Articles Posted in Arbitration

Have you ever wondered if that bank fee or overdraft charge from your bank was legal? If you tried to challenge your bank in a court of law, chances are you found out you had signed an arbitration agreement, which meant you could not settle the dispute in a court of law. Instead, you had to go through arbitration to accuse your bank of charging illegal fees or mismanaging your money.

If you choose to use arbitration, you have to cover all your legal fees yourself, which can quickly reach thousands of dollars. If you believe your bank has illegally taken funds out of your account, the chances are the amount they took was negligible. Three dollars for an overdraft fee may not seem like much, but for some people it can mean passing on a box of groceries. Even if it’s not much for the individual consumer, if the bank is improperly charging these types of fees to a large portion of its customers, it’s probably making a fortune illegally. Continue reading ›

Any time you do anything online, even it’s just visiting a website, you usually have to agree to the company’s Terms of Service. Because these documents can be pages long and we live in an increasingly time-crunched world, very few people actually read the Terms of Service before checking the “Agree” box. Sometimes this lack of diligence gets people into trouble, but depending on how it’s presented, it could be the company that gets into trouble.

When Gary Sgouros filed a proposed class action lawsuit against TransUnion Corp. for allegedly providing worthless credit scores, the company tried to have the dispute sent to arbitration in accordance with the arbitration agreement contained in its Terms of Service.

Sgouros had paid almost $40 for the credit report in 2013 in the hopes of using it to help him negotiate a loan on a new car he was looking to purchase. But the score provided by TransUnion was higher than the number provided to the car dealership by at least 100 points. Sgouros argues this made the credit score he paid for effectively worthless.

In 2014, Sgouros filed the proposed class action lawsuit in Illinois federal court on behalf of himself and all other similarly situated consumers across the country who purchased a credit score from TransUnion any time since 2012. Sgouros is also seeking to represent a subclass of TransUnion customers in Missouri, his home state. Continue reading ›

Consumer advocate groups have long been saying the inclusion of arbitration agreements in all sorts of contracts, from cell phone agreements to student loan contracts, unfairly benefits corporations while harming consumers. Corporate advocates claim consumers also benefit from these arbitration agreements, which has turned the argument into a bit of “he said/she said” issue, but the Consumer Financial Protection Bureau (CFPB) might be able to put the issue to rest.

The bureau published a report in March 2015 that found that mandatory arbitration clauses benefit companies while harming consumers.

An arbitration clause is an agreement included in a contract that states any dispute between the parties will take place in arbitration, rather than in a court of law. Arbitration is handled by private, for-profit arbitration companies, does not provide an explanation for the ruling, and it prohibits appeals and class actions. Because arbitrators are companies that are in business to make money, they’re not always as neutral as court judges. Although there are some arbitration companies that have a reputation for being fair and unbiased, most of them can be influenced by clients that bring in a lot of business for them, even if they’re not consciously aware of this bias.

Arbitration was designed as a way for businesses to handle disputes between themselves without crowding the courts, but in recent years companies have abused the option for arbitration by including clauses in their contracts with their customers and employees that force all disputes into arbitration. It’s hard enough for an individual to get a fair trial in the courts when fighting a large corporation with vast resources, but the arbitration system makes it considerably more difficult for individuals to get a fair hearing. Continue reading ›

Arbitration agreements have been sneaking their way into all sorts of contracts, from employment contracts to loan agreements. Originally intended to allow businesses or parties to settle complex disputes between themselves more efficiently, many companies have perverted their use so that they can require arbitration whenever anyone at all has a dispute with them, even individual employees or consumers over relatively small amounts of money or in situations where courts are much better suited to resolve the disputes.  The Courts honor freedom of contract principles and allow for enforcement of arbitration agreements so businesses are using them frequently.

Arbitration agreements can have a number of drawbacks for plaintiffs. The first is that they don’t allow class actions, which means individuals with small claims against a company have no way of combining their claims with other people to create one lawsuit large enough to justify the expenses associated with filing a legal complaint.

Arbitration is also private. They are heard and ruled by for-profit companies, not objective judges or juries. Companies that pay for the arbitration, or bring a lot of business to a single arbitrator, are more likely to get a favorable ruling from that arbitrator. There are arbitrators known for their objectivity and fairness, but some corporations retain the right to choose the arbitrator, and when they have the opportunity to choose between one they have a relationship with and one whose ruling may be unpredictable, the company has little motivation to choose the unbiased arbitrator. Continue reading ›

The Federal Arbitration Act was enacted in 1925 in order to allow businesses to settle disputes between themselves in arbitration, rather than in the courts. Arbitration is generally cheaper, faster, and easier, than filing a lawsuit, but businesses have expanded what they consider to be business disputes and now use mandatroy arbitration to settle disputes with their employees and even their customers.

It has become increasingly common for businesses to include arbitration clauses in all their employment contracts, as well as contracts with their consumers for everything from car loans to leases to credit cards. Because contracts are so long, many people don’t read them thoroughly before signing and aren’t even aware they’re signing away their right to sue the company in court in the event of a dispute.  With small purchases such as cell phones or rental cars, the provisions are clearly take it or leave and consumers really have no choice.  But with large purchase such as a car, the consumer has the option if careful to cross out the provision.  Many car dealers may not want to lose the deal over arbitration and are relying on the consumer not reading the contract or knowing the consequence of agreeing to arbitration is giving up the right to go to court.  Arbitrators are often more overly attentive to large corporations and even if they rule in the consumers favor “split the baby” and don’t provide a truly just result that is a more likely outcome if the case had been heard in court. Continue reading ›

 

Companies have been writing more and more contracts for both their customers and their employees, which require any disputes to be settled in arbitration. Companies prefer arbitration over court litigation because the company usually chooses and pays for the arbitrator. As a result, arbitrators generally tend to decide in favor of the company.

Arbitration also bars consumers and their employers from bringing class actions against the company. This is detrimental to the individual’s ability to attain redress for their claims, as many consumers and employees have small individual claims. On their own, they’re not worth the costs of bringing a suit to court, or even arbitration. Richard Cordray, director of the Consumer Financial Protection Bureau, stated that, “there are almost no disputes over amounts less than $1,000.” So, if multiple consumers suffered in the amount of $50 or $100 as a result of a company’s illegal actions, and the consumers are barred from filing a class action, then they have no way of getting compensation for their claims.

When combined, however, they may make a substantial sum, which not only might warrant bringing legal action against the company, but might also send a message to the company and to others that such conduct is wrong and punishable under the law.

Class actions also provide consumers and employees with greater leverage against large companies who are sometimes equipped a team of attorneys. An individual would have a difficult time finding and paying for sufficient representation against such a formidable foe. A class of plaintiffs on the other hand, is much more capable of attaining adequate representation.
Proponents of these arbitration agreements argue that they actually benefit consumers. For example, the U. S. Chamber of Commerce issued a letter to the federal bureau which said that “prohibiting or regulating arbitration would harm consumers more than it would benefit them. … Arbitration is at least as likely, and often more likely, than litigation in court to result in positive outcomes for consumers.”

Such assertions don’t hold up against the statistics, though. A report conducted by Public Citizen in 2007 found that, over a period of four years, in disputes between credit card companies and their consumers, arbitrators sided with the credit card companies 94 percent of the time.
Consumer advocates, on the other hand, have been arguing that any means used to deny people the right to sue or band together in class actions is unfair. The U. S. Supreme Court created much controversy when it ruled in 2011 that businesses such as phone companies, credit card issuers, and cable companies could not legally be barred from including arbitration clauses in their service contracts.

However, the Consumer Financial Protection Bureau also gets a say in the matter. According to the same financial-reform law that created the bureau in 2010, the bureau has the authority to “prohibit or impose conditions or limitations on the use” of arbitration clauses for credit cards, checking accounts, and other financial contracts.

While the federal bureau’s investigation into the legality of these arbitration agreements may mean relief for consumers, it looks like employees will have to wait. Although the National Labor Relations Board had reached a decision which barred arbitration agreements that prohibit class action suits over pay and hours, a federal appeals court recently overturned that decision.

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The United States Supreme Court recently ruled that federal law does not permit a court, based on a finding that individual arbitration is cost-prohibitive for a plaintiff, to strike a class arbitration waiver clause in a contract. American Express Co., et al. v. Italians Colors Restaurant, et al (“AmEx”), 570 U.S. ___, No. 12-133, slip op. (Jun. 20, 2013). The decision builds on prior decisions that have generally affirmed the enforceability of mandatory arbitration clauses, class arbitration waivers, and class action waivers, even in contracts where the bargaining power between the parties is far from equal.

The plaintiffs in AmEx are businesses that accept payments using American Express credit cards. The contract between the plaintiffs and American Express includes clauses requiring submission of all disputes to arbitration and waiving class arbitration procedures. The plaintiffs brought a federal antitrust class action lawsuit against American Express, claiming that the company engages in various monopolistic practices. The defendant brought a motion to compel arbitration under the contract and the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. In response, the plaintiffs offered an economist’s declaration stating that the cost of arbitration for an individual merchant asserting a federal antitrust claim would exceed any possible recovery.

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A putative class action alleging violations of the Fair Credit Reporting Act, 15 U.S.C. §§ 1681 et seq. (FCRA), must be submitted to binding arbitration, according to the court in Collier v. Real Time Staffing Services, Inc., No. 11 C 6209, memorandum opinion and order (N.D. Ill., Apr. 11, 2012). The court found that a clause in the contract between the plaintiff and defendant required both parties to submit any disputes between them to arbitration. On the question of whether the class claims asserted by the plaintiff were subject to mandatory arbitration, the court left it for the arbitrators to decide.

The plaintiff, Darion Collier, submitted an electronic job application to the defendant, Real Time Staffing Services, which did business as SelectRemedy. According to the court’s order, the plaintiff signed an acknowledgment that said his employment with SelectRemedy would begin once he started an assignment for one of its clients, and that it would be on an “at-will” basis. The acknowledgment further said that SelectRemedy could at any time modify the terms and conditions of his employment. Order at 2. SelectRemedy did not hire the plaintiff after reviewing his application, allegedly based on information in his consumer credit report.

The plaintiff filed suit on September 7, 2011, alleging violations of the FCRA on behalf of himself and a proposed class. SelectRemedy filed a motion to dismiss under Rule 12(b)(1) of the Federal Rules of Civil Procedure, asserting that an arbitration agreement signed by the plaintiff with his application precluded the lawsuit. The agreement stated that the plaintiff agreed to submit any disputes to binding arbitration in accordance with the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (FAA). In opposing the motion to dismiss, the plaintiff argued that the arbitration agreement was unenforceable for lack of consideration, that SelectRemedy’s ability to change the terms of employment rendered the contract illusory, and that the arbitration agreement should not cover class claims.

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Since the United States Supreme Court’s ruling on AT&T Mobility v. Concepcion, many consumers across the nation have found it difficult to enforce their right to litigation. The Supreme Court maintained that, since arbitration is a superior means of solving disputes, the arbitration clauses many companies are adding to their consumer contracts are enforceable.
Many consumers disagree. The arbitration clauses which more and more companies are adding to their consumer contracts require consumers to give up their right to litigation. Instead, any dispute must be handled in arbitration. This is unfair to consumers as it prevents class actions, thereby severely decreasing the damages that can be awarded and making it less likely that many consumers who suffered only a small financial loss will pursue their grievance at all. Arbitrations are also handled by a company hired by the defendant, often making it more difficult for prosecuting consumers to get a fair hearing. We stongly advise consumers not sign arbitration agreements when making large purchases for items such as for cars or RVs. In those types of cases consumers have the leverage to say no to arbitration.

Many judges have found their hands tied by this Supreme Court decision and forced consumers into arbitration with the companies with which they signed a contract. The Washington State Supreme Court, on the other hand, has recently ruled in favor of the consumer in Gandee v. LDL Freedom Enterprises Inc. In the first such case to reach the Washington Supreme Court since the Concepcion decision, the Court affirmed the Pierce County Superior Court’s ruling which denied the Defendant’s motion to compel arbitration.

In this case, the defendant, a debt adjusters company, had provided a contract with an arbitration clause which went further than merely requiring arbitration. It also required said arbitration to be handled in Orange County, California, rather than the consumers’ home state of Washington; drastically shortened the consumers’ statute of limitations from the normal 4 years to a mere 30 days; and threatened that, if the consumers sued and lost, they would be responsible for all of the Defendant’s attorneys fees and legal costs.

The Gandees challenged the arbitration clause, saying that it is unconscionable and unenforceable under Washington contract law. The trial court agreed and the Defendants appealed the decision, putting the case before the Washington Supreme Court, which agreed with the trial court.

The Court held that the terms of the arbitration clause were grossly one-sided and existed to discourage potential claimants from accessing their rights due to the heavy cost burden imposed by the clause. While this may seem to fly in the face of the United States Supreme Court Concepcion decision, the Washington Supreme Court does not seem to think so. The opinion reads, “Concepcion provides no basis for preempting our relevant case law nor does it require the enforcement of Freedom’s arbitration clause.”

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Workers’ compensation insurance is a necessary part of doing business for many companies, so the attorneys at Lubin Austermuehle are always on the lookout for emerging legal issues in that area. Our Naperville business attorneys recently discovered a decision rendered by the Appellate Court of Illinois that is significant for current and potential clients who have workers’ compensation insurance agreements that contain an arbitration clause.

All-American Roofing, Inc. v. Zurich American Insurance Company pits Plaintiff All-American Roofing against its Defendant insurer, Zurich American in a lawsuit that arose from alleged unpaid deductibles and retrospective insurance premiums. The five-year insurance agreement was based upon retrospectively rated premiums that required Plaintiff to reimburse Defendant after the end of a policy year for claims that arose during that year. After the fourth year, the policy exchanged the retrospectively rated premiums for a larger deductible. The dispute began when Defendant summoned Plaintiff to arbitration regarding the aforementioned unpaid sums pursuant to a mandatory arbitration clause contained within the parties’ agreement. In response to the arbitration summons, All-American Roofing filed for declaratory judgment along with claims for breach of contract, fraud, and related causes of action. Plaintiff requested that the trial court declare that the mandatory arbitration clause was unenforceable and sought damages for their other claims. The trial court stayed the arbitration, dismissed most of Plaintiffs claims through summary judgment and ordered the parties to arbitrate the remaining issues. Plaintiff then appealed the trial court’s rulings regarding the arbitration clause, contract, and fraud claims.

On appeal, Plaintiff argued that the arbitration clause was added to their policy after the first year of coverage and that the clause constituted a material alteration to the policy’s coverage. Furthermore, Plaintiff argued that the Illinois Insurance Code required Defendant to give notice that it was not renewing the original coverage. Because Defendant failed to give such notice, the arbitration clause did not legally take effect. The Appellate Court disagreed, stating that the addition of an arbitration clause did not constitute a change in coverage, and cited the plain language of the statute for their reasoning. The Court went on to hold that the agreements and subsequent addenda to it for the first two years were valid because the parties lawfully entered into the agreements and there was sufficient consideration on both sides. The Court also upheld the trial courts granting of Defendant’s motion for summary judgment on Plaintiff’s fraud claim because there was not sufficient evidence in the record of fraud nor had Plaintiffs identified any material issue regarding Defendant’s alleged violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The Court held that the arbitration clause was not operative for the final two year of the agreement because Plaintiffs never signed the amended policy documents for those years. The Appellate Court reversed the trial court on this issue because they disagreed with the trial court’s ruling that Plaintiff’s payment and acceptance of coverage signified acceptance of the new terms.

All-American Roofing, Inc. v. Zurich American Insurance Company provides a valuable lesson to business owners who utilize arbitration clauses in their contracts. Namely, this case tells us to read the fine print in any contract before signing it, as you may be getting more (or less, depending on your point of view) than you originally bargained for.

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