We Asked A Lawyer What to Do if You’ve Been Screwed by an Arbitration Clause

We asked a lawyer what to do when a big corporation steals your money and then says you can't join a class action suit against them.

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Nov 4 2015, 7:35pm

Image via Flickr user Brian Turer

Chances are you've signed a contract containing an arbitration clause without even realizing it. They're sneaky little bastards that prohibit you from participating in a class action lawsuit against a company you may have a grievance against. More still, arbitration clauses prevent nearly any dispute you may have with a company from making it into a court of law and instead being heard by an arbiter. That's of great benefit to businesses, as a massive three-part series called "Beware the Fine Print" published over the weekend in the New York Times helped expose. As the Times's Jessica Silver-Greenberg and Robert Gebeloff learned after poring over "thousands of court records and interviews with hundreds of lawyers, corporate executives, judges, arbitrators, and plaintiffs in 35 states," when a dispute makes its way into arbitration, companies win a whopping four out of every five times. "In 2014 alone," the article states, "judges upheld class-action bans in 134 out of 162 cases."

In other words, Big Business has you over a barrel, baby.

The clause is the work of a shady cabal of Philly based corporate lawyers—along with Chief Justice John Roberts—who crafted it over a decade ago and have been shoehorning it into virtually every type of contract you sign with any business who provides you any type of service ever since. These days you can't rent a car, open a bank account, or even hint at making a transaction online without signing a contract containing an arbitration clause. Brands like T Mobile, Time Warner, AT&T, American Express, Netflix, Amazon, eBay, and many, many, more have them. The clause's original intent, according to its chief architect Alan Kaplinsky, was to protect large companies from "frivolous lawsuits." But while America slept, the pendulum has swung very far in a direction that is much more beneficial to corporations than individuals.

The Times interviewed several folks who have been handcuffed by the clause over the years, and whose legitimate disputes with companies—overcharges, unjust fees, errant overdrafts—were all but lost before they even started.

It all seems pretty shitty, so we called up lawyer Travis Crabtree, whose Houston-based firm Gray Reed & McGraw P.C. hears lots of arbitration cases, to see what's what. Since most of us will never be part of a class action lawsuit—and not just because they've been effectively banned—we focused more on individual disputes instead, so you could better understand what options you have in the future if, say, Amazon Prime charges you for that Ryan Reynolds movie you totally didn't rent, no way no how.

VICE: Walk us through how the typical arbitration case works. What does it look like, and why does it exist?
Travis Crabtree: Typically, a consumer lodges a complaint or may even file a claim in small claims court or regular court. The company then convinces the trial court that there is an enforceable arbitration provision in the contract and the judge sends the case to arbitration. There, an individual, usually a lawyer or former judge, is appointed to hear the dispute, and the parties to the dispute usually have a say in who the arbitrator will be. Usually, there is a short "hearing" or "trial" where the arbitrator considers the evidence from both sides and renders a decision. The process is supposed to be a streamlined and efficient approach to resolve disputes as an alternative to civil lawsuits, which can take two years before they get to trial and involve hundreds of thousands of dollars in legal fees incurred in pretrial matters leading up to the trial. Arbitrations can be wrapped up in a few months. In theory, when it works smoothly and the sides are evenly matched, it can be a good idea. It frees up the crowded court dockets, can be quicker and cheaper for the parties if everything runs smoothly.

The basic takeaway from this giant New York Times story is that if you get into a dispute with a business or company that has an arbitration clause in its contract, you're basically screwed. Is that too easy or lazy a conclusion to draw?
It is a little unfair to say that the little guy is going to lose in an arbitration. The bigger consumer fairness issue is the use of class action arbitration waivers rather than the chance to win once you are in arbitration. If a consumer is overcharged $500, it is not worth the effort to sue a company over $500 when it will cost you thousands to pursue the claim. That's the purpose and function of class action lawsuits. When two million people can join together in a class action, it is definitely worth it for the lawyers to bring the case and can be a huge deterrent for the company to engage in the bad behavior. Many of the arbitration provisions prevent consumers from teaming up together in a class or mass action, so there is little incentive for the consumers to pursue the $500 claim and little incentive for lawyers to work on such claims on a contingency fee basis. So, the biggest issue is whether or not it is worth arbitrating in the first place.

Once in arbitration, the arbitrators want to be fair and do the right thing. The theoretical complaint is that arbitrators make money only when they are chosen to arbitrate cases. These arbitrators know that a consumer will only need one arbitration. A big company represented by a big law firm may have another 50 arbitrations in the next couple of years. Therefore, in theory, an arbitrator could be motivated, even subconsciously, to side with the big company. It's the knowing where their bread is buttered theory.

If a client came to you and, say, had a dispute like some in the story did with a company like AT&T or American Express, what would your legal advice be to them? What advice do you have for consumers who have been wronged but have signed a contract with an arbitration clause in it?

One option is to do the arbitration without a lawyer. The rules are much simpler and you are less likely to be tripped up in a procedural trap. The consumer can take solace in the fact that the company is going to have to pay more in arbitration and legal fees than they would have paid had they refunded your money. Assuming the consumer has been wronged and actually has some evidence to support it, they can win their small arbitration award. While it usually does not make sense to pay a lawyer to recover $500, there are some non-profits out there that help consumers in these situations. There are Deceptive Trade Practices Acts in many states that allow for the recovery of attorney's' fees in these cases. Other times, a consumer can get more done by making the case to the court of public opinion rather than a legal fight over $500.

Since most cases brought to arbitration against companies find in their favor, what are some key things you look for if a case comes your way to make sure it's not DOA?
When there is a small amount involved, the first thing you want to look at is whether there is an avenue to collect attorneys' fees from the other side. In many states, their deceptive trade practices statutes allow for the recovery of attorneys' fees. In many states, if a party prevails on a breach of contract claim, they can recover attorneys' fees. Now, your $500 case is a $30,000 case. Defendants know this and aren't interested in spending their own $50,000 to defend the case and still take on the risk of paying another $30,000. They may be reasonable and come to the table if you pursue your claim even with the arbitration provision.

The process of squeezing this arbitration clause into most of the contracts we sign with companies has been a meticulous, well orchestrated plan that's taken around a decade. It was designed to help companies guard against frivolous lawsuits. Do you feel the pendulum has swung too far in the other direction? Why or why not?
In theory, arbitration can work and can actually be to the consumer's benefit. The whole process can be done in a matter of months as opposed to years and for much less money. The scope and enforceability of arbitrations are often governed by state and federal statutes, so it may take a drastic situation to raise enough outrage to get lawmakers to change some of the rules and prohibit class action waivers. When a court enforces an arbitration and class action waiver after a massive outbreak that causes thousands of deaths or a huge financial meltdown or scandal, there may be enough pressure to swing it the other way. Any type of changes to arbitrations may follow changes to overall tort reform. After the infamous McDonald's [scalding coffee] case, everyone was in favor of tort reform and many states implemented it. Every case out there is frivolous except for yours, and now we are hearing about cases, like one here in Texas, where tort reform meant to curb medical malpractice suits is being used to prevent a patient from suing after she was allegedly raped by her doctor. When there are enough stories like this, change may come.

The other major complaint against arbitration is there is very little review of the judgment. In court, if the judge goes off the reservation, there are one or more courts of appeal that can remedy the situation. With arbitrations, there are limited circumstances where a court will interfere with the ruling of the arbitrator. There are actual cases where the courts believe the arbitrator got the law wrong, but that the court had no power to overturn the arbitrator's decision.

Explain how arbitration of the sort described in the Times story has helped consumers. Do you have a personal story where it was useful?
If you have enough gumption to handle the case on your own, then it can be beneficial to the consumer. I, personally, do mostly business disputes where companies sue each other. When both sides want the process to work, it is cheaper and more efficient. If either side wants to drag it out, it becomes a worse alternative than filing suit. An example of the process working is in the world of domain name disputes. When you purchase a domain name through a registrar, you are agreeing to an arbitration process should there be a challenge as to ownership of the domain names. These are done only on the papers without the burden or hassle of an actual hearing or trial and can be done relatively cheaply.

How unusual is it for a Supreme Court Justice to weigh in on a case John Roberts pushed for himself when he was in private practice? Shouldn't he have recused himself?
No. Any lawyer that has been around long enough has argued both sides of an issue. We've had clients where we wanted an arbitration provision enforced and situations where we wanted the court not to enforce an arbitration provision. When Chief Justice Roberts was on the Supreme Court, it was not the same party he represented that was before him. If a Supreme Court Justice had to recuse himself every time he was presented with an issue he had taken a position on for a client at any time in the past, then we would be hard-pressed to have any Justices hear a case.


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