Arbitration Clauses- Losing Your Constitutional Right to Trial By Jury



The Seventh Amendment to the United States Constitution guarantees all citizens the right to trial by jury in suits at common law. Unfortunately the United States Supreme Court has been chipping away at this constitutional right over the past few years, depriving more and more people of their access to the judicial system.  Instead litigants are being required to seek their legal remedies through arbitration.

Nearly all of us have signed a document stating we agree to resolve certain disputes through arbitration.  But very few of us are aware of it.  If in doubt, just pull out a credit card agreement and read the small print.

Many Supreme Court cases have imposed increasing limits on access to the courts over the past few decades, but three recent cases have gone much further.  The ever widening trickle of water coming through the broken dam has become an unstoppable torrent.

In Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 406, 130 S. Ct. 2772 (2010), an employee had to sign an employment agreement that contained a broad arbitration clause.  It covered all past, present and future claims arising out of his employment agreement, including claims for discrimination and violations of any federal law.  It also gave the arbitrator exclusive authority to resolve any question of the applicability, enforcement or formation of the arbitration agreement itself

Antonio Jackson left his employment and later brought a discrimination suit against his former employer.  He claimed the arbitration agreement was unconscionable and therefore unenforceable, which entitled him to pursue his claim in court.  Rent-A-Center moved to compel arbitration under the Federal Arbitration Act.  The lower court agreed with Mr. Jackson, but in a 5-4 decision the Supreme Court reversed.

The High Court said arbitration was a matter of contract and had to be enforced on its terms the same as any other contract.  Examining the terms of the arbitration agreement, the Supreme Court determined that whether arbitration was enforceable was a matter for the arbitrator to decide, not the courts.

The four dissenting justices argued that there might not have been an arbitration agreement to which both parties agreed by contract.  This was shown by Mr. Jackson’s claim that the agreement was unconscionable.  They noted that under these circumstances the issue of unconscionability was a matter for the courts, and not the arbitrator, to decide.

Next came AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S. Ct. 1740 (2011), another 5-4 decision.  Vincent and Liza Concepcion had a cell phone contract with AT & T.  As part of the contract they were supposed to receive a free phone, but they later discovered they were paying a small monthly fee for the phone,

Their contract with AT & T contained an agreement that required arbitration of all disputes between the parties.  Further, the parties could only seek arbitration in their individual capacities and not as members or representatives of any class.  A T & T was also specifically permitted to make unilateral changes to the arbitration agreement, which it did on several occasions.

When the Concepcions discovered they were paying a small monthly fee for their “free” telephone, they initiated a class action suit against AT & T for false advertising and fraud.  AT & T moved to compel arbitration, which the lower courts denied.

But once again the Supreme Court reversed, stating that arbitration was a matter of contract between the parties to be enforced according to its terms.  The Court decided that the class action suit, brought under state law, conflicted with federal law, and the Federal Arbitration Act prevailed.  Because the parties had contracted for arbitration under the federal law, courts were required to honor the parties’ expectations,

The four dissenting justices found that section 2 of the Federal Arbitration Act specifically permitted state law class action suits to proceed in these circumstances without the necessity for arbitration.

The dissent also noted that the Federal Arbitration Act, enacted in 1925, was designed by Congress as a method of alternative dispute resolution for merchants who had roughly equal bargaining power.

Finally we have American Express Co. v. Italian Colors Restaurant, 570 U.S. ___, 133 S. Ct. 2304 (2013).  Justice Sotomayor took no part in this case, so it was a 5-3 decision.  In that case the merchants paid a higher fee to American Express, and they brought a class action suit claiming their contract with American Express violated federal antitrust laws.

Noting again that the parties had contracted for arbitration, the Supreme Court ruled that the federal antitrust claim was to be decided by the arbitrator, and not the courts.  The Court stated that the only exception to arbitration would be an explicit congressional command to the contrary.

The dissenting justices noted that the parties were being sent to arbitration under the very contract that was alleged to violate the federal antitrust laws.

These three cases establish that if there is a contract for arbitration, it will be enforced.  If there is a question whether the claim is proper for arbitration, the arbitrator will decide, and not the courts.  State and federal laws regarding the enforcement of contracts or any other claims related to the parties’ contract will also be decided in arbitration and not by the courts.

According to a recent series of articles by the New York Times (for links to the articles, see below), use of arbitration clauses in contracts with consumers has proliferated as a result of these decisions.  They are now being used for online shopping, banking, all types of loans, nursing homes, funeral homes, car rental, private schools and even contracts with physicians to perform medical services.

The Times also noted that arbitration has replaced the courts for a variety of claims.  These include medical malpractice, sexual harassment, hate crimes, all types of discrimination, theft, fraud, elder abuse and wrongful death.

The important question is:  what is the problem with arbitration?  How does it affect us?  Procedurally, arbitration hearings are secret, courts cannot intervene, there is no discovery, the rules of evidence do not apply, and the decision cannot be appealed.  So if we are treated unfairly in arbitration, we have no recourse.

According to the New York Times, the rules of arbitration favor the companies that create the contracts, not the consumers, and companies can even send the claims to friendly arbitrators.

Arbitration contains a built-in bias against consumers.  Based on interviews with arbitrators, the Times found that arbitration is a business, and arbitrators want to be hired again.   The way to do that is to establish a friendly rapport, including a favorable record, with the companies that will hire them again.  Of course that means ruling against the consumers.

The United States Supreme Court has taken away our Seventh Amendment right to trial by jury.  They have replaced it with a system of arbitration that is designed to deny claims of consumers.



New York Times Articles:

Arbitration Everywhere, Stacking the Deck of Justice, Oct. 31, 2015

In Arbitration, a ‘Privatization of the Justice System’, Nov. 1, 2015