Paul Bland, Executive Director of Public Justice, Discusses Forced Arbitration Agreements

Many corporations have adopted the practice of putting forced arbitration agreements into the agreements that members of the public must agree to in order to use a company’s products or services. Such agreements foreclose a disgruntled customer from seeking justice in a court, especially through a class action. Paul Bland, Executive Director of Public Justice, discusses these agreements and a recent U.S. Supreme Court decision, DIRECTV, Inc v. Imburgia, and the effect it will have on future arbitration agreements in this interview by Mark Wahlstrom, CEO of Sequence Media Group.

Bland says that, on the face of it, the Imburgia decision looks very limited. It comes after the Supreme Court’s earlier decision in AT&T Mobility v. Concepcion, supporting arbitration agreements and affirming that the Federal Arbitration Act of 1925 preempts any state law to the contrary. DIRECTV included a provision that would eliminate the possibility of a national class action. The user contract also said that if the “law of your state” makes provisions such as this unenforceable, the entire arbitration agreement would be unenforceable. The Supreme Court ruled in favor of DIRECTV and supported the arbitration act.

Bland explains that the Federal Arbitration Act, when it was passed in 1925, was being pushed by the shipping industry and was aimed at commercial to commercial transactions. The point of the statute was to make courts honor arbitration agreements agreed to by the parties to a transaction. The recent use of forced arbitration agreements dates to the 1990s and the lenders who got into trouble with predatory lending practices. By about 2000, all the major credit cards were adopting such agreements. Bland says that it is clear that the 1925 Act was never intended to apply to employment. However, in 2001, by a 5-4 majority, the Supreme Court decided that the Act could cover employment agreements, notwithstanding its legislative history.

Paul Bland

Paul Bland

Bland says that there followed a series of Supreme Court decisions upholding arbitration agreements to be enforced but only on the basis that arbitration will be “just another forum,” that no one would be deprived of rights thereby. When companies began trying to ban class actions in their contracts, many courts were striking down those provisions. Courts were holding that the issue was a matter of state law, not federal law. This all changed in 2011 with the Concepcion decision. Justice Scalia’s opinion held that no-class-action agreements would be enforced even in the fact of evidence “that they would gut the consumer protection laws.” It overturned a couple of hundred decisions, Bland says.

After the Concepcion case came American Express Co. v. Italian Colors Restaurant, another decision by Justice Scalia, that nailed down the idea that the Federal Arbitration Act must be honored, no matter what, including antitrust laws. In the wake of Concepcion and Italian Colors, Bland says, the only way a company can be challenged is if it makes some kind of mistake. These cases are somewhat rare. In general, these clauses are enforceable.

Bland points out that there are administrative entities working to protect consumers. For example, the Consumer Financial Protection Bureau studied agreements created by lenders to see if consumers were being harmed. The agency concluded that the arbitration clauses are harmful to consumers, and it has proposed banning all such clauses. If the CFPB gets its way, these clauses will go away in transactions involving lenders within the CFPB’s jurisdiction. Also, based on an executive order, the GSA and the Department of Labor have passed regulations that no contractor can use forced arbitration clauses on equal opportunity claims. This covers perhaps 25 million employees. The Centers for Medicare and Medicaid is looking at banning the use of arbitration clauses by nursing homes.

The New York Times carried a series of articles detailing “the privatization of the justice system.” Bland believes that the articles will be very helpful. And the television series “The Good Wife” also showed an example involving an online school. The popular culture is beginning to highlight the problem. Bland says that, because of the New York Times articles, “the word arbitration was actually trending on Twitter.” Looking towards 2016, Bland notes that the Supreme Court has one more forced arbitration case involving an employer-employee situation where the arbitration clause had several illegal provisions.

Bland says that things will not change until consumers begin to stand up for their rights and confront companies about abuse of arbitration clauses. Bland notes that the Supreme Court docket for 2016 includes several cases that are aimed at cutting back sharply on class actions. The cases would strip consumers of many rights they now have.

F. Paul Bland, Jr., is the Executive Director of Public Justice. He has been a senior attorney at Public Justice since 1997. As Executive Director, he manages and leads a staff of nearly 30 attorneys and other staff, guiding the organization’s litigation docket and other advocacy. As staff and senior attorney, he was responsible for developing, handling, and helping Public Justice's cooperating attorneys litigate a diverse docket of public interest cases. He has argued and won more than 30 cases that led to reported decisions for consumers, employees or whistleblowers in six of the U.S. Courts of Appeals and the high courts of nine different states. The Legal Broadcast Network is a featured network of Sequence Media Group.