By Paul Bland, Senior Attorney at Public Justice
Periodically, people ask me rhetorical questions like, "How much worse can the law of arbitration get? I mean, it's so incredibly bad that it has to have bottomed out, right?"
As Jane Wagner famously wrote, no matter how cynical you become, it's never enough to keep up.
The Second Circuit has just issued an opinion that reminds us that it is still possible for the law of arbitration to become even more terrible for consumers. In Duran v. The J. Hass Group, a woman who is essentially on the edge of being destitute alleges (very credibly) that she was the victim of a last-dollar scam, promised services that she didn't receive.
The defendants allegedly operated a credit repair scheme, under which they took a fee of almost $4,000 from the consumer to settle all of her credit card debt, and then did nothing for her. So her credit card companies were suing her, she owed all the money that she’d owed when she first interacted with the defendants, and she was now completely broke. These allegations make out an extremely strong claim under the Credit Reporting Act. The allegations and facts are discussed in greater detail in the district court’s opinion, available at 2012 WL 3233818 (E.D.N.Y. June 8,
It probably will not surprise anyone who follows consumer law (although it would come as a surprise to nearly any actual consumer) that the defendant had an arbitration clause. What's striking is that the clause requires consumers (including the New York resident Ms. Duran) to arbitrate their claims across the country IN ARIZONA. Now, courts have been striking down these kinds of distant forum provisions in decisions going back 20 years. E.g., Patterson v. ITT Consumer Fin. Corp., 18 Cal. Rptr. 2d 563 (1993). But in the wake of more recent U.S. Supreme Court decisions, particularly the catastrophic Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (2010), a lot of bad actors out there have been experimenting with how unfair they can make their arbitration clauses and get away with it.
This strategy worked pretty well for the defendants in this case. The Second Circuit required Ms. Duran to arbitrate her claim, and enforced the provision requiring it to take place in Arizona. They noted that there is a "logical flaw" and an "unusual" quality to the result, because if Ms. Duran's only remedy is to argue to the arbitrator that it's unfair and unconscionable to require her to arbitrate in Arizona, she first has to GO to Arizona to do it. Oh well, the Court explains, this is what the Supreme Court would have wanted.
I think the decision is wrong, and that the better arguments are with the plaintiffs, and I'm very hopeful that a lot of other courts wouldn't go with this conclusion.
But the case does show how the U.S. Supreme Court's ongoing adventures in re-writing and expanding the Federal Arbitration Act have a cost. What will the next scam artist put in their arbitration clause? Is there any reason that the Second Circuit would not have enforced a clause requiring the arbitration to take place in New Zealand on Leap Day? After all, why couldn't the New Zealand arbitrator figure out if that's fair? What if the arbitration clause required that the arbitration take place on the newly non-planet Pluto?
If bad actors can get away with making arbitration clauses increasingly grossly unfair, and all the courts just wash their hands, do a Pontius Pilate, and say “well, this may SEEM really unfair, but oh well, it’s what the Supreme Court would have wanted,” mandatory arbitration will have no conceivable claim to any sort of legitimacy. It will become a complete joke, an openly rigged deal.
Because saying that a poor person in New York can only get a refund of money stolen from her if she travels across the United States to begin the process of trying to get it back IS a joke, and it IS a rigged deal.
0 thoughts on “Today’s Arbitration Outrage: Second Circuit Says Destitute New York Resident Consumer Must Arbitrate Case in Arizona”
I agree that the distant forum issue is not present with AAA or JAMS. A big part of my practice is having consumers or consumer lawyers show me arbitration clauses and ask for my advice as to if and how they might be challenged. My experience, which admittedly is anecdotal and not scientific, but from a fairly large sample, suggests that many smaller market players are moving away from AAA (and very few of them use JAMS). I see more and more small lenders, credit repair organizations, and similar entities using arbitration firms with vague names and vague websites, about whom no one seems to know anything. This isn’t an issue with major corporations like Citibank or AT&T or whatnot, but for smaller players, I am seeing more provisions that would have been struck down by most courts just a few years ago. Distant forum provisions, loser pays clauses, limitations on damages and attorneys’ fees — these had been disappearing from arbitration clauses a few years ago, and in the wake of the Rent-A-Center case my strong impression is that a growing number of smaller corporations are feeling adventurous and emboldened to use plainly terms.
When I say “preferably JAMS”, I want to clarify.
Under JAMS minimum consumer Protocols, consumer is only responsible for $250 in arbitration fees, and JAMS could give a fee waiver for that. Business gets the rest of the arbitration bill past $250.
A very simple JAMS arbitration under consumer rules can easily cost business $10,000. Arbitrators charge $600-$800 per hour. Sometimes arbitrations can cosrt business six figures easily.
This business wants arbitration, if JAMS is an option, I’d give it to them!
JAMS will be a very prohibitive litigation cost prospect for business here if its a contract option.
Consumer should sieze the JAMS option here.
Apologize for my mediocre spelling in previous post.
The location issues will be easily resolved.
NAF is not supposed to be taking consumer cases per the MN AG consent decree.
AAA and JAMS have minimum consumer rules indicating arbitration has to take place in hometown or home Federal district of consumer.
In my consumer experience, (15 consumer arbitration cases in both JAMS and AAA) JAMS and AAA will analyze the clause and force the business to waive this provision to arbitrate in Arizona. If business refuses to adhere to minimum consumer protocols, JAMS and AAA will REFUSE to arbitrate.
Court rulings sem clear when the arbitration companies mentioned in the contract refuse to arbitrate…clause is unable to be enforced.
All consumer lawyer has to do is initiate the arbitration, (preferably with JAMS) send in the clause, and let the forum do the work in forcing business to comply with consumer protocols.
If we are not dealing with the big 3 arbitration forums in this particular contract, then I agree with the oputrage here, because the lessor known forums have not adopted these important consumer protections.