Small type, big damage

It is one of the basic rights of all Americans, enshrined in the Seventh Amendment of the Constitution, that in any civil dispute, we are entitled to a trial by jury. This right is significantly compromised these days, however, by the pervasive use of binding arbitration agreements by corporations that sell products to consumers. This practice has become so pervasive that in certain industries and in certain consumer transactions, trial by jury is a thing of the past.

A typical arbitration agreement will require any dispute to be resolved out of court by a third-party lawyer, whose decision is final. These agreements are written by corporations and designed by them to create a system for resolving disputes that is more favorable to them than the system designed by the men who wrote our constitution. 

In addition to the countless personal wrongs that go unaddressed, this systemic change undermines our society’s goal to hold corporations accountable for their actions.  The free-wheeling excesses of the last decade that led to a housing-market bubble and financial chicanery, and eventually the worst recession since the 1930s, may have been avoided had we maintained our traditional methods of holding corporate entities accountable for their behavior.

The standard defense of these agreements is that a contract is a contract, and people should not sign if they are not willing to abide by it. However, these agreements run into the same problems as any “adhesion” contract — that is, a contract in which one party dictates the terms, and the other party has no option to negotiate. The party that has authored the contract is typically a large corporation whose lawyers have carefully crafted the agreement to make the terms most favorable to them, yet seemingly benign. 

The language is often highly technical and legalistic, and is generally presented as a standard boilerplate document that is necessary to complete the transaction. Moreover, the practice is so standard in certain industries — such as car dealerships, credit cards, and cell phones — that it would be practically impossible to avoid such agreements unless a consumer chose to go without those goods.

Thus, while signing the contract is always optional for the consumer in theory, the practice is that such agreements are routinely signed, whether they are understood or not.  Have you read and understood all the terms of your credit-card agreement or cell-phone contract? If not, what are the chances that a less sophisticated consumer has, much less people for whom English is not their primary language?

Arbitration denies consumers some of the fundamental rights guaranteed by jury trial. One of the hallmarks of the jury system is a trial by your peers — neutral individuals from the community selected at random to provide an impartial assessment of the dispute. Arbitration clauses often specify the arbitrator, and naturally, one favored by the corporation. In one notorious case last year, one of the most prominent arbitration providers, the National Arbitration Forum, agreed to stop handling credit-card disputes after it was sued by the Minnesota Attorney General, who found that NAF was “not an independent company” and one with “extensive ties to the debt-collection industry.”

These arbitration agreements also help industries avoid the types of lawsuits that are most likely to hold them accountable for significant harm. They typically ban class-action cases, the type of high-impact litigation that is most likely to lead to reform of abusive practices. Arbitrations are held in secret, rather than open court, and require the parties to keep the proceedings confidential, so abuses that are revealed cannot be discovered and scrutinized by the public or the media. These features — in addition to high fees charged by arbitrators, limitations on discovery, and the lack of an appeal process — help companies ensure that their exposure to wrongdoing can be limited to a cost of doing business rather than exposed and punished in such a way that they will be forced to stop the wrongdoing.

One pernicious use of binding arbitration agreements is in the employment area.  Recently, Congress passed a law that will withhold defense contracts from companies if they force binding arbitration on employees for complaints related to workplace sexual assault, battery, and discrimination.  This law was passed in the wake of the scandal involving Jamie Leigh Jones, in which she was gang-raped by employees of Halliburton in Iraq, held in a shipping container, and denied medical treatment. Halliburton tried to avoid a court trial, where they would be judged by ordinary citizens and held up to public scrutiny, by enforcing a binding arbitration agreement that was a condition of her employment.

Despite the harm to consumers, employees, and society, Texas jurisprudence favors arbitration agreements over trials as a means of resolving disputes. The general rationale is that it lightens the burden on the courts, and we would prefer that individuals resolve disputes themselves rather than relying on the court system. However, while this is a good rationale for encouraging mediation — non-binding dispute resolution in which a third party facilitates negotiation between the litigants — it does not support binding arbitration,which wholly preempts the court process, is heavily tilted to corporations over consumers and employees, and involves the waiving of fundamental rights.

Many people who feel they have been wronged want more than anything their “day in court.” They want to be heard by an impartial judge or jury and to feel they got a fair shake. By allowing corporations to supplant the traditional trial, we are denying people this most basic right. Equally important, in the name of efficiency, we are failing to recognize the important public role that trials play in society. In addition to resolving individual disputes, they are rituals that demonstrate the dignity afforded to each individual and that serve as ceremonial reminders of our constitutional rights.

My former constitutional-law professor Laurence Tribe wrote that the “rules of trial ... express profoundly significant moral relationships and principles — principles too subtle to be translated into anything less complex than the intricate symbolism of the trial process. ... `These rules` matter not only as devices for achieving or avoiding certain kinds of trial outcomes, but also as affirmations of respect for the accused as a human being — affirmations that remind him and the public about the sort of society we want to become and, indeed, about the sort of society we are.” •

Aaron Haas is a staff attorney with Texas RioGrande Legal Aid. His opinions do not reflect those of TRLA. His next column will appear in the April 21 issue of the Current.

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