Can Consumers Ever Get Back Their Right to Sue?

JESSICA SPARHAWK—A citizen’s private right to sue is not only a guarantee under the Bill of Rights, it is also a means of protecting a citizen’s other Constitutional rights. Yet, so many things we sign in life force us to sign away our right to sue in court via mandatory arbitration clauses. Consider, for instance, employment contracts, credit card agreements, terms embedded within social media accounts, airline tickets, consumer purchase agreements, and credit monitoring services. More likely than not, if we do not sign the employment contract with which we are presented, we won’t get the job; if we refuse to sign the agreement, the potential employer will easily find a replacement who will sign. If we do not sign the credit monitoring agreement, we risk not being notified of fraudulent activity. All of this is to say that we are strongly incentivized to sign agreements notwithstanding the fact that, by doing so, we surrender our right to sue.

The Federal Arbitration Clause of 1925 was initially said, by lawmakers, to only apply to merchant contract disputes. But the courts have only expanded its breadth to apply to any kind of contract dispute. In 1984, the Supreme Court opined that Congress, by the aforementioned statute, manifested an affinity toward arbitration, and in 2011, the Court ruled that any business can put an arbitration clause in their agreement. In 1992 and 2006, the California Supreme Court and U.S. Court of Appeals for the Seventh Circuit, respectively, gave opinions that gave reverence to arbitration outcomes, even if they were legally incorrect. Arbitrators, for instance, do not have to follow or be well-versed in statutes or case law. After the Wells Fargo incident, in which phony bank accounts were opened, a consumer class-action lawsuit, consisting of consumers who were materially hurt by these fraudulent accounts, was thrown out of court because the consumers had signed a mandatory arbitration clause in their agreements with the bank when they opened their bank accounts.

Why, given that they seem so unfair to consumers, have arbitration clauses prevailed in the courts? Interestingly, many arbitration companies employ judges, who often—after retirement—become private arbitrators with the ability to make up to $10,000 a day, a hefty pay increase as compared to their salary as sitting judges. Furthermore, this is a hefty payment that many consumers and employees cannot and do not pay, but that the employers and companies pay, which then creates pressure on the arbitrators to rule in their favor. In California, a study showed that 94% of arbitration outcomes favor the bank and credit card company. Merchants have the power and resources to continue putting and protecting arbitration clauses in their agreements.

How can consumers get back their right to sue? In 2015, the Arbitration Fairness Act was introduced, which would negate arbitration clauses and then, in 2016, to continue the conversation, the Restoring Statutory Rights Act was introduced, which would not allow an arbitration clause to result in a waiver of a citizen’s statutory right. Both bills have been read by the Senate twice, but progress has stalled, as the bills were referred to the Committee on the Judiciary and no action has been taken since. There is something we, as consumers and lawyers, can do in the meantime: Educate consumers of this mandatory arbitration clause practice and furthermore, of their right to sue.

In 2015, the Consumer Financial Protection Bureau revealed that only 7% of consumers understood that an arbitration clause prevented them from suing a company in court, indicating that upwards of 90% of consumers and employees do not understand the terms to which they agreeing. Additionally, many consumers unknowingly sign away their right to sue. Once consumers realize their right, however, consumers can successfully fight companies and employers, like in the case of the massive Equifax security breach, in which 143 million consumers’ personal data was exposed to hackers. “Even so, the social media backlash grew and Equifax subsequently announced it was completely erasing the arbitration clause from its credit-monitoring agreement….” Furthermore, as we have seen in the past, as the consumer attitude toward arbitration clauses becomes more of a nationwide conversation, eventually the courts and legislatures will follow.

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