ABC Good Morning America signs on to the litigation lobby war against freedom of contract by parroting a Public Citizen anecdote about the supposed horrors of arbitration–though the underlying problem (mistaken identity of Anastasiya Komarova) had nothing to do with the arbitration proceeding. Needless to say, none of the benefits of arbitration to consumers was mentioned, and only Public Citizen’s one-sided and misleading statistics were used. Nathan Burchfiel is on the case.
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I curious about how Anastasiya Komarova lost the arbitration. Shouldn’t as simple social security number check have cleared that up?
Anastasiya Komarova didn’t lose the arbitration. The arbitration was against the correct Komarova (Anastasia), and the collection agency then went after the wrong Komarova. Which has nothing to do with whether an arbitration or a court proceeding was used.
I’m all for freedom of contract, including the freedom to contract for arbitration over litigation. Arbitration can often be a great way to resolve a dispute, one that can be quicker and cheaper than going to court.
The only problem I have is when it really isn’t freely contracted for – like if every vendor you could get something from all require arbitration clauses, and refuse to negotiate anything else, then you are stuck. This is particularly the case with individual consumers, who usually have no leverage and simply have to take contracts “as is” with no negotiation possible for any of the clauses contained therein when deailng with a sophisticated business entity. It strains credulity to call such arbitration agreements “freely contracted for” or to try to frame the issue simply as about freedom of contract.
If two large corporations with teams of their own lawyers want to agree to arbitration in the event of a dispute, that’s great, more power to them. I’d have a lot more sympathy for the position if, say, those adhesion contracts offered for consumers had a checkbox or some other means for the consumer to say they want to opt for arbitration (including a write-in box where they can pick their own arbitration method or entity) or they can opt for keeping their rights to litigation. Then they would have no cause to complain about being “stuck” with arbitration – it would have been freely contracted for.
(Btw, my favorite arbitration clauses were those I saw in software – where you buy a piece of consumer software, take it home, and then install it, and only then discover that, by doing so, you have now agreed to binding arbitration by using the software, forfieting any right to sue the company for screwing up your machine. Of course, you know none of this in advance of your purchase, and unless you read through dozens of pages of small print on the installion, you’d never even know it was in there. I briefly wondered how the companies would take it if I installed and used the software after sending them a “modified” contract in the mail that changed the terms and then told them that by accepting the letter, they had agreed to my terms.)
Put simply, pretending that the huge adhesion contracts foisted on consumers are just “freely negotiated contracts between equals” is a load of horse-hockey.
The best way to avoid being sued is to avoid harming others, and in the event you do harm someone, apologizing for it immediately and making them whole. Just saying “sorry” by itself can very often prevent someone from suing you.
Similarly, the way to avoid being prosecuted for a crime is to avoid breaking the law. (Which is why I have no sympathy for those who complain about punitive damages – punitive damages are for quasi-criminal conduct – in other words, you don’t get them unless you’ve acted like a criminal in your conduct – can’t do the time don’t do the crime!)
Unfortunately, neither method is foolproof, but they work pretty darn well.
Freedom of contract necessarily includes freedom of “contracts of adhesion,” so one cannot simultaneously say that one is for “freedom of contract,” but demand paternalism in overseeing mass-produced contracts. There’s nothing inherently wrong with contracts of adhesion.
Whether or not there is something “wrong” with adhesion contracts, it is a misnomer to call an adhesion contract provision “freely negotiated” or making it about “freedom to contract” – what makes an adhesion contract an adhesion contract is the fact that only one side is really free to set the terms.
And also, it is beside the point whether, generally, adhesion contracts are good or bad or should be meddled with. Because we aren’t just talking about a good or bad contract term, we are talking about a term that actually causes a party to surrender all of its ordinary legal rights to enforce contract disputes. So essentially, you are forced, by adhesion, to give up all of your legal contract rights as a precondition to form a contract. Regardless of what you may do with any other provision (and I do think there are good reasons to just treat a contract as a contract and enforce it as written for other provisions) when the provision gives up all of your legal rights and replaces them with a scheme solely of one side’s choosing, that is another matter entirely.
Anastasiya Komarova didn’t lose the arbitration.
Sorry Ted, but I cannot find anything that substantiates this.
From the Nathan Burchfiel article that is linked from the post:
“Anastasiya Komarova, a Russian immigrant, was harassed by collection agencies for $11,000 owed to a company whose card she didn’t even have, Avila said.
“But when the case went to arbitration, not court, private arbitration, none of that mattered,” he reported. “She lost because no matter how absurd the case, credit card companies rarely lose in the private hearings the small print in your contract insists upon, hearings arranged by, guess who: the credit card companies.”
She lost the case in arbitration – but eventually cleared her name in a public court, Avila later said.”
Secondly, the website of the firm that sued on behalf of Anastasiya Komarova also say that she went through a “spurious arbitration hearing.”
When that process failed her, she then went to court to clear her name and the “debt.”
It seems clear that Anastasiya Komarova lost in an arbitration hearing that was neither of her own making, nor should she have even been a party to it.
The incident should not condemn the entire arbitration forum, but neither it is a shining example of how the system works in a fair and impartial manner.
5. It is about freedom of contract, because you’re restricting a consumer’s choice to decide of his or her own free will to agree to the terms offered. It’s not a violation of my freedom of contract when my local grocery store refuses to haggle over the price of bananas but instead sets a fixed price that I can take or leave; it is a violation of my freedom of contract if the government refuses to let me purchase bananas over a certain price. If you don’t understand that, you simply don’t understand what freedom of contract means.
we are talking about a term that actually causes a party to surrender all of its ordinary legal rights to enforce contract disputes.
That’s absolutely false. No mandatory binding arbitration clause causes a party to “surrender all of its ordinary legal rights to enforce contract disputes.” It’s simply a forum-selection clause.
6. Burchfiel is quoting the Good Morning America story, which got it wrong.
Page 26 of the Public Citizen report indicates that the arbitration judgment was against the correct Anastasia:
“Meanwhile, in June 2005, NAF arbitrator Steven Bromberg issued an award of $11,214.33 in favor of National Credit and against Christopher S. Propper and Anastasia Komarova of Long Beach.”
Again, this has nothing to do with the arbitration. It has to do with a debt collector going after the wrong person, even after the bank told them that they had the wrong person. At no point did Anastasiya Komarova participate in an arbitration. Arbitration could be abolished, and it wouldn’t affect what happened to Ms. Komarova.
At first blush it looks like the consumer is at a disadvantage against a large company with its stable of high priced lawyers. But it is the quantity of contacts that protects the consumer, even before various consumer agencies.
When a communications installs a fiber optic connection into a home it is making a substantial bet, the cost of installation, that the consumer will amortize that investment over time. Some companies impose termination fees to mitigate their risks. Guess what, there is a guy on TV claiming his communications service is better because there are no termination fees. The market works pretty well and we must be cautious when we tamper with it. Credit card companies cannot impose base fees, which are required by conventional accounting principles, because they lose in the market.
Consumerism, in general, taxes consumers to provide a better chance for some to game the system or to pay for somebodies hobby horse. Air bags are the classic example of the latter.
It is not a forum selection clause. That would be a clause that tells you what legal jurisdiction (and under what law) you would litigate the matter IN COURT.
An arbitration clause essentially means that you aren’t ever allowed to get to court. (And basically is unappealable in court). The contracts not only preclude court, but they select who gets to decide disputes, someone typically friendly to the corporation who writes the contract, and someone who is a private citizen, not part of the judicial branch.
As I said before, there is nothing wrong with this when both parties freely negotiate for it. And it isn’t just another clause like price or even forum selection – it goes beyond that, because it takes the whole contract out of the realm of contract law enforcement in court and puts it in the hands of a private dispute-resolution organization. An organization that likely owes its business to large corporations (and thus owes its existence to them as well) – how quickly do you think that the company would be dropped as an arbitrator if they kept resolving disputes in consumer’s favor?
I agree with you generally, that people should be free to contract and that includes any adhesion terms you want to put in there – but I think this is something that goes beyond a regular term because it isn’t just about what the parties agree to, it is about who gets to decide when one party of the other is cheating or breaking the agreement – and it simply is beyond the pale to let one party decide that in advance, to its own advantage, with no negotiation.
The contracts not only preclude court, but they select who gets to decide disputes, someone typically friendly to the corporation who writes the contract, and someone who is a private citizen, not part of the judicial branch.
I’m not aware of any arbitration agreements that require the arbitrator to be “friendly to the corporation who writes the contract.” That’s simply fictional. As we’ve documented on Overlawyered, consumers do better in arbitration agreements than they do in court.
An arbitration clause is a type of forum-selection clause. Look it up. Black’s Law Dictionary 665 (7th ed. 1999).
The corporation selects the arbitrator. They pay the arbitrator’s paycheck, in essence, by that selection. Why wouldn’t they pick someone favorable? Why wouldn’t the arbitrator want to stay in the corporation’s good graces? Would you sign an agreement where the other party got to pick which judge would hear the case in the event of a breach? (I know, that’s not actually allowed, but if it was?) Isn’t there a reason that judges are assigned randomly rather than allowing parties to pick which one they want?
A bagel is a type of donut – no one calls them donuts. If you tell someone a contract has a forum selection clause, the first thing that comes to mind is venue and choice of law – if you want to be clear, you call it an arbitration clause, and that’s how it is generally discussed (where I’ve seen it) – but in any case, what you call it is not particularly relevant.
The corporation selects the arbitrator.
This, like most of your arguments, is factually false. See, e.g., NAF Code of Procedure Rule 21, requiring arbitrators to be jointly selected.
In the words of Democratic Senator Daniel Patrick Moynihan, “You’re entitled to your own opinion, but you’re not entitled to your own facts.”
I am sure that one can find a computer store that will install a Microsoft product on your computer, and accept legal responsibility for the installation. I am sure you can find one who will agree to be sued in Madison County, ID, if you are unhappy.
It will cost you more than the nominal fee Microsoft is able to charge for this service.
What you won’t find is someone willing to be sued by a court system which is pathologically biased in favor of the plantiffs without a premium.
So, basically, you want something for nothing.
Is that code of procedure binding on every arbitration agreement? Or is this just one of those pie in the sky suggested codes?
It’s binding in all NAF arbitration agreements, and NAF for some reason is getting attacked the most, having been singled out by Public Citizen, Good Morning America, Business Week, and San Francisco.