An independent investigation by journalists featured in the New York Times on Sunday offers an in-depth look at the way American corporations have used the inclusion of "arbitration clauses" within consumer contracts to strategically circumvent judicial review of their behavior and immunize themselves from class action lawsuits –"realistically the only tool citizens have to fight illegal or deceitful business practices."
"You can’t shoot someone or rob a bank and say 'It’s OK, I have a contract.'" —Paul Wallis, Digital Journal
What the Times found was a pattern of legal dead ends for consumers seeking to find redress for perceived injustices due to various forms of corporate fraud and malpractice. Often buried deep within lengthy and difficult-to-read contracts that purchasers of products or services are forced to sign, legal experts say the injection of these arbitration clauses "have essentially disabled consumer challenges to practices like predatory lending, wage theft and discrimination." As the newspaper reports:
Over the last few years, it has become increasingly difficult to apply for a credit card, use a cellphone, get cable or Internet service, or shop online without agreeing to private arbitration. The same applies to getting a job, renting a car or placing a relative in a nursing home.
Among the class actions thrown out because of the clauses was one brought by Time Warner customers over charges they said mysteriously appeared on their bills and another against a travel booking website accused of conspiring to fix hotel prices. A top executive at Goldman Sachs who sued on behalf of bankers claiming sex discrimination was also blocked, as were African-American employees at Taco Bell restaurants who said they were denied promotions, forced to work the worst shifts and subjected to degrading comments.
Some state judges have called the class-action bans a “get out of jail free” card, because it is nearly impossible for one individual to take on a corporation with vast resources.
According to William G. Young, a Reagan-appointed federal judge in Boston who spoke with the Times, the rise of this anti-consumer mechanism is "among the most profound shifts in our legal history." Calling it an "ominous" development, Young said, the increasing inability of individuals and groups of consumers to file suit means that "business has a good chance of opting out of the legal system altogether and misbehaving without reproach."
Earlier this month, the Consumer Financial Protection Bureau (CFPB) announced it is considering proposing rules that would ban consumer financial companies from using these arbitration clauses to block consumers from participating in class-action lawsuits against them. According to a CFPB study released in March, more than 75 percent of credit card users in the U.S. are unaware of whether they were subject to an arbitration clause in their contract and fewer than 7 percent realized how these clauses restrict their ability to sue in court.
Citing interviews with some of the people who helped develop the corporate strategy as well examination of court records, the Times says the effort to block class action lawsuits "was engineered by a Wall Street-led coalition of credit card companies and retailers," has been more than a decade in the making, and had a goal "to kill class actions and send plaintiffs’ lawyers to the 'employment lines.'"
However—and despite the success of their stratefic effort—Paul Wallis, a business observer writing for the Digital Journal responded to the Times investigation by arguing that even as this trend to immobilize consumers with arbitration clauses show that corporate crime is again "on the rampage" in the United States, the whole legal concept is actually built on a fallacy.
Though acknowleding business interests have used the strategy brilliantly to their advantage, the other way to look at contract arbitration is by recognizing that it is "absolute crap, from start to finish."
By way of explanation, Wallis continues:
Contract law is written under the legal framework created by the Constitution.
Contracts do not exempt anyone from prosecution under criminal law or other statutes. A contract is a contract, not a statute. It has no force at all, if deemed to be illegal, coercive, or otherwise not viable.
Therefore, actions taken under that contract are not immune to prosecution or other legal processes. You can’t shoot someone or rob a bank and say "It’s OK, I have a contract."
In his eyes, the entire—and deplorable—situation described in detail by the Times investigation is both uniquely American, but also totally "unenforceable" when looked at through the lens of the U.S. Constitution.
The entire concept, he writes, is "a load of garbage" and "shouldn’t exist" because it has "no status under the Constitution" and the idea of inalieanable "legal protection" is a core constitutional right.
Sadly, Wallis argues, given the powerful stranglehold that corporate interests have on the U.S. legal and political systems, it might be some time before the damage can be undone. "Now wait for a few decades while the mighty intellects of the Supreme Court and Congress grapple with this issue," he concludes. "Only in the senile, decrepit, and unbelievably corrupt modern version of the United States would this sickening decadence even be considered possible, let alone doable."