ARBITRATION ANNULMENT ACTION NEEDED

In September and October, I wrote articles describing the dangers that are inherent in corporate America’s ability to impose arbitration on the consuming public. I pointed out that the power of dispute resolution is vested in the courts and that when dispute resolution is privatized, the public is deprived of its right to know.

On December 14, 2015, the United States Supreme Court decided the case of DIRECTV v. Imburgia, which deals with arbitration. DIRECTV had entered into a contract with all its customers that contained an arbitration clause. The arbitration agreement also contained a provision that if the law of the customer’s state outlawed a waiver of the right to bring arbitration on behalf of a class, then the contract of arbitration would be unenforceable.

The case arose in California. A statute in California provided that a waiver of the right to a class action contained in an arbitration agreement was unenforceable. Based on this statute, California courts held that the arbitration agreement was void. Seemingly, the California court followed the precise wording of the contract. However, the United States Supreme Court, decided that the California statute which purported to make waiver of the right to a class action unenforceable was itself pre-empted by federal law and was, therefore, unenforceable. Therefore, the Court reasoned, the arbitration agreement was enforceable. The result would appear to be that, regardless of how many small claims presenting identical issues against DIRECTV there might be, the California consumers would each have to maintain his or her own separate arbitration proceeding in order to gain relief. That result, of course, undermines any possibility of meaningful relief, despite the fact that DIRECTV may have been charging thousands of customers small amounts of money inappropriately.

This case is the very type of case that class actions, which are authorized by both federal and state law, were intended to remedy. The undesirable result does not appear to have been necessary. The clause in the contract that provided that the arbitration agreement was invalid if waiver of class arbitration were illegal appears to be a meaningful clause. The Supreme Court itself admitted that at the time the form contract was created, the parties would have believed the California law barred waivers of class arbitration: “…when DIRECTV drafted the contract, the parties likely believed that the words “law of your state” included California law that then made class-arbitration waivers unenforceable.” However, because our Supreme Court decided that arbitration is a matter of national policy, under no circumstances could there be any state in which such a clause would be valid. Thus, the provision in the contract was rendered completely null. It is not clear why the United States Supreme Court did not cite the Constitutional provision protecting contracts and say that even though California law has been pre-empted by federal law, the parties contracted to follow it. For the Supreme Court not to honor that contractual provision violates the provision of the United States Constitution that protects contracts.

The legal issues involved in this matter could be argued either way. However, when it comes to the underlying policies, it does not appear to this retired country judge that any wise policy supports the result reached by the Court. Sound law is always based on sound policy. To say that a large corporation can do whatever it wishes to numerous customers, and the remedy of a class action not be available, either in court or in arbitration, because there is an arbitration agreement, and because consumers have waived that right to a class action, is a very bad decision that simply tramples the rights of ordinary people into oblivion.

To their everlasting credit, three of the Justices—Thomas, Ginsburg, and Sotomayor—recognized the problems with the decision in a scathing dissent: “It has become routine, in a large part due to this Court’s decisions, for powerful economic enterprises to write into their form contracts with consumers and employees no-class-action arbitration clauses. *** These decisions have predictably resulted in the deprivation of consumers’ rights to seek redress for losses, and, turning the coin, they have insulated powerful economic interests from liability for violations of consumer-protection laws.”

It is time for Congress to severely restrict the Federal Arbitration Act and to require the courts to resolve disputes and protect the rights of all the citizens of the United States of America. If that is not the law, then the Supreme Court needs to remove the words Equal Justice for All from its building.