[Senate Hearing 113-373]
[From the U.S. Government Publishing Office]
S. Hrg. 113-373
THE FEDERAL ARBITRATION ACT AND ACCESS TO JUSTICE: WILL RECENT SUPREME
COURT DECISIONS UNDERMINE THE RIGHTS OF CONSUMERS, WORKERS, AND SMALL
BUSINESSES?
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HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 17, 2013
__________
Serial No. J-113-44
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
DIANNE FEINSTEIN, California CHUCK GRASSLEY, Iowa, Ranking
CHUCK SCHUMER, New York Member
DICK DURBIN, Illinois ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island JEFF SESSIONS, Alabama
AMY KLOBUCHAR, Minnesota LINDSEY GRAHAM, South Carolina
AL FRANKEN, Minnesota JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut TED CRUZ, Texas
MAZIE HIRONO, Hawaii JEFF FLAKE, Arizona
Kristine Lucius, Chief Counsel and Staff Director
Kolan Davis, Republican Chief Counsel and Staff Director
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Franken, Hon. Al, a U.S. Senator from the State of Minnesota..... 1
Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa...... 3
prepared statement........................................... 43
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 3
prepared statement........................................... 44
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont,
prepared statement............................................. 45
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode
Island, prepared statement..................................... 47
WITNESSES
Witness List..................................................... 41
Overton, Leslie C., Deputy Assistant Attorney General for Civil
Enforcement, Antitrust Division, U.S. Department of Justice,
Washington, DC................................................. 5
prepared statement........................................... 49
Carlson, Alan S., Owner, Italian Colors Restaurant, Oakland,
California..................................................... 13
prepared statement........................................... 53
Gilles, Myriam, Professor of Law, Benjamin N. Cardozo School of
Law, Yeshiva University, New York, New York.................... 15
prepared statement........................................... 57
Teske, Vildan A., Partner, Crowder, Teske, Katz & Micko, PLLP,
Minneapolis, Minnesota......................................... 18
prepared statement........................................... 66
Parasharami, Archis A., Partner & Co-Chair, Consumer Litigation
and Class Actions Practice, Mayer Brown LLP, Washington, DC.... 20
prepared statement........................................... 82
Rutledge, Peter B., Associate Dean for Faculty Development,
Herman E. Talmadge Chair of Law, University of Georgia School
of Law, Athens, Georgia........................................ 22
prepared statement........................................... 134
QUESTIONS
Questions submitted by Senator Franken for Myriam Gilles......... 201
Questions submitted by Senator Franken for Vildan Teske.......... 202
Questions submitted by Senator Franken for Archis Parasharami.... 203
Questions submitted by Senator Grassley for Archis Parasharami... 204
Questions submitted by Senator Grassley for Peter Rutledge....... 205
Questions submitted by Senator Hatch for Myriam Gilles........... 206
Questions submitted by Senator Hatch for Peter Rutledge.......... 207
QUESTIONS AND ANSWERS
Responses of Myriam Gilles to questions submitted by Senators
Franken and Hatch.............................................. 209
Responses of Vildan Teske to questions submitted by Senator
Franken........................................................ 226
Responses of Archis Parasharami to questions submitted by
Senators Franken and Grassley.................................. 232
Responses of Peter Rutledge to questions submitted by Senators
Grassley and Hatch............................................. 250
MISCELLANEOUS SUBMISSIONS FOR THE RECORD
American Antitrust Institute, Washington, DC, Albert A. Foer,
President, and Randy M. Stutz, Senior Counsel, December 24,
2013, letter................................................... 256
Amalgamated Bank, Noel Beasley, Chairman, New York, New York,
December 19, 2013, letter...................................... 259
Civil Justice Through the Courts, Law Student Clinic Members, New
York, New York, December 17, 2013, letter...................... 261
Coalition of Organizations, December 16, 2013, letter............ 272
Constitutional Accountability Center, Douglas T. Kendall,
President, Washington, DC, December 16, 2013, letter........... 276
COSAL (Committee to Support the Antitrust Laws), statement....... 279
Cox, James D., Professor of Law, Duke Law, Durham, North
Carolina, October 30, 2013, letter on behalf of a group of
professors from 19 law schools................................. 285
DiNapoli, Thomas P., New York State Comptroller, Albany, New
York, December 16, 2013, letter................................ 290
Doss, Jason, President, Public Investors Arbitration Bar
Association, statement......................................... 292
Duran, Bernardita, Client of Legal Services NYC, New York, New
York, statement................................................ 295
Home Owners for Better Building, Janet Ahmad, National President,
San Antonio, Texas, December 23, 2013, letter.................. 302
Kilgore, Matthew, Rohnert Park, California, statement............ 309
Leadership Conference on Civil and Human Rights, Wade Henderson,
President & CEO, Washington, DC, statement..................... 313
Mahoney, Jeff, General Counsel, Council of Institutional
Investors, Washington, DC, December 11, 2013, letter........... 315
Non-U.S. Institutional Investors Group, December 17, 2013, letter 319
Rothman, Mike, Commissioner of the Minnesota Department of
Commerce, on behalf of the North American Securities
Administrators Association (NASAA), statement.................. 323
Simpson, Anne, Senior Portfolio Manager, CalPERS, Sacramento,
California, December 12, 2013, letter.......................... 334
Sternlight, Jean R., Professor of Law, UNLV, Boyd School of Law,
Las Vegas, Nevada, statement................................... 336
Szalai, Imre Stephen, Professor, Loyola University of New Orleans
College of Law, New Orleans, Louisiana, statement.............. 344
U.S. Institutional Investors Group, December 17, 2013, letter.... 353
THE FEDERAL ARBITRATION ACT AND ACCESS TO JUSTICE: WILL RECENT SUPREME
COURT DECISIONS UNDERMINE THE RIGHTS OF CONSUMERS, WORKERS, AND SMALL
BUSINESSES?
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TUESDAY, DECEMBER 17, 2013
U.S. Senate,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 2:30 p.m., in
Room SD-226, Dirksen Senate Office Building, Hon. Al Franken,
presiding.
Present: Senators Franken, Whitehouse, Klobuchar,
Blumenthal, Hirono, Grassley, Hatch, and Lee.
OPENING STATEMENT OF HON. AL FRANKEN, A U.S. SENATOR FROM THE
STATE OF MINNESOTA
Senator Franken. This hearing will come to order.
In 1925, Congress passed the Federal Arbitration Act to
facilitate the use of arbitration as a fair and efficient
alternative to litigation in appropriate cases, typically those
involving competing corporations of equal bargaining power.
In the hands of today's Supreme Court, however, the Federal
Arbitration Act has been reshaped into something quite
different. It has become a virtual grant of immunity for large
corporations, which now can opt out of the criminal justice
system.
I think that Alan Carlson, a small business owner who is
with us today, puts it really well when he says in his written
testimony, ``In America, I thought we all had the right to
pursue justice in court, but it turns out that Big Business
gets to write its own rules.''
This, in my view, has potentially disastrous consequences
for workers, consumers, small businesses, and for middle-class
Americans, and that is the focus of today's hearing. For me,
this is all about making sure that there is access to justice
when everyday people are cheated by giant corporations.
In 2011, I chaired a hearing on mandatory pre-dispute
arbitration. What we learned in that hearing is that
corporations make consumers and workers sign contracts with
mandatory arbitration clauses as a condition to getting a
product or a service or a job. The corporation can write the
rules for the arbitration. The arbitrator often comes from the
same industry as the corporate defendant.
Everything is done in secret. There are no public rulings
and precedents like there are in courts. Discovery is limited,
if there is any at all. So the plaintiff cannot always get the
evidence that he or she needs to prove her case. And there is
no meaningful judicial review, so there is not much an
individual can do if the arbitrator just gets it all wrong.
But that is not all. My 2011 hearing followed on the heels
of AT&T v. Concepcion in which the Supreme Court said that
corporations can use their arbitration clauses to prohibit
class actions, even if applicable State law says that these
class action waivers are unconscionable. So under Concepcion,
not only can a corporation force an individual into arbitration
with all of its shortcomings, but the corporation can force the
individual to go it alone. Just the prospect of a class action
gives corporations a real incentive to follow the law. They
know that there will be real consequences if they do not.
Concepcion removed that important check on corporate power.
Not surprisingly, corporations are taking advantage of this
new rule. Preliminary results from the Consumer Financial
Protection Bureau's Arbitration Study indicate that nearly 100
percent of outstanding credit card loans and insured deposits
now are subject to class action bans. As Mr. Parasharami, one
of today's witnesses who is testifying in favor of mandatory
pre-dispute arbitration, has written, ``In light of Concepcion
and subsequent developments in law, consumer and employment
arbitration agreements are now more attractive to businesses
than ever.'' Mr. Parasharami and I probably do not agree on
much when it comes to arbitration law, but I do agree with him
on that.
And just when you thought it could not get any worse, it
did when the Supreme Court decided American Express v. Italian
Colors during its last term.
Since at least the Mitsubishi Motors case in 1985, we have
had something called the ``effective vindication rule,'' which
says that an arbitration clause is invalid if it is so bad that
it prevents an individual from enforcing his or her federal
rights. In other words, the effective vindication rule
prevented a corporation from drafting its arbitration clause in
a way that implicitly forced consumers, workers, and small
businesses to waive their federal rights. But in the recent
Italian Colors case, the Court did away with that rule, and the
Court was not really shy about it either. Justice Scalia wrote
that, ``The FAA's command to enforce arbitration agreements
trumps any interest in ensuring the prosecution of low-value
claims.''
In other words, in his opinion, corporate arbitration
clauses simply are more important than the rights of consumers,
workers, and small businesses.
I could not disagree more. The Concepcion and Italian
Colors decisions stack the deck in favor of corporations and
against consumers and workers, as if the deck were not stacked
enough already. Giant corporations now can use arbitration
clauses to stifle enforcement of federal laws, the antitrust
laws, the minimum wage laws, the civil rights laws. You name
it.
As the law has gotten worse, the need for reform has become
more obvious and more urgent. I introduced the Arbitration
Fairness Act to undo some of the damage that we have seen to
the civil justice system, and I would like to invite my
colleagues to join me in this effort; 24 Members of the Senate
and 71 Members of the House already have. The Arbitration
Fairness Act would amend the Federal Arbitration Act to
prohibit the use of mandatory pre-dispute arbitration clauses
in civil rights, employment, consumer, and antitrust cases--
cases in which one party has superior bargaining power and
where adhesion contracts are common.
I want to be clear. The bill does not prohibit arbitration.
If a consumer or a worker or a small business owner wants to
take his claim into arbitration, then by all means he or she is
free to do so, provided the corporation itself is willing to do
so. But if the consumer or worker or small business wants to go
to court, he or she will have that option available again.
This is not a radical proposal. The bill just restores the
Federal Arbitration Act to its original purpose and scope.
Simply put, this is about reopening the courthouse doors to
workers, consumers, and small businesses because the courthouse
doors never should have been closed in the first place.
I would like to thank Chairman Leahy for inviting me to
hold this hearing. I know that this issue is important to him,
and I understand that he has a statement, which I will submit
for the record.
[The prepared statement of Chairman Leahy appears as a
submission for the record.]
Senator Franken. Ranking Member Grassley, it is a pleasure
to serve in this capacity with you, and would you like to give
any opening remarks.
OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM
THE STATE OF IOWA
Senator Grassley. I am just going to refer to a small part
of my statement and put the whole statement in the record.
I look forward to hearing from our witnesses today.
Particularly I look forward to testimony explaining what we can
expect following the Supreme Court decision in the American
Express case. Absent class action provisions, will consumers
really lack the ability to have their dispute adjudicated? And,
also, what direction will we see arbitration clauses move going
forward as a result of that decision? In the wake of American
Express and the AT&T Mobility cases, I hope the witnesses can
separate myth from reality and give us a clear picture of what
is next.
I will put the rest of my statement in the record.
[The prepared statement of Senator Grassley appears as a
submission for the record.]
Senator Hatch. Mr. Chairman? Mr. Chairman?
Senator Franken. Senator Hatch.
Senator Hatch. I would like to make a short statement.
Senator Franken. Yes.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
THE STATE OF UTAH
Senator Hatch. I have to leave, but I wanted to make just a
short statement, and I appreciate your graciousness.
Mr. Chairman, I wish I could stay, but I am unable to. I
did want to at least briefly stop by to say that this is a very
important issue and to ask if I could submit written questions
to the witnesses.
Senator Franken. Without objection.
Senator Hatch. These questions emphasize that litigation is
the alternative to arbitration. The bill before us would not
only prohibit arbitration but actually terminate arbitration
agreements that parties have already entered into. Before
taking a dramatic step like that, we must consider whether the
alternative of litigation would be even worse in various
respects than what critics say about arbitration.
Is the case against arbitration so complete and the
alternative of litigation so much better that we should
prohibit arbitration clauses altogether?
I am very skeptical about the answer, but would want to
explore that with the witnesses through the written questions I
will submit, and I appreciate answers as quickly as you can.
[The questions and statement of Senator Hatch appear as a
submission for the record.]
Senator Hatch. Thank you, Mr. Chairman. I appreciate you--
--
Senator Franken. You are welcome, Senator Hatch. I have
tremendous respect for you. I just want to just make it clear
to everyone that there is no intention here to remove all
arbitration clauses, just mandatory pre-dispute arbitration
clauses, which are, I feel, in so many cases the cause of
adhesion.
Senator Hatch. I understand.
Senator Franken. And that is what today's hearing is about.
There is no attempt here to ban arbitration at all, as I said
in my opening.
Does anybody else want to make an opening statement? Then
we will go to our first witness. I would ask that Deputy
Assistant Attorney General Leslie Overton, who is here with us
sitting at the witness table, stand and take the oath after I
introduce her. So stay where you are because I am going to
introduce you properly.
I am pleased that the Deputy Assistant Attorney General is
here to see us today--Ms. Overton. She has served in her
current position since the summer of 2011 following stints as
counsel to the Assistant Attorney General and as a partner in
Jones Day's Washington, D.C., office. Deputy Assistant Attorney
General Overton has received several awards in recognition of
her outstanding legal talents. She is one of several
signatories to the Federal Government's amicus brief in the
Italian Colors case, which we will be discussing today, and I
have invited her here to discuss that brief with the Committee.
As is customary at the Senate Judiciary Committee, I will
begin by administering the oath, so would you mind standing? Do
you affirm that the testimony you are about to give the
Committee will be the truth, the whole truth, and nothing but
the truth, so help you God?
Ms. Overton. I do.
Senator Franken. Thank you. Please be seated.
Deputy Assistant Attorney General Overton, welcome, and
thank you for being here. I appreciate your taking the time out
from your very busy schedule. Please go ahead with your opening
statement.
STATEMENT OF LESLIE C. OVERTON, DEPUTY ASSISTANT ATTORNEY
GENERAL FOR CIVIL ENFORCEMENT, ANTITRUST DIVISION, U.S.
DEPARTMENT OF JUSTICE, WASHINGTON, DC
Ms. Overton. Thank you, Chairman. Chairman Franken, Senator
Grassley, and distinguished members of the Committee, I
appreciate this opportunity to share the United States'
position in its amicus brief in the Supreme Court in American
Express v. Italian Colors Restaurant.
The United States' brief reflects its concern that the
effect of the mandatory arbitration agreement in the facts of
that case would prevent the respondents, the merchants, from
being able to effectively vindicate their rights under the
antitrust laws.
My written testimony discusses the brief in detail, so I
will now provide background and summarize the points the United
States made.
In Italian Colors, the named plaintiffs in a consolidated
set of putative class actions were merchants who accept
American Express cards. The merchants alleged that Amex
violated Section 1 of the Sherman Act by engaging in an
unlawful tying arrangement using its market power in corporate
and personal charge cards to compel the merchants to accept
Amex's credit and debit cards at elevated merchant fee rates.
Amex's standard form contract for merchants governed the
relationship. This card agreement required all disputes between
the parties to be resolved by arbitration, precluded any right
or authority for any claims to be arbitrated on a class action
basis, barred multiple merchants' claims from being joined in
one arbitration proceeding, did not permit the prevailing party
to shift its costs to the other party, and prohibited
disclosure of information obtained in arbitration. The class
action complaints were consolidated, and Amex moved to compel
arbitration.
The Federal district court held that the parties' dispute
fell within the scope of the card agreement's mandatory
arbitration clause, granted Amex's motion, and dismissed the
suits.
The court of appeals reversed and remanded. The merchants
presented expert evidence demonstrating that they would bear
expert fees and expenses of at least several hundred thousand
dollars and possibly more than $1 million. However, the
estimated damages for the merchant with the largest volume of
Amex transactions amounted to $12,850, the largest recovery
only $38,549 when trebled, as provided under the antitrust
laws.
The court of appeals accordingly concluded that ``the class
action waiver in the Card Acceptance Agreement cannot be
enforced in this case because to do so would grant [American
Express] de facto immunity from antitrust liability by removing
[the merchants'] only reasonably feasible means of recovery.''
The United States' brief observed that under the Supreme
Court's precedents, agreements to arbitrate federal statutory
claims are enforceable if, but only if, ``the prospective
litigant effectively may vindicate its statutory cause of
action in the arbitral forum.''
While the Federal Arbitration Act establishes a generally
applicable federal policy favoring the creation and enforcement
of agreements to arbitrate, the effective vindication rule
reconciles this policy with the policies of a wide range of
federal statutes that confer substantive rights and authorize
private suits by aggrieved persons. The rule allows contracting
parties to agree that their disputes will be resolved by an
alternative adjudicator, while denying enforcement of an
arbitration agreement in circumstances where its function would
be, in practical effect, a prospective waiver of substantive
rights.
The brief explained that the arbitration agreement in
Italian Colors effectively precluded the merchants from
asserting their antitrust claims by making it prohibitively
expensive for them to do so. No rational actor would attempt to
bring a claim when a negative recovery is a certainty. Under
these circumstances, an order compelling arbitration would
preclude the merchants from effectively vindicating their
federal claims.
The brief lays out the United States' concern that
companies could use a combination of class action and joinder
prohibitions, confidentiality requirements, and other
procedural restrictions to increase the likelihood that a
plaintiff's cost of arbitration would exceed the projected
recovery. Companies could then require acceptance of such
unwieldy procedures as a condition of doing business, getting
hired, or purchasing products. That would deprive a range of
federal statutes of their intended deterrent and compensatory
effect.
This concludes my discussion of the United States' brief. I
am happy to answer questions.
[The prepared statement of Ms. Overton appears as a
submission for the record.]
Senator Franken. Thank you, Deputy Assistant Attorney
General, and thanks again for being here today.
The members will now have 7 minutes to ask their questions,
and I will start.
Deputy Assistant Attorney General Overton, why did the
Justice Department decide to get involved in the Italian Colors
case lawsuit in the first place? What was the public's interest
here?
Ms. Overton. Thank you for your question. Private antitrust
actions are a vital supplement to the Government's civil
enforcement efforts under the federal competition laws as well
as our criminal enforcement. They are also an important
component of a range of other statutory schemes, and the United
States filed its brief because of our concern that the effect
of the mandatory arbitration agreement in the facts of this
case would prevent the respondents from being able to
effectively vindicate their rights under the antitrust laws.
And our brief also identifies the United States' substantial
interest in ensuring that arbitration agreements are not used
in a way to prevent private parties from obtaining relief----
Senator Franken. Can you just talk about how the Italian
Colors decision undermines enforcement of our Nation's
antitrust laws?
Ms. Overton. The concern we expressed in our brief was that
the incentives of companies could be impacted, that the
effective vindication rule creates incentives for companies to
craft arbitration agreements in a manner that allows
realistically for small claims to be brought under the federal
laws. However, we expressed concern in our brief that, absent
that safety valve, companies could have incentives to craft
arbitration agreements in a manner that effectively serves as a
prospective waiver of substantive rights----
Senator Franken. By making it so hard to recover, by making
it so costly to arbitrate, by having to operate alone, that you
cannot effectively vindicate yourself, you cannot have
effective vindication, and that is what this is all about. This
was overturning--that is what Italian Colors is about,
overturning the precedent that had been in Mitsubishi about
effective vindication, right?
Ms. Overton. We cited in our brief that the effective
vindication rule had been recognized in Mitsubishi almost 30
years ago, in 1985, and had been reaffirmed by the Court since.
Senator Franken. So Justice Kagan made the same argument in
her dissent when she wrote that arbitration could be used to
``block the vindication of meritorious federal claims and
insulate wrongdoers from liability.''
Can you explain how the Italian Colors decision really just
gives corporations license to use arbitration clauses to get
consumers and workers and businesses to essentially waive their
rights?
Ms. Overton. Well, the brief lays out our concerns that
companies could use a combination of class action and joinder
prohibitions, confidentiality requirements, and other
procedural restrictions to increase the likelihood that a
plaintiff's cost of arbitration would exceed its projected
recovery and would function as a prospective waiver, and
prospective waivers are generally presumed to be invalid. So we
were concerned about the incentives that could be created, and
we noted that the effective vindication rule has created
incentives for companies to have arbitration procedures that
allow plaintiffs to bring----
Senator Franken. To deprive the civil----
Ms. Overton. Exactly, to bring----
Senator Franken [continuing]. Lawsuit. Now, which people on
the other side of this will argue, well, you know, the
Government can always step in to enforce the law. I think that
argument is made by some of the witnesses here. But in its
brief, the Government wrote, you wrote, ``Private actions are a
vital supplement to government enforcement not only under the
antitrust laws but also under a wide range of other federal
statutes.'' Can you just elaborate on this and explain the role
that private enforcement plays in this?
Ms. Overton. Yes, thank you, Chairman. Private enforcement
under the antitrust laws as well as under a number of other
statutes is a vital supplement to our Government enforcement
efforts, and the federal antitrust laws are, as you are aware,
enforced by the Department of Justice Antitrust Division as
well as the Federal Trade Commission. But private antitrust
suits add to the deterrent value and provide compensation for
aggrieved persons. And we noted in our brief that there is a
range of other statutes where private enforcement is such a
vital supplement to government enforcement, and we provided
examples such as the Servicemembers Civil Relief Act, Title 7
of the Civil Rights Act of 1964, and the Fair Labor Standards
Act, among others.
And we noted in our brief that while claims under such
statutes may generate small damages for any particular
plaintiff, these statutes offer important protection against
practices that are broadly harmful. And we also noted in our
brief that such statutes reflect congressional judgment that
such private enforcement is an important part of the statutory
scheme.
Senator Franken. Well, that brings me to sort of the
activism of this Court. This is another 5-4 decision, and this
was--you know, can you give the Committee an overview of the
precedents that establish the effective vindication rule?
Ms. Overton. We noted in our brief that the effective
vindication rule was set out in the Mitsubishi case in 1985 and
has been reaffirmed a number of times since.
Senator Franken. It seems to me that in this case the
Roberts Court once again went out of its way to overturn
precedent in a way that actually benefits large corporations
over consumers and small businesses and employers, because I am
talking about Italian Colors here. I do not want you to comment
on that. I just want to note that that has been a concern of
mine since I came to the Senate.
I would like to thank you again for your service and for
your testimony today. I know you have a busy schedule. I would
like to turn it over to the Ranking Member.
Senator Grassley. Thank you, Ms. Overton, for your
testimony.
The Department of Justice brief in American Express noted
at least one positive result from the AT&T Mobility decision.
Specifically, companies have modified their agreements, which
contain class action waivers, in order to encourage consumers
to bring low-value claims into arbitration. Such modifications
include cost and fee shifting. Page 29 of that Department brief
noted that this leaves ``consumers better off under their
absolutely agreement than they would have been in class
litigation.''
Question: Can arbitration be an effective way for
individuals to have low-value claims adjudicated?
Ms. Overton. Thank you for your question, Senator Grassley.
Our brief made the point that the effective vindication rule
could reconcile the policies in a number of federal statutes
that confer substantive rights and authorize private suits. And
we noted that the effective vindication rule does create
incentives for companies to craft arbitration agreements in a
manner that allows for low-value claims to be brought, for
persons to pursue those federal rights.
We expressed concern in our brief that when an arbitration
agreement forecloses a plaintiff from seeking redress for those
violations, the effect of the agreement would not result in
arbitration pursuant to those procedures but would instead
cause the plaintiff to abandon the claim.
Senator Grassley. The Department's brief in American
Express argued that the mandatory arbitration agreement
prevented the plaintiffs from being able to effectively
vindicate their rights under the antitrust laws. The brief
argued that the restrictions contained in the arbitration
agreement foreclosed alternative mechanisms such as cost
sharing. As you know, the Court disagreed factually whether the
American Express agreement prohibited alternative mechanisms
like cost sharing.
Two questions. Does the Department agree with a point both
the majority and the dissent made in the American Express case
specifically that a class action is not the only way to
vindicate claims; in other words, alternatives such as cost
sharing can be effective?
Ms. Overton. Senator, in our brief we identified a number
of mechanisms that in the context of that case might have been
used by the plaintiffs to pursue their small claims, but our
brief notes that those options were foreclosed to the
plaintiffs. But we identified a number of options, and the card
agreement in that case prohibited class action, arbitration,
cost sharing, and had confidentiality agreements.
Senator Grassley. Is it fair to say that at a minimum
arbitration clauses prohibiting class actions must contain some
mechanism for sharing or shifting costs? And if that is the
case, then the Department would agree that a claim can be
effectively vindicated?
Ms. Overton. Senator Grassley, we took the position in
addressing the specific facts that were before us in the case
of Italian Colors, and in that situation our concern was that
the merchants did not have any opportunity before them, they
did not have a realistic ability given the mandatory
arbitration agreement and the procedural restrictions in place,
they did not have a reasonable ability to pursue their
statutory rights because the cost of arbitration would far
exceed any recovery they could hope to obtain.
Senator Grassley. I will yield back my time.
Senator Franken. Thank you. And just in case there is any
confusion, Italian Colors and American Express are the same
case. It was American Express v. Italian Colors or vice versa,
and we will be hearing from the proprietor, the chef, and owner
of Italian Colors in the next panel.
Senator Whitehouse.
Senator Whitehouse. Thank you very much, Chairman Franken,
for holding this hearing. I have a statement. I would like to
ask unanimous consent to put the whole statement in the record.
Senator Franken. Absolutely.
Senator Whitehouse. Thank you.
[The prepared statement of Senator Whitehouse appears as a
submission for the record.]
Senator Whitehouse. The point that it makes is a fairly
basic one, and it begins with, I think, an uncontroversial
proposition that the civil jury as an institution was vitally
important to the Founding Fathers. It was a core casus belli
that led to the revolution when the English tried to limit
rights to a jury, when the Crown tried to limit rights to a
jury. And I think it is also noncontroversial that, dating back
to William Blackstone, one of the functions of the jury, the
reason that the Founding Fathers put the jury into our system
of government as a government institution just like the
executive branch, judicial branch, and legislative branch
separation was that it stood as a protection for the
individual, not just against the Government but also against
wealthy and powerful citizens. Indeed, Blackstone described the
civil jury as specifically that, a way for people to be
protected from the encroachments of wealthy and powerful
citizens.
So now in America the most wealthy and powerful citizens
are corporations, big corporations. And if you are a big
corporation, you want no part of a jury. You want to go talk to
the Governor whose campaign you have supported and surrounded
by his lobbyists and friends. You want to go to Congress where
your lobbyists prowl the hallways, your super PACs influence
policy. The idea of standing as a big corporation on equal
terms with a regular person in front of a civil jury? It is
offensive to them. They do not like it. They fight back very
hard, and there is an entire campaign by corporate America to
deprecate and degrade the civil jury, and it would astound the
Founding Fathers for whom this was such an important
institution and such an important value.
I think it is important that we keep these arbitration
agreements in mind in light of that corporate impulse. They
would like very much to not ever have to answer to what in the
old days would be called ``12 good men and true'' and now are
more like ``6 to 12 good men and women and true.'' And the
desire to kind of shunt as much as they can into arbitration
avoids them having to meet the civil jury, dodges that
institution of government. And in some cases, when I was
Attorney General, the Attorney Generals went after one of the
main arbitration organizations, filed an action against it
because it was so one-sided, so fundamentally crooked, that it
simply was not giving consumers a fair shake. And there are all
sorts of problems baked into arbitration in terms of tending to
be one-sided, tending to have, you know, people from the
corporate world who come in every time and who--it was so bad,
I think if--I am saying this from memory, so do not hold me to
it, but I think it was so bad that the arbitrators would be
stricken under the old rule if somebody objected to them. Well,
who is going to object to an arbitrator? Not somebody who is
there once. The person who is going to object is the credit
card company that is there day after day after day after day.
So by selectively striking arbitrators, they were able to cook
up a panel that I think by the time the dust settled, 98
percent of the decisions went their way. Again, I am making up
that number.
But I am really glad for all of these reasons that Chairman
Franken has brought this issue to light, and my point is there
is more here than just an injustice to the consumer. There is a
real blow to the Constitution and to the constitutional
structure that our forefathers fought, bled, and died for. And
we need to keep that in mind.
So thank you very much, Chairman Franken.
Senator Franken. Thank you, Senator Whitehouse.
Senator Lee.
Senator Lee. Thank you, Mr. Chairman, and thank you, Ms.
Overton, for joining us today.
You stated in your written testimony today that the basis
for the Department's position in its amicus brief was that the
arbitration agreements at issue in the Amex case violated the
effective vindication rule due to the absence of some mechanism
for sharing or shifting costs. What do you think such a
mechanism might look like if we were to put something like that
in place?
Ms. Overton. Thank you, Senator. I am not in a position--
with all due respect, I am not in a position to comment on
policy that is the purview of Congress, but I would
respectfully clarify that in our brief we noted a variety of
restrictions, and so the contract agreement between American
Express and its merchants required all the disputes to be
resolved by arbitration, it precluded any class action
adjudication, it barred joinder, it did not allow cost
shifting, and it did not allow sharing of information in an
arbitration hearing.
We identified several that might have potentially provided
an opportunity for the merchants to reasonably, feasibly
vindicate their federal claims had they not been foreclosed. We
were concerned about the effects of the mandatory arbitration
agreement in the facts of that case with all of those facts.
Senator Lee. So is it safe to say that the concerns
expressed by the Department in the Amex case could perhaps be
vindicated by a remedy short of just the wholesale invalidation
of these kinds of agreements? It is theoretically possible, at
least, that you could satisfy them by some means other than the
wholesale invalidation of all such agreements?
Ms. Overton. Again, thank you, Senator. Again, I am not in
a position to comment on any policy. I can only note, again,
what we identified in the brief, in the context of that case,
our concerns.
Senator Lee. Okay. To your knowledge, has the U.S.
Department of Justice in this administration advocated for the
validation of pre-dispute arbitration agreements generally?
Ms. Overton. I am not aware--the administration has not
taken a position on--I am not aware.
Senator Lee. On what kind of reform might be necessary?
Ms. Overton. I am not aware of a position. Again, I am here
testifying about our brief in the context of the antitrust laws
and its impact and the concerns we expressed, but, of course,
we remain happy to work with the Congress on issues.
Senator Lee. Okay. But to your knowledge, the Department of
Justice has not endorsed any currently pending legislation that
would limit the effect of these kinds of agreements?
Ms. Overton. I am not aware of such a position, no.
Senator Lee. Okay. Thank you very much, and thank you, Mr.
Chairman.
Senator Franken. I again want to thank you, Ms. Overton. I
know you have--oh, I am sorry. That is terrible. I am awful.
Thank you. Senator Hirono, excuse me. I am very sorry.
Senator Hirono. Thank you very much, Mr. Chairman.
The general proposition in our country is that people
should have the right to access our courts to seek redress and
justice. So it is not the norm that all of these matters should
be handled through arbitration clauses that basically head off
consumers, head off small businesses, head off shareholders,
and any other individuals or groups from seeking such redress
in the courts. And I think the American Express case, basically
the way I see this case, because it really goes far in saying
these kinds of arbitration clauses are okay, even so far as to,
in effect, preempt in this case federal antitrust law. Isn't
that what the Court said? A private entity, American Express,
can preempt federal law and the provisions in the federal law
that allowed this small businessperson to seek redress?
Ms. Overton. Thank you. Thank you, Senator. The concerns
that we expressed in our brief were that, under the
circumstances of that case, the merchants could not advocate,
they could not pursue their rights under the federal antitrust
laws because the cost of doing so, given the mandatory
arbitration agreement and other restrictions, would have been
prohibitively expensive. It would have far exceeded the
recovery that they could hope for.
Senator Hirono. So, in effect----
Ms. Overton. The Supreme Court did not adopt our position.
Senator Hirono. So, in effect, with this kind of a ruling,
private entities can trump federal law. And you mentioned some
other federal laws where there is a private cause of action
alternatives that an individual or aggrieved parties could
pursue. So you mentioned several examples of how other kinds of
clauses could be put into arbitration clauses that would make
it pretty tough for anyone to seek redress in our courts, which
is, you know, the general proposition in our country, but for
decisions like this--which, by the way, interpreted federal
law, so since there is no constitutional right to arbitration,
it behooves our Committee and the Congress to look at what is
going on and making sure that there is a balance here.
I am not against arbitration clauses per se, but when they
go this far basically to trump federal law, I think that we
need to address the situation.
That was not a question.
Ms. Overton. Okay.
[Laughter.]
Senator Hirono. Thank you, Mr. Chairman.
Senator Franken. Thank you, Senator Hirono, and that is
exactly why we are here today and what we are talking about
today. In American Express v. Italian Colors, basically what I
believe we saw was the Court overturned precedent, effective
vindication, which is that in these mandatory arbitration
clauses, when a plaintiff was absolutely by definition of the
circumstances unable to recoup anywhere near their expenses
because they are prohibited from joining with other plaintiffs
or they were prevented from class action, where the expenses--
they proved the expenses were going to be so much more than
anything they would recoup, so it would become irrational to
actually go into arbitration that there was no effective
recourse, no effective vindication. And that is what this was.
It was an overturning of a precedent. And we as Congress can do
something about that, and that is what our discussion is about
here today.
I want to thank you for your testimony, and the witness is
now dismissed. Thank you.
Ms. Overton. Thank you.
Senator Franken. All right. And, again, I apologize,
Senator Hirono. I really do.
Senator Franken. I would like to invite the witnesses on
our second panel to come forward, and stay standing, I guess,
because we are going to administer the oath, as is customary.
Do you affirm that the testimony you are about to give before
the Committee will be the truth, the whole truth, and nothing
but the truth?
Mr. Carlson. I do.
Ms. Gilles. I do.
Mr. Teske. I do.
Mr. Parasharami. I do.
Mr. Rutledge. I do.
Senator Franken. Thank you. You may be seated. Welcome to
each of you. I will introduce the witnesses, all of them, and
then Mr. Carlson will begin his testimony.
The first witness is Alan Carlson, the owner of Italian
Colors Restaurant in Oakland, California. Mr. Carlson has been
in the restaurant business since he was a teenager when he
washed dishes at a diner. He graduated from the Culinary
Institute of America in 1979 and then traveled across the
country working with chefs. Today Mr. Carlson is not only an
outstanding chef, he is also a successful businessman operating
several restaurants in the Bay Area.
Our next witness is Professor Myriam Gilles from Cardozo
Law School. Before joining the faculty at Cardozo, Professor
Gilles taught at Princeton and at the University of Virginia.
Professor Gilles has written and spoken extensively on the
Federal Arbitration Act and access to justice.
Our next witness is Vildan Teske. Ms. Teske is a partner at
Crowder, Teske, Katz & Micko, PLLP, a Minneapolis-based law
firm where she represents consumers and servicemembers. In
addition to her duties at the firm, Ms. Teske also serves on
the Steering Committee of the National Association of Consumer
Advocates' Military Consumer Justice Project. Earlier this
year, Ms. Teske received the Federal Bar Association's Robyn J.
Spalter Outstanding Achievement Award in recognition of her
tireless and effective advocacy for consumers.
Our next witness is Archis Parasharami, the head of the
Consumer Litigation and Class Actions practice at Mayer Brown.
Mr. Parasharami is the co-editor of Class Defense, a blog about
key issues affecting class action law and policy. He
represented AT&T in the Concepcion case, and he has received
numerous awards for his work.
Our final witness is Professor Peter Rutledge, an associate
dean and the Herman E. Talmadge Professor at the University of
Georgia. Professor Rutledge has authored several books and
academic articles on arbitration, and he has testified before
Congress on arbitration issues before. He also was selected to
participate in the American Arbitration Association's
delegation to the United Nations Working Group on Arbitration.
I would like to ask each of you to give 5 minutes of
testimony to make your opening statements. Your complete
written testimony will be included in the record.
Mr. Carlson, we will start with you.
STATEMENT OF ALAN S. CARLSON, OWNER, ITALIAN COLORS RESTAURANT,
OAKLAND, CALIFORNIA
Mr. Carlson. Thank you, Chairman Franken, distinguished
Committee members. My name is Alan Carlson. I am the chef and
owner of Italian Colors Restaurant, a small business located in
Oakland, California. I was born in a suburban region of Detroit
and have been working in the restaurant business in one way or
another since I was 14 years old.
Twenty years ago I opened Italian Colors Restaurant with my
wife, Diane Cohen Carlson, and business partner, Steven
Montgomery. I am incredibly proud to say that 2 decades later,
we are still open, serving our community and employing more
than 30 people.
Like most restaurants, our profit margins are razor thin.
We survive by fostering client loyalty, keeping prices low,
cooking quality food, giving great service. We also operate in
a credit card-driven world and could not survive without
accepting credit cards as payment.
To customers, one form of payment is as good as another,
but for small businesses, that is far from reality. A
significant percentage of our earnings comes from customers who
use American Express cards. American Express imposes special
rules on small businesses who must accept their cards as
payment. For example, in order to accept any American Express
card, my restaurant has to accept all types of American Express
cards--even cards that carry rates and fees that are higher
than other forms of payment. American Express also does not
allow me to offer cash discounts or to encourage customers to
pay with a form of payment that actually works better for my
business. I cannot encourage my customers to pay in cash or
offer discounts or other incentives.
If I could offer discounts to my customers or be able to
say which cards make sense for me to accept, without being
forced to accept all cards, I would increase my earnings and be
able to hire more employees. Being forced to make a decision
that is bad for my business just is not right. After describing
my situation to my friend and long-time customer and attorney,
Edward Zusman, I learned that American Express may be violating
our country's antitrust laws. When I started with American
Express in the early 1990s, my first agreement did not have an
arbitration clause. To this day, I have not actually seen an
arbitration agreement, but I have been told by my attorney,
Edward, that one was included in their contracts in the late
1990s.
Edward explained that forced arbitration means American
Express cannot be held accountable in court and that I will not
be able to join with other small business owners to help defray
the costs of enforcing our rights. Instead, if I want to hold
American Express accountable, I would have to do it in an
individual, private arbitration designed by American Express.
Needless to say, I was shocked. And even if I knew the
clause was in the fine print of the contract, American Express
contracts are offered on a take-it-or-leave-it basis.
As we figured out how to move forward, we discovered that
the cost of individual forced arbitration was so high that even
if a small business won, it would lose. An expert economist
explained that it would not be cost-effective for any small
business owner in the same situation to pursue an individual
arbitration claim against American Express. In fact, it would
cost more to bring their claim than they could recover. In
short, if I cannot be part of a class action to enforce my
rights against American Express, I have no way of enforcing
those rights. I do not have the money to take on American
Express by myself.
So you can imagine my disappointment and shock when the
U.S. Supreme Court issued its decision in favor of American
Express and forced arbitration. Essentially the Court said it
did not matter that a small businessman could not pursue
important rights against a big business.
Coming here today to testify before the Committee was
difficult because I just opened a new restaurant 6 weeks ago.
And reflecting on it, I realized how important it was for me to
be here to speak on behalf of all small business owners who are
struggling to stay in business and live the American dream.
This does not have to be the end of the story. Congress can
act to help protect small businesses across America and ensure
we have the same access to the justice system as large
corporations.
Senator Franken's Arbitration Fairness Act would restore
the rights of small businesses like mine to enforce our rights.
Small businesses are the lifeblood of America, and we play an
essential role in creating good jobs. Small businesses, our
customers, and really, our neighborhoods and communities are
the ones who lose when large corporations get to push us
around.
Everyone in D.C. says that small businesses are important,
and here is a real opportunity for Congress to actually do
something to protect us.
Thank you for taking the time to listen to me today, and I
look forward to answering any questions.
[The prepared statement of Mr. Carlson appears as a
submission for the record.]
Senator Franken. Thank you, Mr. Carlson. Thank you for
making the trip all the way from Oakland, and good luck in the
new restaurant.
Professor Gilles, please.
STATEMENT OF MYRIAM GILLES, PROFESSOR OF LAW, BENJAMIN N.
CARDOZO SCHOOL OF LAW, YESHIVA UNIVERSITY, NEW YORK, NEW YORK
Ms. Gilles. Chairman Franken, other distinguished Members
of the Senate, thank you so much for inviting me here today to
talk about this issue that I have spent a lot of time over the
past 8 years thinking and writing about--forced arbitration
clauses which mandate one-on-one arbitration of all legal
disputes and ban multiple claimants from pooling their claims.
That is what we are talking about today.
These arbitration clauses, which we can now find in just
about every kind of contract you can imagine, prevent
consumers, workers, and small businesses from vindicating the
rights that are guaranteed to them by the common law and by
federal and State law, and they immunize companies from
accountability for widely dispersed small-dollar injuries that
they can inflict on people who have no choice, no voice, no
bargaining power in the market.
For a long time, State and federal judges, Democrats and
Republicans, in courts all around the country regularly struck
down these arbitration clauses as unfair, finding them against
public policy where they prevented people from actually
vindicating the rights legislatures have given them. But all
that changed in 2011 with the AT&T decision that we have
already talked about, and it has only gotten worse this past
term with American Express v. Italian Colors because the Court
there just broadly upheld the use of a remedy-stripping
arbitration clause, rendering it really beyond legal challenge.
It simply does not matter, as Justice Scalia wrote for the
majority in Concepcion, that countless cases will ``slip
through the legal system.'' It does not matter. All that
matters for this very slim majority of the Supreme Court is
that a 1925 statute is followed, that arbitration clauses are
enforced exactly as companies have written them up.
As Justice Kagan wrote in her blistering dissent in the
American Express case, the majority's response to the public
policy implications of enforcing these remedy-stripping
arbitration clauses, the reality that no rational individual
small business owner, consumer, or employee will ever seek to
arbitrate one-on-one claims against massive and well-funded
corporations, the majority's response to that real-world
implication is simply, ``Too darn bad.'' ``Too darn bad.'' So
Congress enacted a remedial statute that gives you rights, but
you cannot vindicate those rights? ``Too darn bad.'' That is
basically the majority's response.
Now, ``too darn bad'' might be a perfectly fine response
for the Supreme Court when it is applying legal rules, but this
body is doing policy. And so ``too darn bad'' just cannot be
this body's response to this decision. I think this body, this
Congress, has already recognized the public policy implications
of this debate. Congress has tried to outlaw mandatory
arbitration clauses and payday loan and consumer credit
contracts with military families and in residential mortgage
agreements. If these groups deserve protection from mandatory
forced arbitration, so do all consumers and employees.
And I think the Supreme Court's decision has pretty much
squarely put this issue here before you, before this body. The
Court has repeatedly made clear they will rigorously enforce
these remedy-stripping terms that companies insert into their
arbitration clauses. Never mind the consequences unless the FAA
is overridden by you, by Congress.
So the time is now, and honestly I cannot think of a better
time, because these arbitration clauses are proliferating far
beyond what any of us could have imagined just a few years ago.
The CFPB Arbitration Study, which was just released last
Wednesday, makes clear that these clauses have become standard
in credit card company contracts, checking account contracts,
payday lenders use them, and those are just the groups that the
CFPB studied. I mean, we are seeing these contracts in all
sorts of other agreements, with insurance companies, airlines,
landlords, gyms, rental car companies, parking facilities,
schools, camps, shippers. Even HMOs and nursing homes regularly
use these contracts. In fact, the nursing home industry is very
straightforward about the fact that they all use mandatory
forced arbitration in their contracts, basically making it
impossible for individuals to bring individual claims in court
or to band together to hold them responsible for systemic
harms.
I think these remedy-stripping clauses are affecting
everyone. All of us in this room are bound by one or more
arbitration clauses that we may or may not know anything about.
I want to tell you about one case. It is in my written
testimony, but I wanted to just highlight it for you.
There is a young Florida man named Kevin Ferguson who
enrolled in a medical assistant program in Miami, Florida, just
trying to make his life better, trying to increase his
opportunities for getting a job. And he enrolls in this course.
It is offered by one of these for-profit educational groups,
promising him the sun and moon and stars but, of course,
misrepresented just about everything about the educational
program, everything from their graduates' employment statistics
to the ability to get financial aid to the actual quality of
the program.
Kevin enrolls. He does really, really well. He graduates
with great grades, but finds himself unable to get a job. He
does some more investigation, and he talks to more graduates,
and he realizes lots of people feel that they have been duped
by this for-profit educational organization and that they have
engaged in some pretty fraudulent recruitment practices over
the years.
Kevin brings a claim, but get this? Kevin is not just suing
for damages. Kevin is bringing what we call a ``true private
attorney general claim.'' He wants to bring a claim to have a
court, a public court, declare that this educational group has
been lying. They have been falsely advertising graduation
statistics. They have been defrauding the public. He wants an
injunction, and he wants some order stopping this group from
continuing to engage in this horrible practice.
But Kevin's enrollment contract had an arbitration clause
in it, so the district court, faced with the defendant's
inevitable motion to compel arbitration to drag Kevin's claims
out of the public court and into the private, sequestered
universe of arbitration, the district court said, ``Whoa, whoa,
whoa, this is a public injunctive claim. So Kevin cannot
arbitrate this claim. This claims belongs in a public court.''
Denied the motion to compel arbitration.
But then Concepcion and American Express were decided, and
on appeal, the Ninth Circuit felt its hands were tied, and it
reversed the district court. So now, you know, Kevin cannot get
justice, but Kevin also cannot prevent injustice to others.
And so I think this is a really serious problem----
Senator Franken. Professor, you are going to have to wrap
up.
Ms. Gilles. Wrap up, I am. I had one paragraph left.
Senator Franken. Okay.
Ms. Gilles. So that is just one of many examples. Forced
arbitration is literally foreclosing millions of Americans from
vindicating their rights. And as the remedial statutes enacted
by this body and by the legislatures of the 50 States are
thwarted, I think ``too darn bad'' is just not going to cut it.
So I urge this body and this Congress to enact the Arbitration
Fairness Act.
Thank you.
[The prepared statement of Ms. Gilles appears as a
submission for the record.]
Senator Franken. Thank you, Professor. I noticed you used
air quotes on ``for profit.'' The air quotes do not belong
around the ``for profit.''
Ms. Gilles. ``Educational.''
Senator Franken. Yes.
[Laughter.]
Ms. Gilles. You are right. Sorry.
Senator Franken. They are definitely ``for profit.''
Ms. Teske.
STATEMENT OF VILDAN A. TESKE, PARTNER, CROWDER, TESKE, KATZ &
MICKO, PLLP, MINNEAPOLIS, MINNESOTA
Ms. Teske. Good afternoon, Chairman Franken, distinguished
members of the Committee. Thank you for allowing me to testify
today. I will share with you my perspective as an advocate
representing consumers and servicemembers in individual and
class action cases.
As a result of the recent Supreme Court decisions in
Concepcion and Italian Colors, many of my clients are no longer
able to bring their claims in a court of law using our
country's judicial system because of forced arbitration.
In my practice, I have had the privilege of representing
our brave military men and women in matters dealing with
consumer financial issues. Congress provided important, very
strong protections for our servicemembers and their families
through a federal law known as the Servicemembers Civil Relief
Act, or SCRA. The explicit purpose of the law was to enable our
servicemembers ``to devote their entire energy to the defense
needs of the Nation.''
With the large number of deployments over the past decade,
the financial crisis our country has experienced in the last 6
years, and the reckless business practices violating
servicemember rights, unfortunately SCRA claims have been more
common than in previous years. My colleagues and I have brought
several SCRA cases as class actions on behalf of a number of
servicemembers. These servicemembers' rights were violated by
the same creditor in the same way.
In the past, we were able to recover millions of dollars
for thousands of servicemembers who were able to join together
to hold corporations accountable for violating their rights.
Many of the hundreds of military class members that we have
spoken with did not know their rights. The few that knew that
their creditor was likely breaking the law did not have the
time to pursue the claim or the resources to hire an attorney
to take the case on.
Unfortunately such cases on behalf of classes of
servicemembers are now almost impossible to bring due to the
Supreme Court's decisions and because of a number of underlying
contracts out there that have forced arbitration clauses.
Consider my recent case representing a servicemember whose
mortgage lender foreclosed on his home while he was on active
duty serving our country. The lender held a sheriff's sale and
sold our client's home in Minnesota while he was being deployed
to Iraq, in violation of the SCRA requirements. Some months
later, he learned he lost his home, but at the time he did not
know he was protected by federal law from this unlawful
foreclosure.
While investigating the facts of his case, we found a
report that said that a review of a sample of foreclosures
conducted by this same national lender revealed a number of
other servicemembers that were subject to the protections of
the SCRA. So our client made the decision to file his case as a
class action and as a representative of all the other
servicemembers to get justice for himself and the others.
Much to our client's surprise, the lender brought a motion
to take the case out of our judicial system and force him to
arbitrate. It turned out that in the thick stack of documents
at the time of his closing years before, there was a forced
arbitration clause with a class action ban. Based on the
Supreme Court's rulings on arbitration clauses, he lost his
right to his day in court, the ability to represent his
military brothers and sisters, and his constitutionally
guaranteed right to present the facts to a jury. One cannot
escape the irony that while he was serving our country and
protecting our freedoms, he had lost his freedoms and rights
under our Constitution.
It is not sound public policy to require our armed forces
members to submit to individual arbitrations that take time
away from their service to our country and from their families
in order to vindicate their rights. Yet this is exactly what
has to happen when there is a class action ban in a consumer
contract. Or more likely what would happen is that the
servicemember has to forgo vindicating his rights altogether
and the wrongdoer is not brought to justice. In fact, a 2006
Department of Defense report to Congress came to the same
conclusion. In my practice I have seen time and again how
forced arbitration harms the lives of American families and our
Nation's servicemembers.
Another example is a case in California against a national
lender that repossessed active-duty servicemembers' vehicles
without court order, in direct violation of the SCRA. The
National Guard sergeant was deployed to Iraq, and when--excuse
me--he was in Iraq when his car was repossessed. Even after the
military legal assistance office sent a letter to this lender
and asked them to return the car, the lender refused. So he
brought a class action on his behalf and on behalf of all the
other servicemembers that this had happened to. But one can
guess what happened next. There was a forced arbitration
clause, and there could be no class action.
This, of course, meant that hundreds if not thousands of
other servicemembers had their rights violated potentially, but
they were left unprotected, and the company got away with
breaking the law.
Unfortunately, with the proliferation of forced arbitration
clauses, these scenarios will continue to play out for
servicemembers as well as all other consumers.
Our servicemembers deserve better. Our American consumers
deserve better. So do the employees, the investors, the small
businesses, and seniors deserve better. They need access to
justice in our public court system.
Thank you for inviting me to testify today, and I look
forward to your questions.
[The prepared statement of Ms. Teske appears as a
submission for the record.]
Senator Franken. Thank you, Ms. Teske.
Mr. Parasharami.
STATEMENT OF ARCHIS A. PARASHARAMI, PARTNER & CO-CHAIR,
CONSUMER LITIGATION AND CLASS ACTIONS PRACTICE, MAYER BROWN
LLP, WASHINGTON, DC
Mr. Parasharami. Thank you, Mr. Chairman and distinguished
members of the Committee. Good afternoon. My name is Archis
Parasharami, and I am a partner in Mayer Brown LLP, where I am
co-chair of the Consumer Litigation and Class Actions practice.
I want to thank the Committee for giving me the opportunity to
testify today, and I thank the Chairman for making my more
extensive written statement part of the record.
My legal practice involves defending businesses against
class action lawsuits in courts around the country. And, in
addition, I counsel businesses on adopting fair arbitration
programs, and I represent them in litigating over the
enforceability of those arbitration programs. So I have
firsthand experience with how arbitration agreements work and
also how class actions function in reality.
Based on that experience, my view is that arbitration
provides consumers and employees with a fair and accessible way
of resolving their disputes, and it does so more effectively
than litigation in court. Those benefits of arbitration, in my
view, are the primary reason why the Arbitration Fairness Act
should not be adopted.
Despite its title, the bill would effectively eliminate any
realistic access to arbitration for consumers and employees
with modest-sized claims. And for the ordinary consumer or
employee, the elimination of arbitration will do more harm than
good.
What does the evidence show? Empirical studies have
repeatedly demonstrated that arbitration is at least as likely,
if not more so, than litigation in court to bring benefits and
more positive outcomes for consumers and employees. It is also
more user friendly than litigating in court. Access to this
fair, inexpensive, and simple system of dispute resolution is a
significant benefit for consumers and employees.
Now, perhaps the most common objection to arbitration--and
I think we have heard it from some of my colleagues today--is
that arbitration typically takes place on an individual basis
instead of through class actions. But these objections to
arbitration rest on inaccurate, theoretical assumptions about
how this alternative of class actions actually functions. And
in reality, the bulk of class actions do not provide benefits
for the vast majority of consumers and employees.
My firm recently conducted an empirical study of 148 class
actions involving employee class actions and consumer class
actions filed in federal court, and that is attached to my
written testimony as Exhibit A. Here is what we learned from
that study:
Most of these class actions were dismissed either by the
courts or voluntarily by the named plaintiff who had sought to
represent the class. Of the remainder, the relatively few cases
that did settle, the available evidence about the distribution
of benefits from those class actions showed that usually class
actions resulted in little to no benefit to employee and
consumer class members. In other words, class actions are not
particularly effective at delivering relief. And I think that
most people who have received a class action notice or a $2
check in the mail have had that experience, that they simply
have not gotten a lot out of the class action of which they
were a member.
By contrast, arbitration does afford consumers and
employees an opportunity to pursue their claims effectively on
an individual basis. We were lucky enough to have the Assistant
Attorney General testify before, and I think that her testimony
about the Government's brief was illuminating. And Justice
Kagan's dissent in the American Express v. Italian Colors case
really tracked the Government's arguments. And what Justice
Kagan concluded, while disagreeing with the majority, was that
still ``non-class options abound'' for pursuing claims in
arbitration, pursuing federal antitrust claims in arbitration.
In addition, arbitration agreements are increasingly
becoming more favorable to individual consumers and employees.
More and more companies are paying either all or most of the
costs of arbitration. Often a consumer or employee pays nothing
to arbitrate. Companies routinely select the nonprofit American
Arbitration Association to serve as the arbitration
administrator, and the AAA has set up due process mechanisms to
ensure that impartial, unbiased arbitrators serve as the
arbitrators and the neutral decisionmakers and that arbitration
procedures are simple and easy to use. We are now seeing
increasing numbers of consumers and employees that are making
use of arbitration.
The Chairman was kind enough to mention an article that I
wrote at the start of the hearing, and one thing that I would
like to mention is that that article urges companies, in order
to have enforceable arbitration agreements, to adopt
arbitration agreements that are consumer friendly, to adopt
arbitration agreements that follow the model of the arbitration
agreement considered in Concepcion, which the Court described
as leaving consumers arguably better off than they would be in
class actions.
Now, especially given these developments, in my view the
elimination of arbitration would be bad for individual
consumers and employees as well as businesses. Consumers and
employees would be far worse off from losing the ability to
pursue claims that they would have that are small and
individualized, claims that could not be pursued in class
action, and cannot practically be pursued in court because
lawyers simply will not take those cases.
The primary beneficiaries of eliminating arbitration would
be lawyers--lawyers on the plaintiff side, but also defense
lawyers like me who receive large legal fees for defending
companies in class actions. In short, the only clear winners of
an increase in class action litigation and the elimination of
arbitration are the lawyers.
Thank you again for the opportunity to testify before the
Committee, and I look forward to answering your questions.
[The prepared statement of Mr. Parasharami appears as a
submission for the record.]
Senator Franken. Thank you.
Professor Rutledge.
STATEMENT OF PETER B. RUTLEDGE, ASSOCIATE DEAN FOR FACULTY
DEVELOPMENT, HERMAN E. TALMADGE CHAIR OF LAW, UNIVERSITY OF
GEORGIA SCHOOL OF LAW, ATHENS, GEORGIA
Mr. Rutledge. Chairman Franken, Senator Hirono, Senator
Lee, and members of the Committee, thank you for the
opportunity to testify today, and thank you, Chairman Franken,
for making my entire written statement part of the record.
In an abundance of caution, just to repeat one statement
from that written remark, the views here expressed today are my
own. One of my co-authors is a consultant to the Consumer
Financial Protection Bureau, and it is important to me that
everything that I say today be imputed only to me and not
directly to him or indirectly to the CFPB.
With my written statement part of the record, let me make
two brief points in the time that you have given me.
First, I wish to thank you and your fellow lawmakers for
shifting the terms of the debate over arbitration away from
legislation by anecdote and toward policymaking grounded in
sound, empirical evidence. Earlier iterations of this debate
risked reacting to particular cases, irrespective of whether
those cases were representative of the system as a whole and
irrespective of whether the reforms truly benefited those whom
they were designed to protect. Now the debate is firmly
anchored in empirical research and should remain so.
Just as an example, Chairman Franken, as you know from the
2011 hearing, one important contribution to that debate was the
Searle study, with which you are quite familiar, that found,
among other things, that the consumer win rate in arbitration
was over 50 percent, that the disposition time from filing to
conclusion of the arbitration was 6 months, a fraction of what
it would be in our system of civil litigation, and that
prevailing consumers who sought attorneys' fees received them
over 60 percent of the time.
And to Senator Lee's question earlier, I would draw your
attention to an initiative that the State Department has been
involved in with the Organization for American States which is
looking at the question of how to resolve cross-border disputes
between consumers and businesses, and one of the proposals that
is being considered by OAS at the suggestion of the United
States is consumer arbitration. So the record is there. It is
certainly not complete.
My second point, consistent with my first observation, is
to approach with caution claims that in a flight to arbitration
will follow a particular Supreme Court decision. Empirical
research that I and others have undertaken does not validate
those predictions. To elaborate, in working with your staffs,
Chairman Franken and others, they asked me to speak, and I have
appended to my testimony a recent article that I co-authored
with Professor Drahozal entitled ``Sticky Arbitration
Clauses,'' where we tracked in the franchise industry the
extent to which there was a flight to arbitration after the
Concepcion decision. And what we found was that there was not.
Depending on the relevant metric, the use of arbitration
clauses has shifted from approximately 40 percent to 45 percent
or from 62 percent to 63 percent.
And the recent preliminary results by the CFPB echo our
findings. You have referred to them already, Chairman Franken,
and that is, 17 percent of institutions issuing credit cards
are using arbitration clauses, and 3 percent of credit unions
are doing so.
Now, I acknowledge what we are about to talk about,
Chairman Franken, is that part of the reason why that figure is
currently low is because there was a period of time where a
certain number of issuers refrained in using those arbitration
clauses as pursuant to terms of settlement. That is about to
expire. And I would recognize, too, that if that settlement
were to go away, the number of issuers would go up. However,
credit unions would continue not to use them.
Now, it is important, of course, to have an apples-to-
apples discussion because, in addition, we cannot simply look
at the use of arbitration clauses with respect to issuers. We
can also look to it with respect to the amount of credit card
debt, and perhaps we can elaborate on that in the hearing.
The last point I wish to make, Chairman Franken, is this:
In my view, the flight to arbitration often predicted in
connection with the Supreme Court decisions, including
Concepcion, has not come to pass. While it is simply too early
to predict the effect of the Italian Colors case given the
recency of the decision, the historical disconnect between the
rhetoric and the reality that Senator Grassley referred to
earlier counsels caution.
Thank you for the opportunity to testify, Chairman Franken,
and I would be happy to answer your and any other Committee
member's questions.
[The prepared statement of Mr. Rutledge appears as a
submission for the record.]
Chairman Franken. Thank you all.
Mr. Carlson, thanks for being here and for sharing your
story with the Committee. I just want to be clear about
something you mentioned in your opening statement. Did you have
a choice to opt out of the arbitration clause that American
Express had you sign?
Mr. Carlson. No, I did not. I have never signed anything
with American Express.
Senator Franken. And did you have any say when it came to
the rules of the arbitration?
Mr. Carlson. No, I did not.
Senator Franken. And then the Supreme Court concluded that
you had no right to go to court, that you had no choice but to
abide by the arbitration agreement, no say over the arbitration
procedures, and no right to go to court. Correct? So what did
you do when the Supreme Court ruled against you?
Mr. Carlson. Business as normal, but, you know, I was
saddened by it, but there was nothing I could do.
Senator Franken. You withdrew the case.
Mr. Carlson. Oh, yes, I withdrew the case, correct.
Senator Franken. Right?
Mr. Carlson. Right. Correct.
Senator Franken. And when you say you never--I noticed in
your testimony you never saw--you had been working with
American Express, and they put this mandatory arbitration
agreement in the contract like 10 years into your contract.
Mr. Carlson. Correct.
Senator Franken. And did they tell you they were doing
that?
Mr. Carlson. No, they never told me anything.
Senator Franken. Okay. So you never had a chance to have
your claims heard either in arbitration or in court. How would
things have been different if you had the option to go to
court, do you believe?
Mr. Carlson. I think we could have gotten a group of other
restaurateurs that are as unhappy with the situation as I am
and gotten a class action together.
Senator Franken. Okay. Well, that is what this is all about
to me, is just having access to justice. Basically in this, you
know, Justice Scalia said that it did not matter that you were
not able to vindicate your claims, but the most you would have
gotten is about triple the damages to you, which would have
been $30,000. But you had to individually arbitrate, which you
proved would have cost you hundreds of thousands or maybe even
a million dollars, right?
Mr. Carlson. Correct.
Senator Franken. Okay. Well, had my bill been law, you
could have chosen to go to court where you could have joined
forces with other small businesses, and your case could have
been heard, and maybe this would be different.
Ms. Teske, one of the things I found remarkable in your
written testimony--and you talked about it a little here--was
the comparison you made between the way things used to be and
the way things are now. Years ago you were able to recover
millions of dollars for servicemembers whose rights had been
violated. Today it seems like it is nearly impossible to bring
cases to enforce laws that protect our men and women in
uniform. Can you comment on this?
Ms. Teske. Absolutely. The majority of the consumer
financial contracts that servicemembers have entered into in
the last few years--and I assume that will continue in the next
few years--have these forced arbitration clauses. We have heard
already about credit card contracts and the variety of other
types of contracts, like cell phone services or car loan
contracts. Whereas before we might have been able to get relief
for the class members for violations of the Servicemembers
Civil Relief Act as a class action, in those situations we are
no longer able to. Each servicemember would have to file their
own individual arbitration. They would, first of all, have to
know the intricacies of the Servicemembers Civil Relief Act and
know that there was a violation, then file their own individual
arbitration, take the time and effort to do that, and they
would not be able to bring a representative case to represent
the hundreds if not thousands of other servicemembers that had
the same thing happen to them. So it is night and day compared
to before forced arbitration clauses and now.
Senator Franken. Okay. You told one story in your testimony
that really illustrates the problem. I went back and looked at
some of the court documents for that case, and, frankly, I just
think it shocks the conscience. The Servicemembers Civil Relief
Act says, among other things, that banks cannot foreclose on
servicemembers who are on active duty without first getting
permission from a judge. The idea is that we cannot expect our
troops to fight the enemy abroad while fighting off bank
foreclosures or an eviction notice at home.
I think we can all agree that that is a good law.
Literally, we can all agree. This law passed by unanimous
consent.
You testified about a soldier from Minnesota, from my
State, who earned several honors during the course of his
service, including the Army Commendation Medal. On the same day
that this soldier was ordered to report for active duty, his
lender initiated foreclosure proceedings against him.
So the soldier goes off to Iraq to serve his country, and
meanwhile the bank is trying to take his house away from him
without first going to a judge for permission. That is a
blatant violation of law. And it gets worse.
The lender falsified an affidavit swearing under oath that
the bank knew that this man was not in military service, which
was completely untrue. Using that false affidavit, the lender
got the sheriff to put the soldier's house up for sale, and the
house was sold while the owner of the house was in Iraq, in
Balad, at Camp Anaconda. Right? I have been to Camp Anaconda
four times. It was called ``Mortaritaville'' because they got
mortared so much.
Guess who ended up buying that house? The lender. The bank
that foreclosed. It got a heck of a deal. It paid between a
quarter and a third of the value of the house for the house
that it foreclosed on illegally. Great deal for the bank. Not a
good deal for our soldier in Balad.
Now, my understanding, Ms. Teske, is that the soldier
wanted to file a Servicemembers Civil Relief Act case to seek
justice not for himself but also for other soldiers who had
been foreclosed upon by the same bank. And it was really
important for him to know that other soldiers knew that they
had legal rights and that those rights might have been
violated. You mentioned in your testimony that there was some
indication that your client was not alone, that there might
have been other victims out there, so the soldier filed a case
for himself and for other soldiers who had been foreclosed upon
by this bank.
What happened next?
Ms. Teske. He did not get his day in court. Because of the
forced arbitration clause, the judge went ahead and ordered
arbitration, and we ended up settling the case, and he was not
able to represent the other servicemembers. So rather than
having a class action that could go forward where others and he
could get relief in our public court system, in the public eye,
none of those things happened.
Senator Franken. Okay. I am out of my time. We will come
back. We are going to have a second round for anyone who wants
to stick around. But that to me is just an outrage. That is an
outrage.
We will go to Senator Lee.
Senator Lee. Thank you, Mr. Chairman, and thanks to all of
you for joining us today.
Mr. Parasharami, I would like to ask you a couple of
questions. The CFPB in its preliminary findings notes that it
intends to ``assess the possible impact of arbitration clauses
on the price of consumer financial products.''
I believe you indicated in your written testimony that
consumers and employees might well benefit through the
systematic reduction of litigation-related transaction costs
which leads to lower prices and higher wages.
Can you explain for us sort of what you mean by that and
where that comes from, how you get there?
Mr. Parasharami. Sure, Senator. So class actions and
litigation in court are not free. They come with a cost--and,
in fact, massive costs. The costs of litigation are high. The
costs of electronic discovery are high. The costs of paying
plaintiff's lawyers if the case settles are high. The costs of
paying me and my colleagues and other law firms on the defense
side to litigate the case, that happens in every case. So there
are extraordinary legal costs associated with class actions and
litigation in courts. Arbitration is a lot cheaper and quicker
and more efficient, so the costs are lower.
Now, where do these costs go? You know, they do not just
kind of vanish into the ether. A company that experiences these
litigation costs in a competitive market will pass them along
to consumers or reduce wages for employees or otherwise not
hire more workers. These costs are passed along in some form or
another, and typically in a consumer context, it is passed
along in the form of--if you save those costs, they are passed
along in the form of lower prices. If you can experience those
cost savings, they are passed along by lowering prices.
So the point is that--and let me just say that scholars who
have looked at this have said that it is simply a matter of
basic economics, that cost savings that come from the use of
arbitration are passed along in competitive markets to
consumers.
Senator Lee. Okay. Another thing that you stated in your
written testimony was that businesses are unlikely to offer
post-dispute arbitration, meaning once the dispute arises, they
are not likely to raise that as a possibility.
Why is that the case? Why is it the parties are rarely
going to be entering into that kind of arrangement?
Mr. Parasharami. So in the pre-dispute context, pre-dispute
arbitration agreements, the ones that would be affected by this
proposal, both sides, the consumer or employee and the
business, are committing in advance to use arbitration. And so
when a company implements an arbitration program, it commits to
taking on a ton of incremental costs that it would not bear in
court. Under most arbitration agreements, such as the ones that
are governed by the American Arbitration Association's consumer
rules, a business will have to cover filing fees, these amount
in consumer cases to $1,500. And they also agree to pay the
arbitrator's compensation in full. And arbitration agreements
like the ones that I advise companies to adopt often agree that
they will pay even more substantial costs. Sometimes they will
pay the full costs of arbitration.
The businesses agree to take on these high incremental
costs because overall they experience the cost savings from
reducing the litigation costs associated with class action
litigation and litigation in court, the costs we just talked
about. And because they save primarily on e-discovery costs and
lawyer fees, the lawyers like me and the lawyers like my
colleagues on the other side, it benefits them to pay all of
these incremental costs for an arbitration program.
But if you were in a regime where only post-dispute
agreements were permitted, where either side could choose only
after the dispute arises, then companies really would not want
to have that two-track system because they would have to both
pay the cost of maintaining an arbitration program as well as
all the costs of maintaining the litigation system in court.
And so they simply will not want to pay twice. It will not be
realistic. If companies are only allowed to have post-dispute
arbitration and are required to defend claims in court, they
simply will not allow for arbitration. And this would actually
be very detrimental to consumers and employees who would not
have realistic claims to bring in court because if they cannot
hire a lawyer because they have a small, individualized claim
that will not lead to a class action, they are just out of
luck.
Senator Lee. Okay. Mr. Rutledge, in your written testimony,
you talk about the importance of relying on sound empirical
research before proceeding with legislation in this area. What
are the risks involved in legislating in this area without an
adequate, robust, empirical basis for doing so?
Mr. Rutledge. Thank you for the question, Senator. I would
identify two.
The first would be the lack of a proper apples-to-apples
comparison. So, for example, oftentimes arbitration is
criticized and then the response becomes, ``Compared to what?''
So, for example, one of the frequent dynamics in the debate is
that we should not have arbitration and in lieu of it should be
class actions. And as I indicated in my testimony, a number of
individuals have written, including my colleague at the
University of Georgia, Jaime Dodge, that it is not clear that
in the aggregate the class action apple is superior to the
arbitration apple. For example, the settlement that the class
action may generate may have a relatively low take rate, which
is simply the rate at which the members who are brought into
the class actually redeem the benefit. And at the same time, if
they do not redeem the benefit, and yet they are bound by the
decision in the class, they are effectively precluded from
bringing their own claim at that point. So that would be the
first concern.
The second concern would be that there may be instances in
which the regulation goes on to harm the very individuals whom
it is designed to protect.
So as you may be aware, one of the early iterations of
incremental legislation that sought to invalidate pre-dispute
arbitration agreements concerned contracts between automobile
dealers and manufacturers. And many of the arguments that you
hear today were raised in that debate. It turned out that there
was one reported instance after that legislation was enacted
where the dealer wanted to arbitrate and yet the legislation
precluded the dealer from doing so.
And so those are the two risks that I would draw to your
attention in the time that I have. Thank you.
Senator Lee. You seem to not believe that it is certain
that we are going to have a flood of arbitral class waivers, we
are not necessarily going to see a mass migration to arbitral
class waivers. Help us understand what factors influence that
thinking.
Mr. Rutledge. Sure, and I think it is important for me to
clarify something in my testimony, because this is a complex
issue. What my testimony is suggesting and what I think the
CFPB preliminary report indicates at page 19, for example--
excuse me, page 21, is that simply because the Supreme Court
hands down a decision that seems to approve of a particular
type of contracting practice in a given industry, that firms in
that industry will not necessarily flock to that practice. In
my paper that is attached to my testimony, that is the point we
make about franchise contracts and I think in the CFPB report,
again, taking into account the settlement that Senator Franken
and I were sort of exchanging over a little while ago, at least
at present for the credit card industry.
Now, I want to differentiate that from a different
situation that I talk about in my testimony, which is the use
of class waivers among those entities that do employ
arbitration clauses. And here I wish to acknowledge that where
the empirics lead us is that both in the franchise context and
in the credit card context, for those companies that do use
those clauses, that there is an increased incidence in the use
of the class waiver.
My point is simply this: that the debate often occurs on
sort of homogeneous terms, that industries can be sort of
compared and that practices of firms within industries can be
compared. And what I think the empirical research reveals is
that is not necessarily true. There are certain industries, to
the extent we have access to the data, where this is used more
frequently than others, and there are certain firms within
given industries where we have access to the data where the use
appears more or less likely. And my point simply to you and
your colleagues is to understand the dynamics that are driving
those decisions before generalizing from a particular case or a
particular firm's activity as to how an industry or how a
particular set of firms is behaving.
Thank you.
Senator Lee. Thank you.
Senator Franken. Thank you, Senator Lee.
I think part of the exchange that we had, which was me
smiling at something you said, was talking about apples to
apples. And I thought that when you were talking about some of
the CFPB results, you were not comparing apples to apples. When
you said 17 percent, only 17 percent of--I will get to that in
some questioning, but I think that when we talk about sound
empirical research, we should--the word ``sound'' is very
important.
We will go to Senator Whitehouse.
Senator Whitehouse. Thank you very much. First of all, Mr.
Carlson, I am sorry for your experience, but I thank you for
coming here to testify and to share your experience with us.
It strikes me that if the ability of individual consumers
to aggregate their claims is eliminated, and whether that is
done by Congress deciding that we are just not going to allow
small claims to go forward, or whether that is done by the
corporate malefactor sneaking something into a contract, a
consumer contract that prevents them from exercising what would
otherwise be their legal rights, it strikes me that that
creates a zone where fraud is encouraged, where it is basically
given a free pass.
It is interesting that we should be here today, because
this very morning we had the hearing on the patent troll
legislation. In that case, in that hearing, the issue was the
so-called patent trolls who engage in frivolous litigation and
threaten companies, and the argument there is that the cost of
litigating with the patent troll makes it irrational to fight
back and so people concede to settlements. And the room was
filled. Everybody was excited about that notion. And here we
have legitimate victims of what somebody has found to be
wrongful or fraudulent behavior who try to engage in legitimate
litigation to vindicate their rights against the fraudster, and
here the cost of litigating would make it irrational to fight
back. And it is almost the flip side.
Let me ask you, Professor Gilles, what is your observation
about what message corporate America would take from the
ability to have no redress for low-dollar but large-scale
frauds that they commit? Let us say that the telephone company
figures out a way to put a bogus $1 charge on every single bill
that you make, and by the time you figure it out, you know,
maybe for a year they did it, so you are owed 12 bucks. They
cheat millions of people, so they earn millions of dollars. Who
is going to stand up for them when the only possibility of
return is 12 bucks back?
Ms. Gilles. Thank you for the question, Senator Whitehouse.
No one is going to stand up for them.
Senator Whitehouse. Stand up against them.
Ms. Gilles. Stand up against them. No one can be the voice
of the consumer who is subject to a hidden cost, a fee that
they do not even notice, you know, whether it is 1 month in or
12 months in, they do not even notice it; and when they do, it
is of such a small value, such a small amount, that it is not
worth it to them to arbitrate these claims.
Senator Whitehouse. So if we allow the corporations
themselves to put these tricks and traps into their consumer
contracts, we are basically giving them open season for low-
dollar, high-volume fraud on consumers.
Ms. Gilles. We are. That is exactly what we are doing. It
is a mandate to violate the law, and----
Senator Whitehouse. It is not a mandate. A permission.
Ms. Gilles. A permission, right. The Supreme Court's
decisions I think are certainly a mandate.
And I do want to respond a little bit to what my colleagues
at the end of the table said just a little bit ago. Mr.
Parasharami noted, in response to Senator Lee, that the class
actions have no value. Class actions, let us remember,
everyone, that class actions desegregated schools. They made
workplaces fair and equal. They have prohibited problematic
police practices. They have uncovered and detected all sorts of
consumer frauds. Class actions have done a tremendous amount of
good, and I think that Mr. Parasharami's memo--I would not call
it an empirical study because it is just 148 cherry-picked
class actions that Mayer Brown thinks did not provide enough
value to consumers. I think that is not a real study. The real
study we have is the CFPB report, which really takes a very
good look at the number of arbitration clauses that we are
seeing in these agreements.
And just again on Professor Rutledge's testimony, it is
not--first of all, I think that 43 and 63 percent are quite
high numbers to find in franchise agreements. But setting that
aside, the CFPB finds that we are looking at 9 out of 10
contracts in the consumer finance area with these forced
arbitration clauses, which means that consumers cannot bring
these claims because these claims are inherently collective
claims. So when Alan has a problem because he thinks that Amex
is charging him too high a rate and he would like to get
together and pool resources with other restaurateurs and small
businesses, independent book stores, hardware stores, to bring
a claim under the Sherman Act against American Express, the
only way he can do that, the only way he can afford a $1
million expert report on antitrust impact and injury is if he
is able to bring it as a class.
So Amex, by putting this class action ban in their card
acceptance agreement, is basically ensuring that they will
never be held accountable under the Sherman Act. And this is
really interesting for Amex, of course, because just last
Friday Judge Gleason in the Southern District approved a
settlement in a claim against Visa and MasterCard, a class
action, for exactly the same behavior. So Visa and MasterCard
are paying $7 billion--so that is worthwhile class relief--$7
billion, a record settlement. Amex is getting away without
anything because they happened to put some magic words in their
arbitration agreement. I think that is very unfair.
Senator Whitehouse. As somebody who has now spent a term of
6 years in the Senate and begun to observe some of the behavior
around here, I wonder what the response would be like if
corporations in consumer contracts down in the fine print, in
tricks and traps, instead of taking away consumer rights,
particularly consumers' rights protected by the Seventh
Amendment, were, say, taking away gun rights protected by the
Second Amendment. I think you would have a completely different
story, and that suggests to me----
Ms. Gilles. I think the room would look like it did this
morning, right? It would be full.
Senator Whitehouse. It would look very different, and you
might actually see different positions taken by the different
sides. I think a lot depends on whose ox is being gored here,
and right now it is the consumer's.
Ms. Gilles. But the truth is that really there is nothing
to keep a corporation from inserting all sorts of remedy-
stripping terms in its arbitration provisions. The Supreme
Court's language----
Senator Whitehouse. The Supreme Court has announced no
limit----
Ms. Gilles. No limit.
Senator Whitehouse [continuing]. On what corporations can
do----
Ms. Gilles. The FAA protects everything. It is sacrosanct.
So if I am a corporation, I am going to put a lot of stuff in
there.
Senator Whitehouse. Go for it. Why not?
Ms. Gilles. I am going to violate Title VII. I am going to
violate the ADA.
Senator Whitehouse. Chairman, my time is----
Ms. Gilles. Sorry.
Senator Whitehouse [continuing]. Concluded, so thank you
very much.
Senator Franken. You are doing so well.
Senator Hirono.
Senator Hirono. Thank you, Mr. Chairman.
My series of questions really related to the extent of
these arbitration clauses because they are, I think, becoming
more and more prevalent, and it seems to me that if you are a
corporate lawyer or an in-house counsel, it would be
practically malpractice not to advise your clients, your
corporate clients, to have these kinds of remedy-stripping
clauses in their contracts. Would you agree, Ms. Gilles?
Ms. Gilles. Absolutely, and obviously Mr. Parasharami can
speak to this more than I can, but I think he----
Senator Hirono. I think I heard him say he advised his
clients----
Ms. Gilles. Yes, he probably does, and though he tells us
in his testimony that he advises his clients, which are all,
you know, Fortune 500 companies, to put fair, consumer-friendly
arbitration clauses in their contracts, let us be clear. A
class action ban is inherently not consumer friendly, because a
consumer cannot bring a collective claim when there is a class
action waiver.
So, really, it does not matter how many cost-shifting
provisions, how many promises to pay a bounty or a premium are
put in these arbitration provisions. The truth is Alan is not
going to go arbitrate one on one against Amex. It would just be
too expensive no matter what the company puts in the agreement.
So, yes, I think at this point the next interesting case to
watch is the malpractice claim that is brought against a
transactional attorney for failure to put one of these in a
clause.
Senator Hirono. Mr. Carlson, thank you very much for being
here because you have been through a lot in pursuing your
claims. We did hear testimony that arbitration clauses are good
because they save money and these savings are passed on to
consumers. But in your case, you wanted to pass on some
discounts, et cetera, to your customers at your restaurant, but
because of this tying arrangement, which is basically
practically a per se antitrust violation, you did not have that
freedom to do that, so your consumers, your customers suffered
for that.
Mr. Carlson. Was that a question there?
Senator Hirono. I guess that may have been a rhetorical
question.
I have another question for Professor Gilles. This bill
that we are considering, basically, you know, the language says
that no pre-dispute arbitration agreement shall be valid or
enforceable if it requires arbitration of an employment
dispute, a consumer dispute, antitrust dispute, or civil rights
dispute.
Now, what about shareholder disputes? Do you think that
this language covers those kinds of disputes?
Ms. Gilles. I do. I think that investors are consumers, and
I think that there is a lot of support out there for providing
investors with the opportunity to go to court as opposed to
going to arbitration. So I think so.
Senator Hirono. Well, I would not be so sure that consumers
could be deemed--that investors could be deemed consumers.
Perhaps we need to make sure, because I am holding letters from
over 200 major domestic and foreign institutional investors who
are very concerned that the SEC has not promulgated a rule that
would disallow forced arbitration clauses in shareholder
disputes. So perhaps we need to make that clear, because these
200 major entities include just about every State's retirement
and pension funds. That is a lot of people. We are talking
about some collectively managing assets that exceed $4.9
trillion, and they are concerned that there are these forced
arbitration clauses in their contracts with their brokers or
whoever, and they cannot go to court.
Ms. Gilles. Well, you know, I think you could certainly
clarify the language. I think of investors as consumers because
when you are talking about these sort of public pension funds,
you are talking about firefighters and teachers and other
ordinary folks who look just like a lot of the other consumers
that we are talking about today. But I applaud the Committee's
effort here, and if you want to go further and be clearer that
you are also covering investors, I think that would probably
save a future court a lot of time.
Senator Hirono. That would certainly make me feel a lot
better knowing that there are so many different ways that these
arbitration clauses can be written to head people off at the
pass.
Thank you, Mr. Chairman.
Senator Franken. Thank you, Senator.
Senator Blumenthal.
Senator Blumenthal. Thank you, Mr. Chairman.
As you may have gathered, I think the majority of members
of this panel who are here today agree that arbitration
sometimes violates basic fairness and sometimes even
constitutional rights. But the members of the panel who are not
here might not be part of that consensus. And, likewise,
Members of the Senate may not be in agreement that we need to
change the law to restrict arbitration, although I have been a
long-time advocate of making sure that consumers are protected
from arbitration clauses that may not be clear or conspicuous,
hidden in the fine print, as one of you observed.
So I think we have political obstacles to overcome here,
and not the least of them are the interests of corporations
that are loathe to go to court to be subjected to claims based
on liability for violations of law related to financial
practices or product defects or a range of violations of
consumer rights.
But I think there is one area where there ought to be total
and complete consensus, and that is that our servicemen and
servicewomen should be protected not only in name and rhetoric,
but also in reality, which, Ms. Teske, your testimony I think
powerfully supports. And, in fact, regrettably, going back to
reports from the Department of Defense and others since then,
many servicemen and servicewomen have been victims of
violations of rights, whether it is in foreclosure of their
homes, repossession of vehicles or other personal property,
protections against judgments, where they may not even have
appeared, evictions. The whole idea is that when they are on
active duty they often cannot focus on these areas of life, not
to mention appear in court or in proceedings preliminary to
court proceedings or arbitration proceedings.
So I guess my question is whether there is a way to deal
very specifically in a focused and targeted way with these
violations of basic fairness that you outline in your
testimony, a targeted way through the Servicemembers Civil
Relief Act or through some other mechanisms, to make sure that
we are protecting our men and women in uniform.
Ms. Teske. Thank you for that question. There is. I mean,
certainly there is precedent for that. In the Military Lending
Act, there is a provision that for a narrow set of contracts
you cannot have forced arbitration clauses. We could do the
same through amendment of the Servicemembers Civil Relief Act
to make clear that they cannot be forced into arbitration and
that they do have the right to bring class actions in a court
of law. And I think that would be a great step forward, at
least for the servicemembers.
But one thing that I do want to point out in addition to
that is that our servicemembers are also consumers, and they
have a whole host of rights under scores of consumer protection
statutes. By amending the Servicemembers Civil Relief Act,
although that is a major step forward, we are still leaving
them open to forced arbitration for all the other consumer
protection violations that they are victims of.
So I would applaud any effort to provide protections,
further protections for servicemembers under the Servicemembers
Civil Relief Act, but I think we also cannot forget that the 2
million men and women that serve in our military are also
consumers, and their families are consumers, and employees.
Senator Blumenthal. I accept and I applaud that comment,
and I agree completely with it that they ought to be viewed as
consumers in those other contexts as well. But I am thinking
about what is achievable strictly in raw political terms,
because I have not been here as long as Senator Franken or
Senator Whitehouse, but I do know that often we are frustrated
in trying to achieve these kinds of reforms.
Mr. Parasharami, I wonder if I could ask you whether you
would have the same objections that you have outlined in your
testimony to that kind of focused and targeted bar on
arbitration for our servicemen and servicewomen who may
literally, physically, not have the ability to make use of
these arbitration clauses?
Mr. Parasharami. I suppose I do not think that it is a good
idea, and, you know, I should say absolutely I respect our
servicemembers. You know, what they do is so important, and I
would not want to take anything away from them.
If the question is how can they realistically achieve
resolution of most of the claims that they have, most people
have consumer disputes that are small and individualized. Class
actions just necessarily cannot help them because if a claim is
individualized, it cannot be brought on a class basis.
And so then the question is: Well, which is better: going
to court or going to arbitration? And it turns out that
arbitration is cheaper in many instances because companies pay
all of the costs of arbitration, and it is more flexible. You
do not have to take a day off work, and when you are
servicemember, a day off work is impossible. You can do it
remotely. You can do it by telephone. You can do it by mail.
And in many cases now, e-mail is the preferred form of
communication with arbitration organizations. So I think it is
actually more realistic to resolve claims on an individual
basis through arbitration than through court.
Senator Blumenthal. What would you say to that, Ms. Teske?
Ms. Teske. Thank you. I have been listening and just kind
of shaking my head. It is not reality. It is just not reality
to say that servicemembers are going to have a better chance
going into arbitrating their claims. We have seen time and
again that a very, very small number of consumers and probably
a much smaller number of servicemembers are going to go and
take their claims to arbitration. What is happening really here
is claim suppression. The majority of servicemembers, (A) are
not going to know their rights under the Servicemembers Civil
Relief Act, and (B) they are not going to have the time or put
forth the effort or the energy to be able to bring these
individually.
So, yes, in some cases it is appropriate for an individual
court action, and if they want to voluntarily take it to
arbitration, I think that is great. But it has to be voluntary.
But in many cases, the corporation that is breaking the
law, the Servicemembers Civil Relief Act, is doing it on a
widespread basis. It is a corporate practice. Or they have not
put into place procedures to comply with the SCRA protections.
And so in those situations, a class action is the best vehicle
to go forward, and we have seen that in cases already.
So to say that, no, we should not have the ability to bring
class actions for our servicemembers and that they should be
forced into arbitration because that is a better route for them
I think is disingenuous.
Senator Blumenthal. Thank you. My time has expired. I
welcome and appreciate all of your testimony. It has been very,
very helpful and important, and thank you for being here today.
Thank you, Mr. Chairman.
Senator Franken. Thank you, Senator Blumenthal.
I have some more questions I would like to ask the panel,
and so we will have a second round.
Professor Gilles, in his written testimony Professor
Rutledge argues that we have not seen an explosion of
arbitration clauses and class action waivers in franchise
agreements. Then on page 11 of his written testimony, Professor
Rutledge says, ``last week's CFPB report of preliminary results
told a similar story in several sectors of the consumer
financial services industry.''
My reading of the CFPB report was nearly the opposite, and
I think this gets to the apples and oranges, because he was
talking about 17 percent of, you know, I guess the companies
that do this using these contracts. But an enormous percentage
of the contracts have the clauses in actuality.
So can you speak to--I mean, what is your take on this? My
reading was that the report indicates that arbitration
agreements and class action bans are extremely prevalent among
outstanding credit card loans, insured deposits, and pre-paid
cards. When someone is saying we have got to compare apples to
apples, isn't it incumbent upon you to do that? And just what
is your take on this?
Ms. Gilles. I read the report the way you do. And I say
that not just because you are chairing this hearing. I read the
report, the CFPB report--and it really is the best empirical
study we have out there. I read it as saying that basically 9
out of 10 companies are using these forced arbitration clauses,
that we are seeing almost 100 percent penetration of class
action waivers--class action bans inserted in arbitration
clauses, and I do not think that Professor Rutledge is--I do
not think his testimony is accurate on that point.
Now, he did try to clarify in his answer to--or in his
opening statement that he does agree that we are seeing many
more class action bans, so maybe we are all on the same page on
that, and that saves this testimony.
Look, I think it would be crazy for a company not to insert
a class ban in its arbitration clauses. I am sure Mr.
Parasharami tells every client to do so, because to do so is to
ensure, unlike what Mr. Parasharami has testified to, that they
will actually not have to be held accountable for any
violations of law because very few consumers, employees, small
businesses will ever bring an arbitration. And certainly there
will never be any arbitrations near the numbers and near the
significance of a class action. And, furthermore, the thing
about arbitration, let us just be clear about what we are
talking about. Arbitrations are private, they are sequestered,
they are individual. You can only bring a claim for yourself.
So maybe you do bring a claim, maybe Alan does decide to bring
a claim, so he gets some money back from Amex. But, you know,
Alan will have no power to actually change Amex's policy vis-a-
vis every other card acceptance contract. That is what class
actions do.
Senator Franken. Let us talk about just how this affects
people's daily lives. Here we have a restaurant, a guy who went
to culinary school, moves out west, opens a restaurant, has a
few in Oakland. If I get out to Oakland, I am going to Italian
Colors.
[Laughter.]
Senator Franken. Because it has been successful a long
time, I know the food is good there.
Okay. That is how he is affected by this. He cannot pass on
savings to his customers. He is not allowed to tell them, ``I
will give you a little bit off if you use this card as opposed
to this kind of American Express card. You can still use an
American Express card. Just do not use this one that they make
us do 5 or 6 percent on.''
But let us just talk about everyday people. You, in your
testimony, talked about a cable company--I think it was Time
Warner--that added a modem--or did not add a modem, the modem
was there. And suddenly, boom, $4, $3.95 is charged to every
customer without any--they just added it. It is like a hidden
fee. So that is what--you know, a hidden fee. We are talking
about how this is going to save money.
Ms. Gilles. The thing that saves money for corporations is
liability avoidance, which is what these clauses really result
in, complete and utter avoidance of liability. So, yes, Time
Warner, Comcast, Cox Cable, they can put in all sorts of hidden
fees, and the consumer cannot do anything about it because the
amount that they are being overcharged is just so small that it
is hardly worth, you know, staying on hold with customer
service for half an hour, much less going into an individual
arbitration to prove a claim that actually would be expensive
to prove. So the only way these sorts of cases would ever get
brought is in a class forum.
But to be honest, what I think your bill would do is it
would actually return us to the status quo where corporations
do not feel that they can engage in these widely dispersed,
small-dollar harms because the class action threat, the
deterrent threat is out there. I think that is what your bill
would do.
Senator Franken. And let us say there is actually a lot at
stake in something. In 2011, I held a hearing on mandatory pre-
dispute arbitration, and that is what we are talking about
here. We are not talking about getting rid of arbitration. And
I heard testimony from a doctor in a gender discrimination
claim against her employer, a hospital, and the doctor showed--
the doctor was forced into arbitration, and she testified how
she showed up at the arbitrator's office for the proceedings
and saw shelves upon shelves of binders--she was the
plaintiff--with the defendant's name on it, clearly indicating
that her arbitrator and the hospital had an ongoing business
relationship. She lost the arbitration, and she left the
proceeding feeling like she was not even really heard. She
believed that the arbitrator was biased and did not give her a
fair shake. This whole thing really undermined her trust in the
system of justice.
Now, Professor Rutledge, in 2004, before you started
working for the Chamber of Commerce, you actually wrote a
fairly compelling argument about this sort of thing. You wrote,
``Just as competition in the marketplace may provide some
arbitrators independence, it may provide other arbitrators
incentives to be beholden to particular parties or industries
likely to nominate them.'' You went on to say that arbitrators
may ``develop reputations with particular types of parties. For
an example, an arbitrator may be perceived as industry
friendly.'' And you continued, ``Through these activities
designed to enhance their reputations, arbitrators generate
business in the form of fees and hopefully future
appointments.''
So I am curious. What would you say to that woman whose
gender discrimination case was forced into arbitration and she
came out believing that the fix was in?
Mr. Rutledge. Senator, thank you for your question. Let me
first begin by saying I do not know the details of the case
that you are describing, so I am going to give the best answer
that I can based on your description.
Senator Franken. Sure. What would you say to her? I have
related to you her testimony.
Mr. Rutledge. I understand.
Senator Franken. What would you say to her? That is the
question.
Mr. Rutledge. I understand.
Senator Franken. What would you say to her?
Mr. Rutledge. Senator, I think what I would say is that if
you believed you were wronged and we can generate the evidence
to demonstrate that you were wronged, we are going to find a
way to get you relief. There are various ways in which that
relief can be attained. It can be attained through litigation--
--
Senator Franken. No, well, if you have a mandatory pre-
dispute arbitration clause in it, no, they cannot. In fact,
that is what this whole hearing is about. You just summed up
the entire hearing. She cannot go to court.
Mr. Rutledge. I understand, Senator.
Senator Franken. So why did you say she could go to court?
Isn't that what this is all about? I mean, isn't that what we
are talking about? Isn't that what we have been doing for the
last 2\1/2\ hours?
Mr. Rutledge. Senator----
Senator Franken. She cannot go to court.
Mr. Rutledge. May I answer the question?
Senator Franken. What would you say to the woman?
Mr. Rutledge. We may go to litigation, that there are ways
under current law whereby that arbitration clause can be
challenged, and we will attempt to see whether that clause can
be challenged. If it cannot be challenged, then we will go to
arbitration, and there are upsides to arbitration, some of
which Mr. Parasharami has referred to. And so, therefore, what
I am trying to say, Senator, and what I tried to say to Senator
Lee as well, is that, back to the point that you have made--and
I agree with you--the apples-to-apples comparison is to try to
discern which of these two systems is going to yield the better
result for the aggrieved individual.
Can I make one other point just to----
Senator Franken. Well, after I respond a little bit.
Mr. Rutledge. Sure. I understand.
Senator Franken. I asked you what to say to a woman who
brought a gender discrimination suit to an arbitrator. She went
in. The arbitrator had the name of the hospital--she was a
doctor. No woman had been promoted in that practice, and she
felt there was gender discrimination. She goes in; the guy in
his office has folder after folder with the name of the
hospital. She felt that the guy did not hear her. I asked you
what you would say to her. The first thing you would say to
her, ``Well, I would go to court. You can go to court.'' Well,
no, you cannot go to court. Then the next thing you said,
``Well, then we go to arbitration if we cannot go to court.'' I
told you she went to arbitration, and she felt that this guy--
that the fix was in. And you yourself said--you yourself said
in 2004--that arbitrators do this to get business. They develop
reputations as friendly to industry. You said it. This is you.
I read you back your own quote.
What would you tell her? ``The fix is in, lady, ma'am. The
fix is in.'' And that is not our system of justice. Go ahead.
Mr. Rutledge. Sure. Senator, there are two points that I am
trying to make. One pertains to your question and one pertains
to the apples-to-apples point from a moment ago.
What I am trying to say, as to this individual--and I
apologize, Senator, if I misunderstood your question before. I
had understood your question to be what I would say to her at
the front end of the dispute, and I take it your question now
concerns----
Senator Franken. I asked you what would you say to this
woman who testified here.
Mr. Rutledge. I understand.
Senator Franken. That is what I asked you.
Mr. Rutledge. I understand, Senator. And I can understand
that from her perspective that that result would be
disappointing. And what I am saying, Senator, is that there are
instances in which the civil litigation leaves people
disappointed, too.
The second point that I just wish to make, Senator, because
I am very much with you on the apples-to-apples comparison
point, and I do not know if you have a copy of the CFPB report
with you or can see it. To be very clear, Senator, if I could
direct your attention to page 21 of the CFPB report?
Senator Franken. I am there.
Mr. Rutledge. This is the pie chart that you see. And what
you see here in the sentence immediately below the pie chart,
``Of the 393 credit card issuers, 67 issuers, or 17 percent,
included arbitration clauses in their credit card contracts
while 326 issuers, or 83 percent, did not.''
That was the point that I was making about the low
incidence of the use of arbitration clauses, and----
Senator Franken. And my question about apples to apples and
oranges to oranges was: What percent do those 17 percent have
of the market?
Mr. Rutledge. Absolutely, and to that, Senator, they have a
large portion of the market. That is----
Senator Franken. What percent would you say?
Mr. Rutledge. Senator----
Senator Franken. Do you think that is relevant?
Mr. Rutledge. I understand----
Senator Franken. Ms. Gilles, Professor Gilles, what percent
of the market do they have?
Mr. Rutledge. Senator, the answer is approximately 94 to 98
percent.
Senator Franken. 94 to 98 percent.
Mr. Rutledge. That is in a 2011 article that I published--
--
Senator Franken. Okay. And you made the point----
Mr. Rutledge [continuing]. And that is cited in my
testimony.
Senator Franken. Yes. So you made the point in your
testimony that we need to compare apples to apples and oranges
to oranges. And then you say that the CFPB report proves the
point you have been trying to make today and uses your evidence
that only 17 percent of credit card companies use these
mandatory arbitration agreements without having the honesty,
really, to say that, apples to apples, oranges to oranges, 94
to 98 percent of the market is that way.
Now, some credit union credit card company is not going to,
you know, have any power over Mr. Carlson. That is the whole
point of this. And when you talk about empirical evidence--and
sound empirical evidence has to be done by objective people.
That is what is sound empirical evidence.
By the way, you write in your testimony you cannot--I think
I have said my piece on this. I just think that it is apples--I
want to give Mr. Carlson the last word on this. You felt it was
important enough to come here today across the country. This is
a big deal. Why is this issue so important to you?
Mr. Carlson. I think that is a terrific question. I was not
doing this for money. I am trying to do it just to level the
playing field for all small business consumers so that they can
make a fair living. You know, I got into this business not--I
did not get into the restaurant business to get rich. That is
not the industry I think you throw yourself into to say, ``Oh,
wow, I am going to work my ass off and make a fortune.'' You do
put in a lot of long hours, but for me the love and the passion
comes from each guest that is satisfied, that you put a smile
on their face. That is why I do it, and that is why I came
here. I am just fighting for everybody else to have the same
opportunity that I have been blessed with--that I have my own
place. And it is not easy to do to try to find money to start a
business and to grow. As a human, you know, you want to
challenge yourself, and it is nice when people give you a
handout and help a little bit, and that is all I am trying to
achieve here. Thank you very much.
Senator Franken. Thank you. I would like to thank you, and
I would really like to thank all the witnesses for their
testimony.
I would also like to submit letters and statements for the
record from more than a dozen professors, advocates, and
interested organizations. I was especially pleased to receive
written testimony from Mike Rothman, Minnesota's Commerce
Commissioner, who is working hard to enforce the law in my
State, and I would like to thank him for his service to
Minnesota.
[The letters and statements referred to appear as
submissions for the record.]
Senator Franken. I think that the case for the Arbitration
Fairness Act is pretty clear. I think we saw that when you come
down to what this is. You cannot go to court. With Concepcion
and Italian Colors on the books, the Federal Arbitration Act
has become a tool that the big corporations can use to avoid
their obligations under the law. As Mr. Carlson put it, we are
basically at a point where big corporations can write their own
rules. We have heard today this has had a profound impact on
consumers, workers, and small businesses, and simply put, it is
not fair. It is not fair that powerful corporations can cheat
consumers out of their hard-earned money or that they can
withhold wages or turn a blind eye to workplace discrimination
and that they can overcharge small businesses, that they can
falsify affidavits and foreclose on active-duty servicemembers
who are overseas, that they can do all of this knowing all
along that there is little, if anything, that the consumer,
worker, small business, or soldier can do to make it right for
those who have been harmed.
When I went to Walter Reed the first time and they ask
you--I do a lot of USO tours, and they ask you to go to Walter
Reed, and you think, ``How am I going to cheer up somebody who
has lost legs?'' The first guy I met was from Anaconda. He lost
two legs from a mortar. The Arbitration Fairness Act will
restore access to justice for millions of Americans. I would
urge my colleagues to join me in that effort.
We will hold the record open for 1 week for submission of
questions for the witnesses and other materials.
The hearing is adjourned.
[Whereupon, at 4:45 p.m., the Committee was adjourned.]
[Questions and answers and submissions for the record
follow.]
A P P E N D I X
Additional Material Submitted for the Record
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Prepared Statement of Hon. Chuck Grassley
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Prepared Statement of Hon. Orrin G. Hatch
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Prepared Statement of Hon. Patrick Leahy
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Prepared Statement of Sheldon Whitehouse
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Prepared Statement of Leslie C. Overton
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Prepared Statement of Alan S. Carlson
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Prepared Statement of Myriam Gilles
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Prepared Statement of Vildan A. Teske
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Prepared Statement of Archis A. Parasharami
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Prepared Statement of Peter B. Rutledge
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Questions submitted by Senator Franken for Myriam Gilles
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Questions submitted by Senator Franken for Vildan Teske
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Questions submitted by Senator Franken for Archis Parasharami
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Questions submitted by Senator Grassley for Archis Parasharami
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Questions submitted by Senator Grassley for Peter Rutledge
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Questions submitted by Senator Hatch for Myriam Gilles
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Questions submitted by Senator Hatch for Peter Rutledge
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Responses of Myriam Gilles to questions submitted by Senators Franken
and Hatch
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Responses of Vildan Teske to questions submitted by Senator Franken
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Responses of Archis Parasharami to questions submitted by Senators
Franken and Grassley
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Responses of Peter Rutledge to questions submitted by Senators Grassley
and Hatch
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Miscellaneous Submissions for the Record
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