Cory Doctorow has pointed out [0] that binding arbitration clauses leave companies open to legal DDOS “mass arbitration” attacks that end up being very pro-customer.
The courts have not looked favorably on the US Chamber of Commerce and other orgs attempting to weasel their way out of fulfilling their contractual obligations.
IANAL but... you can't. You can't require that "you cannot file an arbitration case when there exists another one already that isn't you" as that violates the constitution.
In any case, I hope DDOS attacks on arbitration start up hard. But so far the problem has been that companies refuse to comply with their own rules. It seems very one-sided. This is something the supreme court needs to rule on.
In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury shall be otherwise reexamined in any court of the United States, than according to the rules of the common law.
If they somehow refuse to perform the binding arbitration for whatever reason, then you have a constitutional right to take them to normal court. The Binding Arbitration system is an agreement to not go to court.
If one side of the agreement doesn't live up to the agreement then the agreement is null and void. Since typically binding arbitration is favorable to the company by way of preventing emotionally motivated massive damages judgements, aka "nuclear" verdicts (like the totally justified McDonald's "hot coffee" verdict, for instance) they are still an alright deal for the average person because they typically can resolve things quickly and effectively, and the arbitrator isn't going to just side with the company when they did something wrong.
In bizarro land, maybe, but in the US if one side breaches, the agreement very much not null and void. It’s true that one party’s breach may act as a condition to the other’s remaining obligations, but the contract definitely does not disappear in a puff of smoke just because someone breached. The legal terms for disappearing in a puff of smoke, should you wish to know more, are “void” and “voidable,” generally speaking.
Points for thinking the hot coffee verdict was reasonable, though!
If a company makes you sign a binding arbitration clause and then refuses to participate in binding arbitration, then you can probably sue them for breach of contract.
To my understanding severability clauses deal with legal findings of unenforcibility. And there are usually similar clauses that allow for a voluntary non-exercising of contractual rights to not void the contract (e.g. your landlord doesn’t collect December’s rent as a gift doesn’t mean you don’t still have to keep paying rent in general). I’m not aware of any standard contractual clauses that allow one to just voluntarily fail to perform their obligations and not also void the contract as a whole (barring provisions for repair of breach, but that’s not just unilaterally deciding you’re not going to do your contractual obligations)
I doubt it would be as straightforward as "you can't file another arbitration case"; it would be something more like "we reserve the right to cancel arbitration cases if we find that yadda yadda".
"Because that would be bad for the consumer", they say then, with a straight face. All it takes to get a person to say something like that is a fat paycheck and a broken soul.
No - it's not possible to avoid. However, arbitrators aren't robots, if claims are being filed in a clearly malicious or frivolous manner you can expect a level headed mediator to provide a remedy.
In a case where one million people were legitimately harmed though, this can be absolutely disastrous for the company unless the wronged agree to waive the arbitration clause with the company and pursue something like a regular class action lawsuit. It'd still be more expensive than a regular class action lawsuit however.
What? Just go read the PayPal one. It says very clearly you can only bring arbitration cases on an "individual basis". Which was directly in response to this issue.
"Unless both you and PayPal agree otherwise, the arbitrator(s) may not consolidate or join more than one person’s or party’s claims and may not otherwise preside over any form of a consolidated, representative or class proceeding."
Edit: maybe PayPal was the wrong example here - I definitely saw clauses change after the Uber court case, but it seems the PayPal one had been there longer?
That doesn't make PayPal immune to being overwhelmed by arbitration requests, it just requires clients to file separately (which they generally should be doing anyways).
That means that multiple arbitration cases cannot be joined together - which is actually worse for them, as they have to pay a fee per case, so more cases means more fees to be paid.
Daniel Berlin ('DannyBee), who is a lawyer (and compiler designer) and a commenter here worth following, has for years been pushing back on the C.W. that arbitration is just a way big corporations screw the little people:
Having been involved in actual civil litigation, a lot of this rings true. The simplest possible civil cases take years to resolve, at tremendous expense.
Arbitration is always an option if mutually agreed to between both parties though. I don't think anyone want to completely outlaw arbitration, just prevent companies from restricting customers from pursuing regular lawsuits (especially of the class action kind). Voluntary arbitration is an excellent tool in resolving a dispute as the costs are dramatically lower than a lawsuit and it is a much speedier process.
That's not a bad idea and pretty simple to implement, and it would save everyone a lot of hassle.
"We can go to court if you want to, just know that we will spend half of what we think your case could go for if you win defending ourselves and use every tactic in our arsenal to drain your war chest until you are financially unable to continue the lawsuit, so unless you've got big bucks to burn or a darn good case and a lawyer willing to fight for you you are better off choosing an arbitrator and getting a simple and just settlement in 3 months vs 3-8 years from now even if we did wrong"
You have to agree ex ante. If I know I have liquidity and you don’t, and I’m willing to be ruthless, I will deny arbitration knowing I can bankrupt you with legal fees. Moreover, once I know the specifics of a dispute, I may no longer want to arbitrate for purely precedent-setting reasons.
Sorry, just to clarify, arbitration isn't a new concept or one that would need implementation - it has always been an option for any legal dispute. In fact a lot of divorces go through a mediator instead of a judge since the difference in cost is so extreme.
> In fact a lot of divorces go through a mediator instead of a judge since the difference in cost is so extreme.
Mediation is not the same as arbitration. Mediators are negotiators. Arbitrators pass judgments.
PROTIP: It's not "mediation" if the mediating attorney represents the other party, nor is it arbitration. That's an Interrogation held under the pretense of "being reasonable." Like talking to the cops, it's a trap-- GTFO of there immediately and don't come back without your own attorney. (My wife's ex pulled this one.)
Mediation is two parties sitting down with an attorney (who represents neither of them) to work something out and have a judge sign off on it. Both parties have the right to select or reject the attorney involved. This is done to save court time more than anything. You always retain the right to flip the table and take the dispute to court. (IANAL, just former staff for a district ADR program.)
By contrast, I was involved in one arbitrated dispute around the time the concept first hit the scene. It was a kangaroo court where they made the rules up as they went. There is a formal process to it but the rules and procedures are completely foreign to you, and you can't hire an attorney to represent you. Mine was a wage dispute where they inexplicably wouldn't let me introduce timesheets as evidence. Instead, I pled my case orally and got a letter a few weeks later stating I lost because I couldn't prove my claims (lol), and helpfully reminding me that was as far as I could go with the issue. I was set up to be completely railroaded. To be fair, while I was undeniably wronged, I'm not saying I was unquestionably entitled to recourse-- I'm saying I have no idea who's really in the right or who should have done what since it's not like the proceedings can be reviewed by anybody or conclusions were based on any case law.
My impression of it is that companies found a way to get the more-disarming parts of magistrate court to apply to claimants that could otherwise claim significant losses or become class-action, to divert them from the legal pipeline altogether to Judge Judy, who has no qualms admitting she's ruling against you because despite the merits of your case, she just doesn't fucking like you and her word is final.
I don't remember; this was over a decade ago. It was whoever the Georgia Department of Labor arbitrates with, since at that point unemployment claims were involved.
The other side had their attorney present, but he was not a participant in the proceedings, if that makes it any clearer. On-record it was just me, my former boss and the arbitrator.
Measuring a claimant’s wealth and then deploying delay tactics to run it negative is a common anti-consumer tort tactic. If you don’t have $100k+ liquid, you’re not going to survive an encounter with our justice system alone.
This should be fixed. But in the meantime, mechanically opting out of consumer arbitration is immensely stupid.
It's a defensive reaction to the fact the US has vague, crappy, outdated laws about everything. Litigation is needed absolutely everywhere because every situation falls through the cracks of the law, which obviously overwhelms the courts.
So what happens instead? Each company comes up with their own detailed, up-to-date, heavily skewed set of rules. And we agree to use their private court system or go to another company that does the same thing but slightly different.
As a protest, I’ve considered creating a browser plugin that takes the TOS and removes arbitration clause, e-signs it and PDFs it. Then posts it to the “agree” endpoint in addition to other form attributes and emails a copy to legal@BigCo. Basically automating the Dmitry Agarkov approach.
It it responds with a 2xx HTTP status code, it accepted the PDF. If the accept is handled purely in client-side javascript, the other party can never prove that you accepted the terms.
The point is that it is a protest. By emailing bigcorp’s legal team will waste a small amount of their time. Especially if it “sincerely” thanks them for accepting your altered terms of service and shares some screenshots of the 200 response etc. doesn’t have to mention what was altered.
Then references Dmitry Agarkov.
V2 could use rocketreach to find individual lawyers at bigco and mail each individually with slightly different messages to create more confusion.
> By emailing bigcorp’s legal team will waste a small amount of their time
The plugin developer is more likely to be sued than any company lose material amounts of money. That or one would just ignore requests matching that form.
> V2 could use rocketreach to find individual lawyers at bigco and mail each individually with slightly different messages to create more confusion
This is intentionally generating frivolous requests with the intent of causing damage. You’ve escalated from civil to possible criminal liability.
Individually doing something like this is fine. But you have to do it with the intent of resolving an issue. Not causing damage.
I believe california residents have a limited time period after an agreement to opt-out of binding arbitration. So for california, you might just create a post-contract arbitration letter.
Binding arbitration, it certainly feels like a rigged system.
I just went through it and lost. Never thought I would lose against this clearly shady contractor. I had inspection reports, emails and texts from them committing to fix my house, and 400+ pages of photos. The contractor had walked off my job over a year before we ever made it to arbitration… I still don’t have my house back.
The mediator, who the contractor got to pick, basically started off saying, “We have to give the benefit of the doubt to these hardworking contractors who came to your aid in your hour of need…” That was a taste of how the whole day would go.
Still feels raw. Here’s a little more on my story with binding arbitration.
They picked 2 mediators, we got to pick a mediator from the 2 they originally picked.
At the end of the day we were at an impasse... and I was told it was 18+ months to get in front of a judge for a trial, and it would cost me another $100k. So the mediator said she could help with a arbitrators decision, but I had to agree to it before she would pitch it to the other side -- to be clear, I had to agree to it before I knew the terms of it. And I figured she'd just factor in where we were at that point in the negotiations and split it down the middle. But that's not how it played out. It was painful.
According to Matt Stoller [0] we have Alan Kaplinsky [1] to thank.
> Kaplinksy’s claim to fame is that he’s the lawyer who figured out you could get rid of the ability of a consumer to go to court by using what’s called a pre-dispute arbitration provision in a contract.
I'm no expert but Kaplinsky sure sounds like a modern day super-villain.
The actual answer is that arbitrators are liable for their judgements.
If you had your hand cut off by your manager for being 5 minutes late to work and sued your company only to find out it had to be dealt with by binding arbitration, and in the course of discovery you found an email from the CEO and the board telling managers to start cutting off people's hands if they are 5 minutes late to work, and then the binding arbitrator said that the company did no wrong, then they have exposed themselves to a potential lawsuit without the protection of a binding arbitration agreement.
So, just like a fiduciary financial manager, they have a responsibility to act and judge in a way that will stand up to possible external scrutiny.
Thank you. That does make sense. But do lawsuits against arbitrators happen with any non-trivial frequency? From the little I know, lawsuits against arbitrators are not a serious threat that arbitrators face.
But even so, all an arbitrator need to do is rule in favor of the corporation whether there is a thread of an argument in their favor, then ruling against the corporation in the remaining tiny fraction of cases.
> why do arbitrators ever rule against the companies that pay their fees?
Both sides choose the arbitrator. If an individual arbitrator consistently rules against one category of claimants or defendants, lawyers will steer clients against them and they won’t get paid.
The arbitration service is paid by the company, usually, which is a win for the consumer. But the arbitrator is individually paid only if they’re selected. (They’re also usually retired judges, et cetera.)
Thank you. That does make sense. But as pointed out by the article, typical consumers/workers have no idea about how to choose an arbitrator and do not hire a lawyer.
I don't think it should be legal to be able to surrender the ability to pursue legal action outside of very specific waivers. I'm fine with companies incentivizing arbitration but if a company is able to fully block regular legal actions (especially class action lawsuits) then that smells bad.
Yes, we often look at it from a personal choice point of view: I can evaluate the contract and decide that I’d like to waive this right. But the law exists to protect everyone, and part of that is it imposes a little bit on everyone.
If a basically every company insists that you waive your employee rights to work for them, then the only people with those rights are the unemployed, rendering those laws a bit moot.
You gain a competitive advantage over your peers by being willing to waive your rights, in the sense that a company of course would like to not have to respect your rights. The point of employee protection laws is to take that off the table.
My preference here, if I had a magical "change the world wand", would be to allow arbitration to be binding only B2B and not between a business and a consumer. A consumer should always be able to resort to the courts proper.
But the wavers are rather specific, and in all cases I encountered, there are some exceptions for serious cases which the law does not allow to relegate to arbitration.
I suppose that arbitration lowers the cost of a dispute very seriously. It makes sorting out small issues affordable and much faster. I see it as a good tradeoff as long as I don't depend on it in potentially serious cases, where hiring a lawyer would be the least of my troubles.
Uber's[1] is usually held up as a prime example of these agreements - and reading through it the only carve out they allow seems to be for sexual assault[2]. IANAL but to my reading the only other carve out is when binding arbitration would be illegal. It also seems to preempt any ability to bring pretty much any kind of class action lawsuit.
Surrendering rights in any contract of adhesion. I'd consider it to be reasonable for a negotiated contract between two companies to include a binding arbitration clause; however, any "take-it-or-leave-it" consumer nonnegotiated contracts should be (and in some jurisdictions are) heavily restricted with respect to potentially unfair clauses, one of them being binding arbitration.
The part where you're bound to waiving your legal rights in order to engage in commerce with companies that you can't really avoid engaging in commerce with, unless you want to be an off-grid homesteader.
There's nothing wrong with arbitration as a first choice to avoid court, to the benefit of both parties. There's something very wrong with binding arbitration.
Contracts regularly restrict the rights of the parties. For example, a NDA restricts your right to free speech. Should this right be different? Maybe, but there’s trade offs to everything.
Ultimately I’d rather take the position that if you don’t like the terms of a contract you are free to not agree to it.
Laws regularly restrict the power of contracts as well. For example, you cannot contractually give up your right to reclaim a non-work-for-hire copyright at 35 years until some period of time near that duration.
It was perversion by the courts of a century old law that wasn’t made for unilateral consumer contracts. If the courts stopped reading that law so broadly, then the legislature could pass a law that allows it, if that’s indeed what was intended.
The root cause seems to misdirected in my opinion. The article also reads like there are two issues, arbiters can be financially swayed, and contracts can force giving up rights, but the conclusion is vaguely "corporations are evil".
The article suggest big companies gaming the arbitration system. Read any civil (or even criminal) court case, and both sides will do the most possible tactics to win. The disparity of expertise is not an evil behavior of the parties. Yes, individuals with fewer financial means to find lawyers in arbitration are at financial disadvantage compared to corporation, and they would be in the same, if not bigger financial bind if it was done through the court system.
The notion that arbiters are beholden to corporation because of compensation is the biggest, glaring problem.
"The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal their bread." --Anatole France
I’m not convinced this study is measuring what it claims. It seems like they identified “pro business” arbitrators as the ones that gave businesses better wins. Then they found that they gave businesses better wins? That could just be random chance.
Also ultimately a 12% effect is not the end of the world. Without arbitration you are going to be paying a lawyer a ton more money so it’s not even clear it’s worse for the consumer on average.
I'm not really buying this informational asymmetry argument. Yes the companies will have been in more cases than the consumer, but that's not really a relevant comparison. The consumer isn't picking the arbitrator, his lawyer is, and he and his firm will have been involved in a lot of cases.
If on average 100% of cases involve a company that is paying for an arbitration lawyer and even 80% of cases involve an individual that is paying for an arbitration lawyer (which I _highly doubt_, though I couldn't quickly find numbers), the net result in the long term is not that "20% of individuals get a negative outcome", it's far worse.
This article is talking about the net effect, which is that the fact that there _is_ asymmetry means that arbitrators have an interest in _being_ biased against the individual, which means that even if you are paying for an arbitration lawyer, they are simply ruling out the _most_ biased firms, while the corporate arbitration lawyer is ruling out the _least_ biased firms. Think natural-selection, rather than game theory.
Arbitration is an abbreviated legal proceeding designed to be much faster and cheaper than litigation. It is not designed to be a substitute for legal representation.
The idea of going into arbitration against a company without a lawyer seems absolutely insane to me and I would bet that the number of plaintiffs with representation is close to 100%. I also do not have actual data on this, though.
It is just like when producers aggregate into cartels like the AMA (American Medical Association) so consumers aggregate into insurance companies (eg Medicare).
At the end the situation isn’t so great for people who fall through the cracks with unusual issues, but for common scenarios it’s great. The unusual issues should still have access to the ad-hoc market and usually there, producers (with all their resources and organization) have the advantage.
So I sign away my right to real legal recourse because the arbitration process is quicker and cheaper, but to not get screwed over I still have to pay a lawyer?
Yes, you always want to retain your own lawyer - and it will be cheaper to hire a lawyer to see through an arbitration than a full lawsuit. Additionally most of the binding arbitration agreements I've seen consign the cost of the arbitrator to the company - so you're not paying the often thousands or tens of thousands of dollars to the retired judge who will rule on the case.
I personally object to binding arbitration - but it is certainly less expensive to engage in arbitration than a full lawsuit. Additionally it may be possible to recoup your legal fees as part of the final arbitration, though this is not guaranteed (and shouldn't be for very good reasons).
but to say it isn't happening raises a lot of questions. Why do so many firms so widely put mandatory arbritration clauses? why are pro-business arbitrators more likely to be chosen (despite, as you hypothesise, equal information)?
could it be that there are simply more pro-buisness arbitrators than pro-consumer? so a random list would have too many for customer representative to strike off?
Arbitration is quicker and cheaper than litigation. That alone is enough to explain why they want it. There may well be bias, but merely the fact that companies want this is not evidence of it.
Having worked for a major dispute resolution provider, these conversations generally leave out a lot of context. Lots of Gell-Mann Amnesia.
First, 90% of arbitration is between firms, not consumers. Consumer driven arbitration is rare enough that it's hard to specialize as a pro-business arbiter. Usually arbiter bias will be pro [big, small, old, new] just like us regular people.
Second, like other public facing retail and service management, consumer disputes are generally 80% frivolous. Like "they did not read the contract" level issues. That about 50% of disputes award in favor of the consumer is seen as overly benevolent appeasement.
Note: the 20% non-frivolous are usually very clear cases of the corporate participant blatantly or maliciously screwing up; no sympathy there. People are people everywhere.
For this reason most industry professionals very strongly suggest mediation rather than arbitration. It's quicker, cheaper, and usually ends in a voluntary non-binding settlement. And if you don't like it, it's non-binding; you can proceed to arbitration. Corporate clients would usually prefer to voluntarily agree to a settlement to make the problem go away, and consumers get the neutral information they need to understand why they misunderstood the situation.
However, most people see red and want to punish the other side. That rage makes them want to use as much authority and leverage as they can. Arbitration is seen as "not enough of a punishment, court would be better." When really, most people would be better served sitting down and talking things over with mediation rather than explicit adversarial intent.
I've heard similar things from civil court judges. They don't think they're biased for or against citizens, police, lawyers, etc. They are used to seeing the most incompetent petty facepalm justifications to "punish" someone, instead of seek justice or restitution. They are biased positively towards anyone who shows the slightest decorum, competence, or noble intent.
0: https://pluralistic.net/2022/02/24/uber-for-arbitration/#nib...