Saturday, November 07, 2015

Free the Law from the secret world of arbitration

A few days ago, I read this fantastic article about an apparent sea change in business in America. It's been over and done for decades, but this change doesn't get much discussion in political discourse. It's the arbitration clause. I know, it seems arcane. But almost all of us have signed a contract with an arbitration clause built in. The article I'm referring to appeared in the New York Times and it's a long, long read, but it's well worth the time. You can find it here, but when you find it, sit down and plan to give up about 30 minutes of time.

The New York Times has done a great piece of investigative work with this article. We see the inception, the history and the nails in the coffin for our rights with most if not all corporations that we sign contracts with. It is a fascinating expose of how business, really big business, has successfully managed to insulate themselves from their customers and their employees.

Reading that article and writing this one, has reminded me of another article, "Why Business is Brain-Dead--and How to Wake Up", on the opensource.com website. That, too is also a fascinating read. Be sure to sit down before you start reading. This one takes awhile, too. It is a discussion of how businesses abuse everyone in small, nickel and dime ways, without really considering the long term consequences of their actions.

Both articles explain a lot about American business culture and provide an interesting diagnosis. But they don't necessarily provide the cure. Beyond getting big money out of elections, I don't know what the cure might also include. I had wondered how American business got so bad, but when I read the NYTimes article, it all became so clear.

If we listen to the business leaders of today, we see men and women who talk a lot about the free market and how wonderful it is. But if we read their contracts, we see that a free market is not really their desire. The arbitration clause is a perfect example of that. Not only do they not want a free market. They want insulation from that market. That's what the arbitration clause is all about.

Let's start from the basis that the Constitution guarantees certain, inalienable rights. The arbitration clause seems to allow large corporations to use their monopoly power to force people to surrender one very basic right: access to the courts to settle claims against them. In other words, in order to do business with a large corporation, the corporation has decided that you must surrender your right to join a class action lawsuit against them and submit to private binding arbitration.

Without that clause, we have the right to join with a large group of other people to sue a corporation for damages due to a small infraction against many people, like cramming. Cramming is adding charges to a bill or invoice without the customer noticing, or without prior notice. They put it all in the fine print when you sign, so how could you know, right?

With that clause, you're forbidden from forming "a union" of people seeking to litigate for damages so that the costs of litigation do not far outweigh the damages you're seeking. Class action lawsuits can be a very efficient way to resolve the claim, but hey, that's just a bit too efficient for the typical large corporation.

When the business community lobbied for the use of the arbitration clause in their contracts, they were "getting killed" by class action suits especially with a sympathetic jury. When they introduced the clauses in their contracts, lawyers like John G. Roberts (now chief justice of the Supreme Court), told judges that once people see the benefits of arbitration, they will use it. Statistics show otherwise (from the NYTimes article):
"Verizon, which has more than 125 million subscribers, faced 65 consumer arbitrations in those five years, the data shows. Time Warner Cable, which has 15 million customers, faced seven."
If I was a CEO looking to insulate my company from lawsuits, I'd be ecstatic about those numbers. If I was a customer in America looking for good customer service from a monopoly protected from class action lawsuits, I'd be sorely disappointed. Many of us are.

All of this comes at a cost. As businesses become more insulated from their customers and employees, transaction costs increase. Everyone pays except for the top 1%. They're making the money and when you have money, honey, anything is possible. The top 1% can pay for access to the courts denied to everyone else. Since they write the rules, they know the rules and can play the rules in their favor.

American business is brain dead in large part due to the arbitration clause. Removing customer access to the courts is not a free market, either. A free market assumes accountability. There is no accountability with the arbitration clause since the vast majority of arbitration cases are decided in favor of the corporation.

Here is one of the most troubling aspects of the arbitration (from the NYTimes article):
"Thousands of cases brought by single plaintiffs over fraud, wrongful death and rape are now being decided behind closed doors. And the rules of arbitration largely favor companies, which can even steer cases to friendly arbitrators, interviews and records show." (my emphasis)
It's nearly a perfect system if you want to run an unaccountable corporation. Not only do few people use arbitration, arbitration rules favor business and the cases can be steered to a friendly arbitrator just to ensure a favorable outcome against the consumer. The best part? The proceedings are kept secret so no one else knows what the hell is happening. Peers can't compare outcomes to decide if it is even worth the fight.

This is creating a huge pile of private law that Americans must overcome in order to exercise their rights. This is the best evidence yet that corporations are not people. With the arbitration clause, corporations are not accountable, but they can hold people accountable. If one party to a contract is not accountable, then you don't really have a contract. You just have a set of rules that are mandatory for the consumer, not the business.

So, not only are corporations making themselves unaccountable, they have the right of succession, meaning they can go on doing the same thing for generations. They are accumulating power and passing it on to the next generation of lucky kids who get to assume that power. You know, like a dynasty.
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