Corporations Are Being Forced To Take Consumer Complaints Back To Court After Arbitration Push Backfires Spectacularly

from the the-devil-you-know dept

For years, AT&T worked tirelessly to erode its customers' legal rights, using mouse print in its terms of service preventing consumers from participating in lawsuits against the company. Instead, customers were forced into binding arbitration, where arbitrators, chosen and paid by the companies under fire, unsurprisingly rule in favor of companies more often than not. Initially, the lower courts derided this anti-consumer behavior for what it was, noting that however brutally flawed the class action is, binding arbitration, at least the way we let companies designed it, in many ways made things worse.

But these lower court roadblocks quickly evaporated when the Supreme Court ruled in 2011 (Mobility v. Concepcion) that what AT&T was doing was perfectly OK. While lower courts saw this as an "unconscionable" abuse of consumer rights and the law, the Supreme Court bought into the ongoing myth that binding arbitration is a hyper-efficient, modern alternative to class actions. In reality, it shifted things to a form of binding arbitration that was costly, lopsided, and cumbersome for consumers, and less transparent for those used to visiting Pacer to dig up legal histories.

Fast forward to a few years ago, when a growing number of companies and services (like Fairshake) began streamlining the arbitration process, making it easier and less expensive for consumers (and yeah, class action lawyers). This shifted the balance of power back toward consumers, and starting in 2018 or so companies like Uber, AT&T and Comcast began to complain they were being swamped with arbitration feuds. Now, a year later, even giants like Amazon are being forced to take consumer complaints back to the courtroom, in part because a system they constructed to dodge accountability is no longer helping them do that:

"With no announcement, the company recently changed its terms of service to allow customers to file lawsuits. Already, it faces at least three proposed class actions, including one brought May 18 alleging the company’s Alexa-powered Echo devices recorded people without permission.

The retail giant made the change after plaintiffs’ lawyers flooded Amazon with more than 75,000 individual arbitration demands on behalf of Echo users. That move triggered a bill for tens of millions of dollars in filing fees, according to lawyers involved, payable by Amazon under its own policies."

To be very clear, the existing class action system is broken as well, usually doling out relatively pathetic payouts to impacted consumers, while class action lawyers get new boats. But the premise that the binding arbitration system (at least as implemented) was somehow better, at least in the way we implemented it in the States, has never been true. If you ask lawyers that represent companies like Amazon and AT&T, the fact that folks developed new systems that shifted the balance of power ever so slightly back toward consumers and class action lawyers is seen as terribly unfair:

"It has the potential to be pretty unfair to the company,” said Patrick Bannon, an employment lawyer at Seyfarth Shaw LLP who has represented clients facing mass arbitrations. The arbitration fees put intense pressure on businesses to settle, he said, “whether the claim is valid or not."

But if you ask the folks actually fighting for consumers (and not all of them are ambulance chasers), they see it as fair play:

"Companies thought they were getting out of liability altogether,” by adding arbitration clauses, said Chicago lawyer Travis Lenkner, whose firm filed the majority of the Amazon claims. “Now they’re seeing exactly what they bargained for, and they don’t like it."

In short, corporations (beginning with AT&T) spent the better part of the last decade fighting for an arbitration system that resulted in fewer payouts, fewer successful complaints, and less overall transparency. And while happy about that initially, the second the internet and technology shifted the balance of power in the other direction, they were eager to flee back to the devil they knew. It should be curious to see if other giants like AT&T also begin stripping binding arbitration out of their end user agreements, or if this is just a temporary setback on the path toward less accountability.

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Filed Under: arbitration, binding arbitration, class action, class action lawsuits, consumer rights, consumers