Liberals upset arbitration is torpedoing frivilous class action lawsuits


The Times had a long article describing how consumer contracts with arbitration clauses are preventing consumers from suing companies in class action lawsuits.

By inserting individual arbitration clauses into a soaring number of consumer and employment contracts, companies like American Express devised a way to circumvent the courts and bar people from joining together in class-action lawsuits, realistically the only tool citizens have to fight illegal or deceitful business practices.

Over the last few years, it has become increasingly difficult to apply for a credit card, use a cellphone, get cable or Internet service, or shop online without agreeing to private arbitration. The same applies to getting a job, renting a car or placing a relative in a nursing home.

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In 2014 alone, judges upheld class-action bans in 134 out of 162 cases.

So what are these cases about? Quite often, very small sums of money.

One federal judge remarked in an opinion that “only a lunatic or a fanatic sues for $30.”

Daniel Dempsey of Tucson admits he might be both. He has spent three years and $35,000 fighting Citibank in arbitration over a $125 late fee on his credit card. Mr. Dempsey, who previously worked in Citi’s investment bank, said the erroneous charge ruined his credit score, and he vowed to continue until he was awarded damages.

In 2010, the Supreme Court agreed to hear a case. In AT&T v. Concepcion, customers said the company had promised them a free phone if they signed up for service, and then charged them $30.22 anyway.

Once again, the ruling involved the California courts and their rejection of a class-action ban as “unconscionable.

Going to court over $30? Really? You see, because these cases involve small sums of money, no rational consumer would ever sue one on one. But in a class action lawsuit, the consumer pays nothing for the lawsuit, so there is an overincentive for people to sue.

At Italian Colors, a small restaurant tucked in an Oakland, Calif... the restaurant’s owner and chef, Alan Carlson... sued American Express on behalf of small businesses over steep processing fees. The fees — 30 percent higher than Visa’s or MasterCard’s — were hurting profits, but the restaurants could not afford to turn away diners who used American Express corporate cards.

So what is the problem? If he doesn't like their fees, no one is forcing him to accept American Express. Since he can't get AmEx to do business with him on terms he likes, he wants to extort them to change their rates with a class action lawsuit.

Meanwhile, in many class action lawsuits the lawyers get millions while each plaintiff gets close to nothing.

...the chamber also criticized so-called coupon lawsuits that generated big paydays for lawyers and little money for consumers. In one, against a television manufacturer accused of selling sets with fuzzy pictures, plaintiffs each received $25 or $50 coupons while their lawyers collected $22 million.

There are consequences to class action lawsuits--they raise the cost of doing businesss, and businesses have to raise prices for consumers to pay millions to lawyers. Lodging lawsuits over $30 is a waste of every one's time.

If a company is truly doing terrible things, people will hear about and stop buying from it. The market works. The Times is whining about the lack of justice for people who want their $30 or want to force a company to change its policies. In most cases arbitration is far more appropriate, unless the matter at stake involves thousands of dollars or negligence or physical injury.

(Abridged version originally published in AT)



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