Note: This doesn’t have anything to do with criminal law, police misconduct or kittens, so most of you won’t have any interest in this post and should immediately avert your eyes.
The intrepid Frank Pasquale, at Concurring Opinions, raised a bit of a dilemma coming out of the Second Circuit in its curiously empathetic opinion on mandatory arbitration clauses in Duran v. The J. Hass Group. From the recap by Public Citizen:
In Duran v. The J. Hass Group, a woman who is essentially on the edge of being destitute alleges . . . that she was the victim of a last-dollar scam, promised services that she didn’t receive. It probably will not surprise anyone who follows consumer law (although it would come as a surprise to nearly any actual consumer) that the defendant had an arbitration clause. What’s striking is that the clause requires consumers (including the New York resident Ms. Duran) to arbitrate their claims across the country in Arizona.
The Second Circuit required Ms. Duran to arbitrate her claim, and enforced the provision requiring it to take place in Arizona. They noted that there is a “logical flaw” and an “unusual” quality to the result, because if Ms. Duran’s only remedy is to argue to the arbitrator that it’s unfair and unconscionable to require her to arbitrate in Arizona, she first has to go to Arizona to do it. Oh well, the Court explains, this is what the Supreme Court would have wanted.
For all the virtues of arbitration, it’s hard to love when this is the game played. Duran has to go to Arizona to fight the unconscionability of making her go to Arizona to challenge a “last dollar scam” that has rendered her destitute and precluded her from going to Arizona to fight?
It’s brilliant, in a Dr. Evil sort of way. And the Second Circuit says it’s the law.
The good news is that major corporations, and the major arbitration enterprises, don’t play this game, and won’t demand or sanction arbitration in far-away jurisdictions to make it absurdly onerous on consumers to challenge their schemes or failures. The bad news is that decisions like this suggest that they should, as it’s a great way to make it untenable for anyone to fight.
The worse news is that smaller businesses are happy to include mandatory arb clauses that include such burdensome requirements as their hometown or favored jurisdiction, whether it’s meant to make it impossible for the other side to fight or just for their own convenience. While major corporations have their share of issues with the products and schemes they sell, many of the smaller businesses, particularly in shady niches like “small lenders, credit repair organizations, and similar entities using arbitration firms with vague names and vague websites, about whom no one seems to know anything” tend to give rise to a far higher likelihood of consumer fraud and misery.
Shockingly, these tend to be the ones most likely to include “distant forum provisions, loser pays clauses, limitations on damages and attorneys’ fees,” the sorts of terms that render arbitration worthless, pointless or unconscionable.* As Paul Bland at Public Citizen explains:
[T]hese had been disappearing from arbitration clauses a few years ago, and in the wake of the Rent-A-Center case my strong impression is that a growing number of smaller corporations are feeling adventurous and emboldened to use plainly terms.
They’re ba-aa-ack. The irony is that the Second Circuit recognized the “logical flaw in [its] result,” but didn’t let that stop them from reaching an absurd result.
As regular readers know, I often spend some personal capital on trying to level the playing field between the consumer and large corporations who do what they can to deflect responsibility for the crappy products hidden beneath their shiny promises. When you’ve waited a half hour on hold for tech support outsourced to Banglanore by a person who has nothing more than the same instruction manual as handed out to the consumer, you begin to doubt they really care about your “inconvenience.”
Of course, consumers can read the arbitration clauses, except that they wouldn’t have an opportunity to see them until after they’ve purchased and, well, nobody reads them or makes buying decisions because of them anyway. So the argument that it’s just a free market at work falls a bit flat; the relative power of negotiation between major corporations and the individual is limited to the decision not to purchase and be the only kid on the block without a cool gizmo.
For the advocates of arbitration as a less expensive, more efficient means of dispute resolution, this doesn’t advance their argument very well. It’s not a level playing field, where consumers and producers get to haggle over the specific terms of such matters as arbitration. And utterly absurd decisions like Duran aren’t going to help.
It’s fine to adore the concept of arbitration and expound upon its virtues, but the devil is always in the details. When the details make it ridiculously onerous to use, then arbitration is just as evil, if not more so, than any other means of dispute resolution. If arbitration is to be favored, then it can’t be predicated upon such one-sided, impossible to perform terms.
* Edit to include funny tangential story: Back in the early 80′s, when I was a punk kid lawyer, I shared a suite with a couple of guys named Arthur and Lenny. Lenny represented a business about to put its product on the market, and was told to create the terms and conditions of sale.
He cracked open a bottle of cheap wine, which was something that happened with regularity in this particular suite, and we all had a glass or two, sat around Lenny’s office and tried to see who could come up with the most ridiculously outrageous terms.
The more we drank, the wilder the terms became, as we all realized that nobody would ever read the terms and conditions before buying and, afterward, it didn’t matter. Even so, it never occurred to anyone in the room to require arbitration in Arizona. We did, however, require that demands for arbitration be signed in blue ink on 20 lb. Esquire Bond. Yeah, well, so we weren’t that wild after all.