States have final say in binding arbitration clauses

In this current Supreme Court, you’d expect many rulings to favor corporate interests, especially when lawsuits are involved. For at least one day, though, they ruled in favor of the consumer and their ability to file suit collectively against a company. On Tuesday, an appeal brought by T-Mobile was rejected. The case involved binding arbitration, a clause inserted into many consumer contracts, most notably for cell phone service.

When you sign a cell phone contract, you might not read it over. You’re missing out on one of the most oppressive practices in business. Simply, binding arbitration means you waive your right to a trial by jury, and thereby relegate your claim to an arbitration hearing between you and the company. This removes the rights of consumers to band together and file class action lawsuits.

The first problem with binding arbitration is its very process. The company in question hires an arbitration board to hear the case. Now, say that line again in your head: The company in question hires an arbitration board to hear the case. Clearly, there are some conflicting interests there. How can an arbitration board, whose very salary is paid by the company, rule in favor of the consumer? If they did that on a frequent basis, they wouldn’t be rehired by the company. And you know what they say: Your best customer is a repeat customer.

Second, it allows corporations to flex their legal muscles against a single consumer, rather than a band of consumers. People are simply not as strong as corporations. They don’t have the legal expertise nor the capital to fight a claim tooth and nail. At some point, it isn’t worth it. So companies wind up bullying their opponents in arbitration.

The proof is in the results. According to one study, companies win 95 percent of arbitration cases. Another has the number at 96 percent. So in the end, consumers get screwed by these clauses — though Roger Haydock, managing director of Arbitration Forum, thinks that the same results would come from litigation:

“Every published study and all empirical data indicate consumers prevail at a rate that is greater than or equal to litigation, where similar subject matter is at issue. Evaluating arbitration outcomes is only meaningful in comparison with court outcomes of similar cases.”

If this sounds a bit disingenuous, it is. In 2006, class action settlements were up 37 percent, despite a lower number of filings. Also, you’ll have to look at Haydock’s definition of “prevail,” since most class actions settle before a judgment is made.

Ah, yes, the ruling. The Supreme Court upheld a federal court ruling that state arbitration laws can preempt federal arbitration laws. This means that in states with favorable consumer laws — e.g., California — you might not be bound by the arbitration clause in your contract. Hopefully, we can get all states to operate in this manner. No longer should we be forced to throw away our Constitutional right to a trial by a jury of our peers.