 11:02 am

Ted, the question is: how often are you presented the option of one contract with MBA and another without? In my experience, outside of the employment context, the MBA clause is not a negotiable option. For example, that Whataburger that tried to post a MBA agreement on their door. Who did you contact to say that you wished to opt out in exchange for paying a dollar more for a burger? Who could Todd call to get more-expensive, yet also MBA-free internet?

And Joe, saying “I’ve got something you need/want, and to get it, you need to agree to my terms” is by definition coercive. The question is, what we should be asking with regards to MBAs, is whether they are unduly coercive. The fact that many of the MBAs we accept are not the product of negotiation or conscious choice, but rather the product of a power imbalance between merchant and consumer at least suggest that the level of coercion is edging at the red line

12 Ted 02.28.08 at 12:00 pm

Joe, saying “I’ve got something you need/want, and to get it, you need to agree to my terms” is by definition coercive.

Chick-Fil-A refuses to sell me a sandwich unless I give them $3.59. You think this is “by definition coercive” under your twisted definition of “coercive,” because they won’t negotiate the price with me. This Orwellian definition is why you’re not going to be satisfied with any option less than actual coercion by the government.

Under more realistic definitions of “coercive,” there is nothing wrong, much less coercive, with an MBA clause in a contract for a good or service sold in a competitive market.

13 MMM 02.28.08 at 12:03 pm

Actually, most everyone that I know, with the clout to do it, will negotiate OUT the BA clauses that vendors/service providers put in by default. (Even as anecdotally suggested by Todd above–an in-house attorney isn’t exactly a trial lawyer).

As drafted, the terms ARE NOT good for the consumer.

If there’s some sanity in the system, it would be to permit BA but prohibit the selection of venue and law, allocation of fees, and waiver of defense clauses.

One last point, much of the recent reaction to BA clauses is a result of the proliferation of contracts with consumers. The internet (and case law surrounding shrinkwrap/browsewrap agreements) have made imposing contractual obligations very easy where such terms never previously existed because the rules of contract formation (offer, acceptance, consideration and assent) would not be met.

14 ruralcounsel 02.28.08 at 1:03 pm

Just a fine point on the aside about the judge’s earlier trackrecord … Dow Chemical is NOT Dow Corning.

Dow Corning was a spinoff of a Dow Chemical and Corning Glass (?) joint venture into the world of silicon chemistry, e.g. silcone. Now an independent entity, I think.

As to the main topic, BA clauses:

People seem to forget that there aren’t very many contracts of adhesion … if you don’t like the terms, take a walk and move your business elsewhere. BA clauses allow business to somewhat control risks, particularly litigation risks. Just because you’re a consumer doesn’t mean you’re in the right. BA is typically a reasonable choice for everyone involved in a contract.

I agree that those most vehemently opposed to them seem to be folks hoping for that litigation slot-machine payout: the overly sympathetic jury.

Frankly, in contract disputes, especially with consumers, the awards (presuming there is one) shouldn’t be much other than basic damages. In tort cases, it’s a different ballgame.

[While you and I understand that Dow Chemical and Dow Corning are different entities, both were defendants in the Louisiana litigation, and the judge's decision held Dow Chemical liable without due process. The judge also made a number of run-of-the-mill reversible errors against Dow Corning. -- TF]

15 xrey 02.28.08 at 1:42 pm

You all realize that the fact that the customer actually benefited from arbitration makes this an unusual case on par with “man bites dog”?

The arbitration judge is usually paid for by the defendant company. If the judge doesn’t rule in the company’s favor, guess who doesn’t get to judge any more cases.

As for whether arbitration is a “choice”, we can actually answer that question. Call up all the contractors in the New Orleans area and see if any of them don’t have such a clause. I suspect they all do, and hence there is no choice.

16 Todd Rogers 02.28.08 at 1:45 pm

I realize this thread is a continuation from previous discussions on this subject and is pretty clearly polar. Is it the contention of the anti-BA crowd that this component should somehow be legislated in to non-existence or something akin to illegal? I don’t mean to sound like I’m kissing Ted’s back-side on this but the Chic-Fil-A analogy is spot on. In order to do business with certain entities, conditions must be reached, otherwise, no deal. Should certain circumstance arise in which it might sting like hell to walk away, b/c one party to a deal does not like a condition in which the other party demands, well, that’s how the invisible hand works. If one party is able to achieve a significant competitive advantage and thereby define (or demand) the venue through which a dispute might be addressed…need I continue? I sure as shyt don’t like the idea of being on the disadvantage of any bargaining arrangement. But I’m not going to let my disliking it render me impotent. I’m going to try and figure out a way to negotiate the obstacle, find another path, or take it on the chin. I’m sure as hell not going to ask the government to get involved. They’re only good at raising armies, building interstates, and making things inefficient. Is this a legal blog or economics blog?

Maybe I’m too far to the right, as I type this listening to the EIB Network.

17 Joe Bingham 02.28.08 at 4:28 pm

And Joe, saying “I’ve got something you need/want, and to get it, you need to agree to my terms” is by definition coercive.

Suppose someone wants to enslave you. You have the ability to do X hours of labor every day, and he wants it. You say “well, to get my labor, you’re going to have to pay me.” According your definition, you’re coercing him?

You’ve said, in effect, that anyone who asks anyone for anything and is told “no” has just been coerced into not having what he wants. What a totally useless definition of coersion. Trolling FTL.

18 Jason Barney 02.28.08 at 7:12 pm

Some things we negotiate for and others we don’t, because the of the increased transaction costs.

I go to Sears to by a refrigerator. The price is pretty much take-it-or-leave-it. There’s usually no negotiating hassle; you pay the price or leave. It’s more convenient for everyone.

But for larger purchases, such as an automobile, negotiations can take hours or days while you haggle over price, extended warranty, paint sealer etc. But, given the investment in the vehicle and the cash outlay it’s worth your time.

What’s the difference with MBA? You may not haggle over a BA in your contract to have the local handyman clean out your gutters, but for a contractor to build your dream vacation home you may spend the time to haggle against (or for) MBA, right?

I suppose on the other hand the amount of controversy isn’t always known in advance like it is in refrigerator/car example. If the gutter contractor fell from the roof and broke his neck the suit may claim damages well beyond anything anticipated in your ordinary gutter cleaning contract.

19 Nate 02.28.08 at 7:17 pm

Someone wants to enslave you. They want your labor for free. You threaten to withhold the labor. Yes, you are coercing him. And it’s coercion that we, as a society, are quite happy with. So is the Chick-Fil-A example.

I’ve got no problem with MBAs per se, just the way they get shoved down our throats. I don’t want them outlawed, nor am I hoping to get a piece of that sweet, sweet jury verdict. I just have a fundamental problem with giving up the constitutional right to jury trial.

Joe and Ted, you seem to imply that you’ve never agreed to a MBA because of lack of other options. So let me posit something to you.

You buy a piece of software. You get home. You insert the disc into your computer. At that point, you are told that you must agree to MBA to use the software. That’s just fine? No coercion? At all?

That is the sort of thing that I have a problem with.

Oh, and Joe, name calling for the loss. Although, if we’re going to head down that road, I prefer “I bite my thumb, sir.”

20 Ted 02.28.08 at 7:23 pm

Someone wants to enslave you. They want your labor for free. You threaten to withhold the labor. Yes, you are coercing him. And it’s coercion that we, as a society, are quite happy with. So is the Chick-Fil-A example.

Words mean things, so your persistent use of “coercion” to mean something other than “coercion” (which is sometimes good and sometimes bad) leads me to agree with Joe that you’re trolling. If Nate-coercion is sometimes good, who cares if an MBA clause is Nate-coercive? You still haven’t coherently defined your objections.

21 Nate 02.28.08 at 7:58 pm

Jason, I’m exactly with you. My concern is if, like with clickwrap EULAs, the contractor arrives, takes your money, then demands you agree to a MBA.

To answer Ted’s last question, if Merriam Webster-coercion is sometimes good and sometimes bad, and and MBA clause is Merriam Webster-coercive, then we care because it is possibly bad. That seems self-evident to me. We need to determine whether the given level of coercion has risen to a point that is unacceptable, as opposed to blithely saying that it “not coercive” to offer my way or the highway.

22 Ted 02.28.08 at 8:18 pm
23 markm 02.29.08 at 9:36 am

“For example, that Whataburger that tried to post a MBA agreement on their door. Who did you contact to say that you wished to opt out in exchange for paying a dollar more for a burger?”

Gee, and who do I call so I can buy a Whataburger at KFC? If you don’t like the deal, go somewhere else.

24 gitarcarver 02.29.08 at 10:39 am

You buy a piece of software. You get home. You insert the disc into your computer. At that point, you are told that you must agree to MBA to use the software. That’s just fine? No coercion? At all?

You mean that there are no other alternatives for the software you have purchased? That’s ridiculous and you are making the point for people. Don’t like Windows? Use Linux. Don’t like Photoshop? Use GIMP. Don’t like Office? Use Open Office.

There are always alternatives. If you don’t want to use those alternatives, that is on you – not the supplier of the product or service.

25 xrey 02.29.08 at 2:11 pm

@gitarcarver:

I think you’re missing Nate’s point. If you’ve already paid for the software without agreeing to an Arbitration Clause, then the existence of alternatives is irrelevant.

I’m all for the invisible hand, but a lot of people seem to be forgetting that *information balance* is a pre-requisite for the free market.

Getting back to the original post, I still have the question: If every contractor has an arbitration clause, then did Patricia Dicorte really have a choice?

How is “either agree to BA or don’t get your house fixed” really a “free market”?

In such a case, government intervention to protect consumers is not such a bad idea.

26 Griffin3 02.29.08 at 6:53 pm

I’ve got no problem with MBAs per se, just the way they get shoved down our throats.

A lot of us feel the same way about court cases, when the subpoena server comes a-calling. It’s a damn shame to pay the lawyer’s overhead, in those few cases when we can work things out like gentlemen. Or get an arbitrator to decide, quickly and cheaply, that the person bringing the case is doing it solely for aggravation value. It can costs thousands of dollars in time and money, and you are required to pony up under penalty of law.

And you find that less coercive than a mandatory arbitration agreement?

27 gitarcarver 02.29.08 at 8:24 pm

I think you’re missing Nate’s point. If you’ve already paid for the software without agreeing to an Arbitration Clause, then the existence of alternatives is irrelevant.

It is no more irrelevant than the rest of the EULA. Until I click on “AGREED,” I still have the freedom to choose other softwares that do the same thing. Furthermore, as Open Source Software agreements do not have such clauses, I have other choices before I purchase the software.

I’m all for the invisible hand, but a lot of people seem to be forgetting that *information balance* is a pre-requisite for the free market.

Absolutely. That is why every software vendor I know will supply you with a copy of the EULA before you purchase the software.

If every contractor has an arbitration clause, then did Patricia Dicorte really have a choice?

And if pigs could fly, would they need a pilot’s license? The fact of the matter is that not all contractors have MBA’s within their contracts. To pre-suppose that they do takes the discussion out of reality and into the realm of the hypothetical.

28 Deoxy 03.03.08 at 10:45 am

Getting back to the original post, I still have the question: If every contractor has an arbitration clause, then did Patricia Dicorte really have a choice?

How is “either agree to BA or don’t get your house fixed” really a “free market”?

Yes, because the contractors hav frely decided that doing business without an MBA is financial suicide, so they freely refuse.

The free market is very, very easy to understand: both parties can walk away if they can’t get terms they want. BOTH parties.

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