by Paul Bland, Senior Attorney, Public Justice, Of Counsel, Chavez & Gertler
On Twitter @PblandBland
In Kennedy v. Wells Fargo, Judge King of the Southern District of Florida enforced another arbitration clause that tosses out consumer claims in the multi district litigation involving checking overdraft claims. The plaintiffs had several arguments that the particular arbitration clause at issue in this case was unconscionable, but the district court batted those aside.
Under the U.S. Supreme Court's decision in Rent-A-Center v. Jackson, 130 S. Ct. 2772 (2010), if an arbitration clause has a provision stating that challenges to the enforceability of the arbitration clause (such as unconscionability arguments) are delegated to the arbitrator, then (with a few exceptions, none apparently applicable here) courts are not to consider such challenges but just compel arbitration and let the arbitrator consider them. I have used the old cliche of such clauses creating a Fox Guarding the Henhouse situation, as arbitrators VERY rarely (if ever) strike down arbitration clauses. Not to be overly cynical, but one reason for arbitrators not to do this is that if they strike down the arbitration clause, then they can no longer bill the file by the hour for work done arbitrating the dispute. In any case, the empirical experience of the many consumer lawyers with whom I have spoken is pretty clear about what happens where courts have enforced these so-called "delegation clauses." I have heard of a few cases where arbitrators re-wrote the clauses somewhat, but I have yet to learn of a case where an arbitrator tossed out the entire clause, as many courts have done in the past.
In this case, Judge King noted that the arbitration clause contained a so-called "delegation clause" leaving unconscionability challenges to the arbitrator, and that was the end of the matter.
This is just another example of how harmful mandatory arbitration clauses are for consumers. This case is one of a host of cases against banks involving a shady practice whereby banks manipulate the order in which they cash checks in a way that dramatically maximizes the number of hefty late fees their customers will end up paying. In cases where banks did not have arbitration clauses, or the arbitration clauses were defeated for various reasons, a number of lenders who engaged in this practice were forced to refund tens and sometimes hundreds of millions of dollars to rooked consumers. In cases such as this one, where the forced arbitration clause is enforced, the consumers have gotten and will get NOTHING back from the banks.
There are a lot of cases like this. I recently wrote a posting at the Public Justice blog documenting another situation where consumers did very well where they defeated forced arbitration clauses and were wiped out when they did not.
This is the type of case that legislators and appropriate regulatory officials should be notcing.
