Articles

Know Your Rights: The Case Against Arbitration Agreements

by Steven M. Fahlgren, Esq., (904) 845-2255

It was not too long ago that when consumers were cheated by a corporation, they could file a lawsuit seeking a remedy. If the remedy was relatively insignificant compared to the time and money that would be necessary to obtain it, consumers could join together with other consumers and file a class action lawsuit. A class action lawsuit is a lawsuit where relatively few plaintiffs' file a lawsuit on behalf of many class members. Although class action lawsuits have been criticized from time to time, unethical corporations knew that there could be consequences for engaging in illegal behavior. These checks on corporate behavior seem to have diminished with the pervasive use of arbitration agreements.

In theory, arbitration agreements are designed to save resources by streamlining the court process because discovery is limited and the rules of evidence are relaxed. The result reached in arbitration is supposed to equate with the result reached after a jury trial, although the arbitration procedure is thought to be less costly.

Unfortunately, there is a vast difference between arbitration in theory and in practice. In practice, consumers are often forced to pay the costs of arbitration in addition to their attorney's fees and other costs. In the court system, no party has to pay the judge to rule on the merits. In arbitrations, the consumer must often pay administrative fees and arbitrators' fees which can be run into the thousands of dollars. Often times, arbitration provisions require that the arbitration be held in a distant jurisdiction. Others require that the arbitration be held before a tribunal which is paid by the corporation to arbitrate disputes. There may be an inherent prejudice in favor of the corporation which pays the arbitrator a fee to preside over a matter. Some arbitration agreements attempt to shift the risk of the litigation to the consumer even though doing so is contrary to the intent of the legislature when it passed the consumer law in question.

In the age of arbitration agreements, consumers often cannot file class actions to vindicate their rights because many arbitration agreements prohibit joinder of other claims together with the consumer's claims. In addition, the rules of various arbitrators prevent joinder of claims. Therefore, consumers cannot join forces and simply do not have the money to vindicate their own rights without joining together with others. Many consumers faced with the choice between paying thousands of dollars in fees they cannot afford in order to vindicate their rights before an unfair tribunal choose to forgo taking any action. It can be compared to buying a lottery ticket for thousands of dollars in the hopes that the consumer can recover the purchase price of the lottery ticket, plus a few hundred dollars.

As a result of this dynamic, some corporations have not been deterred from engaging in deceptive and unfair practices when it comes to consumers. This has a terrible effect on the marketplace as the unethical corporations of the world swallow others who simply cannot compete because they refuse to engage in unethical behavior. I do not mean to imply that the use of an arbitration agreement means that the corporation has something to hide. But I have seen that those corporations with something to hide almost always use arbitration agreements.

These problems have brought calls for corporate accountability. Some legislation has been passed, additional regulations are being considered, and some criminal charges have been brought. However, the arbitration age means that there are fewer private attorney generals ensuring that unethical business practices are confronted as they occur rather than years after the fact. As a result, good companies have closed their doors or have been swallowed up before something was done to stop deceptive business practices by unethical companies.

I propose two solutions to remedy the problem. First, consumers should not sign arbitration agreements. This is not as simple as one might think because some companies have enforced arbitration provisions stuffed in with phone bills and credit card bills. I question whether our founding fathers viewed the Seventh Amendment right to a jury trial in such a narrow manner.

Second, an amendment should be made to the Federal Arbitration Act outlawing the use of arbitration agreements in consumer transactions, i.e., transactions involving a consumer purchasing goods or services for personal, household, or family purposes. Until this is done, consumers should strike through arbitration agreements and consider going elsewhere if businesses insist that the agreement must be signed in order for the consumer to obtain goods and services.

If something does not change soon, corporations will be able to nail shut the doors on the jury room when it comes to consumer matters. Why should consumer matters be any different from criminal matters and personal injury matters?

I know that some will be skeptical when reading this article and claim that arbitration is necessary to avoid unscrupulous lawyers taking frivolous claims. Those with an understanding of the legal system know that this is not the case. Even before arbitration agreements, very few attorneys took consumer cases because they knew they would never receive a dime unless they win and collected a judgment. Moreover, courts have inherent authority to sanction parties who engage in frivolous litigation. There is also a Florida Statute that was recently strengthened which provides that a party and its attorney may be sanctioned for filing frivolous claims. Finally, there are rules by which one party can make a reasonable offer to settle a matter and if the other party does not settle on those terms, the other party is responsible for the attorney's fees of both parties if it does not prevail.

So, the next time you are faced with a decision as to whether or not to sign an arbitration provision, consider not doing so. By refusing to sign, you may be voting to keep the doors open to the jury room so that unethical corporations may be held accountable when they lie, cheat, or steal. Without such accountability, consumers and reputable businesses will both suffer.