Yale’s Stephen Carter on some of the problems with that New York Times hatchet job attacking consumer arbitration [Bloomberg View, earlier]
Yale’s Stephen Carter on some of the problems with that New York Times hatchet job attacking consumer arbitration [Bloomberg View, earlier]
12 Comments
A nice article. But it misses the point.
The point the NYTimes is making is not that arbitration is bad in all cases. In fact, it is probably good in many cases. The problem is forced arbitration the times when arbitration is bad.
I find it refreshing that the author admits that these contracts are adhesive.
I would point out that, if consumers believed that arbitration would be more likely to net them fair results, they would choose arbitration without being forced to do so.
In reality, the issue is, therefore, not whether companies should be allowed to force arbitration, but why consumers believe that arbitration is not in their interests (which I assume is true). More to the point, the issue is why corporate attorneys view the court system as worse than arbitration and consumer attorneys hold the opposite view.
We also have the problem of sophistication and resources. Companies are routinely represented by attorneys and tend to be operated by smart and sophisticated employees. Consumers generally do not have an attorney on retainer and may or may not be smart and sophisticated. Corporations, therefore, are almost always able to discern the best way to defend themselves. Consumers — not so much.
Allan,
I would point out that, if consumers believed that arbitration would be more likely to net them fair results, they would choose arbitration without being forced to do so.
Who defines what is a “fair result?”
It seems to me that “fair result” in the eyes of the consumer is one where the consumer wins. Otherwise, you are left with the idea that the if the “fair result” is where the company wins, it was unfair for them to be sued or brought into arbitration to begin with.
Shouldn’t the result we all be looking for is not the nebulous and undefined “fair” but rather a result that is “right and just?”
Same difference. What is “right and just” for one party is a travesty to another. All terms are nebulous depending on who does the defining.
“but why consumers believe that arbitration is not in their interests (which I assume is true)”
Which means it probably isn’t true.
“why corporate attorneys view the court system as worse than arbitration”
Because even merit-less, frivolous lawsuits cost 10s of thousands of dollars to defend against, millions if they gain class action status. My own view is that over half of all class action suits are merit-less attorney driven attempts at legal extortion.
“and consumer attorneys hold the opposite view.”
Because merit-less, frivolous lawsuits against deep pocket corporate clients, especially class actions suits put big money in the consumer attorney’s pockets even while the clients get next to nothing.
Hrumph. Ad hominem attacks without a proposed solution.
(About consumers, I assume that consumers believe that arbitration is not in their interests. I do not assume that arbitration is not in consumers’ interests. Perception is reality and, in this case, it is the perception that counts).
Businesses are not against frivolous class-action suits. They are against class-action suits entirely, regardless of the merits. (At least that is my perception).
By the way, how do we know that class-action suits are frivolous? Certainly, we hear about some that are, e.g., the Subway suit. Others are not frivolous, but they involve companies getting pennies from consumers they do not deserve. How do we stop those companies without class-action suits (or government intervention)?
Personally, I am looking for a plan that helps consumers get treated fairly while not bankrupting companies, all while not lining the pocket of attorneys on both sides.
“Businesses are not against frivolous class-action suits. They are against class-action suits entirely, regardless of the merits. (At least that is my perception).”
My perception is that the vast majority of class action suits are frivolous.
“Others are not frivolous, but they involve companies getting pennies from consumers they do not deserve. How do we stop those companies without class-action suits (or government intervention)?”
And you know they don’t deserve them how? Even if they don’t deserve them, allowing the suit to go forward a a cost orders of magnitude greater than the harm done is foolish. At some point it is better economically for the country to say forget about it.
If class actions are to be allowed, attorneys fees should be capped at no more than 1/2 of the total net present value of the aggregate class award/settlement
.
“Personally, I am looking for a plan that helps consumers get treated fairly while not bankrupting companies, all while not lining the pocket of attorneys on both sides.”
If that’s what you want, that’s fine, but class action law suits will never get you there.
Not being mentioned in all the noise about forced arbitration is the cost of the products involved. In the business I used to be in, warranty claims had to consider attorney fees for plaintiff counsel as part of cost – when those fees routinely exceeded the purchase price of the product in question by a considerable multiple, it is functionally a significant unseen tax on every sale of the product, born by every purchaser. Spread across purchasers, that tax was [rough guesstimate of industry average] more than several hundred dollars and less than a thousand dollars per unit sold. As part of a $36k vehicle purchase, you may not mind that tax.
However, the laws that allowed plaintiff counsel to get their fees from the manufacturer rather than each side bearing its own costs apply to new consumer products above a relatively low $ threshhold.
Absent mandatory arbitration clauses, many of the products we routinely enjoy would be priced out of the range we as consumers consider acceptable – not because of labor, or raw materials, or manufacturing expenses, but because the cost of even a single attorney fee award for a defective product consumes all of the profits for hundreds or thousands of units sold.
Something to consider in our policy debates – yes, we as consumers may not like the fact that every competitor in a particular product may have substantially similar binding arbitration clauses in their limited warranties – but the alternative may be having no product in that price range at all.
A good point. There certainly is an unseen litigation tax. And that tax is a drag on the economy.
I do not think that mandatory arbitration clauses are the way to get around that tax. But, if they are, I would think that we insist upon a fair arbitration system, something it seems that we do not have. With mandatory arbitration clauses the people who write the contracts enable their clients to get their cake and eat it, too.
What is “fair”, one where the consumer always wins? The majority of the auto mfgs use the Better Business Bureau for their arbitration – keyword “BBB autoline”. The Mfg agrees to be bound by the decision, but the consumer has the right to reject it. The Mfg doesn’t get to pick the arbitrator, the BBB selects one. Removing an arbitrator for cause is an almost impossible task for an mfg, and the program is audited every year 2014 Audit report, resulting in extensive reporting.
Use of the program is encouraged by Federal Law (see the Magnuson-Moss Warranty Act (15 USC 2301) and of course the Federal Arbitration Act), the program can be audited by the Federal Trade Commission under 16 CFR 703 (though, in fairness, they frequently seem too busy to be bothered), is an approved resolution alternative enshrined in the “Lemon Laws” of many states, and is open to state by state inspection and auditing under most of those same laws. Yet that program is, in the eyes of many state courts, not “fair”….
So, forgive me if I tire of chasing the unicorn that is named “fair”. No pundit seems to be able to give me a working definition of that word that isn’t result dependent.
and Allan, this is not intended as an attack on you, please don’t take it that way – I just don’t know how to engage in conversations using words open to infinite definition like “fair”, particularly when what appears to be a working, neutral, statutorily encouraged scheme of arbitration already exists – yet the pundits opining on the subject seem completely unaware of it. [/end rant]
also, and as always, my opinions are solely my own, not to be attributed to my past employer(s). I am not a lawyer in this or any other state, I do not play one on TV, and I did not sleep in a Holiday Inn last night. My opinion is simply the view of a well read consumer with some admittedly unusual reading habits and rather unique experience in this little corner of the law. Caveat Emptor and all.
Allan
So, I suspect one (and probably the largest) reasons why corps / potential defendants want arbitration is the one way cost shifting.
Business / defendant:
Wuhoo, I “win”…..and still spent 25,000 defending the case….crap, there goes the profit for the (week / month / quarter).
Contingency Lawyer / plaintiff:
“Well, we didn’t get them this time, but it didn’t cost you, Mr and Mrs Sixpack, anything to bring this suit, but a little bit of your time. And though I, as your lawyer, spent a lot of time and effort on it and didn’t get a big fat payday on this one, that’s ok, since I only need a small fraction to settle, and an even smaller fraction of wins at trial to be a rich SOB. To me, it’s like being the house at a casino – if they play long enough, I win, no matter what, even if I lose a few times along the way”
Now, I suspect the dynamic of consumers wanting (or not wanting) arbitration would be entirely different if they were on the hook for a prevailing defendants attorney fees and costs, as a defendant is on the hook for a plaintiff’s fees today.
The New York Times travel program (called Times Journeys) includes mandatory arbitration in the required terms and conditions. Considering the thrust of their article, I pointed out this fact. The Times has complete control over the terms and conditions of this program. It would be quite refreshing if they revised the terms to include a fair dispute resolution method. More in line with their editorial stance.
Not holding my breath, you understand.