Legislative Hypocrisy Shines for All to See

Posted on behalf of The Bell Law Firm, PLLC on Mar 10, 2015 in Personal Injury

West Virginia Association for Justice

For Immediate Release
March 10, 2015
Contact: Beth A. White
(304) 344-0692
(304) 389-8587

Votes to Take Away Consumers' Constitutional Rights While Protecting Auto Dealers from Arbitration Clauses

Charleston, W.Va. - The West Virginia Association for Justice denounced the West Virginia House of Delegates' failure to protect state consumers and workers by prohibiting pre-dispute, binding arbitration clauses in contracts.  The proposed amendment to SB 37 would have preserved their 7th Amendment right to trial by jury; it was defeated by a vote of 43 - 57.  The House passed SB 37 today. 

The defeated amendment is identical to language included in SB 453, which prohibits those clauses in contracts between state auto dealers and manufacturers and distributors and allows them to take their disputes to court  (§17A-6A-10(1)(f) - SB 453).  That bill was passed by the State Senate on Wednesday and is pending in the House.

"Why does the West Virginia Legislature believe that it's ok to protect the constitutional rights of some West Virginians but not others when they are guaranteed to each of us equally?    Every West Virginia consumer, worker and business has the right to have their claims heard in court.  Our legislature should be protecting the constitutional rights of every West Virginian, not just auto dealers.  If arbitration is unfair and unconstitutional for auto dealers, it is for the rest of us too," said Anthony Majestro, president of the West Virginia Association for Justice.  

A study released Monday by the federal Consumer Financial Protection Bureau found that "arbitration agreements limit relief for consumers."  The study reviewed arbitration clauses included for credit cards, checking accounts, prepaid cards, payday loans, private student loans and mobile wireless contracts.  The report's empirical analysis found that 75 percent of consumers did not know that they had signed contracts with arbitration clauses.  Less than seven percent of those surveyed knew that they had lost their right to jury trial for disputes.  The study also found no statistical evidence that use of the clauses led to lower prices for consumers. http://www.consumerfinance.gov/reports/arbitration-study-report-to-congress-2015/

"We appreciate that legislators recognize that arbitration can be unfair and cost prohibitive for a local dealer to have to challenge Ford or General Motors, but the same reasons that make it so for our auto dealers are even worse for our state consumers.  It is hypocritical that hat they would pass a bill that provides special protections to car dealers while leaving our state consumers at the mercy of corporations and the arbitrators they hire to hear the case against them."

"Arbitration can be acceptable option for two sophisticated businesses when both parties agree to it up front and they have an equal say in the process, choice of arbitrators and the laws that will govern the decision, but it does not work when one side forces it on the other and has total control of the process.  That is the case when these clauses are forced on state consumers and workers.  Some HMOs and hospitals now require patients to sign arbitration clauses before providing treatment.  nursing homes require you to sign before admitting your loved one.  They are buried in the employment contract for your new job--you have to sign away your rights before they hire you.  Then when a dispute arises, you cannot go to court and you are forced to pay an arbitration company selected by the corporation to hear your claim.  It's wrong."

Mandatory, binding arbitration clauses are also buried in the fine print of many consumer contracts, including those for credit cards, cell phones, mortgages and student loans.  Corporations are using these clauses to avoid accountability and deny you access to the legal system.  Most consumers are unaware the clauses are in the contracts until a dispute arises. 

In contrast to consumer contracts, which are involuntary since there is no disclosure, businesses negotiate the clauses up front or opt to use the courts.  A study by Theodore Eisenberg found that most businesses opt to use the courts.  "The absence of arbitration provisions in the great majority of negotiated business contracts suggests that companies value, even prefer, litigation as the means for resolving disputes with peers" (Arbitration's Summer Soldiers: An Empirical Study of Arbitration Clauses in Consumer and Non-Consumer Contracts by Theodore Eisenberg, et. al., December 2007).

The Problems with Mandatory Binding Arbitration for Consumers

  • Pre-emptive and non-consensual.  When these clauses are buried in contracts, they bind you to arbitration at the time you sign before any dispute has occurred.  Corporations aren't required to provide notice that the clauses are there.  Most people don't know they've signed away their rights until they need to go to trial--and by then it's too late because you've lost that right.
  • Mandatory clauses, as opposed to voluntary clauses, take away your rights without consent.  Parties to voluntary arbitration willingly and knowingly give up their rights to a trial, usually after a dispute has occurred.  Both sides agree to use arbitration to find a reasonable settlement.  In contrast, mandatory arbitration forces you to give up your right to trial in order to receive a good or service.  That is not voluntary.
  • Mandatory arbitration can be very expensive and is cost prohibitive for individuals.  If you have a claim, you have to pay steep filing fees just to start your case.  It's rarely less than $750.  These fees do not cover the arbitrator's hourly wages, which are typically $200 - $300 per hour.  While these are split between you and the corporation, these wages must be deposited up front and will cost another $2,500 - $5,000.  There are also daily hearing fees, room rental and additional costs.  The location is selected by the corporation, so there will be additional travel costs for you.  In the end, it costs you thousands just to have your case heard.  Deposits of $25,000 are common.  Corporations have the money to cover these expenses.  Most can't afford these costs and are often forced to drop their claims.
  • The process is biased against the consumer who brought the claim.  While the corporation is involved in multiple arbitration cases over its products or services, most likely you will be involved in just one.  The corporation gets to select the arbitrator--and typically selects the same individual or company over and over again.  As a result, the process is biased against you before you start.  The arbitrator is far more likely to side with the corporation if he/she wants to keep that company's business.  Instead of an impartial judge and jury, you have an arbitrator whose future earnings depend on if he/she rules in favor of the company.
  • Limited discovery.  Discovery is the process that allows you to obtain information and evidence from the corporation to build your case.  Unlike in the court, where discovery is a right, most corporations draft their mandatory arbitration clauses to severely limit your ability to obtain the evidence you need.
  • No public record and limited judicial review.  While the proceedings and records of the court are open to the public, most arbitration clauses require that the proceedings be kept confidential.  Arbitrators do not need to issue written findings of fact or legal conclusions.  As a result, on the corporations that impose arbitration can track past decisions and know which arbitrators have ruled for them.  It sets no precedent to correct corporate behavior, and, even in cases where there are issues of significant public concern, there is no discussion.  Parties are also allowed only limited judicial review.
  • Corporation takes away your rights while maintaining its own ability to take you to court.  Most arbitration clauses require only the consumer or employee to arbitrate claims, but the corporation retains its right to sue you in court.  If an employee files a sexual harassment claim, that person is forced to arbitrate the claim against the company.  If that same person leaves the company to go work for a competitor, the company has the right to sue the individual in court to block the hiring.

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