If it seems easier lately for companies to add small fees on your bills and harder for you to get your money back, that's because it is.
A Supreme Court decision that was denounced as a “crushing blow to consumers” when it was announced in April has become exactly that, according to lawyers who argue on behalf of alleged victims of corporate cheating. The decision, which upheld corporations’ right to enforce fine-print contact language that compels consumers to waive their right to file lawsuits, is being used to squelch legal cases across the country, they say.
“Defendants are trying to steamroll us out of court with this. We're getting completely shut down,” said David DiSabato, who specializes in consumer law in New Jersey. “… The ruling opens the door for companies to pickpocket $10 at a time from millions of consumers.
As an example, DiSabato told the story of client John Considine of Rutherford, N.J., who found several phantom $10 charges on his Verizon cell phone bill from firms offering ring tones, horoscopes and other services he didn't want. In one case, he couldn't even find out the identity of the company levying the charge. Working with DiSabato, Considine learned that cramming is a common problem, and decided to file a class action lawsuit to get his money back and help others -- many who might not even realize they'd been victims.
But Considine ran right into a brick wall. Only days after the Supreme Court arbitration ruling, Verizon filed a motion to dismiss his case and to compel arbitration. If Verizon prevails, as expected, Considine will never have a day in court, will never be able to discover how many other consumers were hit by the same charges and may never even find out the name of the phantom company. He certainly won't be able to find legal representation for a fight to recover $10 fees, DiSabato said.
"(The Supreme Court decision) gave the telecom companies a license to commit petty theft without ever having to face the consequences," said DiSabato. "The telecom companies get rich by committing theft against consumers on a massive scale, and (the decision) deprives consumers of any meaningful ability to fight back."
Considine's case is among countless others around the country affected by the ruling, known as AT&T Mobility vs. Concepcion. In that case, the Supreme Court ruled that a California law prohibiting waiver of class action lawsuit rights was trumped by the Federal Arbitration Act. Open season was on.
The ruling is fostering decisions that a company's right to enforce arbitration clauses trumps almost every other interest -- and it's falling like a hammer on consumer cases around the country.
That's illustrated by a case decided in June against Matthew Wolf, a captain in the Army Reserve who was deployed in 2007. The Servicemembers Civil Relief Act gives deployed reservists a number of tools to ease their financial burden, including instant relief from car leases and pro-rated refunds of any prepaid leases. Wolf had a dispute with Nissan over prepaid fees he believed should be refunded, but a New Jersey court found in June that it had to choice but to dismiss his case.
"New Jersey precedent notwithstanding, the court is bound by the controlling authority of the United States Supreme Court," the judge wrote.
The ruling shows that court favored arbitration "even if it hindered the policy goals behind the (Servicemembers Relief Act)," lamented the Alliance for Justice, in a blog devoted to chronicling the aftermath of the AT&T decision.
Krystle Bernal had a similar outcome after she sued a private fashion school in 2010, alleging misrepresentations about costs made during high-pressure sales pitches. Bernal's lawyer argued that a lawsuit and comprehensive discovery process, including depositions of employees, were necessary to flesh out accusations of fraud. Colorado federal court judge William Martinez implied he agreed, but concluded that his hands were legally tied and granted the dismissal. The AT&T decision was “a serious blow to consumer class actions and likely foreclosed the possibility of any recovery for many wronged individuals,” he noted in his June ruling.
Hal Rosner has sued car dealers in California on behalf of consumers for decades, often winning compensation after consumers were allegedly misled during sales. He said his entire practice has changed as a result of the AT&T decision.
"Before the decision we had returned millions to consumers, and since very little,” he said. “Every week and most days my law firm finds ourselves dealing with another motion to compel arbitration by a car dealership. ... In a crowded court system with judges angry over budget cuts, Concepcion has become a way for Judges to get rid of cases. ... Without any doubt our world has changed beyond belief."
DiSabato said that as soon as the AT&T ruling was issued, he received motions to compel arbitration in about a dozen cases he was working on, including one where a settlement offer that was withdrawn. The ruling has been particularly fortuitous for telecom companies, he said.
The filings all look the same, as if the corporations' lawyers were sharing blank forms, he said.
"While New Jersey law had previously held arbitration provisions precluding class actions in certain consumer cases to be unconscionable, the United States Supreme Court recently held in the broadest terms that the FAA (Federal Arbitration Act) preempts any state attempt to impose class or representative proceedings on bilateral arbitration agreements and that arbitration provisions such as those at issue here must be enforced according to their terms," Verizon's lawyers wrote in their motion to compel arbitration in the Considine case." Accordingly, this court should stay this case and compel plaintiff to bring his claims on an individual basis in arbitration."
Considine's case revolves around third-party companies that are allowed to place charges on consumer phone bills, a sore subject that was the focus of a recent congressional investigation and hearing. In one of the three phantom charges, a company named “SendMe” claimed Considine signed up for its service while playing an intelligence "I.Q. quiz" online. Considine denies this, but there will be no courtroom airing of the evidence because SendMe has also claimed it has an arbitration agreement in force with the consumer, according to DiSabato. If such agreements are allowed to stand, the door would be open for a new kind of fraud, he argued.
"Our client is a stranger to SendMe, how can he have an arbitration agreement with them?" he said.
In general, Considine argues that Verizon allows third-party firms to use "misleading, oblique or inadequate consent procedures," when they are signed up for $10-a-month services.
The case neatly illustrated the need for class action cases, and the disaster of the Supreme Court ruling, DiSabato said.
"We are being precluded from taking any discovery that would force (Verizon) to identify the third company," he said. "No one would ever file a case for $10 by themselves. And we don't know how many consumers are harmed." He did say that 480,000 Verizon customers in New Jersey are subject to third-party charges like those crammed on his client's bill
Verizon General Counsel Leigh Schachter declined to discuss specifics of Considine’s case while it’s in litigation, but said in general he believed Verizon’s arbitration procedure was the best way to address consumer issues.
“Our point of view is we think Supreme Court decision is the correct one, and we have an arbitration clause that we think is good for our customers,” Schachter said. “We have tried to design the clause in a way to make it as customer-friendly as we can.”
A message left with SendMe was not returned, but the New Jersey Law Journal reported that the firm said it had obtained authorization for the $9.99 charge on Considine’s bill.
Class-action lawsuits for small but common grievances are hardly a panacea. They are notorious for producing so-called coupon settlements, which see a tiny sum – even a $10 coupon – going to consumers while lawyers rack up million-dollar fees. Tort reform advocates have long argued that arbitration is opposed by consumer lawyers only because they stand to lose out on hefty fees.
“In every single one of my cases, my clients would have been better off … with the AT&T Mobility arbitration provision than with what class-action attorneys negotiated for them,” wrote Ted Frank earlier this year. “The media is uniformly describing this case as one of consumers vs. businesses, when it's really one of consumers vs. lawyers trying to protect their monopoly on dispute resolution procedures.”
But arbitration has a spotty record as an alternative. While public information about the proceedings is generally unavailable, data that have emerged show corporations win an overwhelming percentage of cases.
Class action cases offer the added benefit of alerting victims who might not otherwise know they’ve been mistreated by a company – say, they never noticed a $10 monthly ring-tone charge – and compels firms to offer them refunds. Individual arbitration cases do no good for consumers who don’t file them.
Christine Hines, a lawyer for the advocacy group Public Citizen, said the AT&T decision has impacts beyond standard form consumer contracts and annoying fees and surcharges. Binding arbitration agreements have also hit workers who try to sue their employers for unfair or even discriminatory practices. Employment arbitration clauses can be in effect even without a worker’s signature, as soon as an employee begins the terms of employment, she said.
"The Concepcion decision was ill-advised," she said. "I was initially startled by the effect on employment claims. Employment claims are typically based on federal laws. It’s alarming when employees cannot band together to address often company-wide discriminatory or other wrongful practices."
Ed Mierzwinski, head of U.S. Public Interest Research Group, said advocacy groups had warned that the AT&T decision would wreak havoc with consumer lawsuits and would immediately ripple through the legal system.
"This was simply the wrong decision, and as we said at the time, it has become a crushing blow to consumers," Mierzwinski said. “You’re seeing it used everywhere now.”
For years, members of Congress have proposed legislation, such as the Fairness in Arbitration Act, designed to limit companies' ability to enforce fine-print lawsuit bans in consumer contracts. A form of such relief was passed as part of the omnibus Dodd-Frank financial reform bill. The new Bureau of Consumer Financial Protection is compelled to study the issue, and after reporting to Congress, will have the right to restrict arbitration uses by companies. That agency's fate, however -- let alone its ability to complete studies and enforce new rules – is up in the air.
Meanwhile, the legal strategy of divide and conquer – one consumer facing a $10 charge is easy to quiet, while 100,0000 is a massive headache – now appears to be the law of the land.
“In states where arbitration has become the rule, consumers can no longer even get attorneys to help them,” warned Rosner, the auto consumer advocate. “And once (consumers) are sent to arbitration the system is biased against them.”