Mandatory arbitration provisions, contractual clauses which prevent consumers from exercising their right to a jury trial or pursuing claims on a class basis, have become an unavoidable trap over the last several years. Powerful corporations bury these provisions in their form adhesion contracts, which consumers must agree to in order to obtain most of the goods and services necessary to function in today’s society—including cell phone service, access to the internet, etc. The New York Times recently conducted an in-depth investigation into forced arbitration, describing the process as “stacking the decks of justice.” The Times’ investigation showed that arbitration “rules tend to favor businesses” and that “judges and juries have been replaced by arbitrators who commonly consider the companies their clients . . . .” Perhaps unsurprisingly then, a recent poll conducted by the Defense Research Institute, a group of lawyers who earn their living by defending corporations, shows that Americans are “lopsidedly resistant” to forced arbitration, with approximately 74% of respondents calling these kinds of provisions “unacceptable.”
Despite the overwhelming public sentiment against forced arbitration, SCOTUS has issued a series of opinions which collectively dismantle consumer protections designed to counter lopsided arbitration clauses. Most notable amongst these opinions is AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), in which the Court held that the Federal Arbitration Act preempted state court precedent that would have protected consumers against a class-arbitration prohibition clause. SCOTUS doubled down on this position two years later in Am. Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2310 (2013), holding that anti-class arbitration provisions are enforceable even if the aggrieved consumers “have no economic incentive to pursue their . . . claims individually in arbitration.”
This week, SCOTUS once again expanded its mandatory arbitration jurisprudence in DirecTV, Inc. v. Imburgia, et al., 577 U.S. _____ (2015). The plaintiffs in Imburgia were allegedly charged early termination fees which violated California law. They subsequently filed suit on behalf of themselves as well as all other similarly situated individuals residing in the state of California in 2008. Significantly, while the DirecTV service agreement contained an arbitration provision, it also specified that the clause did not apply if the “law of your state” makes the waiver of class arbitration unenforceable. California law does just that—both California Supreme Court precedent as well as specific provisions contained in the California Consumers Legal Remedies Act prevent the enforcement of the kinds of provisions contained in the DirecTV service contract. In fact, DirecTV candidly admitted that California law prevented it from enforcing the class arbitration clause at the time the lawsuit was filed. Id. at 4 (Ginsberg, J., dissenting).
So, one might wonder, if California law prevents the enforcement of the class-arbitration prohibition at issue, and if the contract specifically states that the clause will have no effect if it is unenforceable under the law of the plaintiff’s state, what is the issue? Well, according to DirecTV, the fact that state law prohibits the enforcement of the provision no longer matters in light of Concepcion, which was decided several years after the contract at issue was drafted and signed, and after the lawsuit itself was filed. The majority opinion authored by Justice Breyer agrees with DirecTV, despite acknowledging “that 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.” Id. at 7.
Justice Ginsberg pulls no punches in her dissenting opinion which sharply criticizes both the particular result in Imburgia, as well as the overall effect of the Court’s recent arbitration cases. As she explains, “[t]hese 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.” Id. at 11 (Ginsburg, J., dissenting). Moreover, “[b]ecause consumers lack bargaining power to change the terms of consumer adhesion contracts ex ante, the providers have won the power to impose a mandatory, no-opt-out system in their own private ‘courts’ designed to preclude aggregate litigation.” Id. (citations and quotations omitted).
Justice Ginsberg’s dissenting opinion was joined by Justice Sotomayor. Justice Thomas authored his own dissenting opinion, succinctly stating that he believes the FAA simply “does not apply to proceedings in state courts,” and as such the California Court of Appeal’s judgment should be affirmed. Id. at 1 (Thomas, J., dissenting).
We fully agree with Justice Ginsberg’s dissenting opinion, and will continue to monitor and report on new developments pertaining to forced arbitration and consumer rights. Although the recent arbitration opinions leave little room to hope for relief from SCOTUS, the Consumer Financial Protection Bureau recently announced a proposal to prevent companies from injecting arbitration clauses into certain financial products. This is a positive step forward, and we hope other regulators and legislators will follow suit to ensure that all consumers have access to effective recourse through the civil justice system.
In the meantime, consumers bound by arbitration clauses still have the option to pursue direct, independent arbitration claims under state consumer protection laws, including Florida’s Deceptive and Unfair Trade Practices Act (“FDUTPA”). Notably, FDUTPA and many similar statutes allow consumers to recover their attorney’s fees if they successfully show that a corporation defrauded them.