‘Scared to Death’ by Arbitration: Companies Drowning in Their Own System

from NYTs

Teel Lidow couldn’t quite believe the numbers. Over the past few years, the nation’s largest telecom companies, like Comcast and AT&T, have had a combined 330 million customers. Yet annually an average of just 30 people took the companies to arbitration, the forum where millions of Americans are forced to hash out legal disputes with corporations.

Mr. Lidow, a Silicon Valley entrepreneur with a law degree, figured there had to be more people upset with their cable companies. He was right. Within a few months, Mr. Lidow found more than 1,000 people interested in filing arbitration claims against the industry.

About the same time last year, Travis Lenkner and his law partners at the firm Keller Lenkner had a similar realization. Arbitration clauses bar employees at many companies from joining together to mount class-action lawsuits. But what would happen, the lawyers wondered, if those workers started filing tens of thousands of arbitration claims all at once? Many companies, it turns out, can’t handle the caseload.

Hit with about 2,250 claims in one day last summer, for example, the delivery company DoorDash was “scared to death” by the onslaught, according to internal documents unsealed in February in federal court in California.

Driven partly by a legal reformist spirit and entrepreneurial zeal, Mr. Lidow and Mr. Lenkner are leaders in testing a new weapon in arbitration: sheer volume. And as companies face a flood of claims, they are employing new strategies to thwart the very process that they have upheld as the optimal way to resolve disputes. Companies, in a few instances, have refused to pay the fees required to start the arbitration process, hoping that would short-circuit the cases.

More here.

Posted in Business, Law and tagged , .

5 Comments

  1. Honestly, I think this article is humorous in the fact that businesses are terrified of a form of ADR that they force their workers to sign in their contracts. Since the beginning of my BUS 210 course, we learned about arbitration and how big companies were taking advantage of this tool to avoid class-action lawsuits. As a result, workers could not bring up issues as a group and were resorted to going through arbitration when an issue arose. As we saw with DoorDash earlier in the year, DoorDash made their employees sign up for arbitration if an issue arises, and that was meant to reduce the amount of complaints they were going to receive. However, that does not seem like the case, as an article states that “a federal judge has ordered DoorDash to arbitrate 5,010 labor disputes, potentially costing the company millions in arbitration fees” (https://www.theverge.com/2020/2/12/21135474/doordash-workers-forced-arbitration-william-alsup ). In the current times where the pandemic is stopping the world and making havoc on the economy, I do not think the companies were prepared for the arbitration cases. As the article states, more and more customers are ready to file their arbitration cases, overwhelming the companies and trying to wiggle their way out of being held liable for the costs or taking on the cases. I think this pandemic will change the world as we know it today, but I also think it will impact the future of business contracts. What companies were forcing upon employees and customers is now coming back to hit them where it hurts. I think businesses will change the clause in their contracts, so that they are not liable in situations where a recession is occuring, and may change the way that people can bring up issues to the company. They are feeling the heat now, something that they thought they avoided by placing arbitration as mandatory. Time will only tell how the courts enforce the arbitration, but the business world will look different to avoid this arbitration wave from occurring again.

  2. This is not the first time I have heard of the foul word called ‘arbitration’, the first time I heard of it was during my second topic/issue discussion where we had to discuss on the topic of forced arbitration employed by many companies. Arbitration is a process in which two parties agree to settle a dispute out of court and instead with a private arbitrator who will decide the outcome/decision for the case. Arbitration may seem like a suitable substitute from a tradition court considering that it’s normally cheaper and faster but arbitration is really biased and one-sided and you may end up losing more than you can win to the opposing party.

    The irony that many companies employ arbitration to scam those who are already “scammed” (which is why arbitration suits are filed by many customers in the first place) and are now “drowning” in their own system made me dumbfounded that customers are able to effectively weaponize the ‘sheer volume’ of arbitration cases overwhelming companies to the point where they are “scared to death” as with DoorDash last summer. Later in the article, it is revealed many companies and corporations are inadequate with handling a mass number of arbitration cases and are trying to escape the systems that they implemented.

    I believe arbitration itself remains a selfish excuse and a scam as companies would want an outcome that likely benefits them instead of achieving a rightful and just decision for the customer. Moreover, this article demonstrates the insecurities of arbitration that companies are not equipped to handle a surge of arbitration suits in a short period of time and if so will revert to desperate measures such as refusing to pay start up fees for the suit in hopes of stopping the suit or for the very least, delay it as much as possible.

  3. One of the first lessons I learned in law class was to not go to court and pay for a lawyer unless you have to. I also learned that instead of going on trial when speaking on cases that are not criminally based it is sometimes easier to just negotiate. A newly popular form of legal negotiation is arbitration. Arbitration is a form of alternative dispute resolution, and is a way to resolve disputes outside the courts. The dispute will be decided by one or more persons, which renders the “arbitration award”. An arbitration award is legally binding on both sides and enforceable in the courts. People usually use arbitration when they are trying to create a contract or a deal and need to settle who gets what and what consequences will be since arbitration is legally binding in the state of court. In the beginning it was just com[panoes and large corporations that would normally have arbitrators come to agreements in regards to the company but more recently lawyers realized average day citizens could also file claims of arbitration against these big companies essentially flooding them. This article talks specifically about fairshake and their ability to help consumers get up to a 700 dollar payout from big companies like AT&T. Kelen Lenker is a big attorney that has figured out a way to “flood” these big companies with money in order to get these people their money back. An example of this is AT&T… the lawyers helped people file arbitration claims for their money so that they could earn back money by so many claims at once it’s overwhelming for the company and they pay out. The only con to this plan is that the payout period could range up to two years because of how many people are waiting inline for that exact same claim from the company. In the article a quote that stuck out to me was “The conventional wisdom might say that arbitration is a bad development for plaintiffs and an automatic win for the companies,” he said. “We don’t see it that way.””. This quote stuck out to me because this person feels genuinely that people who file suits against the company are set up to lose, and the big corporate companies are always set up to win. I found this to be in opposition to what I was reading however throughout the article which made it seem that lawyers found a loophole so that the plaintiffs would easily get the payout that they are after. Overall, in my future I hope to secure a position as lawyer in the corporate field hopefully doing things like claims and arbitration for big companies like AT&T. I foresee this course and these exercises as real life applications because it takes things we learn in the textbook and then turns it into real life. Although I like the idea of sticking it to the man and getting your money’s worth from a company that thrives off of corporate greed and capital, I wish there were quicker ways of getting to that.

  4. This was an extremely entertaining read for me, as it never occurred to me not only how much arbitration was deterring consumers from filing against companies, and also how low the capacity for such arbitration is. As we have talked about before in class, arbitration is a type of legal remedy that does not require normal court proceeding; issues can be hashed out for much less of a cost and much more quickly, reducing strain on the court systems and in some cases making things quick, simple, and easy, and everyone’s happy. However, large businesses in recent years have stuck these arbitration clauses in Terms of Use agreements and in places where consumers either don’t know to look or aren’t even aware of the clause. Once bound by an arbitration clause, there is no remedy for legal issues other than this arbitration. This has been an ongoing issue, since companies have basically abused this clause to make themselves, in a sense, untouchable, as consumers are not allowed to sue in normal court, and due to the private and closed nature of arbitration, not only are the arbitrators hired by companies and are biased, they also prevent consumers from filing class action suits, which are very powerful against large companies. Due to all these factors, it’s very interesting to see the process turned around on the same firms that try to abuse us as consumers. Although this forced arbitration was successful in lowering the grievances the companies received, now that people are being incentivized to make use of the arbitration clause, companies do not have the capacity to hear and settle all of these claims in a timely fashion. It is extremely humorous to me that certain firms and business have used terms like “extortion” and “shakedown” when referencing these mass arbitration that have been talked about, as if the reason why it is happening is not the result of years of shakedowns and extortion of consumers.

  5. The fifth amendment of the US bill of rights states that no person “shall be deprived of life, liberty, or property without due process of law”, and the seventh amendment further states that “in suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any court of the United States, than according to the rules of the common law”. Yet, these fundamental tenets of our society have been casually subverted as the all-too-common practice of powerful companies forcing individuals to give up their legal rights in exchange for the right to purchase goods and services goes unnoticed by the general public. Over the past decade, large companies have realized that they are creating products or offering services that have become essential in US society, from smart phones to internet service provision. They have also realized that they can limit their legal costs by requiring consumers to sign user agreements upon purchasing their products or services that, in effect, force consumers to give up legal recourse in exchange for the ability to buy the product or service by stating that by purchasing the product, the consumer agrees to arbitration instead of court as their only means of recourse. If any consumer does not want to give up their legal rights, the only option they have is to not use the product or service, which in many cases, is necessary for them to become a productive, active member of society, such as the before-mentioned cell phones, or internet providers. This practice has become pervasive, as the Consumer Attorneys of California report that forced arbitration agreements are “hidden in virtually every consumer contract”, with “no chance” to opt out. I applaud the efforts of the FairShake company as they use the unfair rules created by these companies against them, to the benefits of the consumers they have deprived of their constitutionally manded rights. It is the actions of individuals such as Mr. Lidow and Mr. Lenker that stand as a sorely needed check to the power of large corporations, and it is a testament to the unjust nature of the forced arbitration proceedings as we see the same corporations who have lauded the arbitration system for decades begin to decry this very same system as soon as it ceases working in their favor.

    Consumer Attorneys of California on Forced Arbitration:
    https://www.caoc.org/index.cfm?pg=issdispute

    US Bill of Rights:
    https://billofrightsinstitute.org/founding-documents/bill-of-rights/

    In addition, as fellow commenter Dan pointed out in a comment on the original article, another highly worrisome practice shown in the article is that “DoorDash could just refuse to pay the fee, and that stopped the arbitration”, resulting in the arbitration process being “only binding on the consumer or the employee, not the company”. While the judge did order DoorDash to pay the fees and continue the arbitration, the possibility that other companies could simply refuse to pay arbitration fees to stop arbitration cases from going forward is completely antithetical to the very concept of justice, and I believe US society would benefit from hefty fees imposed (in addition to forcing the companies to pay the arbitration fees) upon any company that tries this in the future. Furthermore, the attempt by DoorDash to change its arbitration clause to use a different arbitration company with more favorable rules while all of these cases were ongoing, and to force employees between choosing to go along with the further stripping of their legal rights or to lose their jobs is, in my opinion, an egregious misuse of the arbitration system. Ultimately, I believe that we should push for legislation clarifying the illegality of forced arbitration. While arbitration does have its uses, there should never be a situation where consumers have no alternative options, and we need companies like FairShake to help consumers take back their rights in cases like the forced arbitration epidemic, where corporations have, unfortunately, been allowed to ignore the fundamental constitutional rights of the very consumers who keep their businesses running.

Leave a Reply

Your email address will not be published. Required fields are marked *