[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
JUSTICE DENIED: FORCED ARBITRATION AND THE
EROSION OF OUR LEGAL SYSTEM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL AND
ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
THURSDAY, MAY 21, 2019
__________
Serial No. 116-21
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via: http://judiciary.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
44-090 WASHINGTON : 2021
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COMMITTEE ON THE JUDICIARY
JERROLD NADLER, New York, Chair
MARY GAY SCANLON, Pennsylvania, Vice-Chair
ZOE LOFGREN, California DOUG COLLINS, GEORGIA, Ranking
SHEILA JACKSON LEE, Texas Member
STEVE COHEN, Tennessee F. JAMES SENSENBRENNER, Jr.,
HENRY C. ``HANK'' JOHNSON, Jr., Wisconsin
Georgia STEVE CHABOT, Ohio
THEODORE E. DEUTCH, Florida LOUIE GOHMERT, Texas
KAREN BASS, California JIM JORDAN, Ohio
CEDRIC L. RICHMOND, Louisiana KEN BUCK, Colorado
HAKEEM S. JEFFRIES, New York JOHN RATCLIFFE, Texas
DAVID N. CICILLINE, Rhode Island MARTHA ROBY, Alabama
ERIC SWALWELL, California MATT GAETZ, Florida
TED LIEU, California MIKE JOHNSON, Louisiana
JAMIE RASKIN, Maryland ANDY BIGGS, Arizona
PRAMILA JAYAPAL, Washington TOM MCCLINTOCK, California
VAL BUTLER DEMINGS, Florida DEBBIE LESKO, Arizona
J. LUIS CORREA, California GUY RESCHENTHALER, Pennsylvania
SYLVIA R. GARCIA, Texas BEN CLINE, Virginia
JOE NEGUSE, Colorado KELLY ARMSTRONG, North Dakota
LUCY MCBATH, Georgia W. GREGORY STEUBE, Florida
GREG STANTON, Arizona
MADELEINE DEAN, Pennsylvania
DEBBIE MUCARSEL-POWELL, Florida
VERONICA ESCOBAR, Texas
PERRY APELBAUM, Majority Staff Director & Chief Counsel
BRENDAN BELAIR, Minority Staff Director
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL AND ADMINISTRATIVE LAW
DAVID N. CICILLINE, Rhode Island, Chair
JOE NEGUSE, Colorado, Vice-Chair
HENRY C. ``HANK'' JOHNSON, Jr., F. JAMES SENSENBRENNER, Jr.,
Georgia, Wisconsin, Ranking Member
JAMIE RASKIN, Maryland KEN BUCK, Colorado
PRAMILA JAYAPAL, Washington MATT GAETZ, Florida
VAL BUTLER DEMINGS, Florida KELLY ARMSTRONG, North Dakota
MARY GAY SCANLON, Pennsylvania W. GREGORY STEUBE, Florida
LUCY MCBATH, Georgia
SLADE BOND, Chief Counsel
DANIEL FLORES, Minority Counsel
C O N T E N T S
----------
MAY 21, 2019
Page
OPENING STATEMENTS
The Honorable David Cicilline, Chairman, Subcommittee on
Antitrust, Commercial and Administrative Law................... 1
The Honorable Jim Sensenbrenner, Ranking Member, Subcommittee on
Antitrust, Commercial and Administrative Law................... 3
The Honorable Jerrold Nadler, Chairman, Committee on the
Judiciary...................................................... 4
The Honorable Doug Collins, Ranking Member, Committee on the
Judiciary...................................................... 6
WITNESSES
Deepak Gupta, Founding Principal, Gupta Wessler PLLC............. 9
Oral Testimony................................................. 9
Prepared Testimony............................................. 11
Kevin Ziober, Lieutenant Commander, Navy Reserves................ 21
Oral Testimony................................................. 21
Prepared Testimony............................................. 23
Gretchen Carlton, Advocate....................................... 31
Oral Testimony................................................. 31
Prepared Testimony............................................. 32
Phil Goldberg, Managing Partner, Shook, Hardy & Bacon L.L.P...... 35
Oral Testimony................................................. 35
Prepared Testimony............................................. 37
Andrew Pincus, Partner, Mayer Brown L.L.P........................ 40
Oral Testimony................................................. 40
Prepared Testimony............................................. 41
Myriam Gilles, Paul Verkuil Chair in Public Law, Benjamin Cardozo
School of Law.................................................. 49
Oral Testimony................................................. 49
Prepared Testimony............................................. 50
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
A letter for the record by George Slover, Senior Policy Counsel,
Consumer Reports A letter from The Honorable David Cicilline,
Chairman, Subcommittee on Antitrust, Commercial, and
Administrative Law............................................. 78
A letter for the record by Lisa Gilbert, Vice President of
Legislative Affairs, Public Citizen from The Honorable David
Cicilline, Chairman, Subcommittee on Antitrust, Commercial, and
Administrative Law............................................. 80
A letter for the record by Terry O'Neil, Executive Director,
National Employment Lawyers Association from The Honorable
David Cicilline, Chairman, Subcommittee on Antitrust,
Commercial, and Administrative Law............................. 83
A letter for the record by the Fair Arbitration Now coalition
from The Honorable David Cicilline, Chairman, Subcommittee on
Antitrust, Commercial, and Administrative Law.................. 87
A statement for the record by Allen Carlson, Owner, Italian
Colors from The Honorable David Cicilline, Chairman,
Subcommittee on Antitrust, Commercial, and Administrative Law.. 91
APPENDIX
Responses to questions for the record from Andrew Pincus,
Partner, Mayer Brown L.L.P..................................... 95
JUSTICE DENIED: FORCED ARBITRATION AND THE EROSION OF OUR LEGAL SYSTEM
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Thursday, May 21, 2019
House of Representatives
Committee on the Judiciary
Washington, DC
The Subcommittee met, pursuant to call, at 9:59 a.m., in
Room 2141, Rayburn House Office Building, Hon. David Cicilline
[chairman of the subcommittee] presiding.
Present: Representatives Cicilline, Nadler, Johnson of
Georgia, Raskin, Jayapal, Scanlon, Neguse, Sensenbrenner,
Collins, Buck, Armstrong, and Steube.
Staff Present: David Greengrass, Senior Counsel; John Doty,
Senior Advisor; Madeline Strasser, Chief Clerk; Moh Sharma,
Member Services and Outreach Advisor; Susan Jensen,
Parliamentarian/Senior Counsel; Joseph Van Wye, Professional
Staff Member; Lina Khan, Counsel; Slade Bond, Chief Counsel;
Daniel Flores, Minority Chief Counsel; Andrea Woodard, Minority
Professional Staff.
Mr. Cicilline. The Judiciary Committee will come to order.
Without objection, the Chair is authorized to declare
recesses of the Committee at any time.
Good morning and welcome to today's hearing on the impact
of forced arbitration on the fundamental rights of hard-working
Americans and our system of laws.
I now recognize myself for an opening statement.
Buried deep within the fine print of everyday contracts,
forced arbitration clauses block American consumers and workers
from their day in court to hold corporations accountable for
breaking the law before the disputes even arise. This private
system does not have the same procedural safeguards of our
justice system. It is not subject to oversight, there is no
judge or jury, and it is not bound by laws passed by Congress
or the states.
When forced arbitration is combined with non-disclosure
agreements, it effectively silences the victims of rampant
corporate misconduct. For example, according to a disturbing
report by the Washington Post, hundreds of former female
workers of Sterling Jewelers, the massive jewelry chain that
owns Kay Jewelers and Jared, were, and I quote, ``routinely
groped, demeaned, and urged to sexually cater to their bosses
to stay employed.'' According to numerous sworn statements,
male executives and supervisors at all levels of the company
engaged in a widespread pattern of abuse, harassment, and
discrimination. This misconduct included forcing women to
perform sexual favors to receive better jobs or higher pay and
retaliating against women who reported abuse within the
company.
One store manager wrote in her declaration that male
executives ``prowled around like dogs that were let out of
their cage, and there was no one to protect the female managers
from them.'' Although many of the women at Sterling Jewelers
sought to hold the company accountable by banding together in a
class action, Sterling covered up this abusive conduct for
years by forcing its workers to waive their right to bring a
lawsuit against the company in public courtrooms.
These arbitration proceedings were conducted in private,
the outcome was sealed, and any settlements with the company
were bound by confidentiality clauses. Not only did this
massive cover-up shield the company from public accountability,
it also blocked other victims of assault and harassment from
coming forward until some of the stories finally became public
years later. As Gretchen Carlson, one of our witnesses today,
will testify, this is not an isolated incident. Far from it.
Thousands of women across the country have suffered through
similar pain and humiliation. They were isolated by predatory
companies, they were silenced by forced arbitration clauses,
and they were unable to hold wrongdoers accountable by having
their day in court.
This is just one example of many areas where people's legal
rights have also been disarmed. They relate to veterans, to
victims of civil rights violations, to service Members, and
many others. This is nothing short of a corporate takeover of
our nation's system of laws, and the American people have had
enough.
The overwhelming majority of voters, including 83 percent
of Democrats and 87 percent of Republicans, support ending
forced arbitration. It is time to act.
With that in mind, I thank our panel of distinguished
witnesses for appearing at today's important hearing and very
much look forward to your testimony.
It is now my pleasure to yield the balance of my time to
the distinguished gentleman from Georgia, the sponsor of the
FAIR Act legislation with 200 cosponsors, that would prohibit
the use of forced arbitration in consumer, worker, civil
rights, and antitrust disputes. Mr. Johnson, you are
recognized.
Mr. Johnson of Georgia. Thank you, Chairman Cicilline.
The issue of forced pre-dispute arbitration is very
important to me, and it is a battle I have been fighting a long
time.
Twelve years ago, when I was a freshman in Congress, I
first introduced a bill that would render pre-dispute
arbitration clauses unenforceable in certain employment,
consumer, and civil rights cases.
I believe that when one party is vastly more powerful than
another, it is just not fair or equitable to allow a bigger guy
to slam the courthouse doors shut and force the smaller guy
into a private, for-profit dispute resolution process when the
little guy gets treated wrongfully.
Corporations and employers love forced arbitration because
most of the time, they win. They get to choose the arbitrator,
the Rule of law does not necessarily apply, and there is no
right to appeal the decision. In arbitration, the deck is
stacked against the person and in favor of corporate interests.
The Federal Arbitration Act was meant to apply to
businesses of equal bargaining positions, but today the U.S.
Supreme Court is allowing corporations and employers to force
consumers and workers to sign away their ability to file suit
in court and have their cases decided by a jury of their peers,
or to join a class-action lawsuit. This is unfair, and it is
wrong. That is why Congress needs to pass the Forced
Arbitration Injustice Repeal Act, which has 201 cosponsors.
As the horror stories about forced arbitration continue to
affect millions, Americans are realizing how they are being
tricked, and they are starting to fight back. My bill would
help restore the right to the courthouse for Americans
everywhere, and restore fairness to our justice system.
I thank the panelists for being here today.
With that, I yield back to the Chairman.
Mr. Cicilline. I thank the gentleman.
It is now my pleasure to yield to the distinguished
gentleman from Wisconsin, the Ranking Member of the
subcommittee, Mr. Sensenbrenner, for his opening statement.
Mr. Sensenbrenner. You will hear a different view from me.
Eliminating arbitration achieves one thing: it enriches
trial attorneys. It does not help claimants. In fact, research
is clear on this. When comparing arbitration and litigation in
employment cases, claimants win more often in arbitration.
According to one study, when a case doesn't settle and goes
the distance, plaintiffs win three times more often in
arbitration. Not only are these claimants more successful, but
the research also shows that they receive nearly double the
monetary amounts in arbitration versus in court. Wiping out
arbitration would not give employees a better deal.
What is a good deal is providing Americans fair access to
justice? Taking a case to trial is costly and a time-consuming
endeavor. Arbitration, by contrast, allows cases to be resolved
in a much more affordable and timely manner.
As Justice Breyer explained in the 1995 Terminix v. Dobson
decision, and I am paraphrasing, if a consumer with a small
damages claim is only left with a court remedy, the cost, and
delays of which could eat up the value of an eventual small
recovery, eliminating arbitration would have a profound
chilling effect on justice. For many claimants, the balance of
whether their case is worth it, either for them or for an
attorney, will often be tipped against them.
Killing arbitration will also harm businesses. Increased
litigation means increased business cost, which will inevitably
be passed on to the consumer. Rather than amassing lawyers'
fees, businesses can use the more affordable arbitration. We
should not make it more expensive for businesses or claimants
to resolve their disputes when they arise.
Which brings me to my initial point. Eliminating
arbitration only benefits the trial attorneys. So, the question
for my colleagues on the Democratic side of the dais, why
pursue legislation that puts the interests of trial attorneys
over American workers, consumers, and businesses? I fear I
already know the answer to that question. A lot of the fear-
mongering surrounding arbitration sounds like it was lifted
from the talking points from the AAJ's annual flyer. The AAJ,
or American Association for Justice, is the nice-sounding name
of the plaintiffs' attorneys' lobbying organization. It also
happens to be a huge donor to Democratic candidates,
contributing millions of dollars each cycle to their campaigns.
So, let's not seek out faults in a functioning system to
boost the bottom line of trial lawyers. Instead, let us ensure
that Americans are given the opportunity to resolve their
dispute, thus provide them with access to an affordable,
workable, and successful means to resolve their disputes, and
ultimately let's not deny them justice.
I yield back.
Mr. Cicilline. Thank you, Ranking Member Sensenbrenner.
Mr. Raskin. Mr. Chairman, point of order.
Mr. Cicilline. What is your point of order?
Mr. Raskin. Well, my question is just can we impute the
policy positions that Members of the Committee take to campaign
contributions? If so, I think I would be doing it a lot more
frequently. I thought that is something that we don't do.
Mr. Cicilline. Excellent point. I am sure Mr. Sensenbrenner
didn't mean to communicate that in that way.
Mr. Raskin. We would be hearing a lot more of that in our
Committee if that is permissible. I am just curious. Maybe we
can have somebody research that.
Mr. Collins. Will the gentleman yield?
Mr. Cicilline. I think we don't need to engage in this
colloquy. This is an important issue with strongly held beliefs
on both sides.
Mr. Collins. I agree with the Chairman on this.
Mr. Cicilline. I think everyone should avoid imputing
motivations.
Mr. Collins. The gentleman from Georgia.
Mr. Cicilline. All right. The Chair now recognizes the
distinguished Chairman of the full committee, the gentleman
from New York, Mr. Nadler, for his opening statement.
Mr. Nadler. Thank you, Mr. Chairman, for holding today's
important hearing on forced arbitration.
I will call it forced arbitration.
Nearly a century ago, Congress enacted the Federal
Arbitration Act to allow merchants to resolve run-of-the-mill
contract disputes in a system of private arbitration that would
be legally enforceable. The system the Congress envisioned was
to be used voluntarily and only between merchants of equal
bargaining power.
Thanks to a series of disastrous Supreme Court decisions,
however, this system has been turned entirely on its head.
Private arbitration has been transformed from a voluntary forum
for companies to resolve commercial disputes into a legal
nightmare for millions of consumers, employees, and others who
are forced into arbitration and are unable to enforce certain
fundamental rights in court.
Many companies use forced arbitration as a tool to protect
themselves from consumers and workers who seek to hold them
accountable for alleged wrongdoing. By burying a forced
arbitration clause deep in the fine print of a take-it-or-
leave-it consumer and employment contract, companies can evade
the court system where plaintiffs have far greater legal
protections and hide behind a one-sided process that is tilted
in their favor.
For example, arbitration generally limits discovery, does
not adhere to the rules of civil procedure, can prohibit class
actions, and almost always does prohibit class actions, may
have no right of appeal, and the proceedings and often even the
results must stay secret.
For millions of consumers and employees, the precondition,
whether they know it or not, of obtaining a basic service or
product, such as a bank account or a cell phone or a credit
card, or even a job, is that they must agree to resolve any
disputes in private arbitration. That means that their ability
to enforce civil rights, consumer, labor, and antitrust laws
are subject to the whims of a private arbitrator who is not
required to provide plaintiffs any of the fundamental
protections guaranteed in the courts, and whose further
employment may depend on how good a reputation he has among the
commercial class as ruling in their favor.
We have a better principle in this country, and that is
that all Americans deserve their day in court. We make a
mockery of this principle, however, when we allow individuals
to be stripped of this right and to be forced into private
arbitration proceedings without the safeguards the judicial
system affords. That is where we find ourselves today.
This problem began in earnest in the 1980s with a series of
Supreme Court decisions that misapplied the clear legislative
intent of Congress and dramatically expanded the ability of
companies to limit the rights of consumers and workers through
forced arbitration.
In 1984, the Court granted corporations the right to
enforce arbitration clauses even when State law rendered them
void. And strikingly, in 1985, the Court allowed arbitration
proceedings to be used not just to settle contracts but also to
interpret laws enacted by Congress to implicate fundamental
rights, just as Sandra Day O'Connor criticized the Supreme
Court's decision allowing arbitration clauses to preempt State
law as a form of judicial revisionism that is, quote,
``unfaithful to Congressional intent, unnecessary, and
inexplicable.''
Similarly, Professor Margaret Moses, a leading scholar in
the field of commercial arbitration, has observed, ``The
courthouse, step by step, built a house of cards that has
almost no resemblance to the structure envisioned by the
original statute.''
Most recently, a conservative majority on the Supreme Court
reached new heights in misreading what Congress intended. Last
year in a 5-to-4 decision in the Epic Systems case, the Court
held that employers could combine forced arbitration clauses
with class action bans to prevent workers from banding together
to hold law-breaking employers accountable, despite clear
authority for workers to bring their claims under the National
Labor Relations Act.
That is why yesterday I reintroduced the Restoring Justice
for Workers Act, legislation that would end forced arbitration
in employment contracts and protect workers' rights to pursue
work-related claims in court. As Justice Ruth Bader Ginsburg
stated in her dissent in Epic Systems, ``A congressional
correction is urgently in order.'' I strongly agree.
That is why I also strongly support H.R. 1423, the Forced
Arbitration Injustice Repeal Act, or FAIR Act, one of the few
times when the acronym fits, introduced by the gentleman from
Georgia, Mr. Johnson, which would prohibit forced arbitration
in consumer, employment, civil rights, and antitrust disputes.
I applaud Congressman Johnson for his leadership on this
legislation, and I look forward to working with him and other
Members who have introduced legislation addressing the crisis
of forced arbitration to ensure that individuals can once again
enforce the laws the Congress enacts.
The widespread use of forced arbitration is a serious
threat to our entire legal system and the basic tenets of our
democracy. For many companies, forced arbitration has become a
get-out-of-jail-free card to circumvent the basic rights of
consumers and workers. It is up to Congress to reverse this
dangerous trend.
Let me just add here, we used to have a concept in law--
when I went to law school, they still taught it--called
contracts of adhesion, where a contract was unenforceable if
one party had no choice in entering into it. All these
arbitration clauses, almost, are contracts of adhesion. You
try, when you want to get a credit card, try crossing out the
fine print, if you can find it without the magnifying glass,
that says that you will settle all disputes in arbitration.
Cross it out. See if you get the credit card. See if you get
the bank loan. See if you get the mortgage. See if you get the
car loan.
You have no choice.
When the gentleman from Wisconsin talks about voluntary
arbitration, if it were voluntary and it were between equals,
that is what Congress meant in 1925. These are all contracts of
adhesion. They are turning the Federal courts into simply
collection agencies for rich people and making them
unavailable, making State courts unavailable for most people
for most of the kinds of disputes that they will get into.
It is up to Congress to reverse this dangerous trend, and I
look forward to hearing from our distinguished panel of
witnesses about how best to address this important issue.
I thank the Chairman for holding today's hearing, and I
yield back the balance of my time.
Mr. Cicilline. I thank the gentleman.
Now I am pleased to recognize the Ranking Member of the
full committee, the gentleman from Georgia, Mr. Collins, for
his opening statement.
Mr. Collins. Thank you, Chairman Cicilline and Ranking
Member Sensenbrenner, for holding this hearing.
Arbitration provides consumers a simpler, cheaper, faster
path to justice than the judicial system does. This is what the
evidence showed the last time the Judiciary Committee performed
oversight of the arbitration system during the 111th Congress.
The evidence in favor of preserving access to arbitration
since then has only increased. Companies are continuing to
follow arbitration protocols that help to ensure due process is
given to claimants against them. A string of new Supreme Court
decisions has demonstrated the Court's confidence in the
arbitration system, and the Consumer Financial Protection
Bureau's 2015 study of arbitration highlighted problems
consumers would face if they had no access to arbitration--this
is the Consumer Financial Protection Bureau's study--but
instead had to rely on flawed judicial class actions.
That is not to say that the arbitration system is, by any
means, perfect. The arbitration system is generally good and
should be preserved.
Bills have been introduced this term that would wipe out
the use of arbitration in broad sectors of the economy. Rather
than wipe out arbitration altogether, we should be considering
ways to make it better still.
The Senate Judiciary Committee Chairman Graham suggested
just that in the Senate Judiciary Committee hearing on
arbitration earlier this year. He also suggested that while we
look at ways to improve arbitration, we should also look at
ways to improve litigation. I am encouraged by those
suggestions.
The worst result would be to wipe out Americans' access to
arbitration while leaving them only with an unimproved judicial
system. You can't leave both untended. They have to be looked
at together, and simply a blanket solution, as we found in this
Committee many times, doesn't work. In fact, it creates more
problems than it is worth.
So, I look forward to the witnesses here today. Thanks for
being here this morning. It is good to see you.
Thanks, Mr. Chairman, for having this hearing. I yield
back.
Mr. Cicilline. Thank you, Mr. Collins.
It is now my pleasure to introduce today's witnesses.
Our first witness is Deepak Gupta, the Founding Principal
of Gupta Wessler, PLLC. Mr. Gupta focuses on a wide range of
issues, including constitutional law, class actions, and
consumers' and workers' rights. He is a leading public interest
attorney and advocate, has argued several cases before the
Supreme Court, and has handled appeals before every Federal
circuit and seven State supreme courts.
Mr. Gupta was Senior Counsel for Litigation and Enforcement
Strategy at the Consumer Financial Protection Bureau. Before
the CFPB, he spent seven years at Public Citizen, where he
founded the Consumer Justice Project, and in 2010 he argued
AT&T Mobility v. Concepcion, a landmark arbitration case, and
has since played a leading role in the debate over forced
arbitration.
Mr. Gupta earned his Bachelor of Arts at Fordham University
and his law degree at Georgetown University Law Center.
Welcome.
Our second witness is Kevin Ziober, a Lieutenant Commander
in the U.S. Navy Reserves, where he has served since 2008 and
was deployed in Afghanistan in 2012 for 12 months. As a
Lieutenant Commander, Mr. Ziober is responsible for the
manning, training, and mobilization readiness of a 130-member
Information Warfare Unit. Since 2016, Mr. Ziober has been a
fierce advocate for stronger employment and reemployment rights
for National Guard and Reserve Members under the Uniformed
Services Employment and Reemployment Rights Act, USERRA.
Mr. Ziober earned his Bachelor of Science degree in
Business and Finance from the University of Southern
California's Marshall School of Business.
Welcome.
Our third witness is Gretchen Carlson, an acclaimed
journalist, best-selling author, filmmaker, and advocate. Ms.
Carlson hosted ``The Real Story'' and co-hosted ``Fox and
Friends'' for more than seven years on Fox News. In 2016, Ms.
Carlson was forced out of Fox after her workplace harassment
complaint became public and has since focused her energy on
advocating for important legislative changes to protect sexual
assault and sexual harassment survivors. She has written two
New York Times best-sellers and has been recognized by the New
York Women in Communications, the National Organization for
Women, and the YWCA of Greater Los Angeles for her advocacy
work.
In 1989, Ms. Carlson became the first classical violinist
to be crowned Miss America and is the first former Miss America
to serve as chair of the organization. She received her
Bachelor of Arts at Stamford University and serves as a
National Trustee for the March of Dimes.
Welcome.
The fourth witness on our panel is Phil Goldberg, Managing
Partner at Shook, Hardy & Bacon L.L.P. As co-chair of Shook's
Public Policy Group, Mr. Goldberg has more than 25 years of
experience addressing liability-related public policy and
public affairs issues. His specialty is tort and product
liability theories and defenses, and he regularly speaks at
judicial and attorney conferences regarding liability issues.
Mr. Goldberg has filed amicus briefs with the Supreme
Court, the U.S. Court of Appeals, and State courts at every
level, and his scholarship has been cited by the Supreme Courts
of New Jersey and Rhode Island. He was admitted to the American
Law Institute in 2001, and in 2019 was named Special Counsel to
the Manufacturers Accountability Project. He received his
Bachelor of Arts from Tufts University and his law degree from
the George Washington University School of Law.
Welcome, Mr. Goldberg.
Our fifth witness is Andrew Pincus. Mr. Pincus is a partner
at Mayer Brown, L.L.P., with a focus on briefing and arguing
cases before the Supreme Court and other appellate courts. He
has argued 29 Supreme Court cases and has been the co-director
of the Yale Law School Supreme Court Clinic since 2006,
providing pro bono representation in 10 to 15 Supreme Court
cases each year.
Prior to joining Mayer Brown, Mr. Pincus served as General
Counsel of the United States Department of Commerce from 1997
to 2000, and as an Assistant to the Solicitor General in the
Department of Justice from 1984 to 1988. He received his
Bachelor of Arts degree from Yale University and his J.D. from
the Columbia University School of Law.
Welcome, Mr. Pincus.
Our final witness is Professor Myriam Gilles, who has been
the Paul Verkuil Chair in Public Law at the Benjamin Cardozo
School of Law since 2003. Before being appointed as Chair, Ms.
Gilles served as an Associate Professor and Lecturer of Law at
the Benjamin Cardozo School. She has taught courses on civil
procedure, product liability, complex litigation, and
contracts. Additionally, Ms. Gilles sits on the Boards of both
the Justice Resource Center and Public Justice, where she is an
executive Committee member of the Class Action Preservation
Project.
She received her Bachelor of Arts at Harvard College and
her law degree from Yale Law School.
Welcome, Ms. Gilles.
We welcome all our very distinguished witnesses and thank
them for participating in today's hearing.
Now if you would please rise, I will begin by swearing you
in. You must please raise your right hand.
Do you swear or affirm under penalty of perjury that the
testimony you are about to give is true and correct to the best
of your knowledge, information, and belief, so help you God?
Let the record show that the witnesses answered in the
affirmative.
Thank you, and you may be seated.
To the witnesses, please note that each of your written
statements will be entered into the record in their entirety.
Accordingly, we ask that you summarize your testimony in 5
minutes. To help you stay within that time, there is a timing
light on your table. When the light switches from green to
yellow, you have 1 minute to conclude your testimony. When the
light turns to red, it signals that your 5 minutes has expired.
We will begin with Mr. Gupta.
TESTIMONY OF DEEPAK GUPTA
Mr. Gupta. Thank you, Chairman Cicilline, Ranking Member
Sensenbrenner, and distinguished Members of the subcommittee.
Thank you for inviting me to testify and for holding this
hearing.
As an advocate who has argued cases about forced
arbitration before the U.S. Supreme Court, one thing has become
clear to me, and that is that only Congress can solve this
problem.
I have just a few basic points this morning.
First, forced arbitration is unavoidable and deeply
unpopular. It is everywhere. You can't avoid it, not if you
want to live in modern society, not if you want a mobile phone
or a credit card or a bank account. Increasingly, you can't get
a job unless you give up your right to hold your employer
publicly accountable for sexual harassment or assault, for
discrimination or wage theft.
It is stressful enough for a family to check a loved one
into a nursing home. Now you also have to check your legal
rights at the door.
A case in point involves Irene Morissette, an 87-year-old
Catholic nun suffering from dementia who was raped in an
assisted living facility in Alabama. After the facility failed
to call the authorities, she was assaulted again. When Sister
Irene's family filed a lawsuit against the nursing home, it
invoked a forced arbitration clause, and her case was
dismissed. 90 percent of nursing home chains across the country
have forced arbitration clauses in their contracts. This means
not only that families like Sister Irene's get denied justice,
but it also means that patterns of wrongdoing don't come to
light because arbitration mandates secrecy.
Americans hate forced arbitration. In our hyper-partisan
times, that opposition is remarkably bipartisan. 80 percent or
more of Republicans, Democrats, and Independents support
legislation to end forced arbitration.
People might not understand all the technical legal
details, but they know when the system has been rigged against
them. That is why there is a movement afoot. It is why we saw
Google workers around the world walk out, outraged at how these
clauses shield sexual harassment. One of the walk-out
organizers, Mr. Tanuja Gupta, is here today, and it is why law
students, like Harvard student Molly Coleman, who is also here,
are organizing to get law firms to drop these clauses.
The second point I want to make this morning is that forced
arbitration is a fundamental threat to our democracy and to our
shared constitutional values. As the Supreme Court has
acknowledged, an arbitration clause often means that you will
have no way of getting justice under Federal laws that would
otherwise have been enforceable in court.
If Congress passes laws that can't be enforced in the real
world, what good are those laws?
What forced arbitration really does is it replaces the laws
that are written by Congress with private legislation written
by corporations into the fine print of contracts that nobody
reads and that nobody can negotiate. That is not what is
supposed to happen in a democracy.
Forced arbitration also robs us of our constitutional right
to a jury trial, and this is no technicality. The very reason
we have a Bill of Rights at all is because the original
Constitution lacked a right to a civil jury trial. Please take
a moment to appreciate how far this takes us away from our
founding ideals. John Adams once said that representative
government and trial by jury are the heart and lungs of
liberty. Without them, he said, we have no other fortification
against being ridden like horses, fleeced like sheep, worked
like cattle, and fed and clothed like swine and hounds. He
might have been talking about forced arbitration.
Third, the biggest problem with forced arbitration isn't
simply that it is a biased or unfair process, it is that it
kills people's claims entirely. If you remember only one thing
from my testimony, I hope it is this: Forced arbitration does
not do what its proponents say it does. It does not channel
claims into some alternative system that is better, faster, or
cheaper at resolving disputes. Instead, it makes sure that most
consumers' and workers' claims simply disappear.
One way to see this is to ask what consumers actually get
out of arbitration. Of the hundreds of millions of consumers
that interact with banks and other financial companies, how
many do you think won affirmative relief on claims of $1,000 or
less in arbitration? In a two-year period, for the nation's
leading arbitration forum, that number was just 4--not 4
million, not 400,000, not even 400, just 4. Contrast that with
the tens of millions of consumers who received more than $2
billion in cash relief through the litigation system. These
numbers expose the arguments on the other side as a bad joke.
Based on this kind of comparison, we can recognize forced
arbitration for what it is, a mechanism that quietly transfers
giant amounts of wealth from poor to rich.
Thank you.
[The statement of Mr. Gupta follows:]
STATEMENT OF DEEPAK GUPTA
Chairman Cicilline, Ranking Member Sensenbrenner,
distinguished Members of the Subcommittee: Thank you for
inviting me to testify today. My name is Deepak Gupta. I am the
founder of Gupta Wessler PLLC, a law firm focused on Supreme
Court and appellate advocacy. Over the past decade, I have
represented parties in some of the U.S. Supreme Court's key
cases interpreting the Federal Arbitration Act--including AT&T
Mobility v. Concepcion and American Express v. Italian Colors.
I teach arbitration as a Lecturer at Harvard Law School, have
written about arbitration, see, e.g., Arbitration as Wealth
Transfer, 5 Yale L. & Pol'y Rev. 499 (2017), and previously
worked on arbitration issues as Director of the Consumer
Justice Project at Public Citizen and as Senior Counsel at the
Consumer Financial Protection Bureau.
My testimony today makes just a few basic points:
First, forced arbitration is unavoidable and deeply
unpopular. We're all subject to forced arbitration and we have
no real choice in the matter (which is why we call it
``forced''). Forced arbitration clauses are in 86% of private
student loans,88% of mobile phone contracts, and 99% of
storefront payday loans. Credit cards, bank accounts, TV and
internet service, gym Memberships--they all require
arbitration. Taking a job also increasingly requires you to
give up your right to hold your employer publicly accountable
for sexual harassment or assault, discrimination, or wage
theft. It's difficult enough for a family to check a loved one
into a nursing home. Now you also have to check your family's
legal rights at the door--a practice that has been shown in
numerous instances to shield shocking abuse and neglect from
public scrutiny.
When Americans are polled about forced arbitration, they
hate it. Despite our hyper-partisan times, this sentiment is
widely shared by voters across the political spectrum.
Overwhelming majorities of Republicans, Democrats, and
independents--80% or more of each--support federal legislation
to end forced arbitration. People might not understand all the
technical legal details, but they know when the system has been
rigged against them.
Second, forced arbitration is a threat to democracy and our
shared constitutional values. As the U.S. Supreme Court has
itself acknowledged, the presence of a forced arbitration
clause often means that Americans will have no effective method
of asserting their rights or getting justice under federal laws
that could otherwise have been enforced in a court--consumer
protection or antitrust laws, for example, or prohibitions on
sex or race discrimination. If Congress passes laws that can't
be enforced in the real world, what good are those laws?
Forced arbitration in effect replaces the laws that
Congress enacts with private legislation, written by
corporations into the fine print of contracts that nobody reads
and that nobody can negotiate. That's not what's supposed to
happen in a democracy.
Forced arbitration also robs us of our constitutional
rights to a day in court and a civil trial by jury. This is no
mere technicality. The very reason the U.S. Constitution has a
Bill of Rights at all is because the original document lacked
protection for the cherished Anglo-American right to a civil
jury trial. Take a moment to appreciate how far this takes us
away from our founding ideals. John Adams once said that
``representative government and trial by jury are the heart and
lungs of liberty. Without them we have no other fortification
against being ridden like horses, fleeced like sheep, worked
like cattle and fed and clothed like swine and hounds.''
Forced arbitration is also both secret and slanted: It
shields lawbreaking, inhibits development of the law, and
distorts outcomes in favor of those who write the contracts,
who get to pick the arbitration forum they prefer. Forced
arbitration thereby enables an incredibly broad range of
harmful and illegal practices--from sexual harassment and
assault to illegal discrimination, from wage theft to consumer-
protection and antitrust violations--to go both unnoticed and
unpunished.
Third, the biggest problem with forced arbitration is not
simply that it's a biased or unfair process--it's that it kills
most people's claims entirely. If you remember only one thing
from this hearing, I hope it is this: Forced arbitration does
not do what its proponents claim it does. It doesn't channel
claims into an alternative system that's better, faster, or
cheaper at resolving disputes. Instead, under forced
arbitration, claims of American consumers and workers simply
disappear, cutting off compensation and deterrence as well as
public accountability and the development of the law itself.
One way to see this empirically is to ask what consumers
actually get out of arbitration. It should be no surprise that
few consumers with low-value claims successfully advocate for
themselves when forced to seek individual relief. But you might
be surprised at how few. Of the hundreds of millions of
consumers that interact with banks, credit cards, student
loans, payday loans, debt collectors, and other companies, how
many do you think have won affirmative relief on claims of
$1,000 or less in arbitration? A comprehensive study by the
Consumer Financial Protection Bureau found that in 2010 and
2011, for the nation's leading arbitration forum (the American
Arbitration Association), the number was just four.
Not four million, not 400,000, not even 400. Just four.
These numbers expose the efficiency arguments for forced
arbitration of consumer claims as nothing more than a bad joke.
By contrast, between 2008 and 2012, the CFPB, at least thirty-
four million consumers of the same universe of companies
received compensation through class actions. Four hundred
twenty-two consumer financial class-action settlements garnered
more than $2 billion in cash relief for consumers and more than
$600 million in in-kind relief. Those numbers don't capture the
additional benefits of industry-changing injunctions and
deterrence of future bad practices. One case study comparing
outcomes for consumers who had been swindled by banks through
overdraft fees found that those without arbitration clauses
were able collectively to recover hundreds of millions of
dollars. Because the defendant was a bank, that money was
deposited straight into the consumers' bank accounts.
Meanwhile, while those facing enforceable arbitration clauses
won back nothing.
Based on this kind of empirical comparison, we can
recognize forced arbitration for what it is: A mechanism that
quietly transfers giant amounts of wealth from poor to rich.
You can see the same phenomenon play out when you look at how
forced arbitration affects a range of wage-theft, consumer-
protection, and antitrust claims--to name just a few examples.
Finally, forced arbitration is only possible because
unelected federal judges have twisted the original intent of a
law passed by Congress in 1925--which means that Congress has
the power to fix the problem now. In the 1920s, when the
Federal Arbitration Act was passed, some legislators expressed
concern that arbitration might let ``the powerful people . . .
come in and take away the rights of the weaker ones.'' The
architects of the FAA assured them this wasn't the case: ``It
is not intended this shall be an Act referring to labor
disputes, at all. It is purely an Act to give the merchants the
right or the privilege of sitting down and agreeing with each
other as to what their damages are, if they want to do it. Now,
that is all there is in this.'' The Federal Arbitration Act
expressly excludes all employment contracts from its reach,
providing that ``nothing herein contained shall apply to
contracts of employment of seamen, railroad employees, or any
other class of workers engaged in foreign or interstate
commerce.''
For much of the 20th century, arbitration under the FAA
worked as Congress had intended: to resolve the garden-variety
contractual disputes that arise between businesses. Federal
statutory claims were categorically beyond the FAA's reach, as
were all claims brought by workers and all claims in State
court. The insertion of arbitration clauses into mass contracts
with consumers or workers was unheard of. It wasn't until the
1980s and '90s that the Supreme Court even allowed federal
statutory claims into arbitration. When it did so, it was
always careful to insist on a critical ``effective
vindication'' principle: Arbitration was permissible only so
long as it didn't interfere with the parties' ability to
effectively vindicate their Substantive rights. Remarkably,
that limiting principle makes no appearance in the Supreme
Court's most recent opinions. This essential limit--which was
supposed to preserve the legitimacy of arbitrating statutory
claims in the first place--now appears to have vanished
entirely, without a trace.
I.
Forced arbitration is unavoidable. Forced arbitration
clauses are everywhere, and they ensnare us in all facets of
our lives, robbing us of our legal rights as consumers, as
workers, as patients, as investors, and as small business
owners. Amazon, AT&T, Comcast, Wells Fargo, Ticketmaster,
Dropbox, Goldman Sachs, P.F. Chang's, and Uber are just some of
the many companies that have modified their contracts with
consumers or workers to include these terms.\1\ Whether you're
taking out a student loan or checking a loved one into a
nursing home, forced arbitration is a fact of life.
---------------------------------------------------------------------------
\1\ See generally Jean R. Sternlight, Disarming Employees: How
American Employers are Using Mandatory Arbitration To Deprive Workers
of Legal Protection, 80 Brook. L. Rev. 1309 (2015); Lina Khan, Thrown
Out of Court, Wash. Monthly, June/July/Aug. 2014, http://www.
washingtonmonthly.com/magazine/junejulyaugust_2014/features/
thrown_out_of_court050661.php.
---------------------------------------------------------------------------
The most comprehensive (and congressionally mandated) study
of the prevalence and effects of arbitration found that over
83% of prepaid cards, 86% of private student loans, 88% of
mobile wireless contracts, and 99% of storefront payday loans
are now subject to forced arbitration.\2\ Over 85% of contracts
with arbitration clauses include class action bans.\3\ Market
concentration, meanwhile, magnifies the effects. For example,
although only 16% of credit card issuers include arbitration
provisions in their contracts, over 50% of credit card debt is
outstanding are subject to them.\4\ Were it not for an
antitrust settlement requiring certain credit card issuers to
drop their arbitration provisions, the share of debt subject to
arbitration would have been 94%.\5\
---------------------------------------------------------------------------
\2\ Consumer Financial Protection Bureau, Arbitration Study,
Sec. 2, at 8 (2015) (``CFPB Study'').
\3\ CFPB Study, Sec. 2, at 8.
\4\ Id.
\5\ Id at Sec. 2, at 9-11.
---------------------------------------------------------------------------
Existing inequality both reflects and facilitates the
growing prevalence of forced arbitration clauses. Economic
concentration has handed a relatively small number of firms
outsized influence over the contractual terms that govern most
transactions. For example, Comcast and TimeWarner together
control at least 57% of the national broadband market, and
around 63% of Americans live in areas where they can choose
only between these two providers.\6\ Some cities--including
Boston and the Twin Cities--are served by only one company,
leaving residents with no choice at all.\7\ One or two
companies, as a result, now set the contractual terms for a
significant share of U.S. broadband consumers. The same is
increasingly true of local hospitals, commercial banks, and
airlines, to name a few. Under such diminished competition,
consumers have no bargaining power and largely sign contracts
on a take-it-or-leave-it basis.
---------------------------------------------------------------------------
\6\ Shalini Ramachandran, New FCC Broadband Benchmark Lifts
Comcast's Share to Nearly 60%, WAll St. J. (Jan. 29, 2015, 5:17 p.m.),
http://blogs.wsj.com/corporate-intelligence/2015/01/29/comcast-bulks-
up-on-broadband. Others estimate their joint share could be as high as
75%. See William Conlow, Quantifying Comcast's Monopoly Power, Techdirt
(Aug. 1, 2014), https://www.techdirt.com/articles/20140726/10180428015/
quantifying-comcasts-monopoly-power.shtml.
\7\ Kate Cox, Here's What the Lack of Broadband Competition Looks
Like on a Map, Consumerist (Mar. 7, 2014), http://consumerist.com/2014/
03/07/heres-what-lack-of-broad band-competition-looks-like-in-map-form.
---------------------------------------------------------------------------
Taking a job in America also increasingly requires waiving
your legal rights. Last year, the Economic Policy Institute
estimated that more than half of nonunion private-sector
employees in the United States are already subject to mandatory
arbitration.\8\ That's roughly 60 million American workers--and
that number has been climbing each year. Forced arbitration is
more common in low-wage workplaces and among larger employers;
it is also more common in industries that are
disproportionately composed of women and in industries that are
disproportionately composed of African-American workers.\9\
---------------------------------------------------------------------------
\8\ Alexander J.S. Colvin, The growing use of mandatory
arbitration: Access to the courts is now barred for more than 60
million American workers, Economic Policy Institute (April 6, 2018),
https://www.epi.org/publication/the-growing-use-of-mandatory-
arbitration-access-to-the-courts-is-now-barred-for-more-than-60-
million-american-workers/.
\9\ Id.
---------------------------------------------------------------------------
II.
Forced arbitration is deeply unpopular--and that sentiment
is overwhelmingly bipartisan. Forced arbitration is still
poorly understood by the public, which is why hearings like
this are so important. When Americans are asked about what's
happening in the fine print, their opinion comes through loud
and clear.
One national survey from earlier this year showed that a
whopping 84% of American voters support federal legislation to
end forced arbitration for consumers and employees.\10\ And
that support was overwhelmingly bipartisan, representing the
view of 80% or more of Republicans, Democrats, and independents
surveyed. Eighty-three percent of Democrats and 84% of
Republicans polled strongly believe that consumers should have
a choice between court and arbitration. Moreover, six in ten
Americans understand that arbitration requirements mainly
benefit corporations over consumers or employees, and seven in
ten oppose the ability of a company to select the arbitrator. A
GOP polling firm found that substantial majorities of
Republicans, independents, and Democrats alike supported action
to limit forced arbitration of consumer contracts.\11\ The
evidence also suggests that forced arbitration is growing
increasingly unpopular--perhaps as a result of increased public
attention in the wake of the #MeToo movement and various
financial scandals.\12\
---------------------------------------------------------------------------
\10\ National Survey on Required Arbitration, Hart Research
Assocs., Feb. 28, 2019, https://www.justice.org/sites/default/files/
2.28.19%20Hart%20poll%20memo.pdf.
\11\ Sylvan Lane, GOP polling firm: Bipartisan support for consumer
bureau arbitration rule, The Hill, Oct. 5, 2017, http://thehill.com/
policy/finance/354143-gop-polling-firm-finds-bipartisan-support-for-
consumer-bureau-arbitration-rule.
\12\ A poll of likely voters before the 2016 election found that
75% supported the right of bank customers to take complaints to court,
rather than being forced into private arbitration. Americans for
Financial Reform & Center for Responsible Lending, 1,000 Likely 2016
National Voters, Lake Research Partners (2015), http://
ourfinancialsecurity.org/wp-content/uploads/2015/07/
Toplines.AFRCRL.public.070715.pdf.
---------------------------------------------------------------------------
III.
The main purpose and effect of forced arbitration is to
kill people's legal claims--plain and simple. If you have only
one takeaway from this hearing, I hope it is this: The biggest
problem with forced arbitration is that it kills people's
claims. Contrary to what forced arbitration's proponents would
have you believe, it doesn't channel claims into an alternative
system that's better, faster, or cheaper at resolving
individual disputes. Instead, under forced arbitration, the
small-dollar claims of American consumers and workers simply
disappear.
To see this in action, consider how forced arbitration
plays out in three different areas: Wage-and-hour law, consumer
law, and antitrust. In each area, the evidence shows that
arbitration functions to transfer wealth upwards from
individuals to those who draft the arbitration clauses.\13\
---------------------------------------------------------------------------
\13\ The following discussion is adapted from Deepak Gupta & Lina
Kahn, Arbitration as Wealth Transfer, 35 Yale L. & Pol'y. Rev. 499
(2017), https://ylpr.yale.edu/arbitration-wealth-transfer.
---------------------------------------------------------------------------
Wage theft. The growing prevalence of forced arbitration
clauses in employee contracts decimates workers' ability to
hold their employers accountable for labor violations. At a
time when, according to federal and State officials, ``more
companies are violating wage laws than ever before,'' \14\
workers have found themselves increasingly unable to recover
stolen wages from their employers.\15\
---------------------------------------------------------------------------
\14\ Steven Greenhouse, More Workers are Claiming ``Wage Theft,''
N.Y. Times, Aug. 31, 2014, http://www.nytimes.com/2014/09/01/business/
more-workers-are-claiming-wage-theft.html.
\15\ Brady Meixell & Ross Eisenbrey, An Epidemic of Wage Theft is
Costing Workers Hundreds of Millions of Dollars a Year, Econ. Pol'y
Inst. (Sept. 11, 2014), http://www.epi.org/publication/epidemic-wage-
theft-costing-workers-hundreds.
---------------------------------------------------------------------------
Wage theft occurs in several forms, and employers sometimes
engage in multiple types of violation simultaneously. Some
employers pay workers less than the legally required minimum
wage, fail to pay workers legally required rates for overtime
work, or wrongfully deduct pay. In other cases, employers
commit ``off-the-clock'' violations, requiring workers to come
in early or stay late while failing to compensate them for that
additional time. Laws against wage theft are massively under-
enforced,\16\ which means that joining a collective lawsuit is
frequently a worker's only means to recover money they earned
but were never paid. Forced arbitration clauses and class
action bans block this vital path for redress, enabling
employers to steal workers' wages with impunity.\17\ Because
wage theft is already regressive, practices that enable it,
like forced arbitration clauses, transfer wealth away from
workers and towards big companies.
---------------------------------------------------------------------------
\16\ Winning Wage Justice: An Advocate's Guide to State and City
Policies to Fight Wage Theft, Nat'l Emp't Law Project 17-18 (Jan.
2011), http://www.nelp.org/content/uploads/2015/03/
WinningWageJustice2011.pdf.
\17\ It is worth noting that some low-wage employers do not provide
workers with contracts at all. These workers--usually the most
vulnerable to wage theft--are therefore not directly affected by forced
arbitration clauses and class action bans. The trend may still affect
these workers in a broader sense, given that these contractual terms
promote and normalize a general culture of impunity.
---------------------------------------------------------------------------
Experts estimate the sum of wages stolen nationally to be
as high as $50 billion a year, ``a transfer from low-income
employees to business owners that worsens income
inequality.''\18\ In Los Angeles, for example, low-wage workers
lose$26.2 million in wage theft violations every week, or $1.4
billion annually.\19\ In New York, meanwhile, wage theft is
estimated to cheat 2.1 million workers across the State out of
a cumulative $3.2 billion in wages and benefits.\20\ Nor is the
phenomenon isolated to a handful of firms or industries. A 2009
study that surveyed more than 4,000 workers in low-wage
industries found that 76% had been underpaid or not paid at all
for their overtime hours.\21\ The report found that wage theft
is prevalent across sectors--including retail, restaurants and
grocery stores, domestic work, manufacturing, construction,
janitorial, security, dry cleaning, laundry, car washes, and
nail salons.\22\
---------------------------------------------------------------------------
\18\ Meixell & Eisenbrey, supra.
\19\ Ruth Milkman et al., Wage Theft and Workplace Violations in
Los Angeles: The Failure of Employment and Labor Law for Low-Wage
Workers, Instit. for Research on Labor and Emp't (2010), http://
www.labor.ucla.edu/downloads/wage-theft-and-workplace-violations-in-
los-angeles-2.
\20\ Aditi Sen, By a Thousand Cuts: The Complex Face of Wage Theft
in New York, Ctr. for Popular Democracy (2015), http://
populardemocracy.org/sites/default/files/WageTheft
%2011162015%20Web.pdf.
\21\ Annette Bernhardt et al., Broken Laws, Unprotected Workers:
Violations of Employment and Labor Laws in American Cities, Unprotected
Workers, http://www.unprotectedworkers.org/index.php/broken_laws/index
(last visited Jan. 11, 2016).
\22\ Id.
---------------------------------------------------------------------------
Through class action lawsuits, workers have recovered
millions of dollars in unpaid wages from their employers. In
2009, for example, Walmart agreed to pay $40 million in unpaid
wages as part of a settlement with thousands of former and
current employees.\23\ To resolve a class action dispute,
Staples paid $42 million in back pay to its assistant store
managers,\24\ and Schneider Logistics paid $21 million to its
workers.\25\ In other recent examples, New Jersey truck drivers
filed suit and recovered $2 million in back wages,\26\ New York
car wash workers $3.5 million,\27\ and cheerleaders for the
Oakland raiders $1.25 million.\28\
---------------------------------------------------------------------------
\23\ Dave Copeland, Wal-Mart Will Pay $40 m to Workers, Boston.com
(Dec. 3, 2009), http://www.boston.com/news/local/massachusetts/
articles/2009/12/03/wal_mart_will_pay_40m_to_workers.
\24\ Donna Goodison, Staples to Pay $42 m to Settle Wage Claims
(Jan. 30, 2010), http://news.bostonherald.com/business/general/view/
20100130staples_to_pay_42m_to_settle_ wage_claims.
\25\ Carrillo v. Schneider Logistics, 823 F. Supp. 2d 1040 (C.D.
Cal. 2011).
\26\ Erik Ortiz, Raymour & Flanigan Drivers Get $2 m for OT (July
8, 2009), http://www.pressofatlanticcity.com/business/
article_394857c209233c-517c-9dd2-fcf148daac8c.html.
\27\ Libby Nelson, Car Wash Chain to Pay $3.4 Million in Back
Wages, N.Y. Times (June 30, 2009, 4:38 p.m.), http://
cityroom.blogs.nytimes.com/2009/06/30/car-wash-chain-will-pay-34-
million-in-back-wages/.
\28\ Robin Abcarian, Cheerleaders' Wage-Theft Lawsuit to Cost
Oakland Raiders $1.25 Million, L.A. Times (Sept. 4, 2014), http://
www.latimes.com/local/abcarian/la-me-ra-raiders-settle-cheerleader-
lawsuit-20140904-column.html.
---------------------------------------------------------------------------
Once a company introduces a forced arbitration clause with
a class action ban, these suits vanish. A worker's only chance
at recourse then is individual arbitration, which studies
suggest is stacked against workers. For example, a 2011 study
found that employees win in arbitration far less often than in
employment litigation trials, and that when employees do win,
their average awards were ``substantially lower'' in
arbitration than in court.\29\ This in itself suggests that
forced arbitration in the employee context transfers wealth
upwards.
---------------------------------------------------------------------------
\29\ Alexander J. S. Colvin, An Empirical Study of Employment
Arbitration: Case Outcomes and Processes, 8 J. Empirical Legal Stud. 1
(2011).
---------------------------------------------------------------------------
Yet comparing outcomes in litigation and arbitration
actually underestimates the regressive effect, since it fails
to capture individuals dissuaded from initiating action
altogether. This sort of ``claim suppression'' is a primary
effect of forced arbitration and class action bans.\30\
Although some commentators argue that arbitration offers
employees a more accessible venue for redress than
litigation,\31\ ``empirical evidence now shows that mandatory
employment arbitration is bringing about the opposite result--
eroding rather than boosting employees' access to justice by
suppressing employees' ability to file claims.'' \32\ This
evidence reveals that employees covered by forced arbitration
provisions ``almost never file arbitration claims.'' \33\
---------------------------------------------------------------------------
\30\ As David S. Schwartz writes, ``[t]he compelling logic of what
is commonly called `mandatory arbitration' is that it is intended to
suppress claims,'' and ``[n]othing is more claim-suppressing than a ban
on class actions, particularly in cases where the economics of
disputing make pursuit of individual cases irrational.'' David S.
Schwartz, Claim-Suppressing Arbitration: The New Rules, 87 Ind L.J.
239, 240, 242 (2012). See also Judith Resnik, Diffusing Disputes: The
Public in the Private of Arbitration, the Private in Courts, and the
Erasure of Rights, 124 Yale L.J. 2804 (2015) (``The result has been the
mass production of arbitration clauses without a mass of arbitrations.
Although hundreds of millions of consumers and employees are obliged to
use arbitration as their remedy, almost none do so--rendering
arbitration not a vindication but an unconstitutional evisceration of
statutory and common law rights'').
\31\ See, e.g., Samuel Estreicher, Saturns for Rickshaws: The
Stakes in the Debate Over Predispute Employment Arbitration Agreements,
16 Ohio St. J. on Disp. Resol. 559 (2001).
\32\ Sternlight, supra, at 1312.
\33\ Id.
---------------------------------------------------------------------------
As a result, the class action recoveries workers obtained
even a few years ago are increasingly out of reach. Fewer
workers file suit at all, and the claims of those who do are
usually dismissed.\34\ Employers annually steal, and will
continue to steal, billions of dollars from workers--yet
arbitration clauses will keep workers from claiming any of it
back.
---------------------------------------------------------------------------
\34\ Id.
---------------------------------------------------------------------------
Consumer claims. Research shows that forced arbitration is
widespread across consumer markets, in industries ranging from
nursing homes and online retail to auto dealers and cell phone
providers. For insight into the effects of arbitration in
consumer markets, look to the CFPB's March 2015 study. Their
report is based on filings with the American Arbitration
Association (AAA), which administers the vast majority of
consumer financial arbitration cases. Although the report
examines just one segment of the economy, it is by far the most
comprehensive empirical study to date on outcomes in consumer
arbitration.
The CFPB found that a large share of financial products and
services are now subject to forced arbitration, including 44%
of checking accounts, 83% of prepaid cards, 86% of private
student loans, 88% of mobile wireless contracts, and 99% of
storefront payday loans.\35\ Over 85% of contracts with
arbitration clauses include class action bans. Market
concentration, meanwhile, magnifies the effects. For example,
although only 16% of credit card issuers include arbitration
provisions in their contracts, over 50% of credit card loans
outstanding are subject to them.\36\ Were it not for an
antitrust settlement requiring certain credit card issuers to
drop their arbitration provisions, the share of loans subject
to arbitration would be 94%.\37\
---------------------------------------------------------------------------
\35\ CFPB Study, Sec. 2, at 8.
\36\ Id. at Sec. 2, at 10.
\37\ Id. at Sec. 2, at 9-11.
---------------------------------------------------------------------------
This rise of forced arbitration eliminates what had been a
key means of consumer redress. Between 2008 and 2012, 422
consumer financial class action settlements garnered more than
$2 billion in cash relief for consumers and more than $600
million in in-kind relief.\38\ These figures underestimate the
consumer benefit generated by these class action suits, given
that several settlements also required companies to change
their business practices. As the CFPB notes, cases ``seldom
provided complete or even any quantification of the value of
this kind of behavioral relief.'' \39\ Nor does monetary relief
capture the deterrence value of class action suits, the threat
of which can serve as a powerful check on corporate wrongdoing.
---------------------------------------------------------------------------
\38\ Id. at Sec. 1, at 16.
\39\ Id.
---------------------------------------------------------------------------
So how do consumers fare under the new regime? Although it
can be difficult to compare litigation and arbitration
outcomes, the CFPB's report includes a case study that
resembles a controlled-experiment comparison. The study
examines outcomes in a multidistrict class action, filed
against twenty-three banks for illegally charging consumers
millions of dollars in excessive overdraft fees.\40\ In total,
debit cardholders reached eighteen settlements through the
litigation, resulting in $1 billion in cash relief for over
twenty-eight million consumers. Not all account holders were
able to join the class, however, because nine of the twelve
banks with arbitration clauses moved to enforce them. Five of
the banks succeeded, getting their cases moved to arbitration,
while four eventually chose to settle, giving individuals the
chance to opt-out and arbitrate instead. As of February 2015,
CFPB could not verify that even a single one of the consumers
who had pursued claims in arbitration--either by choice or
because banks had forced them to arbitrate--received any relief
at all.\41\ In a class action against one of the banks that had
forced arbitration, the arbitrator dismissed the consumers'
contract and tort claims, and they were awaiting an answer on
their federal statutory claims.\42\ Of the 242 opt-outs, no
more than three consumers brought overdraft claims before an
arbitrator, and zero were successful.\43\ Meanwhile, the
twenty-eight million consumers who had secured settlements
through litigation saw money transferred directly to their bank
accounts.\44\
---------------------------------------------------------------------------
\40\ Id. at Sec. 8, at 39-46 (discussing In Re Checking Account
Overdraft Litig., MDL 2036. 685 F.3d 1269 (11th Cir. 2012)).
\41\ Specifically, 173 consumers opted out of the settlement with
Chase, thirty-four opted out of the settlement with M&I, and thirty-
five opted out of the settlement with Compass Bank. Id. at App. A, at
108-09.
\42\ Id. at Sec. 5, at 86-87.
\43\ ``No more than three'' because CFPB does not know precisely
whether the three opt-outs that did go on to file claims through
arbitration had been involved in the overdraft litigation specifically,
or some other class action suit. Id. at App. A, at 104.
\44\ Id. at Sec. 8, at 40 & 45-46.
---------------------------------------------------------------------------
Because information on both the opt-outs and those forced
to arbitrate is incomplete, we cannot say with total certainty
that those who pursued arbitration received no money at all.
The thirty-two consumers who won money awards from AAA
arbitrators in 2010 and 2011 could have included victims of
unfair overdraft fee practices. But even the most generous
reading of these outcomes strongly suggests that arbitration is
worse at achieving justice for wronged consumers than is class
action litigation. That a maximum of three of the 242 opt-outs
attempted to arbitrate, too, suggests that forced arbitration
suppresses claims.\45\
---------------------------------------------------------------------------
\45\ Anecdotes suggest that defense lawyers recognize the
suppressive effect of arbitration clauses. As a recent news story
reported, ``[Lawyers believe] they may have found, in the words of one
law firm, the `silver bullet' for killing off legal challenges. In an
industry podcast, two lawyers discussed the benefits of using
arbitration to quash consumers' lawsuits. The tactic, they said, is
emerging at an opportune time, given that debt collectors are being
sued for violating federal law. The beauty of the clauses, the lawyers
said, is that often the lawsuit `simply goes away.' '' Jessica Silver-
Greenberg & Michael Corkery, Sued Over Old Debt, and Blocked From Suing
Back, N.Y. Times, Dec. 22, 2015, http://www.nytimes.com/2015/12/23/
business/dealbook/sued-over-old-debt-and-blocked-from-suing-back.html.
---------------------------------------------------------------------------
Moreover, arbitration seems to favor businesses over
consumers not just relative to litigation, but in an absolute
sense. The CFPB found that, within arbitration, companies are
far more successful than consumers. According to the Bureau's
report, businesses won relief in 93% of the business-initiated
cases in which arbitrators reached a decision on the merits. In
the disputes that businesses won, they received ninety-eight
cents for every dollar they had claimed; taking into account
the disputes where they lost, they recovered ninety-one cents
for every dollar claimed. In disputes initiated by consumers,
by contrast, arbitrators provided relief to consumers in 27% of
cases and awarded them an average of forty-seven cents for
every dollar claimed. Among consumer-initiated disputes as a
whole, consumers won an average of thirteen cents for every
dollar they had claimed.\46\ While a host of factors may
account for the disparity in outcomes, it is clear that
businesses are more often satisfied with arbitrator decisions
than are consumers.
---------------------------------------------------------------------------
\46\ These figures exclude cases in which consumers were disputing
debts they were alleged to owe. Including outcomes in those disputes,
consumers won some form of relief in 20% of cases and recovered an
average of twelve cents for every dollar they claimed. CFPB Study,
supra, at Sec. 5, at 41-45.
---------------------------------------------------------------------------
The distributive implications of forced arbitration in
consumer finance seem clear. As more cases are diverted into
arbitration, consumers will likely win at lower rates and
receive lower sums than they would through class action
litigation. The cost of wronging consumers--whether by design
or through negligence--will drop, given that consumers pursue
claims through arbitration at far lower rates than they do
through litigation, and those arbitration claims that are filed
are less often successful. Moreover, because arbitration
proceedings are private, businesses shed the risk of
reputational damage. So long as wrongful acts are sufficiently
lucrative, firms can build in the occasional arbitration
payment as a cost of doing business. As financial institutions
can acquire greater sums from consumers with greater impunity,
wealth is transferred upwards.
Forced consumer arbitration has especially pernicious
distributive effects given that the primary users of payday
loans and prepaid cards--which include arbitration clauses at
particularly high rates--are low-income consumers. This
suggests that those most vulnerable to exploitation by
financial institutions are the most likely to be deprived of
effective means of redress.
Antitrust. One area of law especially vulnerable to the
preclusive effects of arbitration is antitrust. A primary
example of this dynamic was at play in Italian Colors, the
Supreme Court case in which a small business owner alleged that
American Express was illegally abusing its market power.
Troublingly, firms that possess monopoly power can enact a sort
of ``double punch'' by imposing arbitration terms that insulate
their abuse of that same power. As Justice Kagan warned in her
dissent in that case, ``The monopolist gets to use its monopoly
power to insist on a contract effectively depriving its victims
of all legal recourse.'' \47\ In this way, ``a company could
use its monopoly power to protect its monopoly power, by
coercing agreement to contractual terms eliminating its
antitrust liability.'' \48\
---------------------------------------------------------------------------
\47\ Italian Colors, 133 S. Ct. at 2313 (Kagan, J., dissenting).
\48\ Id. at 2314.
---------------------------------------------------------------------------
In Italian Colors, American Express achieved just that, by
coupling a forced arbitration clause with a class action ban.
Because proving antitrust damages today requires costly
economic analysis, private plaintiffs generally cannot bring
suits unless they can split expenses, be it through joining as
a class or sharing costs some other way. Since American Express
had effectively prohibited all cost-sharing arrangements,
upholding the arbitration clause would deprive the plaintiff of
any economically viable way to pursue a claim. By ruling for
American Express, the Supreme Court handed firms a tool to
deflect private antitrust suits--a gift for monopolistic
companies, who can use their market power to impose contractual
terms that shield abuses of that same market power from
liability.
Two consequences stand out: First, antitrust enforcement
suffers as a whole, and second, this erosion of antitrust
enforcement transfers wealth from low-income to high-income
individuals.
Although the Court's holding enables firms to deflect only
private suits, there's sound reason to think that a fall-off in
private claims will injure enforcement as a whole. For one,
private litigation has been a traditional mainstay of antitrust
enforcement. Indeed, Congress designed the antitrust statutes
in order to promote private suits, not only creating a private
right of action but also awarding private parties treble
damages and injunctive relief. As the Court has noted, Congress
created these private rights ``not merely to provide private
relief'' but ``to serve as well the high purpose of enforcing
the antitrust laws.'' \49\ Moreover, ``Congress has expressed
its belief that private antitrust litigation is one of the
surest weapons for effective enforcement of the antitrust
laws.'' \50\ Furthermore, private and public enforcement often
work in conjunction, as public officials draw on information
revealed through private suits to build their own cases.\51\
Anemic private enforcement undermines the antitrust statutes as
a whole.\52\
---------------------------------------------------------------------------
\49\ Zenith Radio Corp. v. Hazeltine Research, 395 U.S. 100, 130-31
(1969).
\50\ Minn. Mining & Mfg. Co. v. N.J. Wood Finishing Co., 381 U.S.
311, 318 (1965).
\51\ Joshua P. Davis & Robert H. Lande, Defying Conventional
Wisdom: The Case for Private Antitrust Enforcement, 48 Ga. L. Rev. 1
(2013).
\52\ Einer Elhauge, How Italian Colors Guts Private Antitrust
Enforcement by Replacing It With Ineffective Forms of Arbitration, 38
Fordham Int'l L.J. 771 (2015).
---------------------------------------------------------------------------
Weaker antitrust, in turn, exacerbates economic inequality
by enabling wealth transfers from consumers, workers, and small
businesses to the executives and shareholders of large
corporations. While the connection between extreme market
concentration and wealth distribution has been overlooked for
decades, the current inequality crisis is drawing new attention
to the ways in which undue market power transfers wealth
upwards.\53\
---------------------------------------------------------------------------
\53\ See, e.g., Khan & Vaheesan, supra; Robert Reich, The Political
Roots of Widening Inequality, Am. Prospect (Spring 2015), http://
prospect.org/article/political-roots-widening-inequality; Robert Reich,
Saving Capitalism: For the Many, Not the Few (2015); Dave Dayen, Bring
Back Antitrust, Am. Prospect (Fall 2015), http://prospect.org/article/
bring-back-antitrust-0; Jason Furman & Peter Orszag, A Firm-Level
Perspective on the Role of Rents in the Rise in Inequality, Nat'l
Bureau of Econ. Research, Oct. 16, 2015; Paul Krugman, Challenging the
Oligarchy, N.Y. Review of Books, Dec. 17, 2015, http://www.nybooks.com/
articles/2015/12/17/robert-reich-challenging-oligarchy/ (reviewing
Robert Reich's Saving Capitalism: For the Many, Not the Few).
---------------------------------------------------------------------------
Abuse of market power contributes to inequality in a number
of ways. Most obviously, monopolistic and oligopolistic firms
often hike consumer prices. For example, a host of studies
documents how consolidation across the healthcare industry has
enabled hospitals, health insurers, and pharmaceutical
companies to charge consumers more for the same goods and
services.\54\ Businesses also use their dominance to suppress
workers' wages. In 2006, for instance, around 20,000 registered
nurses filed a class action suit alleging that hospitals in and
around Detroit had colluded to keep their wages low. Three
hospitals settled for more than a combined $48 million;
litigation against a fourth is still pending. Similarly, in
2010, a group of high-tech companies--including Adobe, Apple,
Google, Intel, Intui, and Pixar--were found to have squashed
competition by agreeing not to poach or solicit each other's
employees. Four of the firms ultimately settled a private suit
for $415 million, providing relief to 64,000 software
engineers. Lastly, firms with monopoly power can extract wealth
from smaller businesses. Italian Colors originated in a suit
brought by Alan Carlson, the owner of a family restaurant in
Oakland, California, who alleged that American Express had been
using its monopoly power in premium and corporate credit cards
to force merchants to accept ordinary cards at much higher
rates than what rivals charged. An economist analyzing the
excess fees charged to the Italian Colors plaintiffs estimated
that the company's tactics cost Carlson's restaurant nearly
$500 a year--a transfer of income from his small business to
American Express.\55\
---------------------------------------------------------------------------
\54\ Zack Cooper et al., The Price Ain't Right? Hospital Prices and
Health Spending on the Privately Insured, Health Care Pricing Project,
Dec. 2015; Leemore Dafny et al., More Insurers Lower Premiums: Evidence
From Initial Pricing in the Health Insurance Marketplaces, Nat'l Bureau
of Econ. Research, Working Paper No. 20140, May 2014.
\55\ Joint App. at 96, Italian Colors, 133 S. Ct. 2304 (2013) (No.
12-133), available at http://guptawessler.com/wp-content/uploads/2012/
05/12-133ja.pdf. While Carlson's complaint focused on the swipe fee
costs incurred by merchants--and hence the transfer of wealth from
small businesses to credit card companies--the swipe fee system more
generally institutes a systemic wealth transfer from low-income to
high-income consumers. This is because credit card use is strongly
correlated with consumer income, and merchants pass on swipe fees in
the form of higher retail prices to all customers. Cash buyers
therefore end up subsidizing the cost of credit cards, while lacking
access to the rewards and financial perks that credit card users enjoy.
The Boston Federal Reserve estimates that the swipe fee system
generates a yearly transfer of $1,282 from the average cash payer to
the average card payer. Scott Schuh et al., Who Gains and Who Loses
From Credit Card Payments?: Theory and Calibrations, Fed. Reserve Bank
of Boston Pub. Pol'y Paper, No. 10-03, Aug. 31, 2010, https://
www.bostonfed.org/economic/ppdp/2010/ppdp1003.pdf.
---------------------------------------------------------------------------
Since forced arbitration clauses and class action bans tend
to preclude private antitrust suits, the rise of arbitration
will enable firms with monopolistic power to abuse that power
with greater impunity. Insofar as anticompetitive behavior
transfers income from consumers, workers, and small businesses
to the owners and managers of larger firms, the expansion of
arbitration will lead to regressive wealth distribution.
IV.
Forced arbitration is only possible because unelected
judges have twisted the original intent of a law passed by
Congress in 1925. Until the 1920s federal courts generally
refused to enforce arbitration agreements. But in the early
decades of the century, as the number of corporate
transactions--and, by extension, disputes--grew, businesses
wanted to give legal effect to arbitration agreements reached
by businesses that wanted to keep their mutual disputes out of
court.\56\ Arguing that arbitration would relieve congested
courts, business interests lobbied Congress to let them set up
private solutions that would be faster and cheaper than public
courts.
---------------------------------------------------------------------------
\56\ Margaret L. Moses, Statutory Misconstruction: How the Supreme
Court Created a Federal Arbitration Law Never Enacted by Congress, 34
Fla. St. U. L. Rev. 99 (2006); Imre Szalai, Outsourcing Justice: The
Rise of Modern Arbitration Laws in America (Carolina Academic Press
ed., 2013).
---------------------------------------------------------------------------
When officials expressed concern that arbitration would let
``the powerful people . . . come in and take away the rights of
the weaker ones,'' supporters of arbitration legislation
assured them that the device would be used only between
consenting merchants of roughly equal bargaining power--not
against workers or consumers.\57\ The Federal Arbitration Act
(FAA) passed Congress in 1925, expressly excluding workers from
its reach.
---------------------------------------------------------------------------
\57\ Moses, supra, at 106-107.
---------------------------------------------------------------------------
For much of the twentieth century, arbitration largely
worked as Congress had intended: To resolve the sorts of fact-
based contractual disputes that arise between businesses in the
course of routine transactions--concerning whether a party had
complied with the terms of payment, for example, or delivered
goods at the right place and right time.\58\ Federal statutory
claims were categorically outside the FAA's reach, as were all
claims brought by workers and all claims brought in State
court. The insertion of arbitration clauses into mass contracts
with consumers or workers was unheard of.
---------------------------------------------------------------------------
\58\ Id. at 111.
---------------------------------------------------------------------------
Starting in the 1980s, however, the U.S. Supreme Court
issued a series of decisions that would begin to steer us down
an entirely new path. One key moment came in 1983, when the
Court declared that the FAA reflected a ``federal policy
favoring arbitration.'' \59\ The idea that Congress had
intended arbitration as preferable to courts, rather than just
as an alternative, was not founded in legislative history.\60\
Still, the Court's language suggested as much, and future
judges would lean on it as they razed the walls that had kept
arbitration in its place.
---------------------------------------------------------------------------
\59\ Moses H. Cone Mem'l. Hosp. v. Mercury Constr., 460 U.S. 1
(1983).
\60\ Moses, supra.
---------------------------------------------------------------------------
Two successive decisions cemented what might have been a
quirky deviation into a major turning point. In 1984, the
Supreme Court heard a case brought in California by 7-Eleven
franchisees against their parent company, Southland, which had
included in their contracts a binding arbitration clause.\61\
California outlawed these clauses, recognizing that franchisees
usually lacked power to negotiate these terms. Yet Southland
argued that its contract overrode State law. Drawing on the
Court's interpretation from the previous year--that Congress
had intended a ``federal policy favoring arbitration''--a 7-2
majority on the Supreme Court ruled for Southland, eroding the
power of states to limit how companies use arbitration.
---------------------------------------------------------------------------
\61\ Southland Corp. v. Keating, 465 U.S. 1 (1984).
---------------------------------------------------------------------------
In a striking dissent, Justice Sandra Day O'Connor
criticized the majority for ignoring legislative history.
``Today's decision is unfaithful to congressional intent,
unnecessary, and . . . inexplicable,'' she wrote. ``Although
arbitration is a worthy alternative to litigation, today's
exercise in judicial revisionism goes too far.'' \62\
---------------------------------------------------------------------------
\62\ Id. at 36 (O'Connor, J., dissenting).
---------------------------------------------------------------------------
It would soon go farther. In 1985, the Supreme Court heard
Mitsubishi v. Soler Chrysler-Plymouth, a case in which a car
dealer had sued the Japanese firm for violating antitrust laws,
and Mitsubishi had pushed to arbitrate.\63\ The car dealer
noted that the FAA allowed companies to use arbitration only to
settle disputes about contracts they had written, not to
interpret laws Congress had passed, like the Sherman Antitrust
Act. A five-justice majority--continuing its recent pattern of
pro-arbitration decisions--sided with Mitsubishi. Arbitrators
could now Rule on actual statutory law--civil rights, labor
protections, as well as antitrust--despite having no
accountability or obligation to the public.
---------------------------------------------------------------------------
\63\ Mitsubishi v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985).
---------------------------------------------------------------------------
In a powerful dissent, Justice John Paul Stevens warned
that there were great dangers in allowing ``despotic decision-
making,'' as he called it, to extend to law like antitrust.
``[Arbitration] is simply unacceptable when every error may
have devastating consequences for important businesses in our
national economy, and may undermine their ability to compete in
world markets,'' he wrote.\64\
---------------------------------------------------------------------------
\64\ Id. at 657.
---------------------------------------------------------------------------
In the span of these three decisions, the Supreme Court had
drastically enlarged the scope of arbitration. Against the
backdrop of a movement claiming excessive lawsuits were
strangling small businesses, courts would continue to expand
the realms in which companies could compel arbitration. In the
1995 case Allied-Bruce, the Supreme Court permitted the use of
arbitration clauses by companies in routine consumer
contracts.\65\ This prompted Justice O'Connor to remark that,
``over the past decade, the Court has abandoned all pretense of
ascertaining congressional intent with respect to the Federal
Arbitration Act, building instead, case by case, an edifice of
its own creation.'' \66\ In 2001, the Court ruled against a
group of Circuit City workers, holding that employers could use
arbitration clauses in contracts with employees despite
statutory language to the contrary.\67\ In 2004, a court ruled
that arbitration clauses were enforceable against illiterate
consumers; \68\ a separate court ruled that they were
enforceable even when a blind consumer had no knowledge of the
agreement.\69\
---------------------------------------------------------------------------
\65\ Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995).
\66\ Id. at 283 (O'Connor, J., concurring).
\67\ Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001). This
decision is impossible to square with both the statutory text and
legislative history. As one of the FAA's architects explained in 1923:
``It is not intended this shall be an Act referring to labor
disputes, at all. It is purely an Act to give the merchants the right
or the privilege of sitting down and agreeing with each other as to
what their damages are, if they want to do it. Now, that is all there
is in this.''
A Bill to Make Valid and Enforceable Written Provisions or
Agreements for Arbitration, Hearing Before the Senate Judiciary
Committee, 67th Cong. 9 (1923).
\68\ Wash. Mut. Fin. Grp. v. Bailey, 364 F.3d 260, 264-66 (5th Cir.
2004).
\69\ Am. Gen. Fin. Servs., Inc. v. Griffin, 327 F. Supp. 2d 678,
683 (N.D. Miss. 2004).
---------------------------------------------------------------------------
Yet the real watershed came in 2011, in AT&T Mobility v.
Concepcion. Vincent and Liza Concepcion had sued AT&T in
federal court in California, alleging that the company had
engaged in false advertising by claiming that their wireless
plan included free cell phones--a practice that had
shortchanged millions of consumers out of about $30 each. When
they tried to litigate as a class, AT&T pointed to the fine
print in their contract, which included a class action ban.
The Concepcions pointed out that class action bans violated
California law. Many State and federal courts had forbidden
class action bans, on the grounds that individuals often had no
practical way to make a claim unless they joined with other
plaintiffs to share the cost of litigating. Allowing companies
to eliminate this right in ``take-it-or-leave-it'' contracts
would effectively let corporations violate laws with little
risk of accountability.
The district court and the U.S. Court of Appeals for the
Ninth Circuit both ruled for the Concepcions, holding that
AT&T's terms were unconscionable and that nothing in the FAA
preempted this arbitration-neutral Rule of State law. \70\ When
the case reached the Supreme Court, eight State attorneys
general, as well as a group of civil rights organizations,
consumer advocates, employee rights groups, and prominent law
professors, weighed in, arguing that permitting class action
bans would enable companies to evade entire realms of law. The
Supreme Court, in a five to four split, ruled that AT&T's
contract was enforceable, opening the door for companies to ban
class actions routinely in their fine print.
---------------------------------------------------------------------------
\70\ Laster v. T-Mobile USA, Inc., No. 05CV1167DMS AJB, 2008 WL
5216255, at Cal. Aug. 11, 2008) aff'd sub nom; Laster v. AT&T Mobility
LLC, 584 F.3d 849 (9th Cir. 2009) rev'd sub nom. AT&T Mobility LLC v.
Concepcion, 563 U.S. 333 (2011).
---------------------------------------------------------------------------
At this point, one limit on class action bans remained: if
a ban eliminated the only way someone could bring a case, it
would be unenforceable. But in 2013, the Supreme Court razed
even this protection in a case pitting a group of small
merchants--including Italian Colors, the family restaurant--
against American Express.\71\ This time around, the same five-
judge majority ruled that arbitration clauses containing class
action bans were enforceable--even when it meant citizens had
no way to ``effectively vindicate'' their rights and were left
with no recourse. Even for antitrust laws designed to police
the very market power that enables big companies to insert
these clauses in the first place.
---------------------------------------------------------------------------
\71\ Italian Colors, 133 S. Ct. at 2304.
---------------------------------------------------------------------------
In AT&T Mobility v. Concepcion and American Express v.
Italian Colors, the Supreme Court gave companies a green light
to use arbitration clauses to cut off collective claims by both
consumers and small businesses, under both State and federal
law. The latest Supreme Court decision in this vein, Epic
Systems v. Lewis, sweepingly extends this dangerous trend by
blocking workers from banding together to redress the full
range of workplace legal violations as well.
Just last month, Justice Ginsburg took the unusual step of
repeating her call for Congress to take action to bring the
Federal Arbitration Act back in line with its original intent.
``Congressional correction of the Court's elevation of the FAA
over the rights of employees and consumers to Act in concert,''
she warned, is ``urgently in order.'' \72\
---------------------------------------------------------------------------
\72\ Lamp Plus v. Varela, slip op at 5 (S. Ct. 2019) (Ginsburg, J.,
dissenting).
---------------------------------------------------------------------------
There was a time when reasonable people might have believed
that forced arbitration for consumers and workers was worth
allowing as an experiment in cheaper, faster dispute
resolution. As Americans wake up to the spreading reality of
forced arbitration, and as the #MeToo movement and financial
scandals expose its pernicious effects, that time has long
since passed. Now the only question is when and how we're going
to fix it. I urge you to support and enact legislation to end
forced arbitration.
Thank you again for the opportunity to testify. I am happy
to answer any of your questions.
Mr. Cicilline. Thank you.
The Chair now recognizes Mr. Ziober for 5 minutes.
TESTIMONY OF LIEUTENANT COMMANDER KEVIN ZIOBER
Lieutenant Ziober. Chairman Cicilline, Ranking Member
Sensenbrenner, and other distinguished Members of the
committee, thank you for the opportunity to testify today.
I am a Lieutenant Commander in the Navy Reserves and a
Federal employee, but I am here in my private capacity to share
my own story as a Reservist who was fired on the eve of my
deployment to Afghanistan and later forced to arbitrate my
discrimination claim when I returned home.
I am here to speak for tens of millions of workers who have
been forced to agree to arbitration as a condition of
employment. I am here asking this Congress to pass legislation
to help give all workers a real choice to enforce their rights
in court or in arbitration.
Forced arbitration takes away the rights of all Americans,
women and men, people with disabilities, veterans, consumers,
Republicans, Democrats, and Independents. As a registered
Republican for most of my life, I hope both parties will work
together to restore the legal rights of all Americans, which
are often eviscerated by forced arbitration agreements.
I am very grateful to you, Chairman Cicilline, for your
leadership in holding this hearing and your efforts to protect
service Members from forced arbitration. Your bill, the Justice
for Service Members Act, would simply clarify that service
Members cannot be required to arbitrate their employment claims
under USERRA, the Federal law that guarantees civilian
employees can take military leave and later return to their
jobs.
I also want to thank Chairman Nadler for his leadership
with the Restoring Justice for Workers Act, and Congressman
Johnson for sponsoring the FAIR Act, and other Members of this
Committee for your support with these important bills.
In 2008, I joined the Navy Reserves to fulfill my lifelong
dream of serving my country. One challenge all Reservists face
is balancing their military and civilian careers, as many
Members of Congress know personally. Unfortunately, I learned
the hard way that some employers do not support their Reservist
employees.
In July 2010, I was hired by BLB Resources, a Federal
contractor in Irvine, California. I worked hard helping BLB
grow from a staff of 18 to over 90 employees. Six months into
my tenure, BLB asked me and other employees to sign an
arbitration agreement as a condition of keeping our jobs. Like
other employees who needed their jobs to make ends meet, I felt
that I had no choice but to sign.
In November 2012, I received orders to deploy to
Afghanistan for 12 months. On my last day of work, my
colleagues greeted me with a standing ovation. My office was
decorated with camouflage netting and Navy-colored balloons.
Cards and gifts were stacked on my desk.
At noon, BLB held a surprise party in my honor where 40 co-
workers gathered to wish me well on my deployment. There was
even a large cake with an American flag decorated in red,
white, and blue with the inscription, ``Best Wishes Kevin.''
Around 4:45 p.m. that same afternoon, I was called into a
meeting in the HR Department, where I was fired and told my
position would not be available to me after my deployment. The
shock of being terminated on the eve of my deployment to a
combat zone created an unimaginable amount of concern and
anxiety about how I would support myself and my family when I
returned home. That is exactly why Congress enacted USERRA, so
that no service member who is asked to leave their job to fight
for our country would ever have to worry about fighting for
their job when they returned home.
When my deployment ended in 2014, I tried to enforce my
USERRA rights in Federal court, but BLB moved to compel
arbitration, and the district judge told me I had to arbitrate
my case. The Ninth Circuit later upheld that ruling because it
felt that USERRA's text was not clear enough in banning forced
arbitration.
Thankfully, my story did not end there. In 2017, when I
asked the Supreme Court to hear my case, 20 Members of Congress
from both parties filed an amicus brief asking the Court to
uphold Congress' intent that USERRA bars forced arbitration.
Although the Supreme Court declined to hear my case, bipartisan
Members of Congress have expressed support for legislation to
end forced arbitration for service Members and veterans in
cases like mine. I hope that this Congress will Act to protect
service Members, veterans, and all Americans from forced
arbitration.
Arbitration takes away so many rights that make our legal
system fair, the right to an impartial judge and jury, a public
and transparent forum, fair and consistent procedural rules,
and a meaningful right to appeal. For me, the choice is easy. I
prefer my day in court. Others may prefer arbitration. We all
should get to make this choice freely and only after a dispute
has occurred.
As a service member, I try to remember that our service is
not for ourselves but for every American, and in my view, no
American should be denied the choice to enforce their rights.
Thank you.
[The statement of Lieutenant Ziober follows:]
STATEMENT OF LIEUTENANT COMMANDER KEVIN ZIOBER
Before the United States House Subcommittee on Antitrust,
Commercial and Administrative Law May 16, 2019
Chairman Cicilline, Ranking Member Sensenbrenner, and other
distinguished Members of the House Subcommittee on Antitrust,
Commercial and Administrative Law, thank you for affording me
the opportunity to testify about my experience with forced
arbitration and encourage Congress to pass legislation to
protect servicemembers, veterans, and all Americans from forced
arbitration.
In 2016, I testified before the Senate Committee on
Veterans' Affairs in support of the Justice for ServiceMembers
Act of 2016, a bipartisan bill to clarify that servicemembers
and veterans cannot be required to arbitrate their claims under
the Uniformed Services Employment & Reemployment Rights Act
(``USERRA''). USERRA is the federal law that has made it
possible for millions of Americans to serve in the guard and
reserves, because the law guarantees that civilian employees
can take military leave and return to their civilian jobs, and
be free of workplace discrimination and retaliation related to
their military service. See 38 U.S.C. Sec. Sec. 4301 et seq.
I offered similar testimony in April of 2019 in the Senate
Judiciary Committee in a hearing organized by Chairman Lindsey
Graham and Ranking Member Diane Feinstein. During that hearing,
a bipartisan consensus appeared to emerge that arbitration has
gotten out of control and is undermining the rights of every
American under the important laws that this Congress has passed
over the past century. I heard about my fellow Americans being
subjected to outrageous conduct--harassment, physical assault,
and fraud--only to have their rights stripped away by
arbitration agreements when they had no meaningful or informed
choice about whether to sign those agreements. I heard Members
of the Senate on both sides of the aisle coming together to
identify specific areas where forced arbitration should not be
permitted, including for servicemembers and veterans,
harassment, and other forms of discrimination, and calling for
barring all forced arbitration so that workers and consumers
can decide how to enforce their fundamental rights.
I am honored to speak again today in support of millions of
servicemembers and veterans whose rights are being taken away
by forced arbitration when they need to invoke USERRA or the
Servicemembers Civil Relief Act (``SCRA'').\1\ I am also
honored to speak about how forced arbitration is jeopardizing
the rights of all American workers and consumers, and to urge
all Members of Congress to come together to fix this growing
problem.
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\1\ Today, I am sharing my own views as a private citizen about the
importance of USERRA. I am not speaking on behalf of any other person
or institution. I accepted this invitation to speak and am testifying
in my personal capacity. The views expressed in my remarks are my own
and do not necessarily reflect the official positions of the U.S.
Government, the U.S. Navy, or the Department of Defense. I am speaking
on my own behalf and have no affiliation with public or private
entities. Nor do I seek any financial or political gain by
participating in this hearing.
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I am proud to have served my country in the United States
Navy for more than a decade. Like all service Members, I joined
the military and continue to serve because I care deeply about
protecting the American people and our nation. And that is why
I am here today, to seek to protect millions of servicemembers
and veterans and hundreds of millions of Americans whose
fundamental rights are being undermined by forced arbitration.
I also appreciate the opportunity to tell my own personal
story about how on my last day of work before a one-year
deployment to Afghanistan, my employer threw an office-wide
party to celebrate my military service, but then fired me just
before my deployment training began in violation of federal
law. Almost seven years later, in large part because of forced
arbitration, I am still fighting to enforce my rights and seek
justice. Sadly, my story is not unique. It happens every day
across America, not only to servicemembers and veterans whose
rights are violated, but also to working people and consumers
of all backgrounds.
Forced arbitration takes away the rights of all Americans--
women and men; people of all racial, ethnic, and religious
backgrounds; people with disabilities; servicemembers and
veterans; consumers who buy all types of products and services;
Republicans, Democrats, and Independents.
I hope that both parties in Congress will work together to
reform the federal arbitration law for the benefit of all
Americans. Though I have been a registered Republican for the
vast majority of my life, I want to see our elected leaders
find common ground to protect the rights that make our lives
better--like consumer protection, civil rights, and veterans'
rights.
I would like to personally thank all of the Members of this
Committee who have introduced or sponsored legislation to
reform our federal laws so that servicemembers and veterans can
have their day in court, and several of you who filed an amici
curiae brief in my case before the U.S. Supreme Court to tell
the justices that Congress always intended to protect
servicemembers and veterans from forced arbitration under
USERRA.
I would also like to thank the countless Members of
Congress who have personally served in the Armed Forces or
whose family Members have served in the Armed Forces, and all
of the Members of Congress who work in a bipartisan fashion to
ensure that military families get the support that they need
and deserve. You know the sacrifices that servicemembers and
their families routinely make so that America can remain safe
and free, and you understand why our federal laws must protect
those who have honorably served.
Balancing Civilian and Military Careers
I grew up in California and now live in Orange County,
California. After graduating from the University of Southern
California with a degree in business/finance, I worked in the
commercial finance, mortgage banking, and real estate
industries where I enjoyed the opportunity to manage teams in
sales, operations, underwriting, and production.
As my civilian career developed, I realized that my life-
long desire to serve my country in the Armed Forces would soon
close, due to the military's 40-year-old age restriction. I've
always respected the great sacrifices that our courageous
servicemembers have made to defend our nation, especially after
the September 11, 2001 terrorist attacks on our homeland.
In 2008, I joined the Navy Reserves to serve my country and
help protect America's liberties, freedoms, and security. I
chose to serve in the intelligence field, because I wanted to
support those servicemembers on the front lines who literally
sacrifice life and limb to keep America safe and defend our
national security interests around the world.
On July 4, 2008, on the flight deck of the USS Midway, I
was commissioned as an Ensign in the Navy Reserves. It was a
dream come true, and one of the proudest moments of my life. In
2010, I was promoted to the rank of Lieutenant Junior Grade. In
2012, I was promoted to the rank of Lieutenant and deployed to
Afghanistan. In 2018, I was promoted to the rank of Lieutenant
Commander. In my current duties, I oversee the manning,
training, and mobilization readiness of a 130-member
Information Warfare unit in San Diego.
When I joined the Navy Reserves in 2008, I understood that
like more than 1 million reservists \2\ I would need to balance
my civilian career with a military career. I understood that on
a moment's notice I could be called to active duty for weeks,
months, or even years, and that my military service could take
me across the United States or half-way around the globe.
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\2\ See Congressional Research Service, Reserve Component Personnel
Issues: Questions and Answers at 3 (Oct. 4, 2018) (stating that
1,036,644 Americans are Members of the Select Reserve or Individual
Ready Reserve/Inactive National Guard as of July 31, 2018), available
at https://fas.org/sgp/crs/natsec/RL30802.pdf.
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Like all reservists, I hoped that my future employers would
support my military service and understand that by allowing me
to take military leave from my civilian job they were literally
making it possible for me to serve our country in the Armed
Forces. And while I believe that most employers want to do the
right thing and comply with USERRA, many employers find it
inconvenient when their employees take military leave, and
regrettably some employers even take adverse action against
reservists--such as terminating them or refusing to reemploy
them after their military service is over.
Even though this type of adverse action violates USERRA,
many employers believe that reservists will simply move on to
the next job without taking any action to enforce their rights.
And increasingly employers are requiring reservists to enforce
their rights in secret arbitration proceedings that are often
overseen by arbitrators selected by employers with a limited
opportunity for reservists to discover the key facts in their
cases. These employers hope that the secrecy of arbitration
will prevent the public from learning about how they have
mistreated reservists or veterans, even if it means taking away
many of the key rights that Congress has bestowed upon
reservists since the 1940s.
Fired the Day Before I Began a Deployment to Afghanistan
In July 2010, I was hired as a manager by BLB Resources,
Inc. (``BLB''), a federal contractor headquartered in Irvine,
California. From 2010 to 2012, I worked hard and helped BLB to
grow from a staff of 18 employees to a workforce of over 90. I
enjoyed my work and took pride in it, and I planned to build a
career at the company.
Six months into my tenure at BLB, the company asked me and
other employees to sign several legal documents, including an
arbitration agreement as a condition of keeping our jobs. Like
other employees who needed their jobs to make ends meet, I felt
that I had no choice but to sign the papers. I had no intention
of losing my livelihood. Plus, things were going well for me at
the company, I didn't foresee any legal issues arising, and I
didn't want to cause any problems, so I signed the paperwork
and I moved onto doing my job to the best of my ability.
In November 2012, I received official orders from the Navy
to deploy to Afghanistan for 12 months. (I had been on a short
list for a mobilization for more than a year, and during that
time my employer was aware that I would likely be deployed.) On
my last day of work on November 30, 2012, I was greeted by my
colleagues with a standing round of applause. My personal
office was decorated with camouflage netting and Navy colored
balloons. Cards and gifts were stacked on my desk. At noon, BLB
held a surprise party in my honor, where 40 of my co-workers
gathered to wish me well on my deployment. There was even a
large cake with an American flag decorated in red, white, and
blue, with the inscription ``Best Wishes Kevin.'' A picture of
that farewell cake is attached to my testimony as Exhibit A.
Right after the party, I felt amazing. I even called my
family to tell them about how moved I was that my colleagues
had honored me and my military service. 1Around 4:45 p.m. that
same afternoon, I was summoned to a meeting in the company's
human resources department. I didn't receive any advance notice
of the meeting, so I didn't know what it was about. When I
walked into the room, I saw three people: The director of human
resources, my direct supervisor, and another person who I
believe was the company's lawyer or employment consultant. I
was fired on the spot and told that my position would not be
waiting for me upon my return from active duty.
The shock of learning that I was being terminated from my
job on the eve of my deployment to a combat zone created an
unimaginable amount of concern and anxiety about how I would
support myself and my family when I returned home. In the
course of a few hours, I went from feeling supported, proud,
and focused on serving my country, to feeling embarrassed,
confused, and concerned about the well-being of my loved ones.
No servicemember who is asked to leave his family and
friends to fight for our country should ever have to worry
about fighting for his job when he returns home. That was the
primary reason why Congress enacted USERRA and the
servicemember protection laws that came before USERRA and date
back to the 1940s.\3\
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\3\ When Congress enacted USERRA in 1994, it stated that the
purposes of the law are: ``(1) to encourage noncareer service in the
uniformed services by eliminating or minimizing the disadvantages to
civilian careers and employment which can result from such service; (2)
to minimize the disruption to the lives of persons performing service
in the uniformed services as well as to their employers, their fellow
employees, and their communities, by providing for the prompt
reemployment of such persons upon their completion of such service; and
(3) to prohibit discrimination against persons because of their service
in the uniformed services.'' 38 U.S.C. Sec. 4301(a).
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Forced to Arbitrate My Claims Under USERRA
I never considered myself to be a litigious person and
never thought that I would be involved in a lawsuit. When I
returned home from Afghanistan in the spring of 2014, I made
the decision to try to right the wrong that I believe BLB
committed against me and my family when it terminated me on the
eve of my deployment.
I talked to a lawyer and filed a USERRA action in federal
court. Having been around the world, I am particularly grateful
for the Rule of law and American courts. I firmly believe that
the American justice system is the fairest and most impartial
system in the world, and I placed my faith in that process.
However, BLB immediately filed a motion to compel
arbitration, arguing that the paperwork that I was forced to
sign six months into my employment took away my right to go to
court. The judge granted the motion, dismissing my case and
sending it to a private arbitration company for resolution.
I was surprised and disappointed to be denied my day in
court like all Americans deserve. In arbitration, I would have
no access to a federal judge nominated by the President and
confirmed by the Senate, I would lose my Seventh amendment
right to a jury trial, I would lose any meaningful right to an
appeal, and I would lose my right to a public proceeding of any
kind. Along with other servicemembers, I have fought to advance
American ideals and values abroad, so it was particularly
disheartening to lose these fundamental rights at home.
I appealed the decision to the United States Court of
Appeals for the Ninth Circuit, which affirmed the district
court's decision to compel me into arbitration. The Court
``acknowledge[d] the possibility that Congress did not want
`Members of our armed forces to submit to binding, coercive
arbitration agreements.' '' Ziober v. BLB Res., Inc., 839 F.3d
814, 821 (9th Cir. 2016) (quoting Landis v. Pinnacle Eye Care,
LLC, 537 F.3d 559, 564 (6th Cir. 2008) (Cole, J., concurring)).
But it still held that I and all other reservists who work
outside of the Federal Government could be forced to arbitrate
our USERRA claims. Id.
One judge on the three-judge panel in my case issued a
separate opinion to State that he had serious ``doubts about
whether [the Court was] reaching the right result.'' Ziober,
839 F.3d at 821 (Watford, J., concurring). He explained that
USERRA voids any contract that ``reduces, limits, or eliminates
in any manner any right . . . provided by'' USERRA, and that
the arbitration agreement in my case ``certainly `limits'--and
for all practical purposes `eliminates'--[my] right to litigate
[my] claims in court.'' Id. at 821-822 (quoting 38 U.S.C.
Sec. 4302(b)). He also acknowledged that the Department of
Labor in 2005 had issued regulations that interpret USERRA as
prohibiting arbitration agreements that prevent reservists from
filing actions in court. Id. (citing 70 Fed. Reg. 75246, 75257
(Dec. 19, 2005)). Nevertheless, this judge and the three-judge
panel concluded that the text of USERRA was not explicit enough
in prohibiting forced arbitration, based on binding Supreme
Court precedent about what Congress must say to override the
Federal Arbitration Act. Id. at 821-822.
I am grateful that one of the judges on the Ninth Circuit
panel urged Congress to fix the law so that it makes clear that
servicemembers cannot be forced to arbitrate their USERRA
claims, and that he pointed to a previous case in 2008, when
another appellate judge had similarly encouraged Congress to
fix the law. Id. at 822-823 (Watford, J., concurring) (citing
Landis, 537 F.3d at 564 (Cole, J., concurring)). As I describe
below, many Members of Congress have heeded these judges' calls
to amend USERRA so that it will forever be clear that
servicemembers and veterans cannot be forced to arbitrate their
claims.
In 2017, I asked the U.S. Supreme Court to hear my case to
challenge the notion that employers can force servicemembers
and veterans to waive their hard-earned USERRA rights.
Many people came to my side. In fact, 20 Members of
Congress from both sides of the aisle, including a number of
leaders of the House Judiciary Committee, filed a friend of the
court brief asking the U.S. Supreme Court to hear my case and
recognize that Congress intended to prohibit forced arbitration
of USERRA claims when it enacted the law in 1994. See Brief of
Members of Congress as Amici Curiae in Support of Petitioner,
Ziober v. BLB Resources, Inc., No. 16-1269, 2017 WL 2376427, at
*9 (U.S. May 24, 2017) (``Amici Curiae Brief''). The members of
the House of Representatives who signed the brief include House
Judiciary Chairman Jerrold Nadler (D-NY), House Subcommittee
Chairman David Cicilline (D-RI), former House Judiciary
Committee Chairman John Conyers, Jr. (D-MI), House Ethics
Committee Chairman Ted Deutch (D-FL), Hank Johnson (Dp-GA),
Jamie Raskin (D-MD), Joe Wilson (R-SC), Walter Jones (R-NJ)
Rep. Jackie Walorski (R-IN). In addition, the brief was signed
by Senators Richard Blumenthal (D-CT), Patty Murray (D-WA),
Sheldon Whitehouse (D-RI), Sherrod Brown (D-OH), and Senator
Mazie Hirono (D-HI). See Amicus Curiae Brief Appendix.
These Members of Congress pointed out that when Congress
unanimously passed USERRA, it stated that the law's anti-waiver
provision ``would reaffirm that additional resort to mechanisms
such as grievance procedures or arbitration or similar
administrative appeals is not required,'' and that ``even if a
person protected under the Act resorts to arbitration, any
arbitration decision shall not be binding as a matter of law.''
Amici Curiae Brief at 9 (quoting H.R. Rep. No. 103-65, at 20
(1993)). They also noted that in 2005 Labor Secretary Elaine
Chao had recognized the same principle in the Department of
Labor's regulations--that USERRA prohibits forced arbitration.
Id. at 9-10.
Unfortunately, the Supreme Court declined to hear my case.
This means that for servicemembers or veterans who work for
private companies or State or local governments, their
employers can require them to sign arbitration agreements as a
condition of employment (or continued employment, like in my
case), and they can effectively take away a range of rights--
some of which exist under many laws and some of which are
unique and longstanding under USERRA and its predecessor laws.
On the other hand, federal employees cannot be forced to
arbitrate their USERRA claims, because the Federal Circuit has
interpreted the same language of USERRA to ban forced
arbitration. Russell v. MSPB, 324 F. App'x 872, 874-875 (Fed.
Cir. 2008) (per curiam). Given how many servicemembers and
veterans work outside of the Federal Government, it is
disappointing that so many men and women who have served can
now be forced into arbitrating their USERRA claims.
Congress Should Reaffirm ServiceMembers' and Veterans' Ability
to Enforce Their Rights
I am here today to ask the Members of this Committee to
step in where the federal courts have failed to follow
Congress' clear intent to protect the rights of servicemembers
and veterans against forced arbitration, and also to advocate
for the principles that motivated many of us to volunteer for
service in the first place: the right to choose how we go about
exercising our rights and the right to access one of the
greatest civil justice systems in the world.
All that Congress needs to do is to reaffirm what has been
the law since the 1950s. In fact, in 1958, the Supreme Court
held that servicemembers could not be required to arbitrate
their reemployment rights claims under the law that later
became USERRA. McKinney v. Missouri-Kan.-Tex. R.R. Co., 357
U.S. 265, 268-270 (1958). As the Supreme Court wrote in
McKinney, a person enforcing his rights under the reemployment
statute ``sues not simply as an employee,'' ``but as a veteran
asserting special rights bestowed upon him in furtherance of a
federal policy to protect those who have served in the Armed
Forces.'' Id. at 268-269. To require veterans to pursue private
adjudication of their rights ``would ignore the actual
character of the rights asserted and defeat the liberal
procedural policy clearly manifested in the statute for the
vindication of those rights'' in court. Id. at 269-270.
The procedures that the Supreme Court recognized in
McKinney as contrary to arbitration include the right to file
an action in any district where the employer has a place of
business and that no fees or costs may be taxed against the
servicemember in litigation (such as no filing fees). See Id.
at 269 n.1. Those same procedures still exist to this day under
USERRA. See 38 U.S.C. Sec. Sec. 4323(c)(2), (h)(1). But These
protections are routinely undermined by arbitration agreements
that require servicemembers to pursue arbitration in the
specific location that the employer chooses (even if the
servicemember is deployed or lives across the country) or that
impose significant fees or costs on servicemembers. There are
additional protections in USERRA that are inconsistent with
forced arbitration. For example, USERRA has no statute of
limitations, but arbitration agreements often impose very brief
limitations periods; USERRA is designed to avoid any delay in
adjudicating servicemembers' rights, without any need to file a
charge with an administrative agency, but arbitration
agreements often require multi-step procedures to be exhausted
before a person can obtain a hearing before an arbitrator.
Over the past decade, bipartisan Members of the United
States Senate and House of Representatives have introduced
legislation to reaffirm that servicemembers and veterans cannot
be required to arbitrate their USERRA claims, unless they agree
to arbitrate after the employment dispute has occurred. That
legislation includes the following bills.
LIn 2017, Subcommittee Chairman David Cicilline
(D-RI), Rep. Henry C. "Hank" Johnson (D-GA), Rep. Joe Wilson
(R-SC), Rep. Walter B. Jones (D-NC), Rep. Jackie Walorski (R-
IN), and other House members sponsored H.R. 2631, the Justice
for Servicemembers Act of 2017. A companion bill was sponsored
in the Senate by Senators Richard Blumenthal (D-CT), Richard
Durbin (D-IL), Sheldon Whitehouse (D-RI), Kirsten Gillibrand
(D-NY), and Mazie Hirono (D-HI).
LIn 2016, Subcommittee Chairman David Cicilline
(D-RI), Rep. Henry Hank Johnson (D-GA), Rep. Joe Wilson (R-SC),
Rep. Walter B. Jones (D-NC), Rep. Jackie Walorski (R-IN), and
other House members sponsored H.R. 5426, the Justice for
Servicemembers Act of 2016. A companion bill was sponsored in
the Senate by Senator Richard Blumenthal (D-CT), Senator
Patrick Leahy (D-VT), Senator Richard Durbin (D-IL), and
Senator Klobuchar (D-MN).
LIn 2014, Senator Lisa Murkowski (R-AK), Senator
Mark Pryor (D-AR), and Senator Richard Blumenthal (D-CT)
sponsored S. 2392, the Servicemember Employment Protection Act
of 2014.
LIn 2012, Senator Robert Casey Jr. (D-PA), Senator
Ron Wyden (D-OR), and Senator Mark Begich (D-AK) sponsored S.
3233, the Servicemembers Access to Justice Act of 2012.
LIn 2009, Senator Robert Casey Jr. (D-PA), Senator
Edward M. Kennedy (D-MA), and Senator Ron Wyden (D-OR)
sponsored S. 263, the Servicemembers Access to Justice Act of
2009.
In 2016, the Senate Committee on Veterans' Affairs held a
hearing to consider the Justice for ServiceMembers Act of 2016.
In advance of that hearing, The Military Coalition, a group of
32 military, veterans, and uniformed services organizations,
endorsed the Justice for Servicemembers Act. Furthermore, all
of these pieces of legislation identified above have enjoyed
strong and unwavering support from the many organizations
within The Military Coalition, including the Reserve Officers
Association, the Military Officers Association of America, and
the Military Order of the Purple Heart. Despite such strong and
broad support, these bills to clarify that USERRA bans forced
arbitration has never received a vote in a Committee or on the
House or Senate floor.
I hope that 2019 is the year that Congress finally passes
the Justice for Servicemembers Act. Millions of servicemembers
and veterans who have rights under USERRA will benefit from
this legislation, which will ensure that those of us who serve
our country can turn to federal judges to protect our
reemployment rights and benefits.
USERRA rights and enforcement are more important today than
ever before. In its most recent report to Congress (covering
Fiscal Year 2017), the Department of Labor's Veterans
Employment and Training Service (``DOL VETS'') stated that it
had 1,098 pending cases in which DOL VETS was investigating
USERRA complaints of servicemembers and veterans, including 944
cases that were opened in Fiscal Year 2017.\4\ When the base
where my unit is located hosted trainings on USERRA in 2017,
countless commanders and Members of various units had pressing
questions about their USERRA rights and what they can do to
ensure that their rights are protected. They were not inquiring
because they wanted to file lawsuits, but because their USERRA
rights help them balance their military and civilian careers
and they want to ensure that their employers understand how to
comply with the law and support our reservists.
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\4\ U.S. Department of Labor, Veterans' Employment and Training
Service, Annual Report to Congress Fiscal Year 2017 at 22, available at
https://www.dol.gov/vets/media/VETS
_FY17_3Annual_Report_to_Congress.pdf.
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Today, because of the increasing reliance on the Guard and
Reserve to support the global activities of our Armed Forces,
it is more important than ever to ensure that we have strong
USERRA protections--so that Guard and Reserve Members can
seamlessly transition between their civilian and military
positions. A recent Congressional Research Service report
highlights the way in which the role of the reserve components
of the Armed Forces has changed over the past several decades,
especially the increasing reliance on reservists for both
combat and ordinary military operations. For example, between
1986 and 1989, reservists annually contributed about 1 million
duty-days, whereas in 2002 they contributed 41.3 million days,
in 2005 they contributed 68.3 million days, and in 2014 they
contributed 17.3 million days.\5\
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\5\ Congressional Research Service, Reserve Component Personnel
Issues: Questions and Answers at 7-9 (Oct. 4, 2018) (stating that
1,036,644 Americans are Members of the Select Reserve or Individual
Ready Reserve/Inactive National Guard as of July 31, 2018), available
at https://fas.org/sgp/crs/natsec/RL30802.pdf.
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Congress Should Act To Protect the Rights of All Americans
My experience with forced arbitration stems from my status
as a servicemember and the special rights that Congress has
conferred upon servicemembers like me. But arbitration does not
just impact servicemembers or veterans. The increasing and
systemic use of forced arbitration is impacting every American
and taking away our rights to enforce the federal and State
laws that promote economic opportunity and security, protect
our health and safety, and stamp out fraud.
Experts estimate that more than 60 million employees are
bound by forced arbitration--constituting more than half of all
non-union private sector employees.\6\ Forced arbitration has
grown at a rapid pace, despite the fact that the vast majority
of Americans, regardless of race, age, gender, or political
affiliation, prefer to have the right to decide whether to
arbitrate their disputes or go to court.
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\6\ Alexander J.S. Colvin, The growing use of forced arbitration:
Access to the courts is now barred for more than 60 million American
workers, Economic Policy Institute (Sept. 27, 2017), available at
https://www.epi.org/publication/the-growing-use-of-mandatory-
arbitration/.
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Earlier this year, a poll conducted by Hart Research
Associates found that 84% of Americans believe that they should
have the choice of whether to resolve their legal claims
through arbitration or court, rather than being required to
arbitrate their claims. Republicans (84%) and independents
(89%) were more likely than Democrats (83%) to support the
right of workers and consumers to choose between arbitration
and court enforcement.\7\ In 2016, a Pew survey found that 90%
of individuals supported being allowed to have their case heard
by a judge and jury and 90% supported being able to appeal
legal decisions--two things that arbitration agreements take
away or severely limit.\8\ Another Pew study found that while
about half of all consumers support what arbitration advocates
say are its benefits, 88 percent of consumers disapprove of
arbitration when the process is explained in greater detail.\9\
These studies demonstrate that the American people
``overwhelmingly want a choice between going to court and
entering arbitration.'' \10\
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\7\ Guy Molyneux & Geoff Garin, Hart Research Associates, National
Survey on Required Arbitration (Feb. 28, 2019) (reporting on the
results of a survey or 1,201 voters that was conducted between January
16 and 28, 2019), available at https://www.justice.org/sites/default/
files/2.28.19%20Hart%20poll%20memo.pdf.
\8\ CFPB to Act on Banking Dispute Resolution, Pew Charitable
Trusts (Feb. 16, 2016), http://www.pewtrusts.org/en/research-and-
analysis/analysis/2016/02/16/cfpb-to-act-on-banking-dispute-resolution.
\9\ Banking on Arbitration: Big Banks, Consumers, and Checking
Account Dispute Resolution, November 2012, http://www.pewtrusts.org//
media/assets/2012/11/27/pew_arbitration _report.pdf.
\10\ Id. at 7.
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There are good reasons why the vast majority of Americans
believe that workers and consumers should be able to choose
between a court of law and arbitration.
First, forced arbitration is incredibly unfair to ordinary
people, who lack the power to decide whether to sign an
arbitration agreement when starting a job or purchasing a
consumer product. Employers don't tell job applicants whether
they will be required to sign an arbitration agreement. As a
result, millions of workers show up on their first day of work,
and they are told that they must sign an arbitration agreement
or they can't start the job. Let's say that you've already
resigned from your prior job to start a new job at a new
company. What worker would realistically decline to sign the
arbitration agreement on the first day of work at the new job,
if that means leaving his or her family with no income or
health care insurance? In my case, I was required to sign an
arbitration agreement months after I had started my job at BLB.
I had no effective choice to decide whether I wanted to sign
the agreement. If I didn't sign, I would be fired. No worker
starts a job thinking that he will sue his or her employer, and
no worker wants to disappoint his or her employer on the first
day of work by refusing to sign the forms that he or she is
told to sign. In other words, the decision to sign an
arbitration agreement is unfair and coercive.
Based on my experience, it seems that the right time for a
worker to decide whether he or she wants to agree to
arbitration is after the dispute has occurred. When a worker
realizes that his or her rights may have been violated, he or
she can consult with an attorney and make an informed decision
about whether it makes sense to go to court or arbitration.
Second, in arbitration, a single person--usually a lawyer,
though in some cases it's not even a lawyer--decides all of the
legal and factual questions. But in court, in most cases
Americans are entitled to have a jury of our peers decide the
factual questions, and have an impartial judge decide the legal
questions.
Third, arbitration is often conducted in confidential,
secret proceedings, while our courts are open to the public.
With arbitration becoming so prevalent, this means that the
public is being denied important information about practices
that affect so many of us and employees are routinely prevented
from sharing their stories with others. For example, employees
can be denied the opportunity to hear about executives--like
Harvey Weinstein or Roger Ailes--who sexually harass employees.
Workers can be denied information about which employers fail to
pay the minimum wage or overtime, or which bosses steal their
employees' tips. The federal agencies who enforce critical laws
may be denied the opportunity to learn about serious problems--
like federal contractors who discriminate against reservists,
fail to pay prevailing wages mandated by federal law, or
jeopardize the health and safety of their employees.
Fourth, arbitration agreements often limit what information
employees or consumers can discovery about their claims--even
though it's usually the employer or company who possesses the
key information that the worker or consumer needs to prove his
claim. This is like holding a boxing match where one of the
boxers has one arm tied behind his back for all 12 rounds. In
comparison, our federal and State courts have consistent rules
that put all parties on equal footing and that give every
American the same rights to search for the truth.
Fifth, with arbitration employers dictate which arbitrators
can be selected by the parties. This is the opposite of the
American civil justice system, where one party cannot determine
which judge will hear the case. The average worker or consumer
will never arbitrate more than a single case in his or her
lifetime. But large employers and companies may arbitrate
hundreds or even thousands of claims. This creates an incentive
for arbitrators to Rule in favor of employers and companies, so
that they will be selected to arbitrate future cases. This is
big business for the people who serve as arbitrators. Often
arbitrators earn $8,000 to $10,000 per day. It would be foolish
for an arbitrator to be hostile to the companies who select and
pay them.
Sixth, arbitration agreements usually do not permit an
employee or consumer to appeal an adverse decision--even if the
decision clearly misinterprets the law, overlooks key facts in
the case, or does not State a basis for the decision. Although
the Federal Arbitration Act allows individuals to ask a court
to vacate an arbitration award under very limited
circumstances, it makes it so difficult to overturn the
arbitrator's award that there effectively is no right to appeal
an arbitrator's decision. In contrast, every litigant in
court--a poor person, a rich person, a small business, or a
massive corporation alike--has the same right to appeal and
have an appellate court decide whether the district court
misinterpreted the law or misunderstood the facts.
Seventh, arbitration agreements routinely limit the amount
of time that individuals have to enforce their rights--
sometimes to as little as six months from when the dispute
arises. This is a major problem for servicemembers and
veterans, given that USERRA does not have a statute of
limitations period (Congress clarified this issue in a 2008
amendment that was unanimously enacted by Congress and signed
by President George W. Bush). It's also a big problem for
workers who are affected by wage theft or discrimination, given
that civil rights and employment laws often provide more time
for individuals to initiate their legal actions.
Finally, it is common for arbitration agreements to require
employees or consumers to arbitrate their disputes in a single
city or county, even if that location is far away from where
the employee or consumer lives. Many federal laws allow
employees or consumers to bring their legal actions in a broad
range of places, in order to promote enforcement of the law and
prevent companies from always litigating cases on their home
turf. As I mentioned above, since the 1950s USERRA and its
predecessor laws have allowed servicemembers to sue wherever
the employer has a place of business, in recognition of the
fact that servicemembers frequently change their place of
residence or are deployed far from home.
To me, the choice is easy. I would always prefer to enforce
my rights in a court of law, with a neutral judge, a jury of my
peers, full and fair discovery, and a right to appeal. At the
same time, I recognize that some people may prefer arbitration
over court. I think that the people who prefer arbitration
should have every right to make that choice. With all due
respect, I believe that I and hundreds of millions of Americans
should be able to choose to go to court rather than
arbitration, and we should never be forced to arbitrate our
claims.
Like most people, I value the independence and freedom that
I have to make my own choices, particularly when it comes to
enforcing my legal rights. My employer took that freedom away
from me when it required me to sign an arbitration agreement on
a take-it-or-leave-it basis. Arbitration might make sense for
some people in some circumstances, but every individual should
be able to make the choice for himself or herself.
The Forced Arbitration Injustice Repeal Act of 2019, H.R.
1423 (and S. 610 in the Senate), would give this choice to
every American employee and consumer. This vital legislation
would create a simple Rule that employees and consumers cannot
be required to sign an arbitration agreement until the dispute
occurs. Once the dispute occurs, the consumer or employee would
be free to enter into an arbitration agreement if both of the
parties want to arbitrate.
I thank Chairman Cicilline and Representative Hank Johnson
for introducing the FAIR Act. I thank the 198 Members of the
House of Representatives who have sponsored the Forced
Arbitration Injustice Repeal Act of 2019, including many
Members of the Judiciary Committee and this Subcommittee. I
hope that all the other Members of the House will consider
sponsoring or supporting the passage of this legislation. The
goal of this legislation is not to create more legal actions,
but to ensure that every American has the same ability to
enforce his or her rights that already exist under federal and
State laws.
As a servicemember, I try to remember that our service is
not on behalf of ourselves, but on the behalf of every
American. And, in my opinion, no American should be denied the
opportunity to have their day in court and enforce the rights
that this Congress or the states have given us.
Conclusion
I sincerely appreciate that the Committee is considering
this important issue and legislation. Thank you very much for
your time and consideration of my views.
[GRAPHIC] [TIFF OMITTED] T4090.001
Mr. Cicilline. Thank you very much.
I now turn to Gretchen Carlson for 5 minutes.
TESTIMONY OF GRETCHEN CARLSON
Ms. Carlson. Thank you for having me here today.
On July 6, 2016, my story about sexual harassment and Fox
News Chairman and CEO Roger Ailes became public. It ran like
wildfire across the Twitter feeds and across the media around
the world. Back then, I could have never known or could have
ever imagined that I would become one of the prominent faces
fighting against forced arbitration, or that in the two-and-a-
half years since my case, a tidal wave of women would have
joined me in courageously speaking out about workplace
harassment. Here is what I found out during that time, that
courage is contagious, and the cultural revolution that we are
experiencing right now is long overdue.
The first step for me was telling the truth. The next step
was to work to change the system for all women and men across
our country. So, I spent much of 2017, 2018, and now 2019
walking the halls of Congress, encouraging legislators to take
real, meaningful action to help workplace harassment victims.
In December 2017, I proudly joined legislators from both sides
of the aisle--Congresswomen Bustos and Stefanik, and Senators
Gillibrand and Graham--to introduce in both chambers the Ending
Forced Arbitration of Sexual Harassment Act. On February 28th
of this year, with a new Congress, the bill was reintroduced in
the House, H.R. 1443, a bill to restore workplace harassment
victims' constitutional 7th amendment right to a jury trial
instead of the secrecy of forced arbitration.
So why is this bill so important to me? Because it is not
about me. It is about the thousands and thousands of women
across this country who reached out to me after my story became
public, making me realize that almost every woman in this
country has a story. Over the past two-and-a-half years, these
women have shared their pain and their humiliation with me, and
what is the number-one thing that they tell me? That they have
been mostly silenced because that is what forced arbitration
helps to do. It turns out that silencing all of these women in
our country ends up being the harasser's best friend.
Hypothetically, here is what happens to a woman being
harassed on the job when she finally decides to muster up the
courage to come forward. She goes to HR to complain, and if she
has an arbitration clause, and she likely does, the HR rep may
do this: ``Phew. No one will ever know about this.'' Her case
is promptly thrown into the secret chamber. In arbitration, she
will find out there are limits on discovery, evidence
gathering, limits on witnesses. There are no appeals. In many
cases, the company even picks the arbitrator for you. It is
called repeat business. In the process, she will probably be
blacklisted, demoted, and fired from her job. She may get a
paltry settlement, but our woman will probably never work
again. No one else at her place of employment will know what
happened to her. Worst of all, her perpetrator gets to stay on
the job, because nobody knows about it. The whole process is
secret, and that person is free to harass again and again. I
ask you today, what is fair about that?
Sadly, that hypothetical story is not unique. For years,
this happened at American Apparel. The chairman there was
finally thrown out, the President of the company, but they all
had arbitration clauses. Same thing with 180 women who reported
being sexually assaulted at a company called Massage Envy. You
heard about Sterling Jewelers earlier from the Chair.
So, none of us expect to start a new job and get into any
kind of dispute like this. I know I didn't. So many Americans,
they sign these forced arbitration agreements, they don't even
know what they are signing or what the ramifications are with
regard to their constitutional rights.
To be silenced after simply having the guts to come
forward, that is unjust, that is un-American.
Now we are seeing the effects of people saying enough is
enough. After we introduced our bill in 2017, Microsoft decided
to take arbitration clauses out of their employment contracts.
Then Uber, Lyft, and after the Google walk-out, Google, Ebay,
Airbnb, Facebook, Fox Media, et cetera.
So, it turns out that courage is not only contagious, so is
action, and the voices of workers across this country. Now it
is time for us, in a bipartisan way, to come together and stop
the silence. Let's do something together as a Nation for our
women, our men, and our children.
Thank you.
[The statement of Ms. Carlson follows:]
STATEMENT GRETCHEN CARLSON
Chairman Cicilline, Ranking Member Sensenbrenner, and other
distinguished Members of the House Subcommittee on Antitrust,
Commercial and Administrative Law, thank you for providing me
with the opportunity to testify about my experience with forced
arbitration.
On July 6, 2016, my story about sexual harassment and Fox
News Chairman and CEO Roger Ailes became public. And it ran
like wild fire on twitter feeds and breaking news alerts all
around the world. Back then, I could have never known I would
become one of the prominent faces fighting against forced
arbitration, or that in the 2\1/2\ years since my case, a tidal
wave of women would have joined me in courageously speaking out
against workplace harassment. Here's what I've found out:
Courage is contagious . . . and the cultural revolution we're
experiencing right now . . . is long overdue.
The first step for me was telling the truth. The next step
. . . was to work to change the system . . . for all women and
men across our country. So, I spent much of 2017, 2018, and now
2019 walking the halls of Congress, encouraging legislators to
take real, meaningful action to help workplace harassment
victims. In December 2017, I proudly joined legislators from
both parties--Congresswomen Bustos and Stefanik and Senators
Gillibrand and Graham--to introduce in both chambers the
``Ending Forced Arbitration of Sexual Harassment Act.'' On
February 28th of this year, with a new Congress, the bill was
reintroduced in the House--House Bill 1443--a bill to restore
workplace harassment victims' Constitutional 7th amendment
right to a jury trial instead of the secrecy of forced
arbitration.
So why is this bill so important to me?
Because this isn't about me. This is about the thousands of
women across this country who reached out to me after my story
became public--making me realize that almost every woman in our
country has a story and that's shameful. Over the past 2\1/2\
years, these women have shared their emotional stories of pain
and humiliation--but mostly about how they've all been
silenced--because that's what forced arbitration helps to do.
Turns out--that silencing is the harasser's best friend.
Sadly, my story is not unique. Sexual harassment of women
and men in the workforce isn't a new problem, and unfortunately
neither is the use of forced arbitration to cover up systemic
sexual harassment. For years, Dov Charney, the founder and
former CEO of American Apparel sexually harassed and assaulted
employees of the company. These were young women, teenagers--
some as young as 17 years old.\1\ But, it wasn't until 2014
that Mr. Charney was held accountable for his actions and he
was fired by the company's board. The sexual misconduct was
able to be hidden for years because the company required all
employees to sign employment agreements that included a forced
arbitration clause.\2\ The purpose of which was clear: To keep
any disputes secret and away from public scrutiny. Had the
company not used forced arbitration, they would have faced
public accountability and been forced to Act years sooner and
many of his victims would have been spared.
---------------------------------------------------------------------------
\1\ Katie Baker, Dov Charney ``Sex Slave'' Lawsuit Will Settle Out
of Court, Jezebel, March 22, 2012: https://jezebel.com/5895487/dov-
charney-sex-slave-lawsuit-will-settle-out-of-court.
\2\ Steven Davidoff Solomon, Arbitration Clauses Let American
Apparel Hide Misconduct, July 15, 2014: https://dealbook.nytimes.com/
2014/07/15/arbitration-clauses-let-american-apparel-hide-misconduct/.
---------------------------------------------------------------------------
Another horrifying example is the more than 180 women who
have reported being sexually assaulted by massage therapists at
Massage Envy spas.\3\ These women put their trust into a
company and its employees, only to suffer the trauma of being
sexually assaulted and then continue to suffer as the company
did little to help them and instead tried to silence them. Now
that these women are seeking public accountability in court,
the company is trying to force them into arbitration, because
hidden in the fine print of the terms and conditions of the
company's app and iPads (used to check in for services) was a
forced arbitration clause.\4\ Take the case of Lilly Silbert
from California, who I recently met and whose story I listened
to. Lilly says that she was sexually assaulted by her Massage
Envy therapist, but because she used the company's app to try
and cancel her Membership after she was sexually assaulted, the
company is trying to force her, and many women like her, into
arbitration.
---------------------------------------------------------------------------
\3\ Katie Baker, More Than 180 Women Have Reported Sexual Assaults
at Massage Envy, BuzzFeed News, November 26, 2017: https://
www.buzzfeednews.com/article/katiejmbaker/more-than-180-women-have-
reported-sexual-assaults-at.
\4\ Brooks Jarosz, Fears loom that sexual assault cases involving
Massage Envy will remain private, FOX KTVU, December 21, 2018: http://
www.ktvu.com/news/fears-loom-sexual-assault-cases-involving-massage-
envy-will-remain-private.
---------------------------------------------------------------------------
Recently, The New York Times covered the story of thousands
of women who were employed by Sterling Jewelers who suffered
widespread sexual harassment and pay discrimination for
years.\5\ The article describes the conduct the women were
subjected to--groping, sexual coercion, sexual degradation and
even rape. For years, the conduct was covered up, with the
women being forced into arbitration. As the article describes
``[t]he benefit to the company was that it was resolved in
secret. The secrecy was the point.'' \6\ In 2008, many of the
women decided to come forward and seek legal action against the
company, filing a class action lawsuit which at one point was
comprised of 69,000 women.\7\ However, because Sterling
Jewelers required their employees to sign arbitration
agreements the company has been trying to dismiss the lawsuit
and force all of the women into private, secretive arbitration,
on an individual basis--creating a wall of silence even between
the women.\8\ This prevents women from having important
evidence about a pattern of behavior, and from supporting one
another in stressful litigation against a large corporation.
---------------------------------------------------------------------------
\5\ Taffy Brodesser-Akner, The Company That Sells Love to America
Had a Dark Secret, New York Times Magazine, April 23, 2019: https://
www.nytimes.com/2019/04/23/magazine/kay-jewelry-sexual-harassment.html.
\6\ Taffy Brodesser-Akner, The Company That Sells Love to America
Had a Dark Secret, New York Times Magazine, April 23, 2019: https://
www.nytimes.com/2019/04/23/magazine/kay-jewelry-sexual-harassment.html.
\7\ Drew Harwell, Hundreds allege sex harassment, discrimination at
Kay and Jared jewelry company, Washington Post, February 27, 2017:
http://wapo.st/2mEkm1F?tid=ss_mail&utm_ term=.03d00fdedcd3.
\8\ Nick Brown, Sterling Motion to Disallow Class Action Rejected,
Law360, January 5, 2010: https://www.law360.com/articles/141374/
sterling-motion-to-disallow-class-action-rejected.
---------------------------------------------------------------------------
In all these cases, because of the secrecy that surrounds
forced arbitration, it is impossible to know exactly how many
women were sexually assaulted or harassed and came forward.
What we also don't know is how many women chose not to come
forward, but to stay quiet, or quit, because they knew that
they would be forced into arbitration where their voices would
be silenced.
My going public shed a light on the scourge of more of this
pervasive epidemic--the Weinstein allegations, the Bill Cosby
allegations, the Bill O'Reilly allegations, the Les Moonves
allegations, the Matt Lauer allegations, the Charlie Rose
allegations, the Mark Halperin allegations . . . and more.
From the victim's point of view . . . here's what happens
when a woman being harassed on the job finally decides to come
forward. She goes to HR to complain and if she has an
arbitration clause--and she probably does since 60 million
Americans do--the HR reps probably says--phew! ``No one will
ever know about this!'' Her case is promptly thrown into the
``secret chamber.'' More than likely she'll be blacklisted,
demoted or fired from her job. She may get a paltry settlement,
but in arbitration she'll find out there are no appeals, limits
on discovery--which is evidence gathering--and on witnesses.
Arbitrators come back for repeat business where they've been
before. Individual employees do not provide repeat business for
arbitrators--but a large corporation--like Sterling Jewelers
with thousands of complaints--can keep an arbitrator paid for
years. Our woman will probably never work again, and notably,
no one else at her place of employment will know that
harassment may be an issue, and worst of all, her perpetrator
will likely get to stay on the job--because the whole process
has been a secret--free to harass again and again.
None of us expect to start a new job and get into any kind
of dispute. I know I didn't. So many Americans sign forced
arbitration agreements without even knowing what they are or
thinking about what they mean for their Constitutional rights.
The employer can refuse to hire people who won't sign. What
kind of ``agreement'' is that?
To be silenced after simply having the guts to come
forward? That's unjust and un-American.
Now we're seeing the effects of people saying enough is
enough. We're seeing that the voices of women and men are being
heard! Companies are taking notice!
After we first introduced our bill in 2017, Microsoft
decided to be bold and take forced arbitration clauses out of
their employment contracts. Then Uber and Lyft. Then after the
Google walk out, Google, Ebay, Airbnb, Facebook, and Vox Media.
Turns out--It's not just courage that's contagious--Action
is too. The voices of workers across this country matter--and
they are being heard.
I want to thank the brave Members of Congress from both
sides for already drawing a line in the sand. Thank you for
doing what's right for women.
Now its time for all Members of Congress to show the same
kind of courage. It's my hope Members from both sides of the
aisle will stand up and speak up in support of this bill.
Sexual harassment is not a partisan issue. It knows no
political or socio-economic boundaries. It's our police
officers, firefighters, teachers, lawyers, doctors, bankers,
Congressional workers, and journalists. The consequences show
no bounds. We've seen titans from both sides fall.
That is why we should all care.
In this cultural revolution, it's time to get something
real done for women. It is my great hope that we will get it
done in a bi-partisan way--for women, for men, for our children
and our country.
Thank you.
Gretchen Carlson
Journalist, Author, Advocate
Mr. Cicilline. Thank you, Ms. Carlson.
The Chair now recognizes Mr. Goldberg for 5 minutes.
TESTIMONY OF PHIL GOLDBERG
Mr. Goldberg. Thank you, Chairman Cicilline, Ranking Member
Sensenbrenner, and Members of the committee. Thank you for your
invitation and allowing me to testify here today. It is a
particular honor for me to be here before this committee.
Twenty years ago, I worked for a member, Steve Rothman, who
served on this committee, and I hold this Committee in
incredibly high regard, as I do the civil justice system.
I am now a partner at the law firm of Shook, Hardy & Bacon,
and a member of the American Law Institute, and since 2015 I
have been the Director of the Progressive Policy Institute
Center for Civil Justice. At PPI, we believe that the civil
justice system is a public good. It is a keystone of American
economic and political liberties because it is a forum where
aggrieved individuals and businesses can peacefully resolve
disputes. Unfortunately, we also recognize that it has its
limitations and that it can be abused.
As is customary, today the views I express are my own.
The major reason why pre-dispute arbitration agreements are
common today is because they provide these goals, a peaceful,
quick, and conclusive dispute resolution, often better than the
civil justice system for many claims.
It didn't escape me that the title for this hearing is
about the erosion of the civil justice system. Mr. Chairman,
the frustration has been that the civil justice system has been
eroding for several decades. It has become more expensive. It
has become less responsive to real people in many cases.
Pre-dispute arbitration agreements are increasingly filling
those voids because it provides real people the ability to
obtain meaningful redress, particularly with modest claims that
are below the threshold for which someone can get a lawyer, or
where relationships are at stake, that they want to maintain
those relationships after the dispute is resolved.
Overall, people have found pre-dispute arbitration
agreements more efficient because they have streamlined rules
and are less formal. They are less costly. The defendant often
pays the cost and attorney's fees in many situations. They are
timely. You can get resolution in months rather than years. It
is less adversarial than civil litigation, and the results,
they are not all or nothing like civil litigation, but they
focus on what is fair. The Supreme Court has said the process
must be reasonable and fair. Trust me, courts will throw out
unconscionable pre-dispute arbitration agreements.
For some, agreeing ahead of time to avoid the high costs
and the high stakes of prolonged litigation can make the
difference in the choice to pursue justice. Otherwise, those
injuries will go uncompensated and unaddressed, and the
defendant will be held unaccountable.
This is particularly important in modest consumer,
employment, and business disputes. If it is you as an
individual and you have one of these more modest claims, there
is no access to justice. Lawyers now generally do not take
cases that have a value under $100,000. The Minnesota task
force recently concluded it is closer to $200,000. If the claim
is below this threshold, a pre-dispute arbitration agreement is
the only chance at redemption.
Sometimes disputes can be brought as class actions, but as
this Committee has heard time and again, the class actions are
notoriously bad at real redress for real people in these types
of claims. The resolutions, particularly in these areas, focus
on lawyers' fees, coupon settlements--you have to buy more of
the defendant's products--cy pres awards for third parties in
which the victims get nothing, and redemption rates are anemic,
not surprisingly; generally, between 1 and 4 percent of people
participate when they are in the class. In a lot of class
action settlements, real people get nothing, or they get
practically nothing.
The latest abuse is this no-injury litigation where you
have lawyers sort of dreaming up speculative ideas on how to
sue companies, and there are no plaintiffs that are actually
aggrieved.
Pre-dispute arbitration agreements are also important where
relationships matter. Litigation is highly contentious and
expensive, and for many people it is completely undesirable.
You have the risk of ruining important relationships, not just
with the defendant but with colleagues, business partners and
customers, even when a company takes significant measures to
protect employees from retaliation.
So, if you believe your benefits were wrongly calculated or
you were unfairly denied a promotion or a raise, what does the
average worker do if they want to stay at that company? If they
don't have a pre-dispute arbitration agreement and they are
scared off by the civil litigation system, then that is not
good for anybody. It is not good for the companies who want to
provide their employees with a good, safe place to go to work,
and it is not good for the employees who just want to put in an
honest day's work and be able to go home and spend time with
their families.
Finally, litigation has become subject to too much abuse.
It is no longer providing plaintiffs and defendants with access
to justice. Discovery battles are incredibly expensive, lawyers
are skilled at inflaming juries and escalating awards and
exploiting weaknesses in the civil justice system, and
plaintiffs, even when they can hire a lawyer, often lose half
to the contingency fee and to expenses.
It is not surprising that both claimants and defendants
find value in an alternative system that focuses on getting
aggrieved individuals fairly compensated and not paying
lawyers. These benefits cannot be achieved unless they are
agreed to beforehand, because once the dispute arises, all gets
thrown out the door. For many people, Mr. Chairman, a pre-
dispute arbitration agreement is the only path for obtaining
redress.
Thank you very much.
[The statement of Mr. Goldberg follows:]
STATEMENT OF PHIL GOLDBERG
Chairman Cicilline, Ranking Member Sensenbrenner, and
Members of this distinguished Committee, thank you for your
gracious invitation and allowing me to testify today about pre-
dispute arbitration agreements. It is a particular honor for me
to be here. While I was attending law school at night in 1998-
1999, I worked during the day for a member of Congress who
served on the Judiciary Committee. I have high reverence for
this Committee and the judiciary.
Currently, I am a partner at the law firm of Shook Hardy &
Bacon, L.L.P. and co-chair the firm's Public Policy Group and
National Amicus Practice. In 2015, I became the Director of the
Progressive Policy Institute's Center for Civil Justice. The
PPI Center for Civil Justice believes that the civil justice
system is a keystone of American economic and political liberty
because it provides a forum for aggrieved individuals and
businesses to peacefully resolve their disputes. This ability
to resolve disputes quickly and conclusively undergirds free
enterprise by protecting economic and social rights. As is
customary, the views I express today are my own.
A major reason that pre-dispute arbitration agreements have
become more commonplace in our society is because they achieve
this goal of peaceful, quick and conclusive dispute resolution
often better than the civil justice system for many types of
claims. As I will discuss below, the civil justice system over
the past few decades has become much more expensive for the
parties involved and much less responsive to consumers and
employees. Agreeing ahead of time to avoid the high cost and
high stakes of prolonged litigation, which often serves the
lawyers more than the parties, is increasingly making sense for
many types of claims.
The Benefits of Pre-Dispute Arbitration vs. the Deficiencies of
Litigation
The primary benefit of pre-dispute arbitration agreements,
and arbitration generally, for consumers, employees and other
claimants is that it provides them with a more efficient, less
costly, and less adversarial means to obtain redress than civil
litigation. Filing and waging a lawsuit is not for everyone. It
has been described as being to everyday life like ``war is to
peacetime.'' \1\ It can be costly, time-consuming and draining.
In many cases, the lawyers on both sides operate from a
position of mutually assured destruction, where the battles are
contentious, expensive and focused on exerting pain to the
other side. So, for many people, if they sustain an injury,
litigation may be unrealistic and undesirable. Knowing that a
path to resolve such a dispute has already been agreed to
where, by law, you must be given a reasonable and fair path to
redress, can be the deciding factor to pursue justice. Without
a pre-dispute arbitration agreement, that person's injury may
go unaddressed and the defendant will not be held accountable.
---------------------------------------------------------------------------
\1\ Janet Malcolm, The Journalist and the Murderer 63 (2011).
---------------------------------------------------------------------------
Consumer, employment and business-to-business disputes
often fall into the categories where pre-dispute arbitration
provides the most benefits. An injury, no matter how important
to the person, may be too financially modest to pursue in
litigation. A lawyer may not have the financial interest in
taking a low-stakes case if the injury is solely to an
individual. About 20 years ago, studies found that lawyers may
not take a case unless the expected value of the claim was at
least $60,000.\2\ That number is now closer to $200,000.\3\
Litigation has simply become a lot more expensive and time-
consuming, and many lawyers who take claims on contingency
bases want to make sure they are going to be compensated for
their time. So, where the contingency fee used to be seen as a
mechanism to allow people to hire lawyers for questionable or
small claims, that is no longer true. Most skilled plaintiffs'
lawyers treat the contingency fee like a certainty fee. When a
claim is below that threshold, arbitration may provide the only
chance at redemption, especially for very modest claims where
the defendant pays the costs and fees involved.
---------------------------------------------------------------------------
\2\ See Elizabeth Hill, AAA Employment Arbitration: A Fair Forum at
Low Cost, 58 Disp. Resol. J. May-Jul. 2003, at 8, 10-11.
\3\ See, e.g., Minn. State Bar Ass'n, Final Report: Recommendations
of the Minnesota Supreme Court Civil Justice Task Force 11 (Dec. 23,
2011), at http://www.mncourts.gov/mncourtsgov/media/assets/documents/
reports/Civil_Justice_Ref_Task_Force_Dec_2011_Rpt.pdf.
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In the consumer setting, some low dollar cases may be
brought as class actions. This may entice a lawyer to take the
case, but class actions over small-scale injuries have proven
to be poor dispute resolution methods for the parties.
Experience has shown that often, few Members of a class choose
to redeem any award they may be owed.\4\ For example, a study
by the Consumer Financial Protection Bureau (CFPB) of consumer
class actions reported a ``weighted average claims rate'' by
class Members of only about 4%.\5\ Other studies report even
lower rates of class member involvement.\6\ As a result, class
actions generally end up focusing on lawyer fees, coupon
settlements, and cy pres awards to third parties to justify
their fees and releasing the claims against the defendant--not
providing injured people with any actual recoveries.
---------------------------------------------------------------------------
\4\ See U.S. Chamber Inst. for Legal Reform, Unstable Foundation:
Our Broken Class Action System and How To Fix It 3-5 (Oct. 2017), at
https://www.instituteforlegalreform.com/uploads/sites/1/
UnstableFoundation_Web_10242017.pdf (analyzing studies of recoveries
under class actions and discussing specific case examples).
\5\ See Consumer Fin. Pro. Bureau, Arbitration Study: Report to
Congress 2015 30 (Mar. 2015).
\6\ See, e.g., Mayer Brown LLP, Do Class Actions Benefit Class
Members? An Empirical Analysis of Class Actions (Dec. 11, 2013), at
https://www.mayerbrown.com/files/uploads/Documents/PDFs/2013/December/
DoClassActionsBenefitClassMembers.pdf.
---------------------------------------------------------------------------
Further, class lawyers are increasingly coming up with the
legal theories for suing companies and then finding plaintiffs
on whose behalf to sue, not the other way around.\7\ In these
actions, the vast majority of the class has not experienced the
harm alleged in the complaint, which is why they do not
participate in any awards. In these cases, class litigation is
becoming an abstract endeavor no longer focused on creating a
path to compensate those who are actually injured. Also, the
stakes for the litigation far outpace any actual harm.
Plaintiffs' lawyers have similarly become skilled at inflating
noneconomic damages in other types of cases.\8\ Recent studies
have shown that pain and suffering awards in the United States
are more than ten times those in the most generous of other
nations.\9\ In inflation-adjusted numbers, for example, product
liability awards were five times higher in 2005 than in
1992.\10\ Pre-dispute arbitration agreements protect businesses
from potential abuse and reduce the risk of losing a
``jackpot'' award, while at the same time allow actually
aggrieved individuals to pursue justice and receive an
appropriate recovery.
---------------------------------------------------------------------------
\7\ See Victor E. Schwartz & Cary Silverman, The Rise of Empty Suit
Litigation, 80 Brook. L. Rev. 599 (2015).
\8\ See Melvin M. Belli, The Adequate Award, 39 Cal. L. Rev. 1
(1951) (observing the size of pain and suffering awards took its first
leap after World War II as personal injury lawyers became adept at
finding ways to enlarge these awards).
\9\ See Stephen D. Sugarman, A Comparative Look at Pain and
Suffering Awards, 55 DePaul L. Rev. 399, 399 (2006).
\10\ See Lynn Langton & Thomas H. Cohen, Civil Bench and Jury
Trials in State Courts, 2005, at 10 tbl. 11 (Bureau of Justice
Statistics, Apr. 9, 2009).
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Further, arbitration is superior to litigation when it is
important to try to resolve a dispute without compromising
useful relationships that will need to endure after the
dispute's resolution. This may not be a critical factor for
consumers, but it often is for employees and vendors who know
the people they are suing. In deciding whether to pursue
justice, they may weigh the potential that litigation will
adversely impact key relationships--not just with the
defendant, but with colleagues, business partners, and
customers. These dynamics can exist even when companies take
significant measures to protect their employees from
retaliation and particularly when the suits involve small or
family-run businesses. Litigation by its nature is adversarial
and can be highly personal for the people involved, either as
parties or witnesses. The person who was wronged may have to
decide that a dispute is important enough to take these risks,
let alone go through the cost, time and hardship of litigation.
Relying on litigation alone may mean that small or medium size
issues will never get reported or remedied. That is not good
for anyone--neither the companies who want to provide employees
with a good, safe place to go to work, nor employees who simply
want to go to work and do their jobs.
Pre-dispute arbitration agreements provide a viable
alternative to the civil justice system in each of these areas:
it is focused on resolving disputes, not inflaming them.
Arbitration is also much less expensive than litigation, which
can allow claimants to keep more of any awards they are given.
In employment cases, for example, the American Arbitration
Association (AAA) procedures dictate that employees cannot pay
more than $300 in total arbitration costs.\11\ In many
situations, this fee is less than the filing fee in court. The
employer pays all of the remaining fees. In fact, often the
plaintiff or claimant pays nothing in arbitration and does not
have to pay a 40% contingency fee to a lawyer.\12\ Also,
bearing the costs of the proceedings, which for employment
litigation can include the employee's attorney fees, can
motivate the company to settle quickly. That can be a good
thing in many situations. Even when claims are taken through
arbitration, they often reach conclusions far faster than had
they pursued litigation. As this Committee can appreciate, many
courthouses are overburdened, and after discovery battles, and
escalating litigation tactics, it could take years to resolve
disputes that arbitration can resolve in months. Discovery in
arbitration is much more streamlined, the rules are less
formal, and the claimant may never have to be deposed or
testify. Again, the system is wired toward quick and fair
resolutions.
---------------------------------------------------------------------------
\11\ Am. Arbitration Ass'n, Employment/Workplace Fee Schedule:
Costs of Arbitration (Oct. 1, 2017), available at https://www.adr.org/
sites/default/files/Employment_Fee_Schedule.pdf.
\12\ See, e.g., Elizabeth Hill, Due Process at Low Cost: An
Empirical Study of Employment Arbitration Under the Auspices of the
American Arbitration Association, 18 Ohio St. J. on Disp. Resol. 777,
802 (2003).
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Also, as pre-dispute arbitration has become more
commonplace, the system has become more standardized and
produces results often as good as litigation for the claimant.
Arbitrators are generally skilled neutrals, many of whom are
former judges. The AAA and JAMS have comprehensive rules and
procedures to ensure independence and competence among
arbitrators and due process for claimants. Rather than preside
over litigation, which can be an all-or-nothing dispute
resolution method, arbitrators can have other, varied options.
An arbitrator can work with the parties to reach a fair
resolution for both sides. A study published in the Stanford
Law Review found that, contrary to what we hear from the other
side, plaintiffs or claimants generally get the same or better
outcomes in arbitration than in litigation.\13\ The U.S.
Supreme Court has made these points in case law endorsing the
use of pre-dispute arbitration agreements. ``The advantages of
arbitration are many: it is usually cheaper and faster than
litigation; it can have simpler procedural and evidentiary
rules; it normally minimizes hostility and is less disruptive
of ongoing and future business dealings among the parties; it
is often more flexible in regard to scheduling of times and
places of hearings and discovery devices.'' \14\ Also, ``the
informality of arbitral proceedings is itself desirable,
reducing the cost and increasing the speed of dispute
resolution.'' \15\
---------------------------------------------------------------------------
\13\ See David Sherwyn et al., Assessing the Case for Employment
Arbitration: A New Path for Empirical Research, 57 Stan. L. Rev. 1557,
1578 (2005); see also Christopher R. Drahozal & Samantha Zyontz, An
Empirical Study of AAA Consumer Arbitrations, 25 Ohio St. J. on Disp.
Resol. 843 (2010); Michael Delikat & Morris M. Kleiner, An Empirical
Study of Dispute Resolution Mechanisms: Where Do Plaintiffs Better
Vindicate Their Rights?, 58 Disp. Resol. J. 56 (Nov. 2003-Jan. 2004);
Theodore Eisenberg & Elizabeth Hill, Arbitration and Litigation of
Employment Claims: An Empirical Comparison, 58 Disp. Resol. J. 44, 45,
47-50 (Nov. 2003-Jan. 2004); Hill, supra note 4, at 802; Elizabeth
Hill, AAA Employment Arbitration: A Fair Forum at Low Cost, 58 Disp.
Resol. J. 9, 13 (May/July 2003).
\14\ Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 280
(1995) (quoting H.R. Rep. No. 97-542, at 13 (1982)).
\15\ AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 345 (2011).
---------------------------------------------------------------------------
These benefits, though, cannot be achieved unless the
arbitration path is agreed to before the injury or dispute
arises. Once the parties become adversarial, they are unlikely
to agree on a method for resolving their disputes. In addition
to the hard feelings that are likely to infest these
relationships, the parties' incentives fundamentally change
after a dispute has occurred, and they are diametrically
opposed to each other. A business may not agree to arbitrate
small claims because they know that the individual or other
businesses may not want to take on the risks and burdens of
litigation or be able to find a lawyer willing to take the
case. The opposite may occur if the claim is for a substantial
amount of money or if civil litigation, regardless of the
merits or size of the claim, could create business and
reputation risks for the company. Here, the company may prefer
arbitration and the individual may not. This is why post-
dispute arbitration agreements rarely occur, and when they do,
it is often only when both sides are looking to buy down risks.
Conclusion
For many people, pre-dispute arbitration may be their only
path for achieving justice for many types of claims. The civil
justice system has become exceedingly expensive and time-
consuming over the past few decades, particularly in the types
of cases where pre-dispute arbitration agreements are most
often used. The title of this hearing refers to the erosion of
the civil justice system, and I would agree that the civil
justice system has been eroding for many people in many
situations. Many plaintiffs' lawyers are highly skilled at
trying to inflame juries and judges against corporate
defendants, leverage out-of-court business and consumer
pressures to generate settlements regardless of the merits of
the claims, and use litigation gamesmanship and in-court
techniques to drive up noneconomic and punitive damages. It is
not a surprise that the parties--both claimants and
defendants--find value in an alternative dispute resolution
system that is not subject to this escalation and abuse, but
focuses on ensuring aggrieved individuals get fairly
compensated. There may be ways to improve the pre-dispute
arbitration system, but it is providing the access to justice
for plaintiffs and defendants that they can no longer find in
the civil justice system.
Again, thank you for the honor of testifying before you
today. I would be pleased to answer any questions you may have.
Mr. Cicilline. Thank you, Mr. Goldberg.
The Chair now recognizes Mr. Pincus for 5 minutes.
TESTIMONY OF ANDREW PINCUS
Mr. Pincus. Thank you, Chairman Cicilline, Ranking Member
Sensenbrenner, and Members of the subcommittee. It is an honor
to appear before you today to present the views of the U.S.
Chamber Institute of Legal Reform. ILR strongly supports
arbitration as a fair, less complex, and lower-cost alternative
to our overburdened court system.
First, consumers and employees do as well or better in
arbitration as in litigation. The just-released study
commissioned by ILR compared the results of employment claims
that were arbitrated and employment claims that were litigated
in Federal court. It found that the overwhelming majority,
around 75 percent, of the employment cases are settled in both
arbitration and litigation. It is no surprise to lawyers that
most cases settle.
For the cases that were decided either by the arbitrator or
by the court, employee plaintiffs won three times as often in
arbitration compared to wins in court, 32 percent compared to
11 percent.
Employee plaintiffs also recovered much larger amounts in
arbitration than in a court. The median award in arbitration
was around $114,000, compared to around $52,000 in court. The
mean award was $520,000 in arbitration, compared to around
$270,000 in court. These results are consistent with the
findings of numerous other studies.
Second, arbitration is fair. The nation's largest
arbitration providers, the AAA and JAMS, accept cases only when
the governing arbitration agreement satisfies basic fairness
standards regarding the selection of arbitrators, minimal costs
for claimants, and the availability of discovery.
In addition, and I cite these cases in my written
testimony, courts can and do invalidate arbitration agreements
that specify unfair procedures such as unreasonable limits on
discovery, unfair procedures for selecting arbitrators,
excessive arbitration fees, requirements that arbitration take
place in inconvenient locations, and ``loser pays'' provisions.
Third, arbitration procedures are much simpler than complex
rules that apply in court. A claimant need not ever make a
personal appearance to secure a judgment. Consumer claims, in
particular, often can be and are adjudicated based solely on
written submissions or on a telephone conference if the
consumer chooses to proceed that way. The simpler procedures
can be navigated by an individual with much less legal
assistance, and therefore lower legal fees, or even without a
lawyer. That flexibility and lower cost empowers consumers and
employees, enabling them to obtain redress for small claims
that could not practically be brought in court because of the
inability to attract a lawyer. I think, as everyone knows, to
proceed in court without a lawyer makes no sense and is very
unlikely to result in any recovery.
Fourth, arbitration cannot be used to conceal wrongdoing.
Claimants in arbitration are free to discuss their claims
publicly and to report alleged wrongdoing to law enforcement
officials. If an arbitration agreement purported to prevent the
claimant from publicly disclosing his claim or misconduct, or
from reporting that misconduct to law enforcement authorities,
that restriction would be invalidated in court, and courts have
invalidated those provisions.
The same is true of arbitrators' decisions. Indeed, State
laws require disclosure of arbitration outcomes by arbitral
forums such as the AAA, and courts consistently hold that the
results of arbitration proceedings may be disclosed by either
party.
Fifth, critics complain that arbitration agreements require
resolution of disputes on an individual basis and preclude
class-action lawsuits. Most claims that are asserted by
consumers and employees are individualized and can't be brought
as class actions. And the reality is when class actions are
filed, they rarely provide benefits to class Members. The
CFPB's own study found that 87 percent of the class actions
studied provided no benefits whatsoever, and that the remainder
benefitted, on average, only 4 percent of class Members.
Finally, as Justice Kagan recognized in her dissenting
opinion in the American Express case, non-class-action options
abound for vindicating small injuries through arbitration.
In sum, arbitration provides significant benefits to
claimants as well as companies, and courts have the tools
needed to prevent abuses of the arbitration process. For that
reason, ILR believes that no legislation eliminating
arbitration or restricting pre-dispute arbitration provisions
is necessary and would harm consumers, employees, and
businesses.
Thank you, and I look forward to answering your questions.
[The statement of Mr. Pincus follows:]
STATEMENT OF ANDREW J. PINCUS
Chairman Cicilline, Ranking Member Sensenbrenner, and
Members of the Subcommittee:
It is an honor to appear before you today to present the
views of the U.S. Chamber Institute for Legal Reform (``ILR'').
ILR is an affiliate of the U.S. Chamber of Commerce and is
dedicated to making our nation's overall civil legal system
simpler, fairer, and faster for all participants.
The Chamber and ILR strongly support arbitration as a fair,
less-complex, and lower-cost alternative to our overburdened
court system.
The arbitral process is overseen by impartial decision-
makers, and subject to strict fairness rules. Courts are
obligated to consider claims that an arbitration agreement
contains provisions that are unconscionable under generally-
applicable contract law, and they can and do invalidate
arbitration agreements that specify unfair procedures.
Empirical studies show that consumers and employees do as
well or better in arbitration as in litigation: they prevail on
their claims at the same rate or more frequently, and they
recover as much or more when they do prevail.
Arbitration is much simpler and less costly than court
litigation--in terms of the money, time, and effort required by
the dispute-resolution process. All parties benefit from the
reduced expense and complexity--but, most importantly,
consumers and employees are able to seek redress for claims
that could not practically be brought in court.
Critics of arbitration contend that it enables wrongdoers
to conceal their offenses by barring public discussion of
claims and arbitrators' decisions. In fact, arbitration does
not inherently impose a ``gag rule'': Employees and consumers
are free to discuss their claims with law enforcement
authorities, the public, and other employees and consumers.
Importantly, arbitration agreements that provide otherwise are
typically invalidated by the courts.
Critics also cite the fact that arbitrations typically
decide claims on an individual basis and that there generally
are no class actions. As Justice Kagan has recognized, ``non-
class options abound'' for vindicating small injuries through
arbitration. Class actions typically deliver little to anyone
other than lawyers, who reap huge fees.
In sum, arbitration provides significant benefits to
claimants as well as companies, and courts already have the
tools needed to prevent abuses of the arbitration process. For
that reason, ILR believes that legislation eliminating or
restricting pre-dispute arbitration provisions is not necessary
and would harm claimants and companies.
Claimants in Arbitration Do Better--Or at Least as Well--As
Plaintiffs in Court
One common assertion by arbitration critics is that
claimants do worse in arbitration than in court, but the facts
point strongly in the opposite direction. Multiple empirical
studies have concluded that ``there is no evidence that
plaintiffs fare significantly better in litigation. In fact,
the opposite may be true.''\1\
---------------------------------------------------------------------------
\1\ David Sherwyn et al., Assessing the Case for Employment
Arbitration: A New Path for Empirical Research, 57 Stan. L. Rev. 1557,
1578 (Apr. 2005); see also, e.g., Theodore J. St. Antoine, Labor and
Employment Arbitration Today: Mid-Life Crisis or New Golden Age?, 32
Ohio St. J. on Disp. Resol. 1, 16 (2017).
---------------------------------------------------------------------------
Most recently, NDP Analytics compared results of employment
claims that were arbitrated and employment claims that were
litigated in federal court. The study examined more than
100,000 cases, using data from the nation's leading arbitration
providers and litigation data from the federal courts.
NDP Analytics found that employees won more often and won
more money in arbitration than in court:
The overwhelming majority (75%) of employment cases are
settled in both arbitration and court litigation, but for the cases
decided by the arbitrator or court, employee-plaintiffs won three times
as often in arbitration compared to wins in court--32% compared to 11%.
Employee-plaintiffs also recovered larger amounts in
arbitration than in court: Employees whose claims were arbitrated
generally recovered approximately double the amount recovered by
employees in court. The median award in arbitration was $113,818,
compared to $51,866 in court, and the mean award was $520,630 in
arbitration compared to $269,885 in court.\2\
---------------------------------------------------------------------------
\2\ NDP Analytics, Fairer, Faster, Better: An Empirical Assessment
of Employment Arbitration 5-10 (May 2019). These results are consistent
with other empirical analyses of employment arbitration. See Michael
Delikat & Morris M. Kleiner, An Empirical Study of Dispute Resolution
Mechanisms: Where Do Plaintiffs Better Vindicate Their Rights?, 58
Disp. Resol. J. 56, 58 (Nov. 2003-Jan. 2004).
Studies of consumer arbitration have reached similar
conclusions. For example, a 2010 study found that consumers won
relief 53.3% of the time in arbitration, compared with a
success rate of roughly 50% in court.\3\ And just as in court,
plaintiffs who win in arbitration is able to recover not only
compensatory damages but also ``other types of damages,
including attorneys' fees, punitive damages, and interest.''
\4\
---------------------------------------------------------------------------
\3\ Christopher R. Drahozal & Samantha Zyontz, An Empirical Study
of AAA Consumer Arbitrations, 25 Ohio St. J. on Disp. Resol. 843, 896-
904 (2010); Theodore Eisenberg et al., Litigation Outcomes in State and
Federal Courts: A Statistical Portrait, 19 Seattle U. L. Rev. 433, 437
(1996); see also Christopher R. Drahozal & Samantha Zyontz, Creditor
Claims in Arbitration and in Court, 7 Hastings Bus. L.J. 77, 80 (2011);
Ernst & Young, Outcomes of Arbitration: An Empirical Study of Consumer
Lending Cases (2005).
\4\ Drahozal & Zyontz, Empirical Study, supra n.3 at 902.
---------------------------------------------------------------------------
In the healthcare industry, the Kaiser Foundation Health
Plan uses arbitration to resolve disputes with its more than
eight million California Members, and an independent review
found that 96% of those who used the system said it was better
than or the same as court. Awards to successful claimants
ranged from $4,500-$3,469,778.\5\
---------------------------------------------------------------------------
\5\ Office of the Independent Administrator, Annual Report of the
Kaiser Foundation Health Plan, Inc. Mandatory Arbitration System
(2018), https://www.oia-kaiserarb.com/2059/-reports/annual-reports/
annual-report-for-2018.
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Moreover, these studies probably understate the
effectiveness of arbitration, compared with litigation, as a
means of vindicating plaintiffs' claims, because of ``selection
effects.'' Arbitration claims typically come from middle-income
claimants with claims too small to attract the legal
representation needed to proceed in the court system--thus,
studies that compare the average amount obtained by prevailing
parties in arbitration and litigation probably tilt in favor of
litigation. And, because of arbitration's relatively
streamlined procedures as compared with litigation,
``relatively weaker claims . . . are more likely to go to an
arbitration hearing on the merits than in litigation'' given
the additional procedural hurdles present in litigation.\6\
---------------------------------------------------------------------------
\6\ See Samuel Estreicher et al., Evaluating Employment
Arbitration: A Call for Better Empirical Research, 70 Rutgers U.L. Rev.
375, 389-93 (2018).
---------------------------------------------------------------------------
In short, the caricature of arbitration as a system rigged
against plaintiffs simply isn't accurate. Most claimants in
arbitration do as well, and likely better, than in court.
Arbitrations Employ Fair Procedures
The legal rules governing arbitration require fair
procedures. The nation's largest arbitration providers accept
cases for arbitration only when the governing arbitration
agreement satisfies basic fairness standards. Most importantly,
courts invalidate arbitration agreements that contain unfair
provisions.
The American Arbitration Association (AAA), the country's
largest arbitration provider, developed fairness rules for
employment and consumer arbitrations more than two decades ago.
The AAA will not accept a case for arbitration unless the
arbitration agreement complies with those due process
standards.\7\ Specifically, these rules:
---------------------------------------------------------------------------
\7\ Am. Arbitration Ass'n, Employment Due Process Protocol (May 9,
1995), perma.cc/93NR-TXQP; Am. Arbitration Ass'n, Consumer Due Process
Protocol Statement of Principles (Apr. 17, 1998), perma.cc/VPW4-KXUV.
Require that arbitrators must be neutral and disclose any
conflict of interest and that both parties have an equal say in
selecting the arbitrator;
limit the fees paid by employees and consumers to $200
for consumers and $300 for employees-amounts that are less than the
filing fee in federal court;
empower the arbitrator to order any necessary discovery;
and
require that damages, punitive damages, and attorneys'
fees be awardable to the claimant to the same extent as they would be
in court.
The AAA rules require that consumers be given the option of
resolving their dispute in small claims court. JAMS, another
leading arbitration provider, requires similar protections--as
do other arbitration providers.\8\
---------------------------------------------------------------------------
\8\ JAMS, JAMS Policy on Employment Arbitration Minimum Standards
of Procedural Fairness (July 15, 2009), perma.cc/WC48-KP8G; JAMS, JAMS
Policy on Consumer Arbitrations Pursuant to Pre-Dispute Clauses Minimum
Standards of Procedural Fairness (July 15, 2009), perma.cc/HN4C-RN23;
Nat'l Arbitration and Mediation, Employment Rules and Procedures
(2017), perma.cc/F2XD-TCHJ.
---------------------------------------------------------------------------
The courts provide another layer of oversight. If an
arbitration provision is unfair, courts can and do step in and
declare the arbitration agreement unconscionable and
unenforceable. For example, courts invalidate limits on
recovery of damages that would not be permissible if the claim
were litigated in court; \9\ excessive fees for accessing the
arbitral forum; \10\ requirements that the arbitration take
place in inconvenient locations for claimants; \11\ attempts to
shorten the applicable statutes of limitations that would be
invalid if the claim were litigated in court; \12\ ``loser
pays'' provisions under which a claimant might have to pay the
full costs of the arbitration,\13\ or must pay the drafting
party's costs regardless of who wins; \14\ unreasonable limits
on discovery; \15\ and unfair procedures for selecting
arbitrators.\16\
---------------------------------------------------------------------------
\9\ See, e.g., Ziglar v. Express Messenger Sys. Inc., No. CV-16-
02726-PHX-SRB, 2017 WL 6539020, at *3 (D. Ariz. Aug. 31, 2017), vacated
on other grounds, 739 F. App'x 444 (9th Cir. 2018) (arbitration
agreement was unconscionable because it purported to prevent employees
from recovering treble damages under state employment law); Smith v.
D.R. Horton, Inc., 790 S.E.2d 1, 5 (S.C. 2016) (arbitration agreement
that prevented claimants from recovering damages was unconscionable);
Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 263 (3d Cir. 2003)
(arbitration agreement that barred punitive damages was
unconscionable); Woebse v. Health Care & Ret. Corp. of Am., 977 So. 2d
630 (Fla. Dist. Ct. App. 2008) (same).
\10\ The Supreme Court has held that a party to an arbitration
agreement may challenge enforcement of the agreement if the claimant
would be required to pay excessive filing fees or arbitrator fees in
order to arbitrate a claim. See Green Tree Fin. Corp.-Ala. v. Randolph,
531 U.S. 79, 90-92 (2000). Since Randolph, courts have aggressively
protected consumers and employees who show that they would be forced to
bear excessive costs to access the arbitral forum. See, e.g., Chavarria
v. Ralphs Grocery Co., 733 F.3d 916, 923-26 (9th Cir. 2013) (refusing
to enforce an arbitration agreement that required the employee to pay
an unrecoverable portion of the arbitrator's fees ``regardless of the
merits of the claim''); Am. Express Co. v. Italian Colors Rest., 570
U.S. 228, 236 (2013) (reaffirming that a challenge to an arbitration
agreement might be successful if ``filing and administrative fees
attached to arbitration . . . are so high as to make access to the
forum impracticable'' for a plaintiff). Courts also have reached the
same conclusion under State unconscionability law.
\11\ See, e.g., Willis v. Nationwide Debt Settlement Grp., 878 F.
Supp. 2d 1208 (D. Or. 2012) (travel from Oregon to California); Coll.
Park Pentecostal Holiness Church v. Gen. Steel Corp., 847 F. Supp. 2d
807 (D. Md. 2012) (travel from Maryland to Colorado); Hollins v. Debt
Relief of Am., 479 F. Supp. 2d 1099 (D. Neb. 2007) (travel from
Nebraska to Texas); Philyaw v. Platinum Enters., Inc., 54 Va. Cir. 364
(Va. Cir. Ct. 2001) (travel from Virginia to California).
\12\ See, e.g., Zaborowski v. MHN Gov't Servs., Inc., No. C 12-
05109 SI, 2013 WL 1363568 (N.D. Cal. Apr. 3, 2013); Adler v. Fred Lind
Manor, 103 P.3d 773 (Wash. 2004) (180 days); see also Gandee v. LDL
Freedom Enters., Inc., 293 P.3d 1197 (Wash. 2013) (refusing to enforce
arbitration agreement in debt-collection contract that required debtor
to present claim within 30 days after dispute arose); Alexander, 341
F.3d at 256 (same, for an employee); Stirlen v. Supercuts, Inc., 60
Cal. Rptr. 2d 138, 138 (Cal. Ct. App. 1997) (rejecting provision that
imposed shortened one-year statute of limitations).
\13\ See Gandee, 293 P.3d at 1197; Alexander, 341 F.3d at 256; Sosa
v. Paulos, 924 P.2d 357 (Utah 1996).
\14\ See, e.g., In re Checking Account Overdraft Litig., 485 F.
App'x 403 (11th Cir. 2012); see also Samaniego v. Empire Today LLC, 140
Cal. Rptr. 3d 492 (Cal. Ct. App. 2012) (attorneys' fees).
\15\ See, e.g., Narayan v. Ritz-Carlton Dev. Co., 400 P.3d 544, 555
(Haw. 2017).
\16\ See, e.g., Chavarria, 733 F.3d at 923-26 (arbitration
agreement was unconscionable and unenforceable when it ``would always
produce an arbitrator proposed by [the company] in employee-initiated
arbitration[s]''and barred selection of ``institutional arbitration
administrators''); Ruiz v. Millennium Square Residential Ass'n, 156 F.
Supp. 3d 176, 182 (D.D.C. 2016) (refusing to enforce arbitrator
selection provision that ``gives [the claimant] no say in the
arbitrator-selection process''); Magno v. Coll. Network, Inc., 204 Cal.
Rptr. 3d 829, 840 (Cal. Ct. App. 2016) (arbitration provision was
unconscionable because, among other things, it allowed the defendant to
select the arbitrator and ``contain[ed] no assurances of neutrality'').
---------------------------------------------------------------------------
This judicial oversight ensures that companies have an
incentive to craft arbitration agreements that are fair to
their customers and employees--and that arbitration agreements
that are not fair to claimants will not be enforced.
Arbitration Is Quicker and Easier To Navigate Than Court
Adjudication
Everyone recognizes that litigation in court is extremely
expensive, immensely time- consuming, and highly complicated.
By contrast, as the Supreme Court has explained in an opinion
written by Justice Breyer, arbitration ``is usually cheaper and
faster than litigation; it can have simpler procedural and
evidentiary rules; it normally minimizes hostility and is less
disruptive of ongoing and future business dealings among the
parties; [and] it is often more flexible in regard to
scheduling of times and places of hearings and discovery
devices.'' \17\
---------------------------------------------------------------------------
\17\ Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 280 (1995)
(quoting H.R. Rep. No. 97-542, at 13 (1982)); see also, e.g., AT&T
Mobility LLC v. Concepcion, 563 U.S. 333, 345 (2011) (``[T]he
informality of arbitral proceedings is itself desirable, reducing the
cost and increasing the speed of dispute resolution.'').
---------------------------------------------------------------------------
Flexibility is one of arbitration's greatest advantages. An
arbitration plaintiff need not ever make a personal appearance
to secure a judgment; claims often can be adjudicated based
solely on written submissions or on the basis of a telephone
conference.\18\ In court, by contrast, a claimant is often
obligated to appear, wait in line, and perhaps return another
day if the court is unable to get through its docket. Even for
those litigants who can afford to take time off from work or
family obligations--and many cannot--these inconveniences can
erode the benefits of any possible recovery.
---------------------------------------------------------------------------
\18\ See, e.g., Am. Arbitration Ass'n, Consumer Arbitration Rules
22 (Sept. 1, 2014) (``A hearing may be by telephone or in person.''),
perma.cc/E8JN-FQE4.
---------------------------------------------------------------------------
Arbitrations are also resolved quickly--which means that
claimants receive relief faster. The recent NDP study found
that arbitration cases in which the employee-plaintiff
prevailed took, on average, 569 days to complete, while cases
in court required an average of 665 days. Ten percent of the
court cases took an average of 1,283 days--50% longer than the
longest 10% of arbitration proceedings.\19\ Another study found
that awarded arbitrations took an average of just 11 months to
decision, versus an average of 26.6 months to verdict in State
court jury trial cases.\20\
---------------------------------------------------------------------------
\19\ NDP Analytics, supra n. 2, at 11-12.
\20\ Andrea Cann Chandrasekher & David Horton, Arbitration Nation:
Data From Four Providers, 107 Cal. L. Rev. 1, 51 (2019).
---------------------------------------------------------------------------
Arbitration Expands Access to Justice by Enabling Consumers and
Employees to Pursue Claims That They Would Be Unable To
Litigate in Court
Arbitration's speed, efficiency, and flexibility make it a
lower-cost means of resolving disputes--which, in turn, expands
consumers' access to justice by providing a forum in which they
can realistically prosecute low-dollar-value claims.
Most harms suffered by employees and consumers are
relatively small in economic value and are individualized. A
key obstacle to pursuing an individualized, small-value claim
in court is the cost of hiring counsel. Unrepresented parties
have little hope of navigating the complex procedures that
apply to litigation in court, yet a lawyer's hourly billing
rate may itself exceed the amount at issue in many claims. Many
lawyers, especially those working on a contingency basis, are
unlikely to take cases when the prospective of a substantial
payout is slim. Studies indicate that a claim must exceed
$60,000, and perhaps $200,000, in order to attract a
contingent-fee lawyer.\21\
---------------------------------------------------------------------------
\21\ Elizabeth Hill, Due Process at Low Cost: An Empirical Study of
Employment Arbitration Under the Auspices of the American Arbitration
Association, 18 Ohio St. J. on Disp. Resol. 777, 783 (2003). In some
markets, this threshold may be as high as $200,000. Minn. State Bar
Ass'n, Recommendations of the Minnesota Supreme Court Civil Justice
Reform Task Force 11 (Dec. 23, 2011), perma.cc/VJ8L-RPEY.
---------------------------------------------------------------------------
Arbitration thus empowers individuals because they can
realistically bring a claim in arbitration without the help of
a lawyer.\22\ Although a party always has the choice to retain
an attorney, arbitration procedures are sufficiently simple and
streamlined that in many cases no attorney is necessary.\23\
And even if a consumer or employee retains a lawyer, costs may
well be lower because of the increased speed and efficiency of
arbitration. As the Supreme Court put it: ``[a]rbitration
agreements allow parties to avoid the costs of litigation, . .
. which often involves smaller sums of money than disputes
concerning commercial contracts.'' \24\
---------------------------------------------------------------------------
\22\ While one study found that pro se plaintiffs ``struggle'' in
arbitration, see Chandrasekher & Horton, supra n.20, at 2, 52, a pro se
plaintiff who can afford a lawyer is nonetheless far better off in
arbitration than litigation.
\23\ St. Antoine, supra n.1, at 15 (``it is feasible for employees
to represent themselves or use the help of a fellow layperson or a
totally inexperienced young lawyer'').
\24\ Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 123 (2001)
(emphasis added).
---------------------------------------------------------------------------
Indeed, a study of 200 AAA employment awards concluded that
low-income employees brought 43.5% of arbitration claims, most
of which were low-value enough that the employees would not
have been able to find an attorney willing to bring litigation
on their behalf.\25\ These employees were often able to pursue
their arbitrations without an attorney and won at the same rate
as individuals with representation.\26\
---------------------------------------------------------------------------
\25\ Hill, supra n.21, at 794.
\26\ Id.
---------------------------------------------------------------------------
Without arbitration, as Justice Breyer explained in a
Supreme Court opinion, ``the typical consumer who has only a
small damage claim (who seeks, say, the value of only a
defective refrigerator or television set) [would be left]
without any remedy but a court remedy, the costs and delays of
which could eat up the value of an eventual small recovery.''
\27\
---------------------------------------------------------------------------
\27\ Allied-Bruce Terminix Cos., 513 U.S. at 281.
---------------------------------------------------------------------------
In short, for a very large percentage of the harms suffered
by consumers and employees, arbitration is the only realistic
opportunity for obtaining relief. One law professor explained
why:
In a world without employment arbitration as an available
option, we would essentially have a ``cadillac'' system for the
few and a ``rickshaw'' system for the many. The unspoken (yet
undeniable) truth is that most claims filed by employees do not
attract the attention of private lawyers because the stakes are
too small and outcomes too uncertain to warrant the investment
of lawyer time and resources. These claims have only one place
to go: Filings with administrative agencies where they
essentially languish, for the agencies themselves lack the
staffing (and often even the inclination) to serve as lawyers
for average claimants. The people who benefit under a
litigation-based system are those whose salaries are high
enough to warrant the costs and risks of a lawsuit undertaken
by competent counsel; these are the folks who are likely to
derive benefit from the considerable upside potential of
unpredictable jury awards. Very few claimants, however, are
able to obtain a position in this ``litigation lottery.'' \28\
---------------------------------------------------------------------------
\28\ Samuel Estreicher, Saturns for Rickshaws: The Stakes in the
Debate Over Predispute Employment Arbitration Agreements, 16 Ohio St.
J. on Disp. Resol. 559, 563 (2001).
As another commentator puts it in the context of employment
disputes, ``a substantial number of nonunion employees,
particularly those with small financial claims, have a
realistic opportunity to pursue their rights through mandatory
arbitration that otherwise would not exist.'' \29\
---------------------------------------------------------------------------
\29\ St. Antoine, supra n.1, at 16.
---------------------------------------------------------------------------
Arbitration Agreements Cannot Prevent Consumers or Employees
From Discussing Claims With Government Agencies or the Public--
and Arbitrators' Decisions Cannot Be Kept Secret
Critics of arbitration contend that arbitration imposes
confidentiality obligations that allow wrongdoers to cover up
their offenses. That is simply false. As a leading law
professor has explained, ``under U.S. law, the privacy of
arbitration typically does not extend to precluding a party's
disclosure of the existence of the arbitration or even its
outcome. Instead, it means that non-parties can be excluded
from the hearing and that the arbitrator and arbitration
provider cannot disclose information about the proceeding.''
\30\
---------------------------------------------------------------------------
\30\ Christopher R. Drahozal, FAA Preemption After Concepcion, 35
Berkeley J. Emp. & Lab. L. 153, 167 (2014). The American Arbitration
Association's rules provide that ``[t]he arbitrator and the AAA shall
maintain the privacy of the hearings unless the law provides to the
contrary.'' Am. Arbitration Ass'n, Commercial Arbitration Rules and
Mediation Procedures 31 (Apr. 1, 1999), perma.cc/5U92-5PQF. This Rule
applies only to the hearings themselves; nothing in the rules requires
that the outcome be kept confidential.
---------------------------------------------------------------------------
Thus, claimants in arbitration are free to discuss their
claims publicly and to report alleged wrongdoing to law
enforcement officials.\31\ If an arbitration agreement
purported to impose a ``gag order,'' or to prevent a claimant
from publicly disclosing misconduct or reporting that
misconduct to law enforcement authorities, that restriction
would be invalidated in court.\32\
---------------------------------------------------------------------------
\31\ See, e.g., Christopher C. Murray, No Longer Silent: How
Accurate are Recent Criticisms of Employment Arbitration, 36
Alternatives to the High Cost of Litigation 65, 78 (2018). The only
even possible exception is one-off arbitration agreements individually
negotiated with highly-paid, high-ranking executives or similar
employees, which could bar public disclosure of confidential
information. But even in that context, confidentiality obligations face
a high bar.
\32\ See, e.g., Davis v. O'Melveny & Myers, 485 F.3d 1066, 1078
(9th Cir. 2007), overruled on other grounds by Kilgore v. KeyBank,
Nat'l Ass'n, 673 F.3d 947 (9th Cir. 2012); Longnecker v. Am. Express
Co., 23 F. Supp. 3d 1099, 1110 (D. Ariz. 2014); DeGraff v. Perkins Coie
LLP, No. c 12-02256 JSW, 2012 WL 3074982, at *4 (N.D. Cal. July 30,
2012).
---------------------------------------------------------------------------
The same is true of arbitrators' decisions. Indeed, State
laws require disclosure of arbitration outcomes by arbitral
forums such as the AAA,\33\ and courts consistently hold that
the results of arbitration proceedings may be disclosed by
either party.\34\
---------------------------------------------------------------------------
\33\ E.g., Cal. Code Civ. Proc. Sec. 1281.96.
\34\ Courts have invalidated on unconscionability grounds
arbitration agreement provisions requiring that outcomes be kept
confidential. See, e.g., Larsen v. Citibank FSB, 871 F.3d 1295, 1319
(11th Cir. 2017); Davis, 485 F.3d at 1079.
---------------------------------------------------------------------------
In sum, the claim that arbitration allows businesses to
avoid public disclosure of disputes with employees or consumers
is simply false; consumers and employees retain the ability to
make these disputes public even if they are resolved in
arbitration.
Banning Pre-dispute Arbitration Agreements Will Eliminate All
Arbitration
Arbitration critics often assert that if arbitration is
beneficial for both sides of a dispute, businesses and
employees will agree to arbitrate after disputes arise and that
a ban on pre-dispute arbitration agreements therefore will not
eliminate all arbitration. In reality, post-dispute arbitration
agreements are as rare as unicorns.
The reasons for this are simple. Once a particular dispute
has arisen, the parties ``often have an emotional investment in
their respective positions,'' built up over the course of the
events that led to the dispute.\35\ And especially at the
beginning of a dispute, parties are ``reluctan[t] . . . to
evaluate their cases pragmatically.'' \36\ The emotional
investment in a case thus tends to skew the preferences of one
party or another in favor of ``refus[ing] to arbitrate'' \37\
and instead opting to litigate in court.
---------------------------------------------------------------------------
\35\ Steven C. Bennett, The Proposed Arbitration Fairness Act:
Problems and Alternatives, 67 Disp. Resol. J. 32, 37 (2012).
\36\ Lewis L. Maltby, Out of the Frying Pan, Into the Fire: The
Feasibility of Post-Dispute Employment Arbitration Agreements, 30 Wm.
Mitchell L. Rev. 313, 326 (2003).
\37\ Id. at 327.
---------------------------------------------------------------------------
The lawyers for one or both sides also have financial
incentives to induce their clients to opt for litigation in
court rather than arbitration. Litigation in court--which takes
much longer than arbitration and involves many more procedural
hurdles--offers lawyers the opportunity to earn much higher
fees than they could earn in arbitration. Consciously or not,
they may advise clients to choose a judicial forum that is
really in the lawyers' own best interest rather than in the
clients' interest.
As one law professor explained: ``I know, from personal
experience representing clients and in my work drafting
postdispute arbitration rules for the Center for Public
Resources (a consortium of companies and lawyers that promotes
various forms of ADR), that postdispute arbitration agreements
are almost never negotiated. It is a chimerical alternative to
predispute arbitration agreements.'' \38\ In reality, post-
dispute arbitration agreements simply do not happen.
---------------------------------------------------------------------------
\38\ Samuel Estreicher, Saturns for Rickshaws, supra n.28, at 567.
---------------------------------------------------------------------------
Finally, even if parties were willing to negotiate post-
dispute arbitration agreements, it would not make economic
sense for businesses to do so. Maintaining a top-quality
arbitration system requires a business to shoulder virtually
all of the costs of arbitration, including filing fees and
arbitrator expenses. Companies willingly bear these costs
because, on average, they pay less in legal fees to resolve
disputes in arbitration than to litigate cases in court. If
companies could not ensure that most or all of their dispute
resolution proceedings would take place in arbitration rather
than litigation, they would simply relegate all disputes to the
court system--rather than paying both the high litigation costs
for court proceedings and virtually all of the fees associated
with arbitration. That result would be harmful to plaintiffs,
who would lose the ability to access arbitration for low-value
claims that cannot be brought in court.
Arbitration's Individualized Process and Lack of Class
Procedures Does Not Justify Banning Arbitration
Opponents of arbitration often complain that arbitration
agreements require resolution of disputes on an individual
basis and preclude class action lawsuits. But while the
features of class actions--aggregation of claims and spreading
of litigation costs over many class Members--may sound
appealing in theory, these benefits are very rarely, if ever,
realized. Most class actions provide little or no benefit at
all to class Members. The indisputable beneficiaries of class
actions, rather, are the plaintiffs' attorneys who file them
and receive large fees if the cases are settled.
Importantly, most claims asserted by consumers and
employees are individualized and cannot be brought as class
actions. When an employee argues that his or her pay or
benefits were wrongly calculated, or that he or she was
unfairly denied a raise or promotion, or claims injury from
harassment, those claims in the overwhelming majority of
situations cannot be brought as class actions. And on the
consumer side, a study of claims asserted by consumers--and not
by lawyers--found that the overwhelming majority could not be
litigated in a class action.\39\
---------------------------------------------------------------------------
\39\ Letter from David Hirschmann & Lisa Rickard to Monica Jackson,
Re: Notice of Proposed Rulemaking on Arbitration Agreements, Dkt. No.
CFPB-2016-0020-3941 at 3, Appendix A 13-14 (Aug. 22, 2016).
---------------------------------------------------------------------------
Thus, while it is often claimed that class actions are
necessary to allow certain low-value claims to be brought in
court, the reality is that abandoning arbitration in order to
allow for class actions would be the surest way to prevent many
low-value claims from being prosecuted, because most low-value
claims are not eligible for class treatment.
Moreover, the benefits of class actions are greatly
overstated. Most class actions do not produce any recovery for
absent class Members. Class action studies consistently find
that the overwhelming majority of these cases are resolved with
no benefit to class Members--87% in one study, 66% in another,
and 60-80% in a third.\40\
---------------------------------------------------------------------------
\40\ Consumer Fin. Prot. Bureau, Arbitration Study: Report to
Congress 2015, Section 6, Page 39 (Mar. 2015), perma.cc/8AX5-AYWN
(hereinafter CFPB Study); Mayer Brown LLP, Do Class Actions Benefit
Class Members? An Empirical Analysis of Class Actions (Dec. 11, 2013),
goo.gl/3B27FQ (hereinafter Mayer Brown Study); Jason Scott Johnston,
High Cost, Little Compensation, No Harm to Deter: New Evidence on Class
Actions Under Federal Consumer Protection Statutes, 2017 Colum. Bus. L.
Rev. 1 (2017).
---------------------------------------------------------------------------
Even in the small percentage of cases that settle, the
benefits for class Members are largely illusory:
Most class action settlements do not involve automatic
distribution of settlement payments and the vast majority of class
members do not file claims for payment from these settlement funds.
One study reported a "weighted average claims rate" in
class actions of just 4%--in other words, 96% of the class members got
nothing.\41\
---------------------------------------------------------------------------
\41\ FPB Study at Section 8, Page 30; see also Mayer Brown Study at
7 & n.20 (in the handful of cases where statistics were available, and
excluding one outlier case involving individual claims worth, on
average, over $2.5 million, the claims rates were minuscule: 0.000006%,
0.33%, 1.5%, 9.66%, and 12%).
---------------------------------------------------------------------------
That figure comports with academic studies, which
regularly conclude that only ``very small percentages of class members
actually file and receive compensation from settlement funds.'' \42\
---------------------------------------------------------------------------
\42\ Linda Mullenix, Ending Class Actions as We Know Them:
Rethinking the American Class Action, 64 Emory L.J. 399, 419 (2014).
---------------------------------------------------------------------------
A recent empirical study explains that ``although 60
percent of the total monetary award may be available to class members,
in reality, they typically receive less than 9 percent of the total.''
The author concluded that class actions "clearly do[] not achieve their
compensatory goals . . . . Instead, the costs . . . are passed on to
consumers in the form of higher prices, lower product quality, and
reduced innovation.'' \43\
---------------------------------------------------------------------------
\43\ Joanna Shepherd, An Empirical Study of No-Injury Class
Actions, 2, 5, 21 (Emory Univ. Sch. of L., Legal Studies Research Paper
Series No. 16-402, Feb. 1, 2016), perma.cc/TU9R-UDSM.
While class Members get little benefit from class actions,
the lawyers who file these cases profit handsomely. These
payments to lawyers, of course, are subtracted from the funds
available to class Members, and therefore are highly relevant
in assessing the benefit that class actions provide to class
Members. One study found that the average settlement payment
was no better than $32.35 per class member,\44\ but attorneys'
fees averaged $1 million per case.\45\ And the average fee paid
to plaintiffs' lawyers--as a percentage of the announced
settlement (not the smaller amount actually distributed to
class Members)--was 41%, with a median of 46%.\46\
---------------------------------------------------------------------------
\44\ CFPB Study at Section 8, Pages 27-28; see also Statement of
the U.S. Chamber of Commerce to House Committee on Financial Services,
Subcommittee on Financial Institutions and Consumer Credit (May 18,
2016) at Appendix, page 5 (explaining calculation), perma.cc/TJ92-CE9G.
\45\ CFPB Study at Section 8, Page 33.
\46\ CFPB Study at Section 8, Page 34.
---------------------------------------------------------------------------
Class actions also typically take significantly longer to
resolve than arbitrations. That means employees must wait much
longer to obtain relief. One study found that class actions
that produced a class-wide settlement took an average of nearly
two years to resolve.\47\ And that two-year average duration,
moreover, may not even include the time needed for class
Members to submit claims and receive payment after a settlement
is reached. Another study found that 14% of the class actions
were still pending four years after they were filed, with no
end in sight.\48\
---------------------------------------------------------------------------
\47\ CFPB Study at Section 8, Page 37.
\48\ Mayer Brown Study at 1.
---------------------------------------------------------------------------
Moreover, arbitration can provide an efficient means of
effectively litigating small injuries shared by a large number
of employees or consumers. Parties with related claims can use
the same lawyer and (if needed) the same expert in order to
share costs. Justice Kagan (in an opinion for herself and
Justices Ginsburg and Breyer) has recognized that groups of
claimants can vindicate their rights in arbitration without
class procedures--through ``informal coordination among
individual claimants, or amelioration of arbitral expenses,''
\49\ both of which are features of virtually all arbitration
agreements. One study suggested that plaintiffs' lawyers may be
able to ``create a simulacrum of the class action by initiating
dozens or even hundreds of two-party arbitrations against the
same defendant'' and thereby pursue class-action style cases in
the employment arbitration arena.\50\
---------------------------------------------------------------------------
\49\ Italian Colors, 570 U.S. at 249 (Kagan, J., dissenting).
\50\ Chandrasekher & Horton, supra n.20, at 2, 9, 52-54.
---------------------------------------------------------------------------
Thus, the notion that the only way for employees and
consumers to band together to bring small claims is in class
actions is incorrect--arbitration provides an effective way to
Act collectively, while also giving employees with
individualized claims the opportunity to bring those claims (an
opportunity that class actions do not provide).
Thank you again for the opportunity to testify today. I
look forward to answering your questions.
Mr. Cicilline. Thank you, Mr. Pincus.
The Chair now recognizes Ms. Gilles for 5 minutes.
TESTIMONY OF MYRIAM GILLES
Ms. Gilles. Thank you, Chairman Cicilline, Ranking Member
Sensenbrenner, distinguished Members of the subcommittee. Thank
you so much for inviting me here. It is a privilege to be
before you.
In my few minutes, I would just like to explain how forced
arbitration systematically strips us of our legal rights.
Forced arbitration clauses are everywhere. These provisions
are buried in the boilerplate of take-it-or-leave-it consumer
and employment contracts, and they require that all legal
claims be resolved in private, one-on-one arbitrations.
What this really means is that, for example, if an employer
rips off a group of employees, they can't sue that employer.
They can't sue in court, they can't bring a group action, they
can't bring a group action in arbitration. The only thing a
given employee could do in that scenario is to take on all the
burden and cost of going against the employer in a one-on-one
arbitration.
If an individual employee only has, say, $500 at stake,
that is the amount that the employer ripped off, that is the
amount of wage theft that we are talking about, he is not going
to spend many times that amount in order to bring a claim. The
game isn't worth the candle.
So nearly all claims like this where forced arbitration is
in effect, the employee rationally abandons her claim, and that
means that the employer has basically drafted for itself what
Congressman Nadler described as a get-out-of-jail-free card.
There is no accountability, no liability.
Given that reality, I think it is not surprising that
forced arbitration is still popular, that over the past decade
it is almost impossible to find a product, a service, an
amenity of modern life that doesn't require us to sign away our
rights. Over 60 million American workers are subject to forced
arbitration. That is more than half the non-unionized
workforce. The Economic Policy Institute predicts that in three
to five years, 80 percent of all workers will be bound by
forced arbitration.
I want that to sink in for just a moment. Eighty percent of
workers are going to have to sign away their rights to have a
fair workplace before they can even get a job. That just seems
crazy.
In consumer transactions, 86 percent of student borrowers,
90 percent of the nation's credit card debt, 88 percent of
mobile wireless providers, 99 percent of payday lenders--this
is happening, and it is happening everywhere. Probably every
single person in this room, and certainly every person in this
country, is subject to a forced arbitration clause in some
aspect of their lives, to apply for a job, get a credit card,
get a checking account, get a loan, belong to a gym, send your
kid to a camp, or put your parents in a nursing home. You must
sign away your rights.
Take, for example, Richard Heggens, my fellow New Yorker
who is here in the gallery today. Richard worked for Chipotle
Restaurant in 2015. He tried to join a lawsuit brought by a
group of Chipotle employees against the company for wage theft.
The problem was that Richard had unknowingly agreed to a forced
arbitration clause, and I am using the air quotes because the
clause was buried in the fine print of an online welcome packet
that Chipotle emailed to all its new employees requiring them
to click ``Agree'' before they could start work. You didn't
actually have to read the documents to click ``Agree,'' and we
have all been on those online sites, right? So, we can relate.
Richard didn't read the arb clause, but that didn't matter.
His case was kicked out of court and sent into individual
arbitration.
Now, what Chipotle was really banking on here was that
Richard and the other employees, once blocked from going to
court as a collective, would just drop their claims, because
that is what typically happens. Again, it is usually not worth
it for an individual employee to bring the claim. That is not
what happened here.
The lawyers who were representing Richard and the other
employees who have been pick-pocketed by Chipotle, they called
Chipotle's bluff, and they started to bring serial
arbitrations, over 1,000 arbitrations. Do you know what
Chipotle did? They cried uncle. They went back to Federal court
and said please help us out of this mess.
What is the mess? The mess is actually having to defend
itself against allegations of wage theft by their own
employees.
I think it is clear in this example that Chipotle's plan
all along was to avoid any accountability to its workers. It
was trying to use its forced arbitration clause as a shield,
and it just couldn't believe it when it didn't work.
But Richard's case is an exception, because I think that
lots of companies use forced arbitration in this way and are
able to suppress claims by using forced arbitration in this
way. This is just not the way the civil justice system is
supposed to work. This is not what I teach my students. This is
not how it is supposed to go.
So, I do think that it is time for Congress to act. Last
month, in the most recent contested decision by the Supreme
Court on forced arbitration, Justice Ginsburg issued a clarion
call to the Congress. She told you it is urgent that Congress
Act to protect the rights of employees and consumers, and I
really hope you do.
Thank you.
[The testimony of Ms. Gilles follows:]
STATEMENT OF MYRIAM GILLES
Distinguished Members of the House Subcommittee:
Thank you for inviting me to participate in this important
hearing. I hope my testimony will help inform the discussion of
the pernicious effects of class-banning forced arbitration
clauses on consumers, employees and small businesses. In this
written testimony, I (1) chronicle the rise and troubling
consequences of forced arbitration, and (2) expose the reality
behind the myths and talking points perpetuated by arbitration
advocates--all to make clear that a legislative solution is
desperately needed to solve this escalating crisis in access to
justice. It my hope that today's hearing will spur the
Committee and the Congress to Act on the slate of proposed
legislation seeking to amend the Federal Arbitration Act,
including the Forced Arbitration Injustice Repeal Act (H.R.
1423/S. 610), the Restoring Justice for Workers Act (H.R.
7109), and the Justice for ServiceMembers Act (H.R. 2631).
INTRODUCTION
In 1925, the 68th Congress enacted the Federal Arbitration
Act (``FAA'') to protect voluntary agreements to arbitrate,
entered into by savvy businesses seeking a fast and economical
alternative to the judicial system and a private forum where
trade secrets and other commercial matters would be kept
confidential.\1\ Not one member of that Congressional body
could have imagined that this statute would someday be
interpreted to permit companies to impose pre-dispute
arbitration clauses in standard-form contracts with consumers
and employees. Surely no one who supported the legislation
thought for a second that, in enacting the FAA, they would be
undermining private enforcement of consumer, antitrust,
securities, employment and civil rights statutes that preserve
and protect our shared rights.\2\ clearly no member of the 68th
Congress believed that casting a vote in favor of the FAA would
render American citizens and small business owners unable to
access public courts to resolve disputes, seek redress for
grievances, or enforce State and federal laws.
---------------------------------------------------------------------------
\1\ See, e.g., Sen. Rep. No. 536, 68th Cong., 1st Sess. 3 (1924)
(the goal of promoting arbitration as an alternative to the judicial
system ``appeal[ed] to big business and little business alike, to
corporate interests as well as to individuals'').
\2\ Indeed, even the FAA's primary draftsman, Julius Henry Cohen,
warned that arbitration was not the appropriate forum ``for deciding
points of law of major importance involving constitutional questions or
policy in the application of statutes.'' Andrea Chandrasekher & David
Horton, Arbitration Nation: Data from Four Providers, 109 Cal. L. Rev.
(forthcoming 2019) (citing Julius Henry Cohen & Kenneth Dayton, The New
Federal Arbitration Law, 12 Va. L. Rev. 265, 281 (1926)).
---------------------------------------------------------------------------
Yet that is precisely where we find ourselves today, as the
result of a series of flawed judicial decisions that have
strayed far from the 68th Congress's original intent in
enacting the FAA. The result has been a proliferation of
mandatory, pre-dispute arbitration clauses and class action
bans. Given the certainty that most consumers and employees
cannot afford to arbitrate small-dollar claims individually, or
attract counsel on a contingent fee basis, these provisions
effectively eliminate access to justice and undermine rights
guaranteed by federal and State law.\3\
---------------------------------------------------------------------------
\3\ See Consumer Financial Protection Bureau, Arbitration Study
(2015) at 10 [hereinafter, CFPB Arbitration Study] (``Across each
product market, 85-100% of the contracts with arbitration clauses--
covering close to 100% of market share subject to arbitration in the
six product markets studied--include no-class arbitration
provisions.'').
---------------------------------------------------------------------------
Until now, debates over forced arbitration have largely
been confined to academics and policymakers; but recent
scandals have revealed the extent to which these provisions
enable companies to cover up persistent wrongdoing. And polling
reveals that citizens are now demanding change: 84% of voters--
87% of Republicans and 83% of Democrats--support legislation to
end forced arbitration.\4\ In other words, in this moment of
partisan factionalism where we seem to agree on little,
Americans across the political spectrum agree that closing the
courthouse door is harmful. It therefore falls upon this 116th
Congress to faithfully represent the interests of this vast
majority by amending the FAA to make clear that it does not
apply to pre-dispute, class-banning forced arbitration clauses
imposed by powerful companies upon unknowing consumers,
employees and other weaker counterparties.
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\4\ The percentage of Americans against forced arbitration has
risen steadily in the past few years. For example, in 2017, 67% of
American--64% of Republicans and 74% of Democrats--supported the CFPB's
Rule which would have banned forced arbitration clauses in consumer
financial contracts. See Sylvan Lane, GOP Polling Firm: Bipartisan
Support for Consumer Bureau Arbitration Rule, The Hill, Oct. 2017. The
more recent nationwide poll by Hart Research found even greater
bipartisan support for an even broader federal ban on all forced
arbitration clauses in consumer and employment contracts.
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I. The Ominous Rise of Forced Arbitration in America
In 2005, I began studying the effects of forced arbitration
clauses on consumers, employees and small businesses. That
year, I published an article about class-banning arbitration
provisions and warning that these clauses could become
ubiquitous, blocking citizens' access to judges and juries.\5\
Two important rulings by the United States Supreme Court of the
United States brought to life all my dire predictions. In its
2011 decision in AT&T Mobility v. Concepcion, the Court held
that the FAA preempts, not only State law rules that ban
arbitration in some category of cases, but also any Rule that
requires the availability of collective procedures for the
resolution of disputes.\6\ This reading of the FAA has since
preempted many subsequent attempts by states to regulate
arbitration clauses in consumer and employment contracts.\7\
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\5\ Myriam Gilles, Opting Out of Liability: The Forthcoming, Near-
Total Demise of the Modern Class Action, 104 Mich. L. Rev. 373 (2005).
\6\ 563 U.S. 333 (2011).
\7\ See, e.g., Kindred Nursing Centers Ltd. P'ship v. Clark, 137 S.
Ct. 1421 (2017); DirecTV, Inc. v. Imburgia, 136 S. Ct. 463 (2015);
Marmet Health Care Ctr., Inc. v. Brown, 565 U.S. 530 (2012).
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The Court expanded the reach of the FAA in its 2013
decision in American Express v. Italian Colors.\8\ There, a
class of small business owners brought an antitrust class
action against American Express challenging various
anticompetitive practices. The case had important implications
for millions of small merchants who felt abused by Amex's high
fees, and whose theory of antitrust injury sought important
changes in the electronic payments industry. By dint of
Congressional intent and statutory enactment, these are
precisely the types of claims that small businesses are meant
to pursue.\9\ Yet five Justices the Supreme Court enforced
Amex's class-banning arbitration clause buried in its merchant
service agreement, prohibiting these small businesses from
pursuing their legal claims collectively.\10\ Given that the
cost of an individual small business bringing an antitrust
action against a huge company like American Express was
prohibitive, this ruling all but ensured that Amex and other
big companies that impose forced arbitration on small
businesses are rendered immune from liability and free to
engage in whatever anti-competitive conduct they want.\11\
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\8\ 559 U.S. 1103 (2013).
\9\ See, e.g., Mitsubishi Motors Corp. v. Soler Chrylser-Plymouth,
473 U.S. 614, 634 (1985) (declaring the ``fundamental importance [of
antitrust law] to American democratic capitalism''); Am. Safety Equip.
Corp. v. J.P. Maguire & Co., 391 F.2d 821, 826 (2d Cir. 1968) (``A
claim under the antitrust laws is not merely a private matter. The
Sherman Act is designed to promote the national interest in a
competitive economy; thus, the plaintiff asserting his rights under the
Act has been likened to a private attorney-general who protects the
public's interest.''); American Safety Equip. Corp. v. J.P. Maguire &
Co., 391 F.2d 821, 826-27 (2d Cir. 1968) (observing that an antitrust
violation ``can affect hundreds of thousands--perhaps millions--of
people and inflict staggering economic damage,'' such that arbitration
of such ``issues of great public interest'' was ill advised).
\10\ 559 U.S. 1103 (2013).
\11\ See Testimony of Alan Carlson, Named Plaintiff in Italian
Colors et al. v. American Express, U.S. Senate Committee on the
Judiciary, Dec. 17, 2013, available at https://
www.judiciary.senate.gov/imo/media/doc/12-17-13CarlsonTestimony.pdf
(``Normally, every American has the right to join with others to fight
to hold corporate giants accountable. But I don't, because of a forced
arbitration clause buried in the fine print of terms and conditions
imposed upon me years after I started taking American Express cards. 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 don't have
the money to take on American Express by myself.'').
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These decisions, widely viewed as illogical and incorrect
interpretations of the FAA, set the Court upon a crooked legal
path, leading it to uphold class-banning arbitration clauses in
numerous circumstances that stray far from the original goals
of the FAA.\12\ In case after case, slim majorities have held
that it does not matter that individual citizens are unable to
vindicate their statutory rights in a one-on-one arbitration--
i.e., that countless legal claims will ``slip through the legal
system,'' leaving serious corporate wrongdoing unaddressed.\13\
As Justice Kagan wrote in her blistering dissent in Amex, ``the
nutshell version'' of the majority view is simply this: ``Too
darn bad.'' \14\
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\12\ 9 U.S.C Sec. 2. Since 2010, the Supreme Court has decided
fourteen cases interpreting the FAA. See, e.g., Kindred Nursing Centers
Ltd. P'ship v. Clark, 137 S. Ct. 1421 (2017); DirecTV, Inc. v.
Imburgia, 136 S. Ct. 463 (2015); BG Grp., PLC v. Republic of Argentina,
134 S. Ct. 1198 (2014); Am. Exp. Co. v. Italian Colors Rest., 133 S.
Ct. 2304 (2013); Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064
(2013); Nitro-Lift Techs., L.L.C. v. Howard, 568 U.S. 17 (2012); Marmet
Health Care Ctr., Inc. v. Brown, 565 U.S. 530 (2012); CompuCredit Corp.
v. Greenwood, 565 U.S. 95 (2012); KPMG LLP v. Cocchi, 565 U.S. 18
(2011); AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011); Granite
Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287 (2010); Rent-A-Ctr.,
W., Inc. v. Jackson, 561 U.S. 63 (2010); Stolt-Nielsen S.A. v.
AnimalFeeds Int'l Corp., 559 U.S. 662 (2010); New Prime v. Oliviera,
138 S.Ct. 1164 (Jan. 16, 2019); Lamps Plus v. Varela, No. 17-988, slip
op. (U.S. Sup. Ct. October 2018).
\13\ Concepcion, 563 U.S. at 341.
\14\ Amex, 559 U.S. at 1111 (Kagan, J., dissenting).
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These Supreme Court decisions have given a green light to
corporations looking to suppress legal claims and opt out of
liability.\15\ Corporate actors, seeing that green light, have
hit the gas, and the use of class-banning forced arbitration
clauses has skyrocketed in recent years.\16\ These clauses have
quickly spread from telecom and credit card contracts, to
contracts with insurance companies, airlines, landlords, payday
lenders, banks, gyms, rental car companies, parking facilities,
schools, kids' camps, shippers--even HMOs and nursing
homes.\17\ Today, nearly every American is subject to a class-
banning forced arbitration clause in some aspect of their
lives--and, going forward, we should expect that there will be
few transactions and interactions that are not accompanied by
these remedy-stripping provisions.
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\15\ See, e.g., Jessica Silver-Greenberg & Robert Gebeloff,
Arbitration Everywhere, Stacking the Deck of Justice, N.Y. Times, Nov.
1, 2015 (``Corporations said that class actions were not needed because
arbitration enabled individuals to resolve their grievances easily. But
court and arbitration records show the opposite has happened: Once
blocked from going to court as a group, most people dropped their
claims entirely.'').
\16\ Id. (``By inserting individual arbitration clauses into a
soaring number of consumer and employment contracts, companies [have]
devised a way to circumvent the courts and bar people from joining
together in class-action lawsuits, realistically the only tool citizens
have to fight illegal or deceitful business practices.'').
\17\ Myriam Gilles & Gary Friedman, After Class: Aggregate
Litigation in the Wake of AT&T Mobility v. Concepcion, 79 U. Chi. L.
Rev. 623, 631 (2012) (``[A]bsent broad legal invalidation, it is
inevitable that the waiver will find its way from the agreements of
`early adopter' credit card, telecom, and e-commerce companies into
virtually all contracts that could even remotely form the predicate of
a class action someday. After all, the incremental burden of including
magic words in dispute resolution boilerplate--or even on point-of-sale
purchase receipts or box-stuffer notices--is surely minimal in relation
to the benefit of removing oneself from potential exposure to aggregate
litigation.'').
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a. Consumers
Class-banning forced arbitration clauses have permeated
every corner of the consumer universe. For example, the
Consumer Financial Protection Bureau (``CFPB'') found that
seven of the eight largest mobile wireless providers, covering
99.9% of subscribers, required arbitration in their customer
agreements.\18\ This means an estimated 290 million cell phone
subscribers are bound to service agreements that contain class-
banning forced arbitration clauses. Likewise, credit card
issuers representing more than 90% of all credit card debt
impose arbitration clauses in their contracts with
consumers.\19\ In the checking account market, banks
representing 44% of insured deposits have arbitration clauses
in their customer contracts, while 98.5% of payday lenders
impose arbitration on borrowers.\20\ As a result, tens of
millions of consumers are, today, subject to these rights-
stripping clauses.
---------------------------------------------------------------------------
\18\ See CFPB Arbitration Study, supra note 3. See also Theodore
Eisenberg et al., Arbitration's Summer Soldiers: An Empirical Study of
Arbitration Clauses in Consumer and Nonconsumer Contracts, 41 U. Mich.
J.L. Ref. 871, 882-84 (2008) (reviewing internet, phone, and data
service contracts finding that 75% contained mandatory arbitration
clauses and 80% contained class action bans).
\19\ CFPB Arbitration Study, supra note 3, at 22-23. Specifically,
the CFPB Arbitration Study noted that, at the time of its study, four
major credit card issuers were subject to a federal court injunction
under which they were temporarily barred from imposing their mandatory
arbitration clauses. Ross v. Bank of America, N.A., 2006 WL 2685082
(S.D.N.Y. 2010). If those four credit card issuers had continued their
policy of requiring arbitration during the CFPB's study period, the
percentage of outstanding loans subject to mandatory arbitration would
have risen to over 93%. Id. Indeed, a casual web check of those four
issuers' terms and conditions today shows they have reinstated their
arbitration requirements.
\20\ Id.
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Given the ubiquity of these provisions, one might expect
some significant number consumers to arbitrate their disputes.
But the opposite is true: Only a tiny percentage of consumers
file arbitrations annually.\21\ For example, Yale Law professor
Judith Resnik found that the American Arbitration Association
(``AAA''), which is ``designated by AT&T to administer its
arbitrations,'' reported that only ``134 individual claims
(about 27 a year) were filed against AT&T between 2009 and
2014.'' \22\ During the same time period, Professor Resnik
calculates AT&T had over 120 million wireless customers, and
that the company was subject during these years to numerous
investigations and public enforcement actions for violations of
consumer laws.\23\
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\21\ Id. (finding that from 2010 to 2012, only 411 consumers filed
individual arbitrations to resolve disputes--while nearly 10 million
consumers were represented in comparable class actions during the same
period).
\22\ See Judith Resnik, Diffusing Disputes: The Public in the
Private of Arbitration, the Private in Courts, and the Erasure of
Rights, 24 Yale L.J. 2680, 2811 (2015).
\23\ Id. at 2812.
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More recent data provided by the AAA reveals that, in the
first quarter of 2019, it resolved only 895 consumer
arbitrations for the hundreds of companies for which it is a
designated arbitral provider. Again, this is a miniscule number
of claims when compared to the millions of American consumers
who sign consumer contracts every year that require them to
resolve disputes through individual arbitration. It is also
tiny compared to the millions of consumers who would have
benefited from class actions, when these procedures were
available.\24\
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\24\ CFPB Arbitration Study, supra note 3 at pp. 29-31 (concluding
that, in the time period it examined, millions of consumers were class
Members while just hundreds brought claims in arbitration; and that
consumers were awarded less than $200,000 in arbitration compared to
$1.1 billion in class actions).
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One reason consumers don't arbitrate their claims is that
it would be too costly to do so: under these class-banning
arbitration clauses, a consumer must bear 100% of all the costs
charged to her in arbitration by herself; her claim cannot be
joined with those of any other arbitral claimant as a way of
distributing costs and risks. Rational consumers are unwilling
to take on the cost and hassle of an individual arbitration to
recover de minimis damages, nor can they find attorneys to do
so.\25\ Indeed, in a recent case, a lawyer for the company
Fitbit admitted to a federal judge that the company was betting
that no rational litigant would pay arbitration fees, which
start at $750, to litigate a relatively small-dollar claim
involving a defective device.
---------------------------------------------------------------------------
\25\ Concepcion, 584 U.S. 849 (2011) (Breyer, J. dissenting)
(``What rational lawyer would have signed on to represent the
Concepcions in litigation for the possibility of fees stemming from a
$30.22 claim?'').
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Another reason consumers don't arbitrate their claims is
they have no idea that they have signed away their right to go
to court before a jury of their peers. In a Congressionally-
mandated study conducted by the Consumer Financial Protection
Bureau in 2015, half of all respondents surveyed did not know
whether they had the right to sue their credit-card issuer in
court and more than a third of those who were bound by forced-
arbitration clauses incorrectly believed that they could still
go to court to resolve disputes.\26\ This utter lack of
awareness is no surprise, given that class-banning forced
arbitration clauses are often hidden in the boilerplate
language that consumers either skim or ignore when making
purchases. Indeed, companies now regularly and intentionally
impose these class-banning arbitration clauses in click-wrap,
envelope-stuffers and other delivery methods intended to
obscure or minimize the immensity of the rights that are being
forfeited.
---------------------------------------------------------------------------
\26\ CFPB Arbitration Study, supra note 3 at pp. 19-24 (reporting
that half of all respondents surveyed did not know whether they had the
right to sue their credit-card issuer in court, and more than a third
of those who were bound by forced-arbitration clauses still believed,
incorrectly, that they could take the company to court).
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Further, these rights-stripping clauses are a precondition
to obtaining the product or service in question--i.e., they are
imposed long before any dispute or problem arises. And since
most people simply don't contemplate dispute-resolution
procedures at the start of any relationship--but especially not
when transacting for a product or service--we simply lack the
information necessary to place sufficient value on the rights
we're giving up until it's far too late.
All this leaves American consumers without remedy for
widespread wrong-doing and allows unscrupulous companies to
engage in widespread misconduct with little fear of exposure or
penalty. For example, forced arbitration allowed companies like
Wells Fargo \27\ and Equifax \28\ to block consumer lawsuits
that would have exposed their misconduct far sooner. In the
case of Wells Fargo, injured customers began suing the company
for opening fake accounts back in 2013--two years before press
reports surfaced that employees had opened 3 million such
accounts--but these claims were quickly forced into the Black
box of arbitration.\29\
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\27\ See, e.g., Michael Corkery & Stacy Cowly, Wells Fargo Killing
Sham Account Suits by Using Arbitration, NY Times, Dec. 16, 2016.
\28\ See, e.g., Diane Hembree, Consumer Backlash Spurs Equifax to
Drop ``Ripoff Clause'' in Offer to Security Hack Victims, Forbes, Sept.
9, 2017.
\29\ See, e.g., Michael Hiltzik, No Surprise: Wells Fargo Is
Leveraging Its Arbitration Clause to Win an Advantageous Scandal
Settlement, Los Angeles Times, March 31, 2017; see also Col. Lee F.
Lange, I Served to Protect Our Rights; Don't Let Equifax Take Them
Away, Medium (reporting that ``only four arbitrations have been filed
against Wells Fargo in Arizona despite up to 178,972 or more fake
accounts in the state'').
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b. Employees
In recent years, companies have also imposed class-banning
arbitration clauses on their employees, silencing aggrieved
workers and eliminating corporate accountability for systemic
workplace violations.\30\ Employer-drafted arbitration clauses
require workers to resolve all disputes within the employment
relationship in private arbitration, including payment of wages
and benefits, provision of breaks and rest periods, rights in
termination, and prohibitions against discrimination or
harassment. Indeed, many companies go so far as to explicitly
highlight federal statutes that they are denying their workers
the right to enforce in court--listing, for example, that
alleged violations of the Civil Rights Act of 1964, the Family
Medical Leave Act, the American with Disabilities Act, and the
Age Discrimination in Employment Act can only be resolved in
private, one-on-one arbitration.
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\30\ See Lauren Weber, More Companies Block Employees From Filing
Suits, Wall St. J., Mar. 31, 2015 (reporting that CVS, Kmart,
Nordstrom, and Halliburton are ``among the largest employers that
require or ask employees to waive their rights to sue as a class'');
Kriston Capps, Sorry: You Still Can't Sue Your Employer, Citylab, July
11, 2017 (reporting that Wells Fargo, Citibank, Comcast, AT&T, Time-
Warner Cable, Olive Garden, T.G.I. Friday's, Applebee's, Macy's,
Target, Amazon, Uber, and Lyft all impose arbitration and class action
bans in employment contracts).
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These provisions leave workers nowhere to turn when their
rights are violated--a problem of growing magnitude as more
employers impose class-banning arbitration clauses. A 2018
study by Cornell Professor Alexander Colvin estimated that over
half the country's nonunionized workforce is now subject to
these provisions--more than double the number in the early
2000s.\31\ Some of the country's best-known companies,
including Amazon, Walmart, Starbucks, Macy's and McDonald's,
now require all or most of their workers to sign class-banning
forced arbitration clauses--some before they can even apply for
a job.\32\ Further, Professor Colvin's study found that forced
arbitration is more common in low-wage workplaces, and in
industries (such as education and healthcare) that are
disproportionately comprised of women and African-American
workers.\33\
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\31\ See Alexander Colvin, The Growing Use of Mandatory
Arbitration, Economic Policy Institute (April 6, 2018). See also
Carlton Fields 2015 Class Action Survey, available at (finding that the
percentage of companies using arbitration clauses to preclude
employment class actions jumped from 16.1% in 2012 to 42.7% and that
the number of employment class action suits filed decreased
precipitously between 2011 and 2014).
\32\ For example, when Gloria Marmolejo sought a janitorial
position at an LA Fitness club, she filled out a job application that
contained an arbitration clause. She got the job, but then, five years
later (as she approached 50) was fired. When Marmolejo tried to
challenge her termination, the court upheld the arbitration clause in
the application--despite the fact that Marmolejo credibly claimed she
had not understood when she was applying for the job that she was also
signing away her rights to be treated fairly while in the position. See
Marmolejo v. Fitness Intl. LLC3, Civ. No. E064190 (Cal. Ct. App., March
7, 2018). There are countless similar examples of workers subjected to
arbitration clauses in the process of applying for a job.
\33\ Colvin, supra note 31.
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Yet, despite the large chunk of the U.S. workforce bound to
individually arbitrate their disputes, few workers do.\34\ One
study has estimated that only 1 in 10,400 workers subject to
forced arbitration has filed a claim in arbitration--putting a
lie to the claim that arbitration is preferable.\35\ The
remaining workers with potentially valid claims--somewhere
between 315,000 to 722,000 each year \36\--are left to suffer
in silence, unwilling to shoulder the expense of individual
arbitration and unable to be heard by a judge and jury.\37\ One
legal scholar estimates that, as a result of the unprecedented
implementation of class-banning arbitration clauses, 98% of
employment cases that would otherwise be brought in some forum
are abandoned.\38\
---------------------------------------------------------------------------
\34\ Id.
\35\ Id.
\36\ Id.
\37\ Cynthia Estlund, The Black Hole of Mandatory Arbitration, 96
N.C. L. Rev. 679 (2018).
\38\ Id.
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The scope and effects of forced arbitration are likely to
worsen given the Supreme Court's 2018 decision in Epic Systems
v. Lewis \39\ and its recent decision in Lamps Plus v.
Varela.\40\ In Epic Systems, the Court upheld class-banning
arbitration clauses notwithstanding the federally-guaranteed
right to ``collective action'' protected by the National Labor
Relations Act.\41\ In Lamps Plus, the Court ruled that workers
are assumed to have ``consented'' to individualized arbitration
even if their employment contract does not clearly waive the
right to join in collective arbitrations.\42\ Observers expect
that, given the breadth of these recent decisions, companies
that have not yet imposed arbitration on their workers will
quickly move to do so in order to take advantage of the
immunity from liability promised by the Court's decisions.\43\
---------------------------------------------------------------------------
\39\ 138 S. Ct. 1612 (2018).
\40\ No. 17-988, slip op. (U.S. Sup. Ct. October 2018).
\41\ 138 S. Ct. 1612 (2018).
\42\ No. 17-988, slip op. (U.S. Sup. Ct. October 2018).
\43\ Jess Bravin, Supreme Court Imposes Limits on Workers in
Arbitration Cases, Wall St. J., May 21, 2018 (reporting that lawyers
expect that companies will now impose forced arbitration clauses ``on
millions more'' workers, and that the Epic Systems decision could
affect ``worker claims against Amazon, Grubhub, Lyft and Uber,'' among
other large companies).
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II. The Troubling Consequences of Class--Banning Forced
Arbitration Clauses
The costs of enforceable class-banning forced arbitration
clauses are borne by the millions of consumers, employees and
small businesses that are left without meaningful access to
justice, as corporations escape accountability for all kinds of
illegality and abuse. For example:
Payday lenders are notorious for illegal,
predatory practices: Some have made unauthorized debits from
consumers' checking accounts or illegally renewed debts without
borrower consent; \44\ others have used aggressive methods to
collect debts--such as posing as federal authorities,
threatening borrowers with criminal prosecution, trying to
garnish wages improperly, or engaging in campaigns to harass
borrowers. Rapacious profiteers trap low-wage workers and
military personnel into ``a thicket of debt from which many
never emerge.'' \45\ Ordinarily, citizens could rely on a
combination agency enforcement actions and private litigation
brought by injured borrowers to detect and reform illegal
payday lending practices.\46\ Indeed, limited public resources
and a preference for decentralized enforcement have resulted in
significant reliance placed upon private litigation as the
primary enforcement vehicle. But because nearly all payday
lenders include forced arbitration clauses in their loan
agreements to avoid liability exposure, the ability of private
citizens to enforce their rights is hamstrung as never
before.\47\ The resulting enforcement gap leaves hundreds of
thousands of unsophisticated borrowers exposed to these
unscrupulous and largely unregulated lenders.\48\
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\44\ See, e.g., Gunson v. BMO Harris Bank, N.A., 43 F. Supp. 3d
1396 (S.D. Fla. 2014) (borrower claiming that bank had used an
electronic debiting network to help lenders collect payday loan
payments in violation of State and federal laws; motion to compel
arbitration granted).
\45\ Brian Grow & Keith Epstein, The Poverty Business, Bloomberg
(May 20, 2007).
\46\ See, e.g., Kristensen v. Credit Payment Servs., 12 F. Supp. 3d
1292, 1308 (D. Nev. 2014) (certifying class action brought by consumers
against payday lenders alleging violations of the Telephone Consumer
Protection Act); Mitchem v. GFG Loan Co., No. 99-C-1866, 2000 WL
294119, at *3, *6 (N.D. Ill. Mar. 17, 2000) (partial denial of motion
to dismiss consolidated claims brought by borrowers against payday
lenders under the Truth in Lending Act); Purdie v. ACE Cash Express,
Inc., No. Civ. A. 301CV1754L, 2003 WL 22976611, at *1 (N.D. Tex. Dec.
11, 2003).
\47\ See CFPB Arbitration Study, supra note 3 (reporting that 98.5%
of payday lenders impose arbitration on borrowers).
\48\ See generally Myriam Gilles, Class Warfare: The Disappearance
of Low-Income Litigants from the Civil Docket, 65 Emory L.J. 1531, 1542
(2016) (discussing the claim-suppressing effects of forced arbitration
clauses and class action bans on borrower litigation against
unscrupulous payday lenders).
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Forced arbitration perpetuates the exploitation
of women in the workplace by shunting victims into a private
system where each is unaware of the other and where the
arbitration provider (who is chosen and paid by the employer)
lacks authority to remedy systemic and recurring workplace
abuse. Media reports have shed light on the ways in which
forced arbitration enabled high-profile companies, including
Miramax and Fox News, to cover-up widespread workplace
harassment.\49\ Other less visible stories reveal the appalling
ubiquity of the problem. For example, throughout the late
1990's and 2000's, hundreds of employees of Sterling Jewelers
(parent company to Kay Jewelers and Jared Jewelers) were
``routinely groped, demeaned and urged to sexually cater to
their bosses to stay employed''--but their claims were forced
into private arbitration to protect company executives, who
were never held accountable, while those who spoke up were
fired.\50\ These examples reveal that sexual harassment in the
workplace affects both the victim and the broader economy,
because companies that are allowed to shroud illegal activity
enjoy an unfair advantage in the marketplace that would not be
afforded them had their practices been exposed to the public.
Accordingly, last year 56 state attorneys general from both
parties wrote this body, urging a federal ban on forced
arbitration of sexual harassment claims.\51\
---------------------------------------------------------------------------
\49\ Emily Martin, Forced Arbitration Protects Sexual Predators and
Corporate Wrongdoing, Consumer Law & Policy Blog, Oct. 23, 2017.
\50\ See, e.g., Drew Harwell, Hundreds Allege Sex Harassment,
Discrimination at Kay and Jared Jewelry Co., Wash. Post, Feb. 27, 2017;
Drew Harwell, Sterling Discrimination Case Highlights Differences
Between Arbitration, Litigation, Wash. Post, March 1, 2017.
\51\ As forced arbitration has expanded, State attorneys general
have repeatedly warned that these provisions ``erode the states'
ability to protect their citizens and economies.'' See, e.g.,American
Express v. Italian Colors, Brief of the State of Ohio and 21 Other
States as Amici Curiae in Support of Respondents.
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Consumers today are more vulnerable than ever to
identity theft and data breaches. The notorious fraud committed
by Wells Fargo employees described above affected nearly 3.5
million customers, many of whom are still trying to get their
money back and repair their credit. Similarly, the massive
Equifax data breach exposed personal information of over 145
million people.\52\ Other major data breaches have exposed the
personal and financial information of millions of
Americans.\53\ And forced arbitration has allowed companies
that fail to protect their customer's data to block consumer
lawsuits that would have exposed their misconduct far sooner.
---------------------------------------------------------------------------
\52\ See, e.g., Diane Hembree, Consumer Backlash Spurs Equifax to
Drop ``Ripoff Clause'' in Offer to Security Hack Victims, Forbes, Sept.
9, 2017 (reporting that Equifax tried to limit its exposure by offering
data breach victims ``free'' credit monitoring in exchange for agreeing
to an arbitration clause containing a class action ban).
\53\ See, e.g., Orman v. Citigroup, 2012 WL 4039850 (S.D.N.Y. 2012)
(dismissing class action alleging that Citigroup failed to ``adequately
secure their computer systems against intrusion,'' resulting in data
breach and identity theft, because of class-banning arbitration
clause).
But the damage caused by class-banning forced arbitration
clauses extends far beyond those who are barred access to
public courts: All citizens are harmed when the courthouse
doors are closed and legal claims are suppressed. And that is
precisely what these clauses accomplish by demanding that each
claim be brought on one-on-one basis. As the CFPB Arbitration
Study exposed, once blocked from going to court as a group,
most people drop their claims entirely. This regime allows
wrongful conduct to continue undetected and unremedied long
after such illegality would otherwise come to light. Without
public accountability through the court system, companies have
less incentive to follow the law and treat workers and
consumers fairly.
Class-banning forced arbitration clauses also undermine the
principles central to the Rule of law, such as stare decisis
and the development of legal precedents.\54\ These provisions
force disputes into hermetically-sealed, secret proceedings,
denying citizens the transparency, openness and accountability
necessary for the operation of a fair and democratic civil
justice system.\55\ By allowing companies to opt out of the
court system, we have ``frozen the law . . . denying the courts
the ability to develop and adapt the law as society and
business changes.'' \56\
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\54\ See, e.g., Myriam Gilles, The Day Doctrine Died: Private
Arbitration and the End of Law, 2016 U. Ill. L. Rev. 371 (2016);
Lilliam T. Howan, The Prospective Effect of Arbitration, 7 Berkeley J.
Emp. & Lab.O L. 60, 62 (1985) (``In contrast to the judicial doctrine
of stare decisis, an arbitrator's interpretation of the contractual
relation is not technically binding on a future arbitrator. Instead,
the arbitrator must exercise independent and impartial judgment in each
case.'').
\55\ See AAA Consumer Due Process Protocol, Principle 12.2
(arbitrator must ``maintain the privacy of the hearing to the extent
permitted by applicable law''); AAA Commercial Rule 25 (directing
arbitrators to ``maintain the privacy of the hearings unless the law
provides to the contrary''). See also Michelle Andrews, Signing a
Mandatory Arbitration Agreement With a Nursing Home Can Be Troublesome,
Wash. Post., Sept. 17, 2012 (reporting that nursing home arbitration
hearings ``are conducted in private and [these] proceedings and
materials are often protected by confidentiality rules'').
\56\ S. 1782, Arbitration Fairness Act of 2007: Hearing Before the
Subcomm. on the Constitution of the S. Comm. on the Judiciary, 110th
Cong. 10 (2007) (statement of Richard Alderman).
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III. The Truth Behind Class--Banning Forced Arbitration Clauses
Class-banning forced arbitration clauses are not designed
to achieve fair, expeditious or cost-effective resolutions.
Rather, the entire point of these provisions is to make it
nearly impossible for consumers and employees seeking redress
for broadly distributed small-value harms to pursue one-on-one
arbitrations. Let's face it: If private companies really wanted
to create a fair arbitration regime, they could easily do so by
(1) offering citizens arbitration as an alternative to
litigation after a dispute has arisen; and (2) permitting class
or collective arbitration so that an individual victim wouldn't
alone shoulder the entire cost and exposure of arbitration. No
company has done so--and indeed, faced with bad publicity over
their forced arbitration clauses, companies like Google,
Microsoft and others have instead chosen to eliminate
arbitration altogether (or for some subset of claims) rather
than expose themselves to more evenhanded processes.
Nonetheless, large corporations and lobbying groups like
the Chamber of Commerce have spent a decade advocating for
forced arbitration on grounds that it is ``better, cheaper,
faster'' for ordinary Americans.\57\ Their claims are based on
a series of hackneyed misrepresentations and fact distortions:
---------------------------------------------------------------------------
\57\ See, e.g., Stephen J. Ware, Paying the Price of Process:
Judicial Regulation of Consumer Arbitration Agreements, 2001 J. Disp.
Resol. 89, 91-93 (asserting that adhesion agreements to arbitrate are
fair in that they allow companies to pass on savings in costs from
standard forms to their customers and employees); Archis Parasharami,
Testimony Before Senate Committee on the Judiciary, Dec. 17, 2013
(``Arbitration before a fair, neutral decision-maker leads to outcomes
for consumers and individuals that are comparable or superior to the
alternative--litigation in court--and that are achieved faster and at
lower expense.'').
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a. The ``Litigation Explosion'' Myth
Arbitration advocates try to breed panic by claiming that,
should Congress outlaw forced arbitration, the result will be a
massive ``litigation explosion'' of frivolous civil lawsuits
that will harm corporate defendants and lead to higher prices
for goods and services. There has never been, in our history,
any credible data to support the claim that litigation rates
have risen due to specious claiming, rather than population
growth.\58\ Put differently--we weren't in the midst of a
litigation explosion immediately prior to the rise of forced
arbitration (circa 2012) and we won't be thrown into one if
forced arbitration is prohibited tomorrow. Moreover, companies
that have eliminated forced arbitration have not, by their own
account, experienced significant upticks in litigation that
would threaten their overall financial condition.\59\
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\58\ For example, the National Center for State Courts reports that
the number of civil cases filed in State courts decreased by 16%
between 2007 and 2016. Examining the Work of State Courts: An Overview
of 2012 State Court Caseloads, National Center for State Courts, 2014.
Likewise, federal civil filings have decreased by 7.1% between 2009 and
2018. Federal Judicial Caseload Statistics 2014, Administrative Office
of the United States Courts.
\59\ For example, both Capital One and Bank of America eliminated
forced arbitration in their consumer contracts. Their most recent SEC
Form 10-K filings State that management believes that any ``loss
contingencies arising from pending [litigation] will not have a
material adverse effect on the consolidated financial position or
liquidity of the Corporation.'' Major tech companies have similarly
concluded that ending forced arbitration would not affect thecompany's
bottom line. Microsoft (which ended forced arbitration for sexual
harassment claims in 2017) and Google (which recently decided to end
forced arbitration in all disputes) have each advised the SEC and their
shareholders that any increase in litigation would not result in a
material change to the overall liquidity of the company.
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More importantly, these fear tactics obfuscate a basic
reality: eliminating all consumer, employment or other kinds of
claims from the public court system is not a sensible way of
screening meritless cases. Forced arbitration does not screen
for merit--instead, it shunts all cases into an expensive,
private system meant to deter claimants from seeking redress.
Forced arbitration does not keep cases out of the court system
that don't belong there--instead, it guarantees that hundreds
of thousands of important and worthy lawsuits will never be
heard.
In any event, federal judges possess numerous procedural
tools to rid dockets of frivolous cases--including rules that
require plaintiffs to make it through a gauntlet of heightened
pleading standards,\60\ summary dismissals,\61\ justiciability
doctrines,\62\ rigorous class certification requirements,\63\
limited discovery,\64\ and the narrowing of personal
jurisdiction over multinational corporations.\65\ Closing the
courthouse doors before citizens have an opportunity to run
this procedural gauntlet is not fair or efficient, but rather,
tips the scales of justice in favor of the large and powerful.
---------------------------------------------------------------------------
\60\ See, e.g., Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)
and Ashcroft v. Iqbal, 556 U.S. 662 (2009) (announcing a new
``plausibility'' standard for determining the adequacy of pleadings at
the motion to dismiss stage). See also Theodore Eisenberg & Kevin M.
Clermont, Plaintiphobia in the Supreme Court, 100 Cornell L. Rev. 193
(2014) (heightened pleading requirements in Twombly and Iqbal ``had
palpably negative effects on plaintiffs'').
\61\ See Joe S. Cecil et al., A Quarter-Century of Summary Judgment
Practice in Six Federal District Courts, 4 J. Empirical Legal Stud.
861, 883 (2007) (``Over the 25-year period [from 1975 to 2000], the
percentage of cases with one or more summary judgment motions granted
in whole or in part doubled from 6 percent to 12 percent.'').
\62\ See, e.g., Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016)
(determining whether statutory injury is sufficient to meet article III
``particularized'' and ``concrete'' harm requirement for standing to
sue).
\63\ See, e.g., Bristol-Myers Squibb Co. v. Superior Court, 137 S.
Ct. 1773 (2017) (finding due process does not permit exercise of
specific personal jurisdiction in California over nonresident
consumers' claims); J. McIntyre v. Nicastro, 564 U.S. 873 (2011)
(rejecting personal jurisdiction over a foreign company doing business
in the United States and in the State where plaintiff was injured);
Goodyear Dunlop Tires Operations S.A. v. Brown, 564 U.S. 915 (2011)
(finding foreign corporations subject to general jurisdiction only
where they are ``at home''); Daimler AG v. Bauman, 134 S.Ct. 746 (2014)
(same).
\64\ See, e.g., F.R.C.P. 26(b)(1) (amended 2015 to require that
discovery be ``proportional'').
\65\ See, e.g., Wal-Mart Stores Inc. v. Dukes, 564 U.S. 338 (2011)
(elevating predominance requirement under Rule 23(a)); Comcast Corp. v.
Behrend, 569 U.S. 27 (2013) (finding that economic models of antitrust
injury must be common to the class).
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b. Banning Forced Arbitration Doesn't Prohibit All Arbitration
Make no mistake: no one argues that we should ban
arbitration. When used knowingly by businesses as originally
intended by the 1925 Congress that enacted the FAA, arbitration
can be an effective alternative to our court system. It allows
sophisticated entities to voluntarily agree to resolve complex
disputes before an industry-expert neutral, allowing these
entities to protect their trade secrets and maintain their
important business relationships.\66\ As Professor Christopher
Leslie explains, ``in relationships between commercial parties,
buyers and sellers are similarly likely to be the plaintiff or
defendant.'' \67\ Accordingly, these sophisticated parties can
negotiate on a level field for arbitration procedures that they
believe will fairly and efficiently resolve their disputes.
---------------------------------------------------------------------------
\66\ See Katherine Van Wezel Stone, Rustic Justice: Community and
Coercion Under the Federal Arbitration Act, 77 N.C. L. Rev. 931, 970-71
(1999) (``[t]he merchant guilds established arbitration tribunals
because they felt that the courts were not sufficiently knowledgeable
about commercial customs'').
\67\ Christopher Leslie, Conspiracy to Arbitrate, 96 N.C. L. Rev.
381, 393 (2018).
---------------------------------------------------------------------------
When pre-dispute arbitration clauses and class action bans
are forced upon consumers and employees in take-it-or-leave-it,
standard-form agreements, ``the probability of litigation
positions is highly asymmetrical: the seller is far more likely
to be the defendant in any dispute, and the consumer the
plaintiff.''\68\ There is no negotiation, no choice, and the
resulting arbitration procedures are not, in truth, intended to
provide a forum to resolve claims. The one and only objective
of forced, pre-dispute, class-banning arbitration clauses is to
suppress and bury claims. The whole point is that consumers and
employees seeking redress for broadly distributed small-value
harms cannot and will not pursue one-on-one arbitrations.\69\
Ever.
---------------------------------------------------------------------------
\68\ Id.
\69\ The CFPB's Arbitration Study revealed that very few consumers
arbitrate disputes. For example, of the nearly 80 million credit
cardholders, checking account holders and payday borrowers who were
subject to arbitration clauses as of the end of 2012, only 1241
consumers had filed arbitrations to resolve disputes with their credit
card companies, banks, and lenders. CFPB Arbitration Study, supra note
3 at p. 63-64. Professor Colvin's study of employment arbitration
estimates that only 1 in 10,400 workers subject to forced arbitration
actually files claim in arbitration. Colvin, supra note 29.
---------------------------------------------------------------------------
c. Unmasking the True Intent Behind Forced Arbitration
The actions of companies faced with large numbers of
individual arbitrations expose the true intent behind class-
banning arbitration clauses--namely, ensuring that individuals
drop their claims altogether. For example, in 2015, a group of
Chipotle employees alleged their employer had violating the
wage-and-hour provisions of the Fair Labor Standards Act
(``FLSA'').\70\ Chipotle sought to enforce the class-banning
arbitration clauses buried in the fine print of its online
employee welcome pack--knowing that workers with backpay claims
ranging from about $100 to $3000 would be unlikely to expend
the resources filing an individual claim--and it won.
---------------------------------------------------------------------------
\70\ Turner v. Chipotle Mexican Grill, Inc., 123 F. Supp.3d 1300
(D. Co. 2015). A federal district judge in Colorado initially allowed
2,814 employees to proceed in a collective action, but while the action
was pending, the Supreme Court issued its decision in Epic Systems v.
Lewis upholding the legality of arbitration clauses that prohibit
collective employment actions. See infra. Accordingly, the judge
dismissed the claims brought by employees who had previously ``agreed''
to resolve their disputes through arbitration and granted defendant
Chipotle's motion to compel individual arbitration of these claims. See
Dave Jamieson, The Supreme Court Just Helped Chipotle Boot 2,814
Workers From a Wage Theft Lawsuit, Huffington Post, Aug. 10, 2018. More
than 7,000 employees who were not required to sign mandatory
arbitration agreements remained in the federal court opt-in case.
---------------------------------------------------------------------------
The plaintiffs' lawyers then did something unexpected:
instead of dropping these claims, they began filing individual
arbitrations on behalf of injured employees. Chipotle soon
found itself ``facing thousands of individual arbitration cases
spread across the country, almost all the expenses of which it
may have to shoulder itself--potentially tens of thousands of
dollars per case.'' \71\ While ``thousands of individual
arbitrations'' is precisely what Chipotle's arbitration clause
invites, the company balked: It returned to court and pleaded
with the federal judge to suspend the arbitral filings and
disqualify plaintiffs' counsel.\72\ The judge denied both
motions, chastising Chipotle for its ``attempts to delay and
obfuscate'' the workers' claims. In the wake of those rulings,
Chipotle has reportedly prevented ``the arbitrations from going
ahead by failing to pay its $1,100 share of the filing fee for
each case.'' \73\
---------------------------------------------------------------------------
\71\ Michael Hiltzik, Chipotle May Have Outsmarted Itself by
Blocking Thousands of Employee Lawsuits Over Wage Theft, Los Angeles
Times, Jan. 4, 2019.
\72\ Dave Jamieson, Chipotle's Mandatory Arbitration Agreements Are
Backfiring Spectacularly, Huffington Post, Dec. 20, 2018.
\73\ Id.
---------------------------------------------------------------------------
We see a similar crisis of confidence in arbitration at
Uber, in the wake of serial arbitrations brought against the
ride-sharing company by 12,501 individual drivers seeking to be
classified as employees instead of independent contractors.\74\
Uber was so ``overwhelmed'' by the prospect of these individual
arbitrations that, according to its designated arbitral
provider, JAMS, the company initially refused to pay its share
of the filing fees in an effort to stem the tide.\75\ When that
failed, Uber (in the height of hypocrisy) tried to argue that
some issues were common across the cases and should therefore
be decided in a consolidated proceeding--despite the fact that
its arbitration clause prevents any consolidation of
claims.\76\ And when that gambit failed--and after calculating
that it would cost more to defend itself in individual
arbitrations--Uber ultimately settled the drivers' claims en
masse. The resistance by Chipotle, Uber and other companies to
arbitrating these claims--after steering workers into
arbitration--suggests that their policies were never really
about fairness and efficiency, but about suppressing claims at
all costs.
---------------------------------------------------------------------------
\74\ Abadilla v. Uber Techs., No. 18-cv-7343-EMC (N.D. Cal. Dec. 5,
2018) (asserting that more than twelve thousand individual arbitration
demands have been filed against Uber after the Ninth Circuit determined
that Uber drivers were required to arbitrate, and that little progress
has been made in arbitrating those claims).
\75\ Alison Frankel, JAMS to Uber: Our Rules and Your Contracts
Demand Individual Arbitrations, Reuters, Jan. 25, 2019 (quoting JAMS
notice to Uber that ``[w]hile it is not our preference to force the
parties to litigate these issues seriatim, our policies and procedures,
absent party agreement otherwise, require that we collect a filing fee
in each case to be pursued'').
\76\ Id.
---------------------------------------------------------------------------
III. Legislation is the Only Solution to the Problem of Class--
Banning Forced Arbitration
It is clear that legislation prohibiting class-banning
forced arbitration of consumer, employment and civil rights
claims is necessary to restore access to justice, corporate
accountability, and the Rule of law by giving American citizens
the choice of how to pursue their rights against a corporation.
Indeed, the Supreme Court itself has made plain that it will
continue to ``rigorously enforce'' all the remedy-stripping
terms that private companies insert in their arbitration
clauses--never mind the consequences--unless the FAA's mandate
is ``overridden by congressional command.'' \77\
---------------------------------------------------------------------------
\77\ American Express, 133 S.Ct. at 2309, citing CompuCredit Corp.
v. Greenwood, 132 S.Ct. 665, 668-669 (2012). See also Gilles, 104 Mich.
L. Rev. at 395 (``[T]he Supreme Court's arbitration jurisprudence over
the past thirty years have evinced an incredibly expansive view of the
FAA, and while the full import of this national policy favoring
arbitration has been criticized by many--including Members of the Court
itself--there is no reason to believe the Court will swing back to a
more nuanced interpretation of the FAA.'').
---------------------------------------------------------------------------
As the access-to-justice crisis grows more untenable, a
chorus of judges of all party affiliations have expressed
severe misgivings about the Court's arbitration precedents--
even as they are compelled to follow them. For example, in
CellInfo, LLC v. American Tower Corp., federal district Judge
Young observed ``that one-sided species of arbitration [are]
unconscionably forced on vulnerable consumers and workers and
almost universally reviled, enforceable only due to the mandate
of a slim majority of the Supreme Court.'' \78\ The West
Virginia Supreme Court accused the Justices of manufacturing
FAA preemption out of whole cloth, explaining that ``[w]ith
tendentious reasoning, the United States Supreme Court has
stretched the application of the FAA from being a procedural
statutory scheme effective only in federal courts, to being a
substantive law that preempts State law in both federal and
State courts.'' \79\ And in a recent decision, a district court
judge reluctantly granted a motion to compel arbitration in a
racial discrimination claim, observing that responsibility for
changing the law lies squarely with Congress:
---------------------------------------------------------------------------
\78\ 352 F. Supp. 3d 127, 131 (D. Mass. 2018).
\79\ Brown ex rel. Brown v. Genesis Healthcare Corp., 724 S.E.2d
250 (W. Va. 2011). The U.S. Supreme Court reversed in a terse, per
curiam decision. Marmet Health Care Ctr., Inc. v. Brown, 132 S. Ct.
1201 (2012) (per curiam).
``No matter one's opinion of the widespread and controversial
practice of requiring consumers to relinquish their fundamental
right to a jury trial--and to forgo class actions--as a
condition of simply participating in today's digital economy,
the applicable law is clear . . . . While th[e] result might
seem inequitable to some, this Court is not the proper forum
for policy objections to mandatory arbitration clauses in
online adhesion contracts. Such objections should be taken up
with the appropriate regulators or with Congress.'' \80\
---------------------------------------------------------------------------
\80\ Selden v. Airbnb, 2016 WL 6476934 at *2 (D.C. 2016).
These judges are duty-bound to follow Supreme Court
precedent, even where they believe it wrong and misguided.
Congress, on the other hand, is free to reverse the Court's
rulings in this area by prohibiting pre-dispute class-banning
arbitration clauses in standard-form contracts with consumer,
employment and small businesses. Indeed, Congress has already
enacted legislation outlawing these clauses in payday loan and
consumer credit contracts with military families, as well as
amendments limiting the use of arbitration clauses in
residential mortgage loans and automobile dealer franchise
agreements.\81\ It is laudable that Congress has sought to
safeguard the ability of military families and auto dealer
franchisees to vindicate their rights--but it is well past time
to extend that ability to all consumers, employees, and small
businesses.
---------------------------------------------------------------------------
\81\ See 10 USC Sec. 987(e)(3), (f)(4) (voiding arbitration clauses
in payday loan or any consumer credit contracts--with the exception of
residential mortgages and car loans--with Members of the military or
their families); 15 USC Sec. 1639c(e)(1) (barring arbitration clauses
in residential mortgage loans); 15 USC Sec. 1226(a)(2) (prohibiting
automobile manufacturers from imposing predispute arbitration clauses
in their franchise agreements with dealers).
Mr. Cicilline. Thank you, Ms. Gilles. Thank you to all of
our witnesses for your testimony.
We will now proceed under the 5-minute Rule with questions.
I will begin with the gentleman from New York, the Chairman of
the full committee, Mr. Nadler, who is recognized.
Mr. Nadler. Thank you very much, Mr. Chairman.
Professor Gilles, Congress has enacted laws to protect
American workers from discrimination, wage theft, and unsafe
workplaces. These laws are ultimately meaningless if employers
are able to sidestep accountability for breaking these laws by
funneling workers into an arbitration trap that is expensive,
time-consuming, and secretive.
What effect has forced arbitration had on the ability of
workers to protect their rights to a safe workplace, to fair
wages, and to be free from discrimination in the workplace?
Ms. Gilles. I think you have already heard a bit from Ms.
Carlson and the other witnesses. Forced arbitration disables
the right of employees to be able to bring claims, to bring
group claims in particular. As Mr. Deepak says, it obscures
patterns of misconduct, systematic wrongdoing, like sex
discrimination that could be systematic in a workplace, because
these are group claims, right? When you all enact laws to
protect American citizens, many times you enact private rights
of action, and you expect and imagine that these laws will be
enforced through class actions, through collective litigation.
I realize that it is the job of Mr. Pincus and Mr. Goldberg
to talk about how class actions are terrible for everyone. I
mean, that is what they are paid to do. The truth is actually
quite far from that. Class actions desegregated schools in
America. They improved nursing homes in America. They have made
life fair and equal for America. I am here probably because of
a class action that was brought at some point.
So, this idea that people don't benefit, I think that is
pretty ridiculous. I think when Mr. Pincus and Mr. Goldberg
talk about benefits from class actions, they are talking about
dollars that end up in people's wallets. It is true that the
system might not be the most efficient way of getting dollars
into consumers' pockets, and maybe we should fix the system.
That doesn't mean we should abandon the entire civil justice
system.
Mr. Nadler. Thank you. Some commentators have suggested
that arbitration can facilitate a quicker and cheaper
resolution of disputes than through the courts. What is your
response?
Ms. Gilles. Well, take a look at Richard's example. I mean,
it certainly didn't help him get a quicker result. The whole
point of Chipotle's arbitration clause was that it would never
have to be accountable to its workers. So, I don't buy the
quicker, cheaper, faster, easier. I think it is good for the
employer, good for the company. I think it is terrible for the
consumer, period.
Mr. Nadler. Mr. Gupta, you described forced arbitration as
a wealth transfer. How does arbitration contribute to economic
inequality?
Mr. Gupta. Well, it is not the only cause of economic
inequality, right? Economic inequality is probably the big
problem of our times, but it makes it a lot worse. And the way
it does that is that in cases where people have small amounts
of money that they are ripped off in large numbers, the only
way meaningfully that you are going to get redress is through
some sort of group litigation, right? A class action, a
collective action, a mass action. As Professor Gilles
explained, there is no way that a single worker is going to be
able to go up against the company for those kinds of claims.
So, when you look at wage theft, which transfers billions
of dollars from workers to employers, when you look at
antitrust, when you look at consumer protection violations
involving banks or lenders, the kinds of practices that brought
down our economy and led to the financial crisis, those are the
kinds of situations where you have to have some ability for
people to band together and assert their legal rights. If you
cut off that avenue, which is what forced arbitration, in my
view, is principally designed to do, that is going to result in
a massive transfer of wealth from the poor to the rich, and
that is exactly what we see happening.
Mr. Nadler. Thank you. It also results in an unsafe
condition which may have an arbitration award against the
company being kept secret so they can keep repeating that
unsafe condition all the time.
Let me ask, some people have said that Italian Colors
demonstrates how forced arbitration and the failure to enforce
antitrust laws hurts small businesses. Can you explain the
importance of maintaining private antitrust suits to the
enforcement of the antitrust laws? Has the Court decision in
Italian Colors made it more likely that companies will be able
to evade antitrust litigation through forced arbitration
clauses?
Mr. Gupta. Yes. Thank you for the question, Chairman
Nadler. I represented the restaurant in that case, Italian
Colors. It was an antitrust case that went all the way to the
Supreme Court. Italian Colors, like many restaurants, they deal
with these credit card swipe fees. It eats a lot out of their
profits, and they don't have much bargaining power when it
comes to dealing with the credit card companies.
So, they asserted that the credit card company, in that
case American Express, was abusing its market power against
small merchants, and all they wanted was their day in court to
be able to prove that kind of claim.
Now, a small restaurant like Italian Colors is not going to
be able to bring an antitrust suit on its own. That requires
hiring economists, studying the marketplace, and figuring out
whether there is an abuse of market power. So, the way
meaningfully that a claim like that has to be brought is again
for people to be able to band together and assert their claim.
The case went all the way to the Supreme Court. I think if
the Members of this Committee are going to read one decision of
the U.S. Supreme Court on this issue, you should read Justice
Kagan's dissent in that case. She puts it better than I
possibly could. She says that the Court isn't even hiding the
fact that they are taking this one Federal law, the antitrust
law, and they are taking another Federal law, the Federal
Arbitration Act, that was supposed to ostensibly facilitate
dispute resolution, they are putting the two laws together, and
in some strange Act of judicial alchemy, people cannot resolve
disputes under the antitrust clause. The cases just go away
because it is not feasible to assert the dispute in one-on-one
arbitration.
What Justice Kagan says is that the majority of the Supreme
Court's response is ``too darn bad.'' That is not an acceptable
response, and I think that is why Congress needs to step in.
Mr. Nadler. Thank you. My time has expired.
Mr. Cicilline. Thank you.
I now recognize the Ranking Member of the subcommittee, Mr.
Sensenbrenner, for 5 minutes.
Mr. Sensenbrenner. Thank you, Mr. Chairman.
I have a couple of questions for Mr. Pincus.
First, you testified that in arbitration, consumer and
employee claimants actually do well or better than they do in
court. Can you provide more detail on that?
Mr. Pincus. Certainly, and I think one sort of idea being
propagated here is that if a claim goes into arbitration,
somehow it either disappears or the company automatically wins.
As the study of employment claims that I referenced in my
opening remarks shows, employees do better in arbitration than
they do in court, and they win a substantial number of cases.
Another study of nursing home claims found that in nursing
home claims, the average, comparing claims in arbitration,
claims in court--the average recovery was only $3,000 apart.
There are numerous other studies that I have detailed in my
prepared testimony that show when you compare like claims in
arbitration to like claims in court, arbitration claimants do
as well or better.
Mr. Sensenbrenner. You also have suggested that consumers
and employees need access to arbitration because too many of
their claims cannot practically be brought in court, and that
is largely because the amount in dispute is relatively low. Can
you explain that in more detail?
Mr. Pincus. Certainly. Mr. Goldberg mentioned, studies show
that to get a lawyer, a claim has to be substantial. There is a
debate, $60,000, maybe $200,000 at issue. Most claims that real
people have don't rise to that level. So, if court is the only
option for them and they can't get a lawyer, they are not going
to have any way to recover. So, the question is what do you do
in that situation?
Arbitration provides a viable option where: (A) The lawyer
may be willing to take the claim for less because the time it
is going to take is less because arbitration takes less time
and less lawyer time; or (B) in many situations the employee or
the consumer can push the claim on his or her own. Arbitration
doesn't have the complicated rules in court that you need a
lawyer to navigate. It is informal. You can file your complaint
online in a very user-friendly way. The arbitrator sets the
procedures that work for the particular case.
So, for these large number of cases that we don't see in
court at all because they are too small ever to get there,
arbitration provides access to justice. There is a reason why
we don't see a lot of decided arbitration claims, or even filed
arbitrations, because in most cases, most arbitration
provisions have a mediation process. Bring the claim to the
company first for 30 days and see if it can be resolved. Many,
many, many claims are resolved, thousands, if not hundreds of
thousands, in that process, because arbitration provides
leverage for the employee or the consumer, because when the
arbitration claim is filed, there are limits on the fees that
the consumer or the employee must pay in these large
arbitration forums that handle most arbitrations, $300 or $200.
Upon filing, the employer or the company, if it is a
consumer dispute, has to pay more than $1,000. So, depending on
what the amount in dispute is, it is pretty sensible for the
company, unless it is a totally frivolous claim, to say we are
going to make you whole, because if you file your arbitration
claim, we are going to pay $1,000 right away and even more
later on. So that gives the claimant significant leverage.
Mr. Sensenbrenner. A final question. You have litigated
before the Supreme Court several cases about arbitration. Based
on your experience and review of the case law, would you say
that the Court appreciates the importance of having the
arbitration system available so that the courts will do less
work?
Mr. Pincus. I think courts are worried about overcrowding,
but I think they are also worried about what we were just
discussing, that there are some claims that, as a practical
matter, people can't vindicate in court. You quoted Justice
Breyer speaking for the Court in the Allied-Bruce case. There
are other instances in which justices have pointed out that
arbitration is cheaper, less complex, and quicker, and enables
small claims to be vindicated in a way that they can't be
vindicated in court.
The Supreme Court has also said, the Chief Justice speaking
for the Court in particular, that if arbitration provisions
have unfair clauses, the general rules about unconscionability
that apply to contracts of adhesion will invalidate those
provisions, the kinds of provisions that I listed in my opening
remarks.
Mr. Sensenbrenner. Thank you very much.
My time is up.
Mr. Cicilline. I thank the gentleman.
I recognize the gentleman from Georgia, Mr. Johnson, for 5
minutes.
Mr. Johnson of Georgia. Thank you. Again, thank you for the
witnesses being here. Thank you for your testimony.
Mr. Ziober, thank you for your service to the nation. That
must have been a heck of a day, to be honored by your fellow
employees in such a way that you described. I was touched with
that kind of celebration and seeing you off. That must have
been a high point in your life. Then less than a few hours
later, to be smacked in the face with a bat and told that when
you come back, you won't have a job.
Then, Ms. Carlson, thank you so much for your courage and
your sense of wanting to give back to the community and give
back to people, particularly women without a voice who suffer
silently in the workplace, undergoing what must be--I am a man,
so I don't really know what you have to put up with. Millions
of women around this country having to put up with a climate
and a culture of sexual harassment, my heart goes out to you,
and I want to thank you so much for your courage and sticking
with this.
Mr. Pincus, you mentioned that the arbitrator often sets
the procedure to accommodate the needs of the parties; correct?
Mr. Pincus. Yes.
Mr. Johnson of Georgia. In fact, there is really no
requirement that the arbitrator be trained in the law, no
requirement that the arbitrator be a lawyer or a judge; is that
correct?
Mr. Pincus. I think it depends on the arbitral forum.
Mr. Johnson of Georgia. It depends on the arbitrator.
Mr. Pincus. So, a lot of claims--
Mr. Johnson of Georgia. There is no requirement, though.
Mr. Pincus. There is a requirement that the arbitrator be
fair, and that the arbitrator be capable of rendering a fair
decision.
Mr. Johnson of Georgia. There is certainly no requirement,
if the arbitrator gets to select the procedure, there is no
requirement that the rules of procedure apply, no requirement
that there be a need for the rules of evidence to apply, no
need for there to be an adherence to the Rule of law; in other
words, statutes or case law that has decided similar issues.
Isn't that correct? There is no requirement; yes or no?
Mr. Pincus. Well, there is no requirement.
Mr. Johnson of Georgia. No requirement.
Mr. Pincus. No particular rules apply, but there is a
requirement that there be a fair opportunity to obtain
discovery and that the rules applied be fair.
Mr. Johnson of Georgia. But, the arbitrator can decide
whatever he or she wants for a particular case. That doesn't
seem consistent with the Rule of law. That seems to be
consistent with the whim of whoever is in charge, and it is
usually the business interests that are in charge.
Now, it seems to me to be counter-intuitive that an
employer or a nursing home operator, since you cited employer
claims and nursing home claims, it would seem to be counter-
intuitive to me that they would prefer arbitration when the
studies that you cite show that they lose more, and the
claimants are awarded more money. Can you explain why would an
employer or nursing home operator prefer arbitration when the
outcomes are worse than going to court?
Mr. Pincus. Because the lion's share of the cost of a
litigation are paying lawyers, and the legal fees are--
Mr. Johnson of Georgia. Most of those lawyers are defense
lawyers, are they not?
Mr. Pincus. Well, they are defense lawyers, and they are
plaintiffs' lawyers.
Mr. Johnson of Georgia. Yes, but arbitration--
Mr. Pincus. Most defense lawyers don't like arbitration
because they make less money.
Mr. Johnson of Georgia. The corporate lawyers are charging
$950 an hour these days, and then the corporation that is
paying them, like the NRA, gets a chance to write off the
expense of paying the lawyer, who is a member of the same
country club that they are. The poor claimant who has a $500
claim--most lawyers don't want to get a percentage of that, and
they know that it is going to take at least several hours to
adjudicate the case. So, the $500 claimants get left out. The
$100,000, $200,000 claimants, Mr. Goldberg, there are always
lawyers willing to take those cases on a contingent fee basis;
would you not agree?
Mr. Cicilline. The gentleman's time has expired, but the
witness may answer the question.
Mr. Goldberg. Yes, and I think you are pointing to the
exact problem as to why pre-dispute arbitration provides a
viable path for someone with the $500 claim who wouldn't be
able to seek justice.
Mr. Johnson of Georgia. What about the $100,000 or the
$200,000 claim? There are always going to be some lawyers out
there who will take that for a percentage.
Mr. Goldberg. That is right.
Mr. Johnson of Georgia. I used to take them all the time
myself as a private practitioner, a good little payday. Thank
you.
Mr. Cicilline. Thank you to the gentleman.
Now I recognize the gentleman from Maryland, Mr. Raskin,
for 5 minutes.
Mr. Raskin. Mr. Chairman, thank you very much. I am still
trying to get over the AT&T v. Concepcion case, and I just want
to re-live the gruesome details of this case. I don't mean to
cause you any nightmares, Mr. Gupta, but as I understand it,
California had a pro-arbitration State law.
Mr. Gupta. That is right.
Mr. Raskin. What it said was that you can build into a
contract a clause which forbids class-wide arbitration, right?
In other words--
Mr. Gupta. That is right.
Mr. Raskin. --all it was saying was your contracts cannot
categorically block out a class-wide arbitration. It was
challenged in State court under State and Federal Constitution
laws, and in the Discover bank case, if I remember correctly,
the California Supreme Court said it was totally fine.
So now we have a situation where, if the businesses really
love arbitration, they can have both kinds. They can have
individual, and they can have class-wide, but they went to
court to sue against California's law to get it struck down,
right? As preempted by the Arbitration Act, the Federal
Arbitration Act, a massive assault on Federalism and on due
process rights and the right of states to decide on their own
civil justice systems, and so it was found preempted.
Why would the people who today are coming forward to say
they love arbitration, that arbitration saves all this money,
go to the Supreme Court to get a law struck down that was
protecting arbitration? Can you answer that, Mr. Gupta?
Mr. Gupta. Yes. Thank you for the question. Well, so, I
can't get over the case either. My friend, Andy Pincus over
here, he was my opponent in the case, and I am sure he will
have a different view. The reason is that the corporations are
not really interested in arbitration. They are interested in
claim suppression. So, the idea of having class arbitration,
the idea of allowing people to band together and bring their
claim in arbitration was the worst of all worlds for this
company, because suddenly consumers would be able to assert
their claims, and then the company would have no right of
appeal. Then all the things we are complaining about
arbitration, the company would be complaining about.
Mr. Raskin. In your case, weren't people being hit up for a
$20 fee--
Mr. Gupta. Exactly, yes.
Mr. Raskin. --when they bought a cell phone? So, it
wouldn't make sense for anybody to spend the money to get a
lawyer, a couple of hundred bucks or $500, $1,000, to litigate
over a $20 fee themselves, but if you band everybody together--
there were tens or hundreds of thousands of people in
California--that is where a class-wide arbitration would make
some sense. The State law tried to protect that, but the
corporations came in and sued and said we think that this
violates our rights to subject us to a class-wide arbitration.
Mr. Gupta. Right, right. All the State law was trying to
do--this was general contract law. I am surprised that Mr.
Pincus mentioned unconscionability law because the whole effort
in the Supreme Court has been to get rid of the traditional
tools of unconscionability that police unfair contracts. All
the State law was saying was, you can't have a get-out-of-jail-
free card. You have to be able to let people with these kinds
of small claims, as you mentioned, band together and assert
their rights.
When you have a $30 fee on your cell phone bill, that is
sort of the prototypical example of a case for a class action.
If AT&T can rip everyone off for $30, and the people don't have
the right to band together to assert those claims, they are
going to get away with it and fraud will pay. So, you have to
have a way to allow people to band together and assert these
claims.
Mr. Raskin. Okay. I want to give Mr. Pincus his fair--I
think he is my constituent, and that is the only reason I am
doing it.
[Laughter.]
Mr. Raskin. Because I know he has a very big platform in
the world. He is a brilliant lawyer, there is no doubt. If you
could set aside all of your brilliance and your litigious
cleverness and just tell us why would you be taking the
position today that it is a good thing for everybody to have
arbitration, and yet the whole point in the Supreme Court was
to destroy a class-wide arbitration.
Mr. Pincus. I love Maryland, but I am a citizen of the
District of Columbia.
Mr. Raskin. Oh, okay. Then I can use my time to talk to Ms.
Carlson, then.
[Laughter.]
Mr. Raskin. I will give you 15 seconds, but I do have a
question for her.
Mr. Pincus. Well, I think the critical issue in the
Concepcion case was the fundamental nature of AT&T's clause.
What AT&T did was to use arbitration to create an incentive for
small claims to be brought. What AT&T said is if you bring a
claim, and in our pre-mediation or mediation process we don't
settle, and on the merits you win even a penny more, you are
going to get a minimum payment of $5,000. Your attorneys' fees
will be paid. That payment is now up to $10,000, double
attorneys' fees, and all your expert witness costs, because
what AT&T--
Mr. Raskin. Okay. I only have 10 seconds left, but I will
go back and read the Supreme Court argument and look for an
answer in there.
Ms. Carlson, if you could, tell us quickly what happened to
you in the arbitration process. Can you tell us?
Mr. Cicilline. The gentleman's time has expired, but the
witness can answer the question.
Ms. Carlson. So, I never got to that point after my lawyers
figured out how to make my case public in a different way, by
suing my alleged perpetrator independently and not the company.
For the millions of Americans, especially women, who do have
arbitration clauses with regard to sexual harassment, I would
just ask this Committee to look at the word ``forced,'' because
if you actually have a choice, then why wouldn't we let the
American people do that?
Mr. Raskin. I see. It just so happened--forgive me, Mr.
Chairman--that Mr. Ailes had independent means. You could sue
him for what he had done to you. If you had somebody who wasn't
a deep pocket like that and you had to sue your employer, you
would have been forced into a dark room someplace where nothing
would have ever come of it.
Ms. Carlson. That is the whole problem with the way in
which our country has chosen to deal with sexual harassment
claims within the workplace. Because arbitration has become a
tool to cover up a company's dirty laundry, nobody will ever
know about all these women.
Mr. Raskin. Thank you.
Mr. Cicilline. Thank you.
I now recognize the gentlelady from Washington, Ms.
Jayapal.
Ms. Jayapal. Thank you, Mr. Chairman.
I just want to say thank you to all the witnesses for being
here, in particular, Ms. Carlson and Mr. Ziober--did I say that
right, Mr. Ziober?--for sharing your stories and your work.
I have just watched this whole area with horror because it
is exactly as you said, Ms. Carlson, that there are these
ordinary people who are signing agreements to give up all kinds
of rights to go to court, and they don't know that they are
doing so, most of the time. These mandatory arbitration
agreements, as we know, are often buried very deep in an
employee handbook somewhere, or a credit card agreement, or an
app's listing of terms and conditions. It is that prevalent.
Who benefits from these mandatory arbitration agreements?
More often than not, it is the large and powerful corporations
that put these agreements in there in the first place. These
mandatory arbitration agreements I think pose a very dangerous
threat to almost every regular person who would like to keep
their rights intact, from consumers to small businesses to
nursing home residents.
For years I have been particularly concerned about the
harms that workers face with these mandatory arbitration
agreements, and especially vulnerable workers. Workers of color
are hampered from protecting their civil rights, even when they
experience egregious racial discrimination. Survivors of sexual
assault, as Ms. Carlson has been such a powerful spokesperson
for this issue, can't join together because mandatory
arbitration allows this toxic culture of secrecy to prevail and
abuse to fester. Workers are prevented from speaking up and
taking collective action.
So, Ms. Carlson, I am a very proud original co-sponsor of
our bipartisan, bicameral bill together to end forced
arbitration around sexual harassment. We were able to last
session get a number of major companies to come on board. I
thank you for your courageous voice and testimony and your
advocacy on that.
Many other women from your workplace came forward with
similar stories of sexual assault and mistreatment, and yet you
couldn't join together with them. In fact, you can't even speak
publicly about how you dealt with the mandatory arbitration
clause in your contract. In your testimony you said very
powerfully, ``silencing women is the harasser's best friend.''
I was struck by that phrase.
Can you explain how a mandatory arbitration agreement
undermined your rights and your ability to band with other
survivors and seek remedy?
Ms. Carlson. Yes. Unfortunately, because the other way in
which we solve harassment cases in our country is settlements
with NDAs, I cannot tell you specifics about my story. I can
tell you hypothetically how it happens when women can't band
together. Arbitration means that you have no way of knowing
that anyone else is facing the same thing within the confines
of the workplace structure. There is no way to know because the
whole process is secret.
As I described during my testimony, if you do muster up the
courage to go and complain and you have an arbitration clause,
that is a good day for the company because no one will ever
know anything about your story.
The worst ramification of all of this is that the
perpetrator gets to stay in the job. I think one of the reasons
that we have seen this cultural revolution that we are
experiencing right now is because the American public was
actually so angry about hearing about these stories, and they
were wondering why didn't we know about this. The reason they
didn't know about it is because of forced arbitration.
Ms. Jayapal. Thank you.
Professor Gilles, Mr. Pincus claimed in his testimony that
arbitration is not secretive, and I just want to give you a
chance to say whether you agree with that, and why or why not.
Ms. Gilles. So, this won't surprise you. I completely
disagree. Mr. Pincus is right that California, the great State
of California has enacted a statute that requires disclosure of
arbitration outcomes. I have to say, I have tried, as a
researcher, to access and use that database. It is pretty
bloodless. It is very redacted. It is very hard to get real
information, and that is not what we need.
If a court of law would just have to tell me the name,
date, and winner of a case, that is not what we mean when we
talk about full and fair access to justice. I think Congressman
Nadler said this earlier, we need to know what is going on in
the court system. We need to know the types of claims that
people are bringing. We need to know what systemic harms are
going on in the workplace, as Ms. Carlson just noted. These
disclosure statutes are not enough. We really need true public
access.
Ms. Jayapal. You said earlier that 80 of workers will be
subjected to mandatory arbitration.
Ms. Gilles. That is what the EPI is predicting, in three to
five years.
Ms. Jayapal. That is a stunning number.
Ms. Gilles. When you think about it, though, why wouldn't
they? I mean, the Supreme Court has just decided Epic Systems,
which gives a green light to all employers, right? They are
going to do it unless you stop them.
Ms. Jayapal. Right. Well, I thank you for your testimony.
I also want to just say thank you so much to Richard
Heggens for taking on mandatory arbitration at Chipotle for
wage theft. I also want to thank Molly Coleman for organizing
law students to be aware and resist mandatory arbitration
contracts. I don't know where you are, Molly, but thank you.
Mr. Chairman, I just think that these efforts are so
important because I don't think the majority of Americans
understand how this affects their daily life, their rights, and
their access to due process.
Mr. Cicilline. Hopefully, this hearing is going to help
bring that--
Ms. Jayapal. Yes, thank you for doing this.
Mr. Cicilline. Thank you.
I will now recognize the gentleman from North Dakota, Mr.
Armstrong, for 5 minutes.
Mr. Armstrong. Thank you, Mr. Chair.
As a preface, prior to getting here, I served in the State
legislature, and two things we have done over the last six
years is we have raised the small claims rate continually
higher and higher, and one of the reasons for that is because,
quite frankly, access to the court system is getting more and
more expensive. So as a recovering attorney, I can place some
blame on myself for that, and my profession.
Mr. Goldberg, if the arbitration system is wiped out, it
really only leaves litigation as the solution, and you have
suggested that for consumers' and employees' litigation has
steadily become much more expensive, particularly in a State
like North Dakota with really fast population growth. Our court
systems across the State are overburdened, so less responsive
over the last decade. Why is that?
Mr. Goldberg. I think in large part there is certainly a
lot more litigation, and as you have seen over the past 20, 30,
40 years, litigation has just become a lot more expensive, and
it is more of a battle between both sides over discovery and
all these things that happen, which just makes it untenable for
a lot of people both from their disposition, and then also from
an economic perspective and the ability to actually get a fair
outcome for themselves. I think what we are seeing in the worst
aspects of this is in the class action area, where you are
seeing these no-injury cases and a bunch of class actions that
have nothing to do with anybody being injured, without anybody
being aggrieved. It is millions of dollars that go into
litigating them and paying attorneys' fees, and the result ends
up being either a cy pres award to a third party or a recovery
that nobody really wants, and so nobody participates in it.
That is what is causing civil justice to erode, and that is
where I think the pre-dispute arbitration agreements are
providing a viable alternative in filling that void.
Mr. Armstrong. You stated, and I think this figure probably
differs somewhat region by region, but that lawyers may not
take cases unless the value is $200,000 or higher. So why do
you think that figure is so high?
Mr. Goldberg. I think because litigation has become so
expensive, and trial lawyers, just like anybody, they want to
get paid for their work. I don't blame them for that. It takes
more money and more effort to engage in litigation these days
than it used to. Twenty years ago, that number, according to
studies, used to be closer to $60,000. Now it is upwards of
$100,000 to $200,000. So, the people who fall below that line
just don't have access to justice and to the civil justice
system when it is a one-off case.
Mr. Armstrong. So, if we get rid of arbitration in this
realm, how many consumer and employee claims are going to be
shut out altogether if arbitration isn't available, at least
for smaller claims?
Mr. Goldberg. I don't have an exact number in terms of the
number of claims, but most of the claims that would fall under
those would not have access to justice. The pre-dispute
arbitration agreement provides the only path where oftentimes
the arbitration is paid for by the employer or by the company,
and often attorneys' fees are available if the consumer or the
employee prevail. So, it is a much more cost-effective and
streamlined way for them to get the recovery that they are
seeking. So even if it is a $500 amount, they are going to get
to keep more of that than they would if it were in litigation.
Mr. Armstrong. I think you and Mr. Pincus both kind of
agree on post-dispute arbitration agreements. What are the
real-world barriers to those types of arrangements?
Mr. Goldberg. Well, once a dispute arises, agreeing to even
the size of the table to sit at, let alone what path you are
going to choose, is probably going to be a difficult endeavor.
More to the point, the incentives change. So if it is a small
dispute, if it is under that threshold we are talking about,
the $100,000 or $200,000 threshold, the claimant may say, hey,
I would rather go to arbitration because that is a fairer or
better way for me to get justice, and then the company may say
no, we are not going to arbitrate that claim because it is not
to our--if you would not bring that claim another way, why
would we engage in that? Then if the claim is larger, then the
reverse may be true.
So, the only way to really make the system work is to offer
it ahead of time. It creates a system, again, that is based on
trying to get what is fair. It is not all or nothing, it is not
as expensive, and it is trying to get a result that works, that
is the right result given the situation at hand.
Mr. Armstrong. With the limited time I have left, we have
had a Bakken shale revolution, an oil boom in western North
Dakota, and one of the big issues that comes up is landowner
mineral rights versus oil company rights. Without some of the
arbitration stuff that we have done at the State level, we
would dramatically decrease access for farmers in the middle of
western North Dakota that just simply don't have the resources
to take on a medium, small, or large oil company. So, there are
inverse situations where this is absolutely necessary.
With that, I yield back.
Mr. Cicilline. I thank the gentleman.
I now recognize the very distinguished gentleman from the
State of Colorado, Mr. Neguse, for 5 minutes.
Mr. Neguse. Thank you, Mr. Chairman.
I want to thank the witnesses for testifying today, in
particular, Ms. Carlson and Mr. Ziober. Thank you for sharing
your stories and for your courage. Certainly, we are hopeful
that we can help others avoid the ways in which, I think,
employers and a variety of corporations have abused this system
of forced arbitration. It is why I am proud to be a sponsor of
the FAIR Act, and I appreciate Representative Johnson and
Representative Cicilline, and of course the Chairman, for their
leadership on this front.
Mr. Goldberg, I have a line of questioning, but I could not
resist the temptation of following up on my good friend and
colleague, Mr. Armstrong's, questions, because it sounds like--
and I will quote the words you used. The notion that claimants
who may have a claim that is smaller, relatively speaking,
lower than $200,000 I think is the number that has been sort of
tossed around today, that their ``only path'' absent forced
arbitration would be arbitration. That is, if we get rid of the
modern arbitration system, they would have no, I think in your
words, access to justice.
I guess I am confused because my understanding as a lawyer
is that claimants can pursue pro se actions in court. They
would have to retain a lawyer; obviously, to the extent that
they would like to retain one, they would have to pay for one.
The same is true in the arbitration context, is that right? So,
I am not understanding this argument or this notion that they
have no access to justice if we remove forced arbitration as
the mechanism today.
Mr. Goldberg. The civil litigation system is pretty
burdensome and onerous, and--
Mr. Neguse. Let's talk about that.
Mr. Goldberg. Oftentimes--
Mr. Neguse. Reclaiming my time, you are familiar with small
claims court, correct?
Mr. Goldberg. Absolutely.
Mr. Neguse. I happen to hail from the great State of
Colorado. We have a small claims court system. Under $7,500,
you can go into court. You can file a simple form. I am sure
that the same holds true in the State where you practice law.
Sound about right.
Mr. Goldberg. Yes.
Mr. Neguse. You pay a small filing fee. I believe it is $31
in Colorado, probably similar to what you pay in a small claims
court in your jurisdiction. Fair?
Mr. Goldberg. Yes.
Mr. Neguse. There is a mediation option, actually, in our
small claims court. I don't know if that happens to be a
function of your system, but it certainly is the case in
Colorado.
So, this is where I am struggling, because I understand if
you want to make the case--in your testimony, the first page, I
will quote. You say, ``A major reason that pre-dispute
arbitration agreements have become more commonplace in our
society is because they achieve this goal of peaceful, quick,
and conclusive dispute resolution.'' I understand if you want
to make the case that employers, corporations, businesses have
concluded that, what I have just described. The notion that
consumers and employees have made that judgment, I think, is
just not the case. It is not supported by the facts, because
ultimately consumers aren't making the choice. Employees aren't
making the choice. I would hope you would agree, at least with
respect to that quote that I just mentioned, this
presupposition that somehow employees and consumers are the
reason why these agreements are more commonplace. That is not
what you are suggesting?
Mr. Goldberg. I think there is a large gap between the
$7,500 figure that you mentioned in terms of what caps you out
at the small claims court and the $100,000 to $200,000 value of
a claim that sometimes requires you to get a lawyer. Pro se
plaintiffs, yes, you can pursue a claim pro se, and small
claims court may be a very viable opportunity for people under
that threshold. By and large, people are not going to be able
to bring a claim if they are above that threshold, and they
don't need a lawyer oftentimes if they are going through a
small, pre-dispute arbitration path either.
So, it provides access for people above that, but below the
threshold of where a lawyer may not take the claim, and it
provides as good, if not better.
Mr. Neguse. I appreciate that. That is a little bit
different. I just misunderstood the point that you were making,
and Mr. Pincus made earlier, with respect to claims that are a
couple of thousand dollars.
In any event, and not to belabor the point, but is it your
position that these agreements have become more commonplace
because employees and consumers have made that decision? I just
want to make sure I am clear on that front. That is not your
position.
Mr. Goldberg. I actually think that arbitration agreements
are becoming more commonplace and people are using it more, as
we heard from some of the testimony.
Mr. Neguse. Sir, they are not using them more because
consumers aren't drafting these agreements. I mean, I presume
you use Facebook, you go to an ATM, maybe you flew to
Washington, DC to testify today, maybe you took an Uber or a
Lyft to come and testify in front of this committee. You didn't
draft any of those arbitration agreements, correct?
Mr. Goldberg. Correct.
Mr. Neguse. Yes. The corporations did, the employers did.
That is my point. So again, I understand if you want to make
the case about the values of arbitration. That is certainly
your case to make. Let's not engage in this intellectual
fantasy that somehow consumers and employees are making the
choice, because anyone can pick up their phone and look up
their Uber app or Lyft app or any other similar app and see
that the terms and conditions are very far deep within that
app, and the notion that the consumers are making the choice to
do so I just think is a fallacy.
The last thing I would note, Mr. Chair, because I do know
that my time has expired, I know a number of folks will
recognize the Pipeline Parity Project. We are joined today by
some of the law students from that project. I appreciate their
advocacy with respect to having law firms remove forced
arbitration clauses from their contracts, and I appreciate, Mr.
Goldberg and Mr. Pincus, that both of your law firms, I
understand, have abandoned forced arbitration contracts for
your employees. If that is not the case, you certainly have a
chance to clarify that.
Mr. Pincus. We never had one.
Mr. Neguse. Never had one. Well, I would hope that we could
agree on legislation that would enable employers across the
country to take that same approach, and I yield back.
Mr. Cicilline. Thank you. Thank you very much.
I now recognize myself for 5 minutes.
Since the Second World War, Congress has expanded and
strengthened laws that guarantee every veteran and active-duty
service member, including those serving at the Reserves and
National Guard, the right to be free from discrimination in the
workplace based on their military service, and the right to
their day in court to enforce these protections. As Mr. Ziober
has testified, these laws are meaningless if they are not
enforceable through the courts. He is not alone. The Military
Coalition, which is a broad consortium of unified service and
veterans' organizations representing more than 5.5 million
current and former service Members, has referred to forced
arbitration as, and I quote, ``an un-American system wherein
service Members' claims against a corporation are funneled into
a rigged, secretive system in which all the rules, including
the choice of the arbiter, are picked by the corporation,'' end
quote.
Our brave men and women in uniform deserve better, and that
is why I have introduced the Justice for Service Members Act
that Mr. Ziober referred to that would prohibit the
circumvention of their rights under laws designed to protect
service Members and veterans.
I would ask you, Mr. Ziober, if you could just expand on
what it was like and what impact it had on you as you were
about to depart to a war zone in defense of your country to
know that you were deprived of your right to contest your
firing, even though Congress had expressly provided for that
protection in Federal law.
Lieutenant Ziober. Mr. Chairman, first, I want to thank you
for introducing the Justice for Service Members Act. I believe
it was introduced yesterday. Thank you for your support in that
endeavor.
In my case, as I mentioned in my testimony, at noon I am
having a big party with the company, cards and gifts and a lot
of support. You have a sense of patriotism and an appreciation
for your service. Then at 5 o'clock you are sitting there
getting fired, and you are trying to compartmentalize what just
happened. You are confused, you are embarrassed, you have
anxiety about what your future is going to hold.
I was leaving for pre-deployment training that following
Monday, so my mind was set to be focused on training. Now, I am
wondering how I am going to support myself and my family when I
return home from my deployment.
You go do your mission. You do the best you can to support
your mission and your teammates down range. That is what you
are there for, to go do, but in the back of your mind your
family back home, if you have a wife or kids, you are thinking
how are you going to pay the mortgage when you get back? How am
I going to provide food on the table? The kids need braces,
whatever the case may be. So, it is not a position that service
Members should be put into.
If I could just quickly say, I think there is a bigger
picture here, too. I mean, in my case it hurt me, and I am here
to advocate to not have other service Members feel the same
type of pain. I think this is a military readiness issue. I
mean, we draw on our Reservists so much, for strategic
reserves, operational support nowadays.
USERRA is a law that lets service Members go from civilian
to military duty and back to civilian jobs. The more that is
weakened, I think that is going to discourage people who truly
want to step up and serve their country in that regard, and
they bring a lot of skills--medical, aviation, engineering. The
diversity is really beneficial to our country.
Mr. Cicilline. Thank you very much and thank you for your
service.
Mr. Gupta, when Congress enacted the Federal Arbitration
Act in 1925, it never intended for arbitration to serve as a
corporate shield against the enforcement of our laws, or a
sword to weaken protections, or to protect corporate
wrongdoing. Far from it. As the Supreme Court noted in 1967 in
the Prima Paint decision, the legislative history of the law
makes clear that Congress did not intend for parties with
unequal bargaining power to be forced to arbitrate claims on a
take-it-or-leave-it basis.
How do you explain the Supreme Court's departure from
decades of case law and the clear legislative intent in the
Federal Arbitration Act and other laws that are designed to be
enforced through the justice system? Is there any label for
this other than judicial activism on behalf of corporate
wrongdoers?
Mr. Gupta. I don't think there is. It would be hard to
identify another Federal statute passed by Congress where the
Supreme Court has strayed so far from the original intent of
the legislation. I have gone back and looked at the history of
the Act from 1925. People weren't blind to the possibility of
abuse. They raised these concerns before this committee, in
fact, and the architects of the legislation were clear: This is
about letting businesses of equal bargaining power that want to
resolve their disputes out of court, letting them do that, and
I have no objection to that. That makes perfect sense.
The drafters were clear: This is not about foisting this on
people who don't consent through take-it-or-leave-it contracts.
In fact, Congress put in a provision, section 1 of the Federal
Arbitration Act, that says this shall not apply to any class of
workers. Remarkably, the Supreme Court has read that language
to mean precisely the opposite, and now it can apply to any
class of workers.
So, we have strayed so far away from what Congress intended
in 1925, and that is why only this body, Congress, can set
things right.
Mr. Cicilline. Thank you.
My very final question. It is really hard to understand,
Professor Gilles, what Mr. Pincus argues, this idea that people
want arbitration. We know it is deeply unpopular with
Democrats, Republicans, Independents, so it is not a political
thing. It is deeply unpopular with the American people, above
80 percent. Obviously, if it produced better outcomes, people
could voluntarily pick it. Of course, they don't. They are
forced into it by the other party in the disagreement, the
corporation.
So is Mr. Pincus right, that people like arbitration, they
want it, they are dying to be into it, or--
Ms. Gilles. The numbers don't support Mr. Pincus at all. I
mean, we are all going to do some selective citing of studies,
but I think mine are better.
[Laughter.]
Ms. Gilles. We know that, for example, only 1 out of every
10,400 employees ever files an arbitration claim. I think that
when Mr. Pincus talks about how well employees do in
arbitration, he is talking about high-value cases, cases that
probably would have done fine in court but, for whatever
reason, those employees decided, maybe for the privacy, because
some claims are a little bit embarrassing, to have those claims
in arbitration. That is all fine.
We are not talking about getting rid of arbitration
altogether here, people. We are talking about making it
voluntary. We are talking about making it post-dispute, so that
they can decide. Despite what Mr. Goldberg says, I think the
American people can handle that choice. I don't think it is
going to create a ton of transaction costs. I think he is just
worried that they won't take you up on the offer, right? They
would prefer to be in court.
They wouldn't prefer to be in court because they want their
lawyers to get paid. They would prefer to be in court because
that is where claims belong, in public court, not in private
arbitration. So, Mr. Pincus and I disagree.
Mr. Cicilline. Thank you.
Ms. Gilles. Thank you.
Mr. Cicilline. At this time, I now seek unanimous consent
to add a number of letters and statements to the record from
organizations in support of ending forced arbitration and
passing the FAIR Act: A letter in support from George Slover, a
Senior Policy Advisor with Consumer Reports, without objection,
a letter in support of legislatively ending forced arbitration
from Lisa Gilbert, the Vice President of Legislative Affairs of
Public Citizen, without objection; a letter in support of the
FAIR Act from Terry O'Neil, the Executive Director of the
National Employment Lawyers Association, without objection; a
letter supporting the FAIR Act from the Fair Arbitration Now,
without objection; and a statement from Allen Carlson, owner of
Italian Colors Restaurant, supporting the FAIR Act, without
objection.
[The information follows:]
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Alan S. Carlson
Owner, Italian Colors Restaurant, 2220 Mountain Blvd.,
Oakland, CA 94611
My name is Alan Carlson and I am the chef and owner of
Italian Colors Restaurant, a small business located in Oakland,
California. I respectfully submit this statement for the record
of the hearing held on May 16, 2019 in the House Subcommittee
on Antitrust, Commercial and Administrative Law entitled,
``Justice Denied: Forced Arbitration and the Erosion of our
Legal System.''
The Italian Colors Restaurant was the lead plaintiff in
Italian Colors v. American Express, a class action lawsuit on
behalf of merchants across the country who allege we are harmed
by anti-competitive conduct engaged in by American Express in
violation of the U.S. antitrust laws. In 2013, the Supreme
Court held that we could not bring our antitrust claim because
American Express used a forced arbitration clause in its
contracts that prohibits its business customers from joining
together to hold American Express accountable through the
public court system. I strongly urge Congress to pass H.R.
1423, the Forced Arbitration Injustice Repeal Act (FAIR Act),
to ensure that small businesses like Italian Colors have
recourse when we are victims of predatory and illegal behavior
by large corporations that take advantage of our situation.
I was born in s11burban Detroit and have been working in
the restaurant business in one way or another since I was 14
years old, when I started out washing dishes at a Greek diner.
My passion for food grew into a career. In 1979, I graduated
from the Culinary Institute of America in New York City.
Afterwards, I traveled across America and worked with a number
of chefs, absorbing new knowledge and skills from each
opportunity. In the early 1980s, I settled in Oakland,
California, and opened my first restaurant in 1986. Since then,
I have started and run several restaurants in and around the
San Francisco Bay area.
Twenty-six years ago I opened Italian Colors with my wife,
Dee Carlson-Cohen, and business partner, Steve Montgomery. Our
goal was to create the quintessential neighborhood restaurant,
geared toward community, quality food, and great customer
service. I am incredibly proud to say that over two decades
later, we are still open, serving our community and employing
more than 30 people.
However, like most local restaurants, our profit margins
are razor thin. We survive through fostering client loyalty,
keeping prices low, and cooking high quality food. Like so many
other communities in the United States, we operate in a charge
card and 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 the reality. In
fact, American Express cards are pretty much the most expensive
form of payment we must accept to survive.
A significant percentage of my restaurant's earnings comes
from clients who use American Express cards. They are an
extremely popular form of payment especially for diners who
spend a lot of money at the restaurant because of all of the
perks they offer. American Express imposes special rules and
restrictions on restaurants and 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 all other forms of payment. In
addition, American Express 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 debit cards by
offering discounts or other incentives.
If I could offer discounts to my customers who use cash or
their debit cards, or be able to say which cards make sense for
me to accept, without being forced to accept all cards, I would
be able to increase my earnings and decrease my costs--which
means providing more services, having more employees.
Being forced to make a decision that is bad for my business
isn't right. A number of years ago, after talking about what I
was facing with a long-time customer, friend, and attorney,
Edward Zusman, he talked to other anti-trust attorneys with
whom he was acquainted and they decided to take up the cause.
They believed that American Express was engaging in anti-
competitive practices in violation of the antitrust laws.
When I started with American Express in the early 1090's my
first agreement did not have a forced arbitration clause. To
this day, I have not actually seen a forced arbitration clause,
but I have been told that in the late 1990's they included
forced arbitration as a term and condition of continued use of
their cards. I did not know until the litigation commenced that
that provision even existed.
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 try to do it
in an individual, private arbitration tribunal designed by
American Express.
Needless to say, I was shocked. I honestly cannot recall
ever even reading a forced arbitration clause, and certainly do
not remember signing a contract that included one. But even if
I knew the clause was in the fine print of the contract, my
American Express contract was 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 in testimony that it would not be cost-effective for
any small business owner in the same situation as me to pursue
an individual arbitration claim against American Express. In
fact, it would cost more to bring their claim than they could
recover. This cost prohibitive system means that there is no
way one small business can get justice alone.
Every American should have the right to join with others to
fight to hold corporate giants accountable. But I don't,
because of a forced arbitration clause buried in the fine print
of terms and conditions imposed upon me years after I started
taking American Express cards. And I have learned that the
majority of consumers and workers have also signed forced
arbitration clauses in just about every aspect of their lives.
Ifwe cannot be part of a class action to enforce our rights
against companies like American Express, we have no way of
enforcing those rights. I certainly don't have the money to
take on American Express by myself.
I tracked my case through the courts and I was very pleased
with the results at the lower courts. The case went all the way
to the U.S. Supreme Court, where I thought surely justice would
prevail. However, as you probably know, the Supreme Court ruled
that I had to take my case to individual arbitration, even
though the evidence presented showed that I would have to pay
more in arbitration than I could ever recover, making that
choice impossible for me and other small businesses. When the
Supreme Court issued its decision in favor of American Express
and forced arbitration, you can imagine my disappointment and
shock. Essentially the Supreme Court was saying that it didn't
matter that a small business couldn't pursue important rights
against a big business.
I was surprised to learn recently that a number of very
large companies, including Walgreens, CVS and Safeway, are
taking American Express to trial this summer over the same
issues I was not allowed to bring to court. It turns out that
these huge corporations had enough bargaining power with
American Express that they were able to negotiate contracts
that did not include forced arbitration clauses. They will get
their day in court. But small businesses throughout America,
who are suffering from the exact same harmful business
practices, do not have the same rights. We will never get our
day in court because of forced arbitration. I believe this is
unAmerican.
Because forced arbitration makes it impossible for small
businesses to hold large corporations publicly accountable,
those companies are able to continue their unfair business
practices and small firms like mine continue to be harmed with
no recourse. I have heard that there will be a ``litigation
explosion'' if we end forced arbitration. I do not believe
that. If we end forced arbitration, more companies will follow
the law and everyone will benefit.
It has become clear to me that certain congressional
actions can and must be taken to help protect the small
businesses on ``Main Streets'' across America. Small businesses
and consumers should have the same access to the justice system
as large corporations, like American Express and Walgreens and
CVS. And corporate Goliaths should never be able to take away
our ability to hold them responsible for their actions.
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 big business gets to violate the law and
get away with it.
There are many small business owners like me across the
country who are struggling to stay in business and live the
American dream. The FAIR Act would give back to small
businesses the right to go before a judge and jury against big
corporations instead of being locked into a forced arbitration
system that is too expensive to use. I urge you to pass the
FAIR Act to restore equal access to justice for small
businesses and consumers.
Mr. Cicilline. One final thing I would like to do before we
adjourn is just take a moment to recognize several people who
have traveled from all over the country to attend today's
hearing.
Tanuja Gupta, who has organized and led the Googlers for
Ending Forced Arbitration and Google walk-out movements, which
culminated in Google's decision to end its use of forced
arbitration earlier this year.
Richard Heggens, a former Chipotle employee who is also
with us today. Richard was forced to work off the clock without
pay by his employer, along with several thousand other
employees. Richard's attempt to hold his employer accountable
for wage theft has been forced into individual arbitration.
Tara Zoumer, who is a former employee of WeWork, an office
leasing start-up, who was fired for refusing to sign a forced
arbitration clause in her employment contract. Since then, she
has fought for the rights of millions of workers against forced
arbitration.
Tom Troy, who is also with us. Tom is a partner at the
Starbucks coffee company who filed an age discrimination
complaint against the company and has fought to bring awareness
to the public and other employees at Starbucks about the
company's use of forced arbitration.
Finally, Molly Coleman, who is a student at Harvard Law
School, who co-founded the Pipeline Parity Project, which has
led a campaign to end forced arbitration at many of the biggest
law firms in the world.
Very finally, Emanuel Schorsch, who works for Google and
was part of Googlers for Ending Forced Arbitration, collecting,
comparing, and analyzing arbitration clauses in employee
contracts for companies across the tech industry.
I want to welcome you and thank you for being here.
This concludes today's hearing.
Again, I want to thank our witnesses for their very helpful
testimony.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the witnesses or
additional materials for the record.
This hearing is adjourned.
[Whereupon, at 11:43 a.m., the hearing was adjourned.]
APPENDIX
=======================================================================
QUESTION FOR THE RECORD FOR ANDREW PINCUS SUBMITTED BY
REPRESENTATIVE KEN BUCK
The Supreme Court case AT&T Mobility v. Concepcion was
raised during the hearing by Representative Raskin. I know that
you argued that case on behalf of AT&T. Please provide a full
discussion of the case, including its underlying facts, what
the Supreme Court decided, and how the ruling relates to the
use of arbitration today.
The Concepcion case clearly illustrates the benefits to all
parties of consumer arbitration agreements, especially when
compared with the class-action system.
The Concepcion Lawsuit and District-Court Proceedings
The plaintiffs in Concepcion, Vincent and Liza Concepcion,
were wireless customers of AT&T Mobility LLC who filed a
putative class action against the company in the United States
District Court for the Southern District of California in 2006.
At that time, customers of most wireless carriers, including
AT&T, typically purchased cell phones and subscribed to
wireless service in a bundled transaction, in which the phone
was free or steeply discounted in exchange for a commitment to
maintain service for a specified term (often one or two years).
But California law required that sales tax be paid on the full
retail value of a phone when it is sold as part of a bundled
transaction.\1\ Despite this legal requirement, when the
Concepcions were charged sales tax based on the full retail
price of phones that were free or discounted, they sued AT&T,
alleging that in addition to violating several common-law
doctrines, AT&T had violated California's Unfair Competition
Law (``UCL''),\2\ False Advertising Law (``FAL''),\3\ and
Consumer Legal Remedies Act (``CLRA''),\4\ and should be
required to pay damages and restitution to consumers and
attorneys' fees and costs to the Concepcions' lawyers.
---------------------------------------------------------------------------
\1\ Cal. Code Regs. tit. 18, Sec. Sec. 1585(a)(4), (b)(3).
\2\ Cal. Bus. & Prof. Code Sec. Sec. 17200 et seq.
\3\ Cal. Bus. & Prof. Code Sec. Sec. 17500 et seq.
\4\ Cal. Civ. Code Sec. Sec. 1750 et seq.
---------------------------------------------------------------------------
The Concepcions' legal claims were of dubious merit.\5\
That is not unusual. Large companies frequently are targeted by
consumer class actions by the plaintiffs' bar, on the theory
that even claims with a low probability of success can be used
to coerce what Judge Friendly famously characterized as a
``blackmail settlement'' from the company because of the sheer
size of the aggregate potential liability.\6\
---------------------------------------------------------------------------
\5\ The California State courts dismissed a copycat class action
for failure to State a claim--holding that the claim was legally
insufficient. Yabsley v. Cingular Wireless, LLC, 98 Cal. Rptr. 3d 657
(Ct. App. 2009) (affirming order granting demurrer), review granted,
219 P.3d 151 (Cal. 2009), review dismissed, 328 P.3d 67 (2014); see
also Loefler v. Target Corp., 324 P.3d 50, 53 (Cal. 2014) (holding that
``consumer-protection statutes . . . cannot be employed'' to challenge
collection of ``sales taxes'' by retailers).
\6\ Henry J. Friendly, Federal Jurisdiction: A General View 120
(1973).
---------------------------------------------------------------------------
AT&T responded to the lawsuit by seeking to enforce the
arbitration provision in AT&T's contracts with customers,
including the Concepcions. That arbitration provision required
that arbitration proceed in its traditional form--on a one-to-
one, individual basis. And the provision included a number of
features designed to make arbitration convenient and attractive
for consumers with small claims:
Cost-free arbitration: AT&T committed to pay all
of the filing, administrative, and arbitrator costs for any
claim that the arbitrator did not find to be frivolous under
the same Federal Rule of CivilProcedure 11(b) standard
applicable in federal court;
Independent arbitration administrator:
Arbitration would be administered by the independent non-profit
American Arbitration Association, using rules it had designed
to make arbitration easy for consumers, and its roster of
retired judges and experienced arbitrators;
Convenient hearings: Arbitration would take place
in the county of the customer's billing address, and the
customer had the sole right to choose whether the arbitrator
would conduct an in-person hearing, a hearing by telephone, or
dispense with a hearing and rule on the basis of the documents
submitted by the parties;
Small claims court option: Either party could
bring a claim in small claims court in lieu of arbitration;
Full remedies: The arbitrator could award the
customer any form of individual relief (including statutory
attorneys' fees, statutory or punitive damages, and
injunctions) that a court could award;
Possibility to earn large bonus recovery: If the
arbitrator awarded a customer relief that was greater than
AT&T's last written settlement offer before the arbitrator was
appointed, the customer's minimum recovery would be either
$5,000 or (if greater) the jurisdictional maximum for the
customer's local small claims court (which at the time in
California was $7,500); and
Possibility to earn double attorneys' fees: If
the arbitrator awarded a customer more than AT&T's last written
settlement offer, then AT&T also would pay the customer's
attorney, if any, twice the amount of attorneys' fees, and
reimburse any expenses, that were reasonably accrued for
investigating, preparing, and pursuing the claim in
arbitration.
Despite these consumer-friendly features, the Concepcions
resisted enforcement of their arbitration agreement on the
ground that it was unconscionable under California law because
it prohibited class procedures in arbitration.
In ruling on AT&T's motion, the district court noted the
powerful incentives under the agreement for consumers to
arbitrate individual claims: ``If [AT&T] denies an informal
claim''--that is, a complaint submitted to the legal department
prior to the commencement of an arbitration, which can be as
simple as a one-page letter--``or offers less than the
[California] consumer requests,'' then ``the amount of the
consumer's award upon prevailing at arbitration jumps to $7,500
. . . , plus double attorney's fees, if the consumer is
represented by counsel.'' \7\ For the Concepcions, who were
seeking only $30 in damages--the amount of the sales tax on
their phone--AT&T's arbitration provision gave them ``the
potential to recover two hundred fifty times [their] actual
damages[.]'' \8\
---------------------------------------------------------------------------
\7\ Laster v. T-Mobile USA, Inc.3, 2008 WL 52162555, at *10 (S.D.
Cal. Aug. 11, 2008), affirmed sub nom. Laster v. AT&T Mobility LLC, 584
F.3d 849 (9th Cir. 2009), rev'd sub nom. AT&T Mobility LLC v.
Concepcion, 563 U.S. 333 (2011).
\8\ Id.
---------------------------------------------------------------------------
The district court also noted the corresponding incentives
for AT&T to resolve claims. Because the agreement committed
AT&T to pay all arbitration costs and obligated it to pay
heightened recoveries to customers who recover more in
arbitration than AT&T had offered to settle, the agreement
``prompts [AT&T] to accept liability . . . during the informal
claims process'' that precedes arbitration, ``even for claims
of questionable merit and for claims it does not owe.'' \9\ As
a consequence, under AT&T's arbitration provision, the district
court found that ``nearly all consumers who pursue the informal
claims process are very likely to be compensated promptly and
in full,'' with customers ``virtually guaranteed a payment by
[AT&T].'' \10\
---------------------------------------------------------------------------
\9\ Id. at at *11.
\10\ Id.
---------------------------------------------------------------------------
By contrast, the district court found, ``consumers who are
Members of a class [action] do not fare as well.'' \11\ The
court noted ``studies that show class Members rarely receive
more than pennies on the dollar for their claims, and that few
class Members (approximately 1-3%) bother to file a claim when
the amount they would receive is small.'' \12\ The court found
that ``the record . . . establishes that a reasonable consumer
may well prefer quick informal resolution with likely full
payment over class litigation that could take months, if not
years, and which may merely yield an opportunity to submit a
claim for recovery of a small percentage of a few dollars.''
\13\ The court held that AT&T's arbitration provision
``sufficiently incentivizes consumers'' to pursue ``small
dollar'' claims and ``is an adequate substitute for class
arbitration[.]'' \14\
---------------------------------------------------------------------------
\11\ Id.
\12\ Id.
\13\ Id. at *12.
\14\ Id. at *11-12.
---------------------------------------------------------------------------
The district court nonetheless held that AT&T's arbitration
provision is unenforceable under California law. Under
California's Discover Bank rule--named for the California
Supreme Court decision that had announced it (Discover Bank v.
Superior Court) \15\--``[f]aithful adherence to California's
stated policy of favoring class litigation and arbitration to
deter fraudulent conduct in cases involving large numbers of
consumers with small amounts of damages[] compel[ed] the Court
to invalidate'' AT&T's arbitration provision.\16\ The district
court also rejected AT&T's arguments that the Federal
Arbitration Act (``FAA'') preempts California's Discover Bank
rule.\17\
---------------------------------------------------------------------------
\15\ 113 P.3d 1100 (Cal. 2005).
\16\ Laster, 2008 WL 5216255, at *14.
\17\ Id. at *14 n.11.
---------------------------------------------------------------------------
AT&T's Appeal to the Ninth Circuit and Supreme Court
AT&T appealed the denial of its motion to compel
arbitration. A three-judge panel of the Ninth Circuit affirmed
the district court's rulings that California's Discover Bank
Rule invalidates AT&T's arbitration provision and that the FAA
does not preempt the Discover Bank rule.\18\ The Ninth Circuit
concluded that although AT&T's arbitration provision
``essentially guaranteed that the company will make any
aggrieved customer whole who files a claim,'' this was
insufficient to comply with California law because class
proceedings were unavailable in arbitration.\19\ And the Ninth
Circuit held that California's Discover Bank Rule was
consistent with the FAA because it was ``simply a refinement of
the unconscionability analysis applicable to contracts
generally in California'' and therefore did not discriminate
against arbitration agreements in violation of the FAA.\20\
---------------------------------------------------------------------------
\18\ Laster v. AT&T Mobility LLC, 584 F.3d 849 (9th Cir. 2009),
rev'd sub nom. AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).
\19\ Id. at 856 & n.10.
\20\ Id. at 857-58.
---------------------------------------------------------------------------
The Supreme Court then granted review to determine whether
the FAA preempts California's Discover Bank rule. The Court
then reversed the Ninth Circuit's decision.\21\
---------------------------------------------------------------------------
\21\ Concepcion, 563 U.S. 351.
---------------------------------------------------------------------------
The Supreme Court began by noting that Congress enacted the
FAA ``in response to widespread judicial hostility to
arbitration agreements.'' \22\ Section 2 of the FAA requires
that written arbitration agreements be deemed to be ``valid,
irrevocable, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract.'' \23\
The Supreme Court explained that this nondiscrimination
principle means that arbitration agreements may ``be
invalidated by `generally applicable contract defenses, such as
fraud, duress, or unconscionability,' but not by defenses that
apply only to arbitration or that derive their meaning from the
fact that an agreement to arbitrate is at issue.'' \24\ In
other words, courts cannot deem inherent characteristics of
arbitration agreements--such as the lack of ``judicially
monitored discovery'' or ``disposition by jury''--to be
unconscionable or against public policy.\25\ The Court observed
that these ``examples are not fanciful, since the judicial
hostility towards arbitration that prompted the FAA had
manifested itself in a `great variety' of `devices and
formulas' declaring arbitration against public policy.'' \26\
---------------------------------------------------------------------------
\22\ Id. at 339.
\23\ 9 U.S.C. Sec. 2.
\24\ Concepcion, 563 U.S. at 339 (quoting Doctor's Assocs., Inc. v.
Casarotto, 517 U.S. 681, 687 (1996)).
\25\ Id. at 341-42.
\26\ Id. at 342 (quoting Robert Lawrence Co. v. Devonshire Fabrics,
Inc., 271 F.2d 402, 406 (2d Cir. 1959)).
---------------------------------------------------------------------------
The Supreme Court then held that California's Discover Bank
Rule contravened this principle, because ``[r]equiring the
availability of classwide arbitration interferes with
fundamental attributes of arbitration and thus creates a scheme
inconsistent with the FAA.'' \27\
---------------------------------------------------------------------------
\27\ Id. at 344.
---------------------------------------------------------------------------
First, the Court explained, ``the switch from bilateral''
(i.e., individual) ``to class arbitration sacrifices the
principle advantage of arbitration--its informality--and makes
the process slower, more costly, and more likely to generate
procedural morass than final judgment.'' \28\ For example, in a
class proceeding, the arbitrator must decide ``whether the
class itself may be certified, whether the named parties are
sufficiently representative and typical, and how discovery for
the class should be conducted.'' \29\
---------------------------------------------------------------------------
\28\ Id. at 348.
\29\ Id.
---------------------------------------------------------------------------
Second, the Court noted, ``class arbitration requires
procedural formality,'' with class arbitration procedures
``mimic[king] the Federal Rules of Civil Procedure for class
litigation.'' \30\
---------------------------------------------------------------------------
\30\ Id. at 349.
---------------------------------------------------------------------------
Third, ``class arbitration greatly increases risks to
defendants.'' \31\ The Court explained that ``[a]rbitration is
poorly suited to the higher stakes of class litigation''
because judicial review of arbitral decisions is sharply
limited under the FAA.\32\ Accordingly, the Court concluded,
``[w]e find it hard to believe that defendants would bet the
company with no effective means of review,'' and so if the
Discover Bank Rule were allowed to persist, it would lead to
the abandonment of arbitration, frustrating the FAA's purpose
of ``promot[ing] arbitration.'' \33\
---------------------------------------------------------------------------
\31\ Id. at 350.
\32\ Id.
\33\ Id. at 345, 351.
---------------------------------------------------------------------------
The Court therefore concluded that the class arbitration
mandated by California's Discover Bank Rule ``is not
arbitration as envisioned by the FAA, lacks its benefits, and
therefore may not be required by State law.'' \34\
---------------------------------------------------------------------------
\34\ Id. at 351.
---------------------------------------------------------------------------
Finally, the Court rejected the criticism that ``class
proceedings are necessary to prosecute small-dollar claims that
might otherwise slip through the legal system.'' \35\ The Court
explained that ``States cannot require a procedure that is
inconsistent with the FAA, even if it is desirable for
unrelated reasons.'' \36\ Moreover, the Court explained, given
the pro-consumer features of AT&T's arbitration provision, AT&T
customers ``were better off under their arbitration agreement
with AT&T than they would have been as participants in a class
action, which could take months, if not years, and which may
merely yield an opportunity to submit a claim for recovery of a
small percentage of a few dollars.'' \37\
---------------------------------------------------------------------------
\35\ Id.
\36\ Id.
\37\ Id. at 352 (internal quotation marks omitted).
---------------------------------------------------------------------------
The Impact of Concepcion on Consumer Arbitration Agreements
The Supreme Court's decision in Concepcion is significant
to consumer arbitration in a number of respects.
First, although the Court held that the FAA preempts
California's Discover Bank rule, the Court emphasized the
continued ability of courts to police consumer arbitration
agreements for unfairness. ``Generally applicable contract
defenses,'' such as ``fraud'' and ``unconscionability,'' remain
available to courts to prevent overreaching by drafters of
consumer arbitration agreements.\38\ Today, courts routinely
invalidate one-sided arbitration agreements or sever unfair
provisions that impose excessive costs on consumers, unfairly
limit a consumer's remedies, or improperly give the company
control over the selection of the arbitrator.\39\
---------------------------------------------------------------------------
\38\ Id. at 339 (internal quotation marks omitted).
\39\ See, e.g., Ridgeway v. Nabors Completion & Prods. Servs. Co.,
725 F. App'x 472, 474 (9th Cir. 2018) (holding that limitation on
arbitrator's ability to award prevailing plaintiff discovery and expert
witness costs must be severed from arbitration agreement); Zaborowski
v. MHN Gov't Servs., Inc., 601 F. App'x 461, 463-64 (9th Cir. 2014)
(affirming denial of motion to compel arbitration under agreement that
limited remedies and allowed the company to select the arbitrators).
---------------------------------------------------------------------------
Second, the decision in Concepcion encouraged companies to
adopt more consumer-friendly arbitration programs, such as
AT&T's provision, under which consumers may arbitrate most
claims for free and might obtain greater remedies in
arbitration than a court could award.
Specifically, a number of other companies have followed
AT&T's lead and given consumers special rights in arbitration
that are unavailable in court. For example, a number of
companies give prevailing customers the right to recover their
attorneys' fees.\40\ By contrast, consumers who win a breach-
of-contract claim in court generally cannot recover their
attorneys' fees, because under the American rule, each party
pays for its own attorneys unless an applicable fee-shifting
statute applies.\41\ Other companies have agreed to pay
heightened minimum recoveries to consumers to whom an
arbitrator awards greater relief than the company's last
settlement offer.\42\ And many companies fully subsidize the
cost of arbitration for consumers, paying the consumer's
already low filing fee under the consumer fee schedules of the
American Arbitration Association or JAMS.
---------------------------------------------------------------------------
\40\ See, e.g., http://www.t-mobile.com/responsibility/legal/terms-
and-conditions-aug-22-2018 +Dispute%20Resolution.
\41\ See, e.g., Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158,
2164 (2015).
\42\ See, e.g., http://www.verizonwireless.com/legal/notices/
customer-agreement (minimum recovery of $5,00 and reasonable attorneys'
fees and expenses to customers who best Verizon Wireless's settlement
offer in arbitration); http://www.frontier.com//media/corporate/terms/
general-arbitration-provision.ashx (minimum recovery of $5,000 to
customers who best Frontier Communication's settlement offer in
arbitration); http://www.microsoft.com/en-us/servicesagreement (minimum
recovery of $1,00 and attorneys' fees and expenses to customers who
best Microsoft's settlement offer in arbitration).
---------------------------------------------------------------------------
The ease and simplicity of using these arbitration programs
to resolve disputes--which frequently result in mutually
agreeable settlements, without the consumer having to go to the
bother of actually commencing an arbitration--makes it easier
than ever for consumers with small claims to obtain relief.
Indeed, plaintiffs' lawyers are increasingly agreeing to
represent consumers in arbitration. And businesses have formed
to help consumers bring arbitrations.
As Concepcion points out--rightly--consumers and businesses
both benefit from the ``informality,'' and inexpensive,
``efficient,'' and ``streamlined procedures'' of
arbitration.\43\ Indeed, as the Supreme Court explained in a
previous case, without arbitration, the ``typical consumer who
has only a small damages claim (who seeks, say, the value of
only a defective refrigerator or television set),'' would be
left ``without any remedy but a court remedy, the costs and
delays of which could eat up the value of an eventual small
recovery.''\44\
---------------------------------------------------------------------------
\43\ Concepcion, 563 U.S. at 344-45.
\37\ Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281
(1995).
---------------------------------------------------------------------------
QUESTIONS FOR THE RECORD FOR ANDREW PINCUS SUBMITTED BY
REPRESENTATIVE F. JAMES SENSENBRENNER
1. Several witnesses asserted that arbitration agreements
prevent the disclosure of wrongdoing, but you testified that
arbitration agreements cannot prevent injured parties from
speaking publicly about their claims or discussing their claims
with law enforcement officials. Please explain why you believe
the other witnesses are wrong.
The other witnesses have their facts wrong. Courts have
consistently held that arbitration agreements cannot prevent
employees or consumers from talking publicly about their claims
(with the possible exception of claims brought by a high-
ranking employee) or prevent anyone from informing government
officials of alleged wrongdoing.\1\ And those government
officials can pursue claims in court--including on behalf of
consumers and employees--if they wish. Indeed, almost two
decades ago, the Supreme Court held that arbitration agreements
do not forbid government entities--in that case, the Equal
Employment Opportunity Commission--from seeking relief on
behalf of one of the parties to the agreement.\2\
---------------------------------------------------------------------------
\1\ See, e.g., Davis v. O'Melveny & Myers, 485 F.3d 1066, 1078 (9th
Cir. 2007), overruled on other grounds by Kilgore v. KeyBank, Nat'l
Ass'n, 673 F.3d 947 (9th Cir. 2012); Longnecker v. Am. Express Co., 23
F. Supp. 3d 1099, 1110 (D. Ariz. 2014); DeGraff v. Perkins Coie LLP,
2012 WL 3074982, at *4(N.D. Cal. July 30, 2012).
\2\ EEOC v. Waffle House, Inc., 534 U.S. 279 (2002).
---------------------------------------------------------------------------
And the same is true about the results of the arbitration:
If an arbitration agreement does require parties to keep the
results of arbitration confidential, courts have the power to
sever a confidentiality provision or, if it cannot be severed,
to invalidate the arbitration agreement. And courts have not
hesitated to do so.\3\
---------------------------------------------------------------------------
\3\ See, e.g., Pokorny v. Quixtar, Inc., 601 F.3d 987, 1002 (9th
Cir. 2010) (invalidating confidentiality provision in arbitration
agreement); Davis, 485 F.3d at 1078-79 (same in employment agreement);
Ting v. AT&T, 319 F.3d 1126, 1151-52 (9th Cir. 2003) (same in consumer
arbitration agreement).
---------------------------------------------------------------------------
Arbitral confidentiality relates only to the proceeding
before the arbitrator-- not to the claim or the arbitrator's
decision. As one commentator has noted, ``while arbitrators
themselves may be bound to a general obligation of
confidentiality, the parties (and their counsel) are generally
not so restricted, absent agreement or arbitral order.'' \4\
---------------------------------------------------------------------------
\4\ Steven C. Bennett, Confidentiality Issues in Arbitration, 68
Disp. Resol. J. 1, 1 (2013) (footnotes omitted).
---------------------------------------------------------------------------
It is true that arbitrators--just like judges--can enter
protective orders requiring certain matters to be sealed, but
those orders are typically limited to protecting an
individual's private information or trade secrets or sensitive
intellectual property--not allegations of wrongdoing. And no
one disputes that courts can and do have the exact same power
to enter protective orders, and that they do so routinely.\5\
---------------------------------------------------------------------------
\5\ See, e.g., Fed. R. Civ. P. 26(c)(1)(D)-(H).
---------------------------------------------------------------------------
Finally, some of the rhetoric about secrecy that the
witnesses were testifying about has nothing to do with
arbitration and everything to do with non-disclosure provisions
in settlement agreements. For decades, it has been common for
parties who have reached settlement agreements--whether in
court or in arbitration--to agree that the terms and nature of
the settlement be kept confidential. That is something that
parties agree to after a negotiation; it is not something
inherent to the arbitration process. Indeed, when individual
consumer and employee lawsuits in court are settled, plaintiffs
and their lawyers routinely enter into confidentiality and non-
disclosure agreements.
2. You testified about a new study indicating that
employees who arbitrate their claims win more often and on
average are awarded larger damages than employees who pursue
claims in federal court. Are there other studies comparing
outcomes in arbitration and litigation? Please provide the
Subcommittee with information regarding the results of those
studies.
Yes, there are a number of other studies examining the
outcomes of cases decided in arbitration versus litigation. And
these studies, as one commentator has put it, demonstrate that
``there is no evidence that plaintiffs fare significantly
better in litigation. In fact, the opposite may be true.'' \6\
---------------------------------------------------------------------------
\6\ David Sherwyn et al., Assessing the Case for Employment
Arbitration: A New Path for Empirical Research, 57 Stan. L. Rev. 1557,
1578 (Apr. 2005); see also, e.g., Theodore J. St. Antoine, Labor and
Employment Arbitration Today: Mid-Life Crisis or New Golden Age?, 32
Ohio St. J. on Disp. Resol. 1, 16 (2017).
---------------------------------------------------------------------------
One empirical analysis showed that employees who arbitrate
are more likely to win their disputes than those who litigate
in federal court (46% in arbitration as compared to 34% in
litigation); that the median arbitral awards that the employees
obtained were typically the same as, or larger than, the amount
obtained in court; and their arbitrations were resolved 33%
faster than in court.\7\
---------------------------------------------------------------------------
\7\ Michael Delikat & Morris M. Kleiner, An Empirical Study of
Dispute Resolution Mechanisms: Where Do Plaintiffs Better Vindicate
Their Rights?, 58 Disp. Resol. J. 56, 58 (Nov. 2003-Jan. 2004).
---------------------------------------------------------------------------
Another study examined American Arbitration Association
awards in employment disputes and compared them to litigation
outcomes. It determined that, for higher-income employees'
claims, there was no statistically significant difference in
win rates or amounts between discrimination and non-
discrimination claims.\8\ For lower-income employees' claims,
that study did not attempt to draw comparisons between
arbitration and in litigation, because lower-income employees
appeared to lack meaningful access to the courts--and therefore
don't have the ability to bring a sufficient volume of court
cases to provide a baseline for comparison.\9\
---------------------------------------------------------------------------
\8\ Theodore Eisenberg & Elizabeth Hill, Arbitration and Litigation
of Employment Claims: An Empirical Comparison, 58 Disp. Resol. J. 44,
45-50 (Nov. 2003/Jan. 2004).
\9\ Id.
---------------------------------------------------------------------------
Studies of consumer arbitration have reached similar
conclusions. For example, a 2010 study found that consumers won
relief 53.3% of the time in arbitration, compared with a
success rate of roughly 50% in court.\10\ And just as in court,
plaintiffs who win in arbitration are able to recover not only
compensatory damages but also ``other types of damages,
including attorneys' fees, punitive damages, and interest.''
\11\
---------------------------------------------------------------------------
\10\ Christopher R. Drahozal & Samantha Zyontz, An Empirical Study
of AAA Consumer Arbitrations, 25 Ohio St. J. on Disp. Resol. 843, 896-
904 (2010); Theodore Eisenberg et al., Litigation Outcomes in State and
Federal Courts: A Statistical Portrait, 19 Seattle U. L. Rev. 433, 437
(1996); see also Christopher R. Drahozal & Samantha Zyontz, Creditor
Claims in Arbitration and in Court, 7 Hastings Bus. L.J. 77, 80 (2011);
Ernst & Young, Outcomes of Arbitration: An Empirical Study of Consumer
Lending Cases (2005).
\11\ Drahozal & Zyontz, Empirical Study, supra note 10, at 902.
---------------------------------------------------------------------------
In the healthcare industry, the Kaiser Foundation Health
Plan uses arbitration to resolve disputes with its more than 8
million California Members, and an independent review found
that 96% of those who used the system said it was better than
or the same as court. Awards to successful claimants ranged
from $4,500-$3,469,778.\12\
---------------------------------------------------------------------------
\12\ Office of the Independent Administrator, Annual Report of the
Kaiser Foundation Health Plan, Inc. Mandatory Arbitration System
(2018), https://www.oia-kaiserarb.com/2059/-reports/annual-reports/
annual-report-for-2018.
---------------------------------------------------------------------------
Lastly, it should be noted that these studies probably
understate the benefits of arbitration, compared with
litigation, as a means of vindicating plaintiffs' claims,
because of ``selection effects.'' Arbitration makes it feasible
for consumers and employees to pursue claims that are too small
to attract a contingency-fee lawyer and therefore cannot be
brought in court. Thus, studies that compare the average amount
obtained by prevailing parties in arbitration and litigation
probably tilt in favor of litigation, where claims tend to be
larger. And, because of arbitration's relatively streamlined
procedures as compared with litigation, ``relatively weaker
claims . . . are more likely to go to an arbitration hearing on
the merits than in litigation'' given the additional procedural
hurdles present in litigation.\13\
---------------------------------------------------------------------------
\13\ See Samuel Estreicher et al., Evaluating Employment
Arbitration: A Call for Better Empirical Research, 70 Rutgers U.L. Rev.
375, 389-93 (2018).
---------------------------------------------------------------------------
3. A number of witnesses testified about the procedures
used in arbitration. Does an arbitrator have unfettered
discretion to employ whatever procedures he or she wishes, or
are there constraints on how an arbitration is conducted?
To begin with, arbitrators are constrained by the rules of
the organization administering the arbitration, and those rules
have been developed with a view to ensuring fairness for
consumers and employees. Most consumer and employment
arbitration agreements select one of the major arbitration
providers, such as the American Arbitration Association
(``AAA'') or JAMS, to administer the arbitration. These
arbitration providers have promulgated detailed procedural
rules to govern arbitrations--and have tailored specific rules
for consumer or employment disputes. For example, the
arbitrator can permit online or telephonic hearings, and
evidence is far simpler for consumers and employees to
introduce than in court.\14\ Although parties can agree to
modify the applicable procedures, these arbitration providers
nonetheless require that all arbitrations they administer
satisfy the organization's standards for fairness, such as the
AAA's Consumer Due Process Protocol and its Employment Due
Process Protocol.\15\
---------------------------------------------------------------------------
\14\ See, e.g., AAA Consumer Arbitration Rule R-32(b); Id. R-34(a).
\15\ See, e.g., AAA Consumer Arbitration Rule R-1(d); see also AAA
Consumer Due Process Protocol, http://www.adr.org/sites/default/files/
document_respository/Consumer%20Due&20 Process%20Protocol%20(1).pdf;
Employment Arbitration Under AAA Administration, https://www.adr.org/
employment; JAMS Consumer Arbitration Minimum Standards, http://www
.jamsadr.com/consumer-minimum-standards.
---------------------------------------------------------------------------
Of course, arbitrators (like judges) have some discretion
in how to supervise the proceedings--and for good reason: This
flexibility to tailor procedures to the needs of a particular
case not only makes arbitration efficient, but also prevents
consumers or employees from being tripped up by the sort of
procedural errors that often lead to dismissal in court.
Existing law already provides strong protections against
the imposition of unfair procedures in arbitration. The Federal
Arbitration Act vests courts with broad power to invalidate
arbitration agreements that contravene generally applicable
principles of unconscionability.\16\ Thus, an arbitration
agreement that requires the arbitrator to apply markedly unfair
procedures would be invalidated by courts.
---------------------------------------------------------------------------
\16\ See, e.g., AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 343
(2011) (FAA's ``savings clause preserves generally applicable contract
defenses'' to enforcement of arbitration agreements).
---------------------------------------------------------------------------
Finally, the Federal Arbitration Act provides additional
safeguards. Courts may vacate an arbitration award if the
arbitrator is ``guilty of misconduct in refusing to postpone
the hearing, upon sufficient cause shown, or in refusing to
hear evidence pertinent or material to the controversy; or of
any other misbehavior by which the rights of any party have
been prejudiced.'' \17\ Accordingly, in the unlikely event that
an arbitrator excludes such evidence that a consumer or
employee wishes to present, the court can vacate the
arbitrator's award.
---------------------------------------------------------------------------
\17\ 9 U.S.C. Sec. 10(a)(3).
---------------------------------------------------------------------------
4. How realistic is the court system as a means of
providing redress for consumers and employees given the complex
procedures used by courts? Are small claims courts viable
alternatives for consumer claims? How does arbitration interact
with small claims courts?
Our current court system is simply incapable of providing
redress for many of the harms that employees and consumers care
about. Those harms are usually relatively small in economic
value and individualized.
Litigation in court, with its formality and complicated
procedures, simply is not a realistic option for resolving many
of these claims. As the Supreme Court has explained,
``[a]rbitration agreements allow parties to avoid the costs of
litigation, a benefit that may be of particular importance in
employment litigation, which often involves smaller sums of
money than disputes concerning commercial contracts.'' \18\ The
same is true of many consumer disputes. For a very large
percentage of claims, therefore, arbitration is the only
realistic opportunity for obtaining relief.
---------------------------------------------------------------------------
\18\ Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 123 (2001)
(emphasis added).
---------------------------------------------------------------------------
For example, a study of 200 AAA employment awards concluded
that low- income employees brought 43.5% of arbitration claims,
most of which were low-value enough that the employees would
not have been able to find an attorney willing to bring
litigation on their behalf.\19\ These employees were often able
to pursue their arbitrations without an attorney and won at the
same rate as individuals with representation.\20\
---------------------------------------------------------------------------
\19\ Elizabeth Hill, Due Process at Low Cost: An Empirical Study of
Employment Arbitration Under the Auspices of the American Arbitration
Association, 18 Ohio St. J. on Disp. Resol. 777, 794 (2003).
\20\ Id.
---------------------------------------------------------------------------
A key obstacle to pursuing an individualized, small-value
claim in court is the cost of hiring counsel. Unrepresented
parties have little hope of navigating the complex procedures
that apply to litigation in court, yet a lawyer's hourly
billing rate may itself exceed the amount at issue for many
claims. In any event, many individuals do not have the
resources to hire counsel, and those that do often face the
added hurdle of having to locate and retain a lawyer before
even setting foot inside a courthouse.
Meanwhile, many lawyers, especially those working on a
contingency basis, are unlikely to take cases when the prospect
of a substantial payout is slim. Research demonstrates that
lawyers accept contingent-fee cases only if the claim promises
both a substantial recovery--and hence a substantial percentage
of that recovery as a legal fee. Studies indicate that a claim
must exceed $60,000, and perhaps $200,000, in order to attract
a contingent-fee lawyer.\21\
---------------------------------------------------------------------------
\21\ Id at 783. In some markets, this threshold may be as high as
$200,000. Minn. State Bar Ass'n, Recommendations of the Minnesota
Supreme Court Civil Justice Reform Task Force 11 (Dec. 23, 2011),
perma.cc/VJ8L-RPEY.
---------------------------------------------------------------------------
Arbitration empowers individuals because it is possible to
realistically bring a claim in arbitration without the help of
a lawyer.\22\ Although a party always has the choice to retain
an attorney, arbitration procedures are sufficiently simple and
streamlined that in many cases no attorney is necessary. As one
academic observer of employment arbitration has put it, in an
arbitral forum, ``it is feasible for employees to represent
themselves or use the help of a fellow layperson or a totally
inexperienced young lawyer.'' \23\
---------------------------------------------------------------------------
\22\ While one study found that pro se plaintiffs ``struggle'' in
arbitration, see Andrea Cann Chandrasekher & David Horton, Arbitration
Nation: Data From Four Providers, 107 California L. Rev. 1, 52 (2019),
a pro se plaintiff who can afford a lawyer is nonetheless far better
off in arbitration than litigation.
\23\ St. Antoine, supra note 6, at 15.
---------------------------------------------------------------------------
To initiate an arbitration with the AAA, for instance, a
plaintiff need only a brief statement explaining the nature of
the dispute and why she is entitled to relief.\24\ Indeed,
studies show that parties who represent themselves in
arbitration do as well, if not better, than represented
parties. A study by two prominent law professors observed that
in consumer arbitration, ``self-represented plaintiffs were
seven times more likely than represented plaintiffs to get an
AAA arbitrator's decision in their favor''--reinforcing the
authors' conclusion that ``hiring an attorney offers little
value to a [claimant in arbitration] and is often
unnecessary.'' \25\
---------------------------------------------------------------------------
\24\ AA Consumer Arbitration Rule R-2(a).
\25\ Jason Scott Johnston & Todd Zywicki, The Consumer Financial
Protection Bureau's Arbitration Study: A Summary and Critique 25-26
(Mercatus Center at George Mason Univ., Working Paper, Aug. 2015)
(emphasis added).
---------------------------------------------------------------------------
Even when claimants do retain a lawyer, moreover,
arbitration's streamlined procedures mean that the cost to the
claimant is often less than if the employee had brought the
same claim in court. For example, the AAA limits the fees paid
by consumers and employees to $200 for consumers and $300 for
employees--amounts that are less than the filing fee in federal
court.\26\
---------------------------------------------------------------------------
\26\ See AAA Consumer Arbitration Rules, Costs of Arbitration,
https://www.adr.org/sites/default/files/Consumer_Fee_Schedule_0.pdf;
AAA Employment/Workplace Fee Schedule, https://www.adr.org/sites/
default/files/Employment_Fee_Schedule1Nov19.pdf.
---------------------------------------------------------------------------
In sum, ``a substantial number of'' individuals,
``particularly those with small financial claims, have a
realistic opportunity to pursue their rights through mandatory
arbitration that otherwise would not exist.'' \27\
---------------------------------------------------------------------------
\27\ St. Antoine, supra note 6, at 16.
---------------------------------------------------------------------------
Notably, many, if not most, arbitration agreements also
allow a consumer or employee to file a claim in small claims
court as an alternative to arbitration.\28\ Businesses are
amenable to resolving disputes in small claims courts because
those courts are set up to offer parties some of the same
procedural flexibility as arbitration. To be sure, small claims
courts are somewhat less accessible to consumers than
arbitration, given that many have overcrowded dockets. But they
provide an alternative to arbitration for consumers or
employees who personally prefer court litigation to
arbitration.
---------------------------------------------------------------------------
\28\ See Arbitration Agreements, 81 Fed. Reg. 32,830, 32,867 (May
24, 2016).
---------------------------------------------------------------------------
5. Professor Gilles and Mr. Gupta testified that class
actions provide significant benefits to class Members in the
employment and consumer contexts. Does the evidence support
their position?
No. Studies have shown time and again that most class
actions are resolved with no benefit to class Members--the
percentage of class actions resolved in this way was 87% in one
study, 66% in another, and 60-80% in a third.\29\ And even in
the small percentage of cases that settle on a classwide basis,
the benefits provided to individual class Members are usually
paltry.
---------------------------------------------------------------------------
\29\ Consumer Fin. Prot. Bureau, Arbitration Study: Report to
Congress 2015 37 (Mar. 2015), perma.cc/8AX5-AYWN (``CFPB Study'');
Mayer Brown LLP, Do Class Actions Benefit Class Members? An Empirical
Analysis of Class Actions (Dec. 11, 2013), goo.gl/3B27FQ (``Mayer Brown
Study''); Jason Scott Johnston, High Cost, Little Compensation, No Harm
to Deter: New Evidence on Class Actions Under Federal Consumer
Protection Statutes, 2017 Colum. Bus. L. Rev. 1 (2017).
---------------------------------------------------------------------------
Most class action settlements do not involve automatic
distribution of settlement payments to absent class Members.
Settlements therefore routinely require a class member to
affirmatively submit a claim form to receive any settlement
payment. The vast majority of class Members do not file claims
for payment from these settlement funds.
Both the CFPB and the FTC reported a ``weighted average
claims rate'' and ''weighted mean'' claims rate in class
actions of just 4%.\30\ That figure comports with academic
studies, which regularly conclude that only ``very small
percentages of class Members actually file and receive
compensation from settlement funds.''\31\
---------------------------------------------------------------------------
\30\ CFPB Study at section 8, page 30; Fed. Trade Comm'n, Consumers
and Class Actions: A retrospective and Analysis of Settlement Campaigns
11 (Sept. 2019), https://perma.cc/CM66-ZVCX; see also Mayer Brown Study
at 7 & n.20 (in the handful of cases where statistics were available,
and excluding one outlier case involving individual claims worth, on
average, over $2.5 million, the claims rates were minuscule: 0.000006%,
0.33%, 1.5%, 9.66%, and 12%).
\31\ Linda Mullenix, Ending Class Actions as We Know Them:
Rethinking the American Class Action, 64 Emory L.J. 399, 419 (2014).
---------------------------------------------------------------------------
Thus, the available evidence confirms that even in the
small fraction of class actions that settle on a class-wide
basis, most class Members receive no benefit--because they do
not file claims to receive a settlement payment. A recent
empirical study explains that ``[a]lthough 60 percent of the
total monetary award may be available to class Members, in
reality, they typically receive less than 9 percent of the
total.'' The author concluded that class actions ``clearly do[]
not achieve their compensatory goals . . . . Instead, the costs
. . . are passed on to consumers in the form of higher prices,
lower product quality, and reduced innovation.'' \32\
---------------------------------------------------------------------------
\32\ Joanna Shepherd, An Empirical Study of No-Injury Class Actions
2, 5 (Emory Univ. Sch. of L., Legal Studies Research Paper Series No.
16-402, Feb. 1, 2016), perma.cc/TU9R-UDSM.
---------------------------------------------------------------------------
Moreover, class actions typically take significantly longer
to resolve than arbitrations. That means consumers and
employees must wait much longer to obtain relief.
One study found that class actions that actually produced a
class-wide settlement took an average of nearly two years to
resolve.\33\ And that two-year average duration, moreover, may
not even include the time needed for class Members to submit
claims and receive payment after a settlement is reached.
Another study found that 14% of the class actions were still
pending four years after they were filed, with no end in
sight.\34\ Arbitrations, by contrast, have been resolved on
average in three and one-half months.\35\
---------------------------------------------------------------------------
\33\ CFPB Study at section 8, page 37.
\34\ Mayer Brown Study at 1.
\35\ See Cal. Dispute Resolution Inst., Consumer and Employment
Arbitration in California: A Review of Website Data Posted Pursuant to
Section 1281.96 of the Code of Civil Procedure 19 (Aug. 2004).
---------------------------------------------------------------------------
This difference matters in assessing whether and to what
extent class Members benefit because, as one court has
explained, even when a class action actually results in
monetary relief, a long ``delay . . . [can] make the relief
eventually awarded the class worth much less in present-value
terms.'' \36\ A rational assessment of arbitration and class
actions must therefore account for the long duration of class
actions.
---------------------------------------------------------------------------
\36\ Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277, 284 (7th Cir.
2002).
---------------------------------------------------------------------------
In sum, the supposed benefits of class actions are in large
part illusory. And to the extent they are not, any benefits do
not come close to outweighing the advantages of arbitration--in
particular the ability of employees to vindicate many more
claims than they could if required to go to court.
6. Some witnesses suggested that invalidating pre-dispute
arbitration agreements would give consumers and employees a
choice between proceeding in arbitration or filing a lawsuit in
court, and that employees and consumers could then decide which
dispute resolution method they wished to use. Are they correct
that employees and consumers would retain the ability to
utilize arbitration whenever they wished?
Those witnesses are wrong. Without enforceable pre-dispute
arbitration agreements, arbitration would not realistically be
available at all. That is because, as commentators have
recognized, post-dispute agreements to arbitrate are ``rare.''
\37\
---------------------------------------------------------------------------
\37\ Stephen J. Ware, The Centrist Case for Enforcing Adhesive
Arbitration Agreements, 23 Harv. Negot. L. Rev. 29, 31 (2017); see
also, e.g., Scott Baker, A Risk-Based Approach to Mandatory
Arbitration, 83 Or. L. Rev. 861, 895 (2004) (same). One commentator who
examined 301 arbitrations found that only 3.7% arose from post-dispute
arbitration agreements. Christopher R. Drahozal & Samantha Zyontz,
Private Regulation of Consumer Arbitration, 79 10n. L. Rev. 289, 346
(2012).
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The reason is a common-sense one: Once a dispute has arisen
(and perhaps a lawsuit has been filed), the parties have become
adversaries and suspicious of the other's intentions. If one
party then proposes entering a post-dispute arbitration
agreement, the other party inevitably will be skeptical,
fearing that entering the agreement would mean ceding some
advantage. It is only before the dispute has arisen--before the
parties have become adversarial--that parties can readily
contract for arbitration of disputes.
7. Opponents of arbitration sometimes point to the number
of arbitrations as evidence that arbitration does not provide a
realistic remedy. Is that a fair measure of arbitration's
effectiveness?
No. The contention that a large number of consumer or
employee arbitrations is the only proof that arbitration is an
effective method of dispute resolution is just as mistaken as
assuming that a high number of hospitalizations is the only
proof that a health-care system is effective. An effective
arbitration system is one that resolves disputes before
arbitration--just as an effective health-care system forestalls
the need for hospitalizations.
The Supreme Court addressed this issue in AT&T Mobility LLC
v. Concepcion \38\ when discussing AT&T's consumer arbitration
program. As the Court explained, because AT&T must pay the cost
of arbitration and committed itself to ``pay claimants a
minimum of $7,5000 and twice their attorneys' fees if they
obtain an arbitration award greater than AT&T's last settlement
offer,'' AT&T has a powerful incentive to ``immediately
settle[]'' any colorable claim.\39\ In other words, customers
``would be essentially guarantee[d] to be made whole.'' \40\
Under that system, informal settlements before the filing of an
arbitration demand are common and disputes that go all the way
to arbitration are relatively rare, because AT&T (and companies
with similar provisions) have powerful incentives to resolve
claims quickly. For example, AT&T has explained that in a
single year, it had provided over $1.3 billion in credits to
resolve customer complaints.\41\
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\38\ 38 563 U.S. 333 (2011).
\39\ Id. at 351.
\40\ Id. (internal quotation marks omitted).
\41\ Laster v. T-Mobile USA, Inc., 2008 WL 5216255, at *3 (S.D.
Cal. Aug. 1, 2008), aff'd sub nom.Laster v. AT&T Mobility LLC, 584 F.3d
849 (9th Cir. 2009), rev'd sub nom. AT&T Mobility LLC v.Concepcion, 563
U.S. 333 (2011).
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8. At the hearing, the view was expressed the companies
``get to choose the arbitrator, the Rule of law does not
necessarily apply, and there is no right to appeal the
decision.'' How do you respond to each of these contentions?
All of these assertions are false, misleading, or both.
First, both parties typically are entitled to participate
in choosing the arbitrator. Under existing law, courts can and
do set aside any arbitration agreement that unfairly allows one
side to pick the arbitrator.\42\ That is because the FAA
authorizes courts to apply ``generally applicable contract
defenses''--including ``uncon- scionability''--to arbitration
agreements.\43\ It is true that the party who drafts the
agreement often identifies an arbitration organization to
administer the arbitration (such as the AAA or JAMS), but that
is not the same thing at all--contrary to the misleading
implications of some of arbitration's opponents. Identifying
the organization that will administer the arbitration is akin
to identifying who will serve as the administrative clerk of a
court; it is not the same as picking a judge.
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\42\ Zaborowski v. MHN Gov't Servs., Inc., 601 F. App'x 461, 463-64
(9th Cir. 2014) (affirming denial of motion to compel arbitration under
agreement that limited remedies and allowed the company to select the
arbitrators).
\43\ Concepcion, 563 U.S. at 339 (quoting Doctor's Assocs., Inc. v.
Casarotto, 517 U.S. 681, 687 (1996)).
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In addition, it is well settled that arbitrators must
follow the same governing law that courts do. In fact, if an
arbitrator deliberately disregards applicable law, the FAA
authorizes courts to set aside the award as an ``exce[ss]'' of
the arbitrator's ``powers.'' \44\ As the Supreme Court has
explained, when an ``arbitrator strays from'' applicable law
``and effectively `dispense[s] his own brand of industrial
justice,''' the arbitrator's award is ``unenforceable.'' \45\
To be sure, parties might disagree about whether an arbitrator
properly interpreted the law or applied the law to the facts
correctly. But the same is true of lawyers who lose a decision
in court; one side or another often thinks that the judge got
it wrong.
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\44\ 9 U.S.C. Sec. 10(a)(4); see also, e.g., Oxford.
\45\ Major League Baseball Players Ass'n v. Garvey, 532 U.S. 504,
509 (2001) (quoting Steelworkers v. Enter. Wheel & Car Corp., 363 U.S.
593, 597 (1960)).
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Finally, the assertion that there is no right to appeal an
arbitrator's decision is overstated. Although judicial review
of arbitral awards is limited, the FAA empowers courts to set
aside an award in four circumstances: (1) If it was ``procured
by corruption, fraud, or undue means''; (2) if ``there was
evident partiality or corruption in the arbitrator[]''; (3) if
the arbitrator was ``guilty of misconduct in refusing to
postpone the hearing, upon sufficient cause shown, or in
refusing to hear evidence pertinent or material to the
controversy; or of any other misbehavior by which the rights of
any party have been prejudiced; or (4) if the ``arbitrators
exceeded their powers,'' such as by manifestly disregarding the
law.\46\
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\46\ 9 U.S.C. Sec. 10(a).
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9. Many at the hearing referenced the question of
``secrecy'' in arbitration. Is arbitration truly a secret
process? To the extent that arbitration may be shielded from
public view, how can Congress best address the confidential
nature of any proceedings?
No, arbitration is not a ``secret'' process. As discussed
above (in response to question 1), courts consistently
invalidate arbitration agreements that impose any kind of
secrecy requirement on individual consumers or employees--the
only realistic exception in that context is one-off arbitration
agreements with highly-paid, high-ranking executives or similar
employees.\47\
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\47\ See notes 1-3, supra.
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Arbitration claimants are free to discuss their claims
publicly and to report alleged wrongdoing to law enforcement
officials.\48\ If an arbitration agreement purported to impose
a ``gag order,'' that restriction would almost certainly be
invalidated in court.
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\48\ See, e.g., Christopher C. Murray, No Longer Silent: How
Accurate are Recent Criticisms of Employment Arbitration, 36
Alternatives to the High Cost of Litigation 65, 78 (2018).
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State laws also require disclosure of arbitration outcomes
by arbitral forums such as the AAA,\49\ and courts consistently
hold that the results of arbitration proceedings may be
disclosed by either party.\50\
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\49\ E.g., Cal. Code Civ. Proc. Sec. 1281.96.
\50\ Courts have invalidated on unconscionability grounds
arbitration agreement provisions requiring that outcomes be kept
confidential. See note 1, supra; see also Larsen v. Citibank FSB, 871
F.3d 1295, 1319 (11th Cir. 2017).
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In short, as a leading law professor explained, ``under
U.S. law, the privacy of arbitration typically does not extend
to precluding a party's disclosure of the existence of the
arbitration or even its outcome. Instead, it means that non-
parties can be excluded from the hearing and that the
arbitrator and arbitration provider cannot disclose information
about the proceeding.'' \51\ Because existing law already fully
addresses criticisms of the purportedly ``secret'' nature of
arbitration, congressional action on this point is unnecessary.
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\51\ Christopher R. Drahozal, FAA Preemption After Concepcion, 35
Berkeley J. Emp. & Lab. L. 153, 167 (2014). The American Arbitration
Association's rules provide that ``[t]he arbitrator and the AAA shall
maintain the privacy of the hearings unless the law provides to the
contrary.'' Am. Arbitration Ass'n, Commercial Arbitration Rules and
Mediation Procedures 31 (Apr. 1, 1999), perma.cc/5U92-5PQF. This Rule
applies only to the hearings themselves; nothing in the rules requires
that the outcome be kept confidential.
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10. Professor Gilles testified that ``forced arbitration
strips us of our legal rights,'' particularly when class action
waivers are present. Specifically, it was claimed that, if
individuals cannot bring a class or collective action,
employees will be disincentivized to pursue small class-wide
claims because ``the game isn't worth the candle,'' and ``the
employee rationally abandons their claim.'' How do you respond
to that contention?
I disagree, for two reasons. First, there are many claims
that employees and consumers have that could not be brought as
class actions because they turn on facts specific to the
particular individual's situation. In those cases, arbitration
expands, rather than restricts, employees and consumers' access
to justice, by providing them with a cost-effective means of
bringing their claim that is simply not available in court.
Second, even for claims that theoretically could be
prosecuted as part of class actions, it is simply not true that
class actions are the only means of pursuing those claims. On
the contrary, as Justice Kagan noted in her dissent in the
Italian Colors case, ``non-class options abound'' for
effectively vindicating legitimate claims in arbitration.\52\
Justice Kagan's dissent (in which Justices Ginsburg and Breyer
joined) expressly recognized that individualized arbitration
enables claimants to vindicate legitimate claims effectively as
long as the arbitration agreement ``provide[s] an alternative
mechanism to share, shift, or reduce the necessary costs''--
which virtually all arbitration agreements do.\53\ Many
arbitration provisions allow for some combination of (i)
incentive/bonus payments designed to encourage the pursuit of
small claims, and (ii) the shifting of expert witness costs and
attorneys' fees to defendants when the consumer or employee
prevails on his or her claim. And those provisions that don't
include these elements permit ``informal coordination among
individual claimants'' to share the same lawyer, expert, or
other elements required to prove the claim, which Justice Kagan
also found to be sufficient.\54\
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\52\ Am. Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 251 (2013)
(Kagan, J., dissenting).
\53\ Id. at 249.
\54\ Id. at 250.
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11. A question arose during the hearing regarding whether
arbitrators need to be trained in the law, but you did not have
a full opportunity to respond because of time constraints. What
is your full response to that question?
In the context of consumer and most employment
arbitrations, arbitrators are trained in the law. The two most
commonly used arbitration providers in the country, the AAA and
JAMS, both employ arbitrators of the highest caliber, including
former judges and accomplished attorneys. The AAA, for example,
uses a thorough application process to evaluate arbitrators,
selecting only those candidates with substantial expertise and
qualifications.\55\ There is no basis for suggesting that cases
in arbitration are being decided by arbitrators who are
unqualified to resolve the dispute.
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\55\ AAA, Application Process for Admittance to the AAA National
Roster of Arbtitrators, https://www.adr.org/sites/default/files/
document_repository/application_process_for_
admittance_to_the_aaa_national_roster_of_arbitrators.pdf.
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The one exception is in the distinct arena of labor
arbitration where, under certain collective bargaining
agreements, some parties traditionally have agreed to have a
non-lawyer experienced in the industry decide the dispute.
Also, in certain industries, it is common to use non-lawyer
specialists to resolve commercial disputes.
But outside those limited exceptions, arbitrators in
virtually all consumer and employment arbitrations are trained
in the law; they are either lawyers, retired lawyers, or former
federal or State judges.
12. At the hearing, it was pointed out that in the Supreme
Court's Concepcion case, AT&T moved to strike down a statute
that permitted class-wide arbitration. It was suggested that
there is an inconsistency between employers' purported
preference for arbitration, on the one hand, but disfavor of
class-wide arbitration, on the other hand. You were unable to
complete your response because of time constraints. What is
your full response to this suggestion?
There is no inconsistency between preferring arbitration
and rejecting class-wide arbitration. That is because
individualized, one-on-one proceedings are a traditional
characteristic of arbitration.\56\ As the Supreme Court has
explained, imposing class-wide procedures on arbitration,
``sacrifices the principle advantage of arbitration--its
informality--and makes the process slower, more costly, and
more likely to generate procedural morass than final
judgment.'' \57\
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\56\ Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1622 (2018).
\57\ Concepcion, 563 U.S. at 348.
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In traditional individual arbitration, the parties trade
the opportunities for review and procedures of the courtroom
for the swiftness and efficiency of arbitration. Class-wide
arbitration instead takes the worst features of class-action
litigation in court--the expense, burdens, and enormous
stakes--and combines them with the lack of plenary appellate
review.
Individual arbitration provides a better way of resolving
disputes. It avoids the costs and burdens of the class-action
system--which has an established track record of failure--while
providing consumers and employees who have real disputes with a
realistic opportunity to pursue their claims and achieve simple
and inexpensive access to justice.
[all]