Whether you know it or not, big business is forcing you to agree to mandatory arbitration because that’s good for them and bad for you

Posted
by John Chapman

Almost all “agreements” that we enter into today are presented on a take-it-or-leave it basis. Try to get a credit card, a cell-phone, a car loan, almost anything and you will have no choice but to sign on the dotted line and accept all the fine print along the way. Increasingly, we are all constantly being forced to waive important legal rights and protections because the agreement will include a one-sided mandatory arbitration clause.

Whether you are aware of it or not, you have already “agreed” to be bound by a mandatory, pre-dispute arbitration clause. The mandatory arbitration clause was likely buried in the fine print of a billing insert, employee handbook, health insurance plan, or dealership or franchise agreement. Such clauses waive one’s right to access the courts and divert disputes to a secret and costly private legal system that favors big business defendants.

Mandatory arbitration clauses are used to undermine consumer protection, civil rights, and other laws that are supposed to level the playing field between big businesses and individuals. The original concept behind arbitration was to provide an informal, expedited process for resolving routine disputes between businesses. However, when arbitration is imposed on a far weaker party, such as a consumer, arbitration can be used to defeat valid claims.

Arbitration has several characteristics that make it harder for individuals to prevail in a dispute with a business. Compared to a court case, arbitration is almost always far more expensive for a consumer. An arbitration claimant must pay steep filing fees to initiate a case. These fees do not cover the arbitrator’s hourly charges, which are often in the range of $200 to $300 per hour, split between the parties. Such fees usually must be deposited in advance and almost always amount to thousands of dollars.

In addition, arbitration awards to consumers and employees are substantially lower than court awards. The arbitration process comes with a built-in bias against consumers. Since only businesses will be repeat users of an arbitrator, there is a disincentive for an arbitrator to rule in favor of a consumer or employee if the arbitrator expects to be chosen to arbitrate more cases in the future.

There is also very little, if any, “discovery” in arbitration. Discovery is the process by which litigants obtain information and evidence to support their claim. Many businesses draft arbitration clauses that severely restrict the claimant’s ability to obtain necessary evidence. Furthermore, arbitrators do not have the power to enforce subpoenas. Thus, a claimant may be forced to incur the additional costs of a separate legal proceeding just to enforce a subpoena—defeating the alleged purpose of arbitration.

One of the major problems with mandatory arbitration is also one of the main reasons that big business is inserting such clauses into every agreement imaginable: the clauses typically prohibit class action lawsuits as well as class or representative arbitration. Class actions are the only effective remedy for wide-scale scams that rip off individual consumers or farmers in small amounts. When only a small amount of money is at stake for each individual consumer, people simple do not have the time or resources to recognize, investigate, or prove the existence of such fraudulent practices on their own. If there is no class action, there will be no action. The result is no punishment at all for companies that manage to scam just enough money from you to make it not quite worth spending the time and money to recover your money (even though the company may be scamming small amounts from millions and millions of people!)

Arbitration clauses also often require that hearings be held in a location inconvenient to the claimant. Individuals may have to bear the cost of long-distance travel to have their case heard. Don’t be surprised if the arbitration clause requires you to travel to the big company’s hometown, even if that’s on the other side of the country.

Unfortunately, our courts are letting big business get away with lopsided, one-way arbitration clauses. Most arbitration clauses require only the weaker party (the consumer, employee, or small business franchisee) to arbitrate its claims, while allowing the dominant party (the corporation, the big business, the own writing the small print) to sue in court on its claims. In other words, arbitration is “mandatory” for you, but not them.

Public Citizen has posted a great deal of information and useful links about mandatory arbitration clauses. The site helps you take action against forced arbitration by, for example, urging your member of Congress to end forced arbitration or writing a letter about forced arbitration to the editor of your local newspaper. The Fair Arbitration Now Coalition is another good source of information about forced arbitration.

Heygood, Orr & Pearson fighting for consumer rights

The attorneys at Heygood, Orr & Pearson have represented numerous plaintiffs in consumer fraud and consumer class action lawsuits. For example, we have represented individuals who allege they were misled by claims made by Samsung regarding the memory capacity of its Galaxy S4 phone and dozens of consumers who claim they were defrauded into investing in life settlements. In that case, we are challenging Samsung’s attempts to force the case into arbitration based on an arbitration provision buried in a user manual and a health, safety and warranty guide. The issue is likely to be decided by the Federal Ninth Circuit Court of Appeals.

Our law firm has represented clients across the country in class action lawsuits against multimillion dollar companies, making sure that when consumers are hurt by corporate wrongdoing, the companies that do so are held accountable for their actions. Heygood, Orr & Pearson is AV-rated, the highest rating available from Martindale-Hubble, the top law firm rating service. Our partners Michael Heygood, Jim Orr, and Eric Pearson are all Board Certified in Personal Injury Trial Law by the Texas Board of Legal Specialization and have all been voted by their peers as “Super Lawyers” in the state of Texas for several consecutive years.*

If you have been a victim of false or misleading advertising, contact the law firm of Heygood, Orr & Pearson for a free consultation so we can help you determine the best way to protect your legal rights and interests. You can reach us by calling our toll-free hotline at 1-877-446-9001, or by following the link to our free case evaluation form located on this site.

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Michael Heygood, James Craig Orr, Jr. and Eric Pearson were selected to the Super Lawyers List, a Thomson Reuters publication, for the years 2003 through 2014.