Arbitration ‘privatizes’justice system in the US

Privatization is one of the three elements (along with liberalization and deregulation) of neoliberal economic globalization that has immensely contributed to mass impoverishment and gross income inequality worldwide.

Now, it turns out that in the United States even the judicial system is being privatized, with class-action litigation increasingly being forced to go into individual private arbitration.

(Class-action litigation, or bringing a collective lawsuit before a court, was one shining feature of the American judicial system. Example: the class-action suit filed in Hawaii in 1994 against the Marcos martial-law regime. Almost 10,000 Filipino victims of human rights violations won a favorable ruling with a $2-billion compensation award – although that ruling has yet to be fully implemented.)

In the past 10 years, thousands of businesses across the US have been judicially allowed to reject such class action, and to use arbitration instead, to create an alternative system of adjudication. In consequence, tens of millions of Americans have lost a fundamental right – their day in court.

Why and how has this tragedy come to pass?

Under the alternative system “rules tend to favor businesses, and judges and juries have been replaced by arbitrators, who commonly consider the companies their clients,” according to a recent investigative report by the New York Times. The Times examined records of more than 25,000 arbitration cases from 2010 to 2014, and interviewed hundreds of lawyers, arbitrators, plaintiffs and judges in 35 states. It found out that of 1,179 class-action suits that companies sought to push into arbitration, judges ruled in their favor in 4 of every 5 cases. In 2014 alone judges favored the firms in 134 of 162 cases.

“This amounts to the wholesale privatization of the justice system. Americans are actively being deprived of their rights,” lamented a New York law professor. A Boston federal judge noted: “This is among the most profound shifts in our legal history. Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”

The Times investigation discloses: “Winners and losers are decided by a single arbitrator who is likely at liberty to determine how much evidence a plaintiff can present and how much the defense can withhold. To deliver favorable outcomes to companies, some arbitrators have twisted or outrightly disregarded the law.”

Worse still, unlike court rulings, arbitrators’ rulings are almost impossible to appeal. Plaintiffs who sought intervention by the courts have almost always lost. The Times quotes a California judge as saying he couldn’t overturn arbitrators’ decisions even if they caused “substantial injustice.”

And why are the courts so constrained to act against arbitrators’ unfair decisions?

The reason is that arbitration as an alternative to court litigation was the outcrop of two US Supreme Court decisions in 2011 and 2013 that “enshrined” the banning of class-action suits in corporate and business contracts. Since then, private firms have avidly inserted – in the fine print of contracts that clients and customers hardly read – arbitration as the sole means to resolve such complaints as medical and funeral services, employment practices, cellphone and utilities charges, banking fees, etc.

Both rulings were issued by the Supreme Court under Chief Justice John G. Roberts Jr. Now, there’s something curious here. Before President George Bush Jr. nominated him as chief justice in 2005, Roberts was a private lawyer representing Discover Bank who “unsuccessfully petitioned the Supreme Court to hear a case involving class-action bans,” according to the Times report. It was after he became chief justice that the court handed down its decisions opening the doors to compulsory arbitration.

 Strategizing on arbitration began in July 1999 by a group of corporate legal teams who met in a New York law office. Among them, the report points out, were representatives from big banks – Bank of America, Chase, Citigroup, Discover, and Sears – and from Toyota and General Electric. Details of that meeting revealed, the Times said, that “the lawyers for the companies talked about arbitration clauses as a means to an end. The goal was to kill class actions and send plaintiffs’ lawyers to the ‘employment lines.’”

And the big corporate lawyers got what they wanted. Today:

• Arbitration clauses are increasingly unavoidable, appearing in contracts for everything from credit cards to nursing homes. By agreeing to these clauses, millions of consumers are giving away their right to go to court if they have legal complaints.

• Corporations are increasingly filing – and winning – legal motions to force plaintiffs in federal class actions out of the courts and into private arbitration hearings. In arbitration, plaintiffs must pursue claims as individuals and in private proceedings.

• When it comes to federal class actions, arbitration clauses come into play most often in employment cases. Most of these involve wage disputes, but companies are also pursuing arbitrations in discrimination claims.

Among the examples of class-action suits denied by the courts was one filed by Time Warner customers over charges that they claimed “mysteriously appeared on their bills” (a familiar complaint in the Philippines). Rather than getting a one-shot ruling by the court for all of them, the customers were virtually compelled to seek redress individually via arbitration.

In another class-action suit, African-American employees of Taco Bell restaurants complained against racial discrimination: they were denied promotions, forced to work the worst shifts, and subjected to degrading comments. They were similarly rejected.

Last month I wrote in this space about a study by political scientists showing that in many countries, including America, citizens are losing faith in democratic systems. This unjust alternative justice system definitely adds to the mass disaffection against America’s much-vaunted democracy.

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