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On Page 5 of a credit card contract used by American Express, beneath an explainer on interest rates and late fees, past the details about annual membership, is a clause that most customers probably miss. If cardholders have a problem with their account, American Express explains, the company “may elect to resolve any claim by individual arbitration.”

Those nine words are at the center of a far-reaching power play orchestrated by American corporations, an investigation by The New York Times has found.

Continue reading:  Arbitration Everywhere, Stacking the Deck of Justice

Commentary by The Secular Jurist:  We highly recommend reading the entire NYT article for it contains several disturbing revelations such as the key role played by U.S. Supreme Court Chief Justice John Roberts in dismantling the practice of class action lawsuits in America which are essential to protecting ordinary consumers from corporate abuses.

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3 thoughts on “Arbitration Everywhere, Stacking the Deck of Justice

  1. When I was a lawyer I advised clients negotiating contracts that they should include arbitration clause in the contract ONLY if they intended to breach the contract. This was based on years of occasionally representing parties in a variety of arbitration forums from AAA, to ICC, to arbitrations under collective bargaining agreements. In ALL cases I found that arbitration drastically altered the balance of power in favor of the more powerful, richer and less scrupulous party. This is because generally the parties have to pay by session for the arbitrators. This gives the richer party (as well as the arbitrators themselves) incentive to string out the proceedings. Because the parties select the arbitrators (theoretically) usually from a list provided by the institution administering the arbitration, the party (usually the industry party or management) which has more arbitrations gets all benefits of the doubt from the arbitrators, who want to be selected again (and therefore defer to the party most likely to be selecting again (and again)). Since there are so few grounds to overturn an arbitration award and there is no requirement that arbitrators bind themselves to substantive law, generally arbitrators don’t even explain their rulings, a fundamental failure of fairness, because writing a decision concentrates the mind and exposes the reasoning to the light of day (one of the few restraints on unchecked power). Even in those few cases where arbitrators are trying to be “fair,” the intention is manifest in an inclination to “split the baby.” I always tried to point out the Solomon did not actually intend for the baby to be split, his “ruling” was designed to find the rightful party. But arbitrators are not Solomon so they think that splitting a dispute down the middle is “fair.” This simply means that the party breaching so do so more egregiously or the party seeking unjustified benefit seek as much as possible. The party in the right only has the rightful interpretation of the contract as his claim, so simply going into a “fair” arbitration means that party loses.

    Of course the decision whether or not to arbitrate is only available to parties negotiating a contract and having relatively equal bargaining power. But the worst abuses occur when the arbitration contract part of a contract that one side has no ability to negotiate. Not only does the lesser party (usually a consumer or employee) have to give up all procedural rights of a court, he usually is subject to a panel of arbitrators selected by and inclined in favor of the other party.

    The theory of enforcing an arbitration clause was based on the idea that parties should be able to negotiate not only the terms of a contract but how those terms should be interpreted, and by whom, in the event of a disagreement. This is not the case of most consumer and employment contracts. The Federal Arbitration Act, however, enforces clauses even when there is no meaningful negotiation involved.

    Years ago I began an essay I intended to submit to the New York Law Journal. I never managed to finish it, because its purpose was to list the reasons why arbitration clauses should be avoided, and of course the list is endless. So I’ll share the opening here:

    “What is the motto of the American Arbitration Association: (a) Abandon all hope ye who enter here; (b) Suffer any wrong that can be done you rather than come here; or (c) Speed, economy, justice? No one who has ever seen an arbitration answer this question correctly.”

    The AAA has since changed its motto to “The Handclasp is Mightier than the Fist.” I have no idea what that is intended to convey. If arbitrators wanted to be understood clearly, however, I would suggest: “The chokehold can be used by those who can afford it.”

    • That’s fascinating, DK! I didn’t know you were a lawyer. I find it beyond peculiar that parties would enter into contractual agreements that they intended to breach! WTF is up with that? Whatever happened to the notions of integrity and responsibility in commerce? Silly me.

      Thanks very much for enlightening this post, and my blog would be honored to publish your essay should you decide to complete it. 🙂

      • Robert:

        Of course nobody enters into a written contract intending to breach it (or at least my clients claimed they didn’t), so any client asking for my advice never did agree to an arbitration contract. As a litigator, however, I usually didn’t advise anyone until after a problem developed, so my advice was generally for the next negotiation (handled by other lawyers). My point was: if you want justice rather than a means to extort the other side later, then don’t agree to pre-dispute arbitration.

        Of course, it is theoretically possible that parties have a good faith disagreement about a contract. And they in good faith want someone with some familiarity in the field to decide the issue fairly and quickly. Nothing prevents such parties from solving their disputes in that way. And if they do, lawyers would never hear about them.

        But there is another class of people/entities entering into contracts who either want to argue later that the contract means something no one had in mind at the time of signing or want the ability to argue for an expansive interpretation (even if they can’t at present know exactly how far and in what way they want to distort the agreement.) An example of this kind of party I suggest in the group of international corporation who are the real parties-in-interest behind the current set of International Trade Agreements. No one can convince me that any thought that Government Warnings on use of Tobacco was even considered in past Trade Agreements as a type of unfair trade barrier. And no legitimate court would so hold. That is the genius behind the insertion of Arbitration Panels to allow corporations to attack legitimate governmental actions.

        There are other parties that impose contracts which contain arbitration clauses (Credit companies, stock brokers, software providers) where they know if they want to engage in activities that appear (to a reasonable mind) to deviate from the contract, they will have a sympathetic forum to refashion the agreement for their benefit.

        This of course is why those industries are the biggest proponents of arbitration. It’s interesting that banks when selling credit card services insist on arbitration clauses (because they certainly don’t want any of their unseemly conduct subject to judicial scrutiny) but when they make a one time loan in which the customer executes a promissory note, they insist on no arbitration (because a note is an instrument that courts have over time decided there is no defense to). So there is an example of the same party in one case foreseeing the possibility of a claimed breach on its part (and insisting on arbitration) and one where it has already performed (by giving over the money) and doesn’t want to chance anything on an arbitration panel. The point is whenever a party wants “justice” he will always take a court over an arbitrator.

        All of this was pointed up in Tom Brady’s deflate-gate appeal. Federal courts in Manhattan have what I used to call the “celebrity exception.” That exception provides that when a celebrity or other influential person is involved a judge or appellate court deviates substantially from settled law (using a fig to cover the inconsistency). This exception is applicable in all kinds of cases except ones involving securities or commercial law, where the federal judges in Foley Square Manhattan see themselves as sitting on Olympus. The celebrity exception was used in the Brady case to allow the judge to look at issues a judge would never consider looking into in reviewing an arbitration award. The judge not only looked into the merits of the dispute (the very thing that parties choose arbitration to avoid), he also went deep into the weeds of the procedure deciding that the NFL should have listened to a particular witness (one which Judge Berman himself, if he were presiding over the case, would not have heard). If anyone appealed an arbitration award to a federal on behalf of, say, a consumer who was injured by a product, urging unfairness of the arbitration proceedings as the ground, he would likely be sanctioned for bringing a case as to which there is no good faith grounds to prevail on.

        As for my unfinished article, it is too old to be of use. (All the case citations would have to be “sherpardized,” an arduous process that is the chief reason young litigators leave the field for government or in-house positions). So I will have to say what one of Christopher Marlowe’s characters said: “But that was in a different country, and besides, the wench is dead.”

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