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Forced Arbitration – What’s Hidden in the Fine Print

In 2011, Leydiana Santiago was told that she had suffered a miscarriage. She had previously stopped taking her prescribed lupus medication because of its known connection to birth defects. Upon hearing the tragic news, Leydiana resumed her daily dosage.

Leydiana had no way of knowing that her doctor at Lifetime Obstetrics and Gynecology had made an error. Her baby was still alive, and was born later that year with impaired vision and hearing, as well as requiring the amputation of both thumbs.

When Leydiana tried to sue Lifetime Obstetrics and Gynecology for medical malpractice, she learned that she had already signed a contract that banned her from taking the clinic to court.

Instead, Leydiana would be forced to bring her claim before an arbiter chosen by Women’s Care Florida, the health provider that owns Lifetime Obstetrics and Gynecology. When Leydiana attempted a lawsuit, her case was thrown out.

“I have disappointed Thomas Jefferson and John Adams,” wrote the Florida appeals judge that upheld the decision forcing Leydiana into arbitration. “I obey what appears to be the rule of law without any enthusiasm.”

Leydiana was a victim of forced arbitration, a practice that many companies now take advantage of in order to prevent class action lawsuits. Unlike a jury trial, which was designed to give every party a fair shake, arbitrations tend to favor corporations. They take place behind closed doors, their decisions are virtually impossible to appeal, and they are ruled on by a single arbiter whose only incentive is to keep the corporation happy in order to secure more work.

Victoria Pynchon, an arbitrator that works in Los Angeles, concedes that individual plaintiffs are at a disadvantage to the company they are suing. “Why would an arbitrator cater to a person they will never see again?”

Contracts that force arbitrations also act to rule out class action lawsuits, a tool that allows many individuals that have suffered similar damages by a single corporation to bring a lawsuit together. Plaintiffs involved in a class action lawsuit are able to share the discovery costs that might be impossible for a single plaintiff to cover.

In 2009, before forced arbitration clauses became common practice, a series of class action lawsuits alleged that American banks were altering the order in which debit card transactions were processed in order to increase overdraft fees. The banks settled the lawsuit for over $1 billion. In this case, class action lawsuits gave individuals the opportunity to take on powerful corporations in court, and achieve justice.

However, in 2013, the Supreme Court reversed a long-standing precedent by ruling that class action lawsuits could be preemptively banned by forced arbitration clauses. In other words, “the monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse,” wrote Justice Elena Kagan in the dissenting opinion.

As a result of this ruling, at least seven of those banks that were once sued for stealing money from their customers have now written forced arbitration clauses into their contracts. As long as forced arbitration clauses are ruled constitutional, these banks are protected from ever again having to answer to their customers in a court of law.

In the two years since the Supreme Court ruling, thousands of corporations across the country have written forced arbitration clauses into their contracts, including Netflix, Amazon, eBay, DirecTV, American Express, Budget Rent a Car, and Sprint. Most of us have signed contracts with forced arbitration clauses without ever being aware of it.

Without the threat of a class action lawsuit, corporations have few incentives to play by the rules. “Private judging is an oxymoron,” said Anthony Kline, a California appeals court judge, “This is a business and arbitrators have an economic reason to decide in favor of the repeat players.”

Sources: Corkery, Michael and Jessica Silver-Greenberg, “In Arbitration, a ‘Privatization
of the Justice System,’” The New York Times, 1 November 2015.

Corkery, Michael and Jessica Silver-Greenberg, “In Religious Arbitration,
Scripture Is the Rule of Law,” The New York Times, 2 November 2015.

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