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Arbitration Everywhere: Stacking the Deck of Justice
This should be old news to people here. It's been going on in the securities (brokerage) industry for decades (or does no one read their brokerage agreements?)
The NYTimes had an article, somewhere around 1994 (I can't seem to find it now), describing how arbitration was stacked against the investor because the arbitrators came primarily from the securities industry (among other reasons I forget now).
Things have only gotten worse since then. Read a clickwrap agreement lately? I often wonder if they're making them longer and longer to discourage even the most diligent people from reading them.
Arbitration has its place. When the parties expect to continue a working relationship (e.g. employer/employee or B2B supplier/consumer), you want to reach a reasonable resolution - you can try negotiating, then mediation, then arbitration. But in many other situations, people want and deserve their "day in court".
What I don't understand, in almost any circumstance, is barring class action. (Sure it makes sense from the defendant perspective, but that's not what I'm talking about.) There are multiple purposes in enabling complaints. One, of course, is for the plaintiff to get restitution. But another is deterrence.
We don't (or at least I don't) want companies to abuse customers/employees/shareholders just because they can. If the plaintiff lawyers get most of an award because they honestly had to put in a lot of effort to achieve a ruling, so be it. The impact on the company is still felt, and may discourage similar actions in the future.
@msf, Agreed, it is an old story, but I didn't know how pervasive it was today and how much political lobbying occurred behind the scenes to make it so pervasive and how utterly ineffectual and unfair the arbitration process now is as a result. It's also rather terrible in the case of an employment agreement where if you're taking a new job and really need one are you really going to say no to your new boss when it comes to agreeing to arbitration if there are any labor disputes.
Some of these stories about arbitration just make the whole process seem obscene and our justice system a joke. Here's an excerpt:
Debbie Brenner enrolled in the surgical technician program at Lamson College near Phoenix in her 40s with high hopes of reinventing herself. She spent hours learning about the tools used in surgical procedures as if mastering the movements of the waltz, each handoff in graceful succession: scalpel, retractor, clamp, sutures.
Whether the instruments featured in lessons were real, or just depictions in photographs, depended on what teachers could round up on any given day. Lamson students became accustomed to empty surgical trays and anatomical mannequins missing their plastic replicas of organs. One enterprising instructor fashioned hearts, livers and kidneys out of felt and string.
Students considered that instructor to be one of Lamson’s better faculty members, more than a dozen of them said in interviews. Some teachers routinely disappeared from class, leaving tests conspicuously on the desks to be copied, they said.
Ms. Brenner, a devout Christian, said she prayed that the program’s shortcomings would not diminish her job prospects. She said the enrollment officer who persuaded her to sign up for the $24,000-a-year program had promised her she would easily find a job after graduation.
When Ms. Brenner completed the program with high marks in 2009, she said, Lamson failed to find her an internship. She was volunteering at Maricopa County Hospital when, she said, a surgical technician told her that most hospitals refused to hire Lamson students because they were so poorly trained. According to students, some did not even know how to properly sterilize their hands before surgery.
“It was a joke,” Ms. Brenner said. “The school’s brochure was all about making our dreams come true, but this was a nightmare.”
Soon after, Lamson shut down the program when it was unable to place enough of its students in internships. In March 2011, Ms. Brenner and other students filed a lawsuit against the school and its owner, Delta Career Education Corporation, accusing them of fraud. The case was promptly dismissed because of an arbitration clause in the students’ enrollment agreements.
Ms. Brenner, confident she could prevail in arbitration, persuaded her husband to withdraw $12,000 from his retirement account to put toward legal fees.
By the time her case was heard in March 2013, the attorney general of Arizona had sued another Delta school for defrauding students in a criminal justice program. And a federal class-action lawsuit in Michigan had accused a Delta school of defrauding students out of millions of dollars in student loans. The company did not admit wrongdoing, but settled both lawsuits for a total of more than $8 million.
Arbitration would prove to be more advantageous for the company, records and interviews show.
Ms. Brenner’s case was conducted in the Phoenix office of Gordon & Rees, one of two big law firms defending Lamson and Delta. The arbitrator, Dennis Negron, was a corporate lawyer and real estate broker who had written papers on how to limit liability because “last on your list of desires is to be sued.”
As in most arbitrations, lawyers for both sides chose Mr. Negron from a list provided by an arbitration firm, in this case the American Arbitration Association.
Lawyers for Ms. Brenner and four other students grouped into the same arbitration said they anticipated victory because they believed that the evidence was overwhelmingly in their favor.
Even the school’s former head of admissions, Jeff Bing, testified that he had been instructed by his superiors at Delta to increase enrollment at all costs.
Mr. Bing said it was widely known that the admissions staff, whose compensation was tied to the number of students recruited, was “overpromising” on jobs. He testified that the job placement rate for graduates was around 20 percent.
To keep the enrollment numbers up, Mr. Bing said, virtually anyone who applied was accepted. He added in an interview that the only qualification was “a pulse.”
Mr. Bing and other former employees recounted in interviews with The Times how profits drove most of the decision-making at Lamson.
As administrators were pressured to increase enrollment, instructors were drilled on the importance of student retention — which factored into federal aid disbursements.
Penny Philippi and Karen Saliski, two former teachers, said they were directed not to flunk anyone, including a student who skipped classes to “chase U.F.O.s.”
Delta declined to comment.
During the arbitration proceedings, even a witness for the defense expressed concerns about Lamson. Kelly Harris, who headed the school’s surgical technician program, defended the quality of education offered at Lamson but said the school enrolled too many students.
Ms. Harris, in an interview with The Times, said she warned school executives that the practice would dilute the quality of training, flood the job market and make the Lamson degree worthless. They scoffed, she said.
“It broke my heart to see these kids treated as dollar signs,” Ms. Harris said.
She was one of only two people who testified for the defense. Lawyers for Lamson and Delta denied that enrollment officers guaranteed jobs, adding that they were hard to come by during the recession.
In the end, Mr. Negron ruled in favor of Lamson and Delta.
Mr. Negron found that the defense had presented the “two most credible witnesses” and praised for-profit education, according to his decision, a copy of which was obtained by The Times. Mr. Negron did not return repeated calls and emails seeking comment.
“There is little doubt that for-profit technical or specialty schools, like the college, serve an invaluable service to the public,” he wrote in his decision.
Mr. Negron found that the college did not make job promises during the enrollment process but may have engaged in “puffery, which each of the adult students should have known and recognized as puffery.” Chiding Ms. Brenner for not being a savvier shopper, he said she had approached her decision to enroll in a “most cavalier manner” as if “buying a Snickers at the local market.”
His opinion was not shared by arbitrators who ruled in favor of students in two nearly identical cases against Lamson, documents obtained by The Times show.
If the cases had played out in court, legal experts said, Ms. Brenner could have referred to those decisions to appeal Mr. Negron’s.
As it stands, Ms. Brenner lost far more than the case.
Mr. Negron decided that she and the other students should pay the defense’s $354,210.77 legal bill because of the “hardship” the students had inflicted on Lamson and Delta.
“I felt like I had been sucker-punched,” Ms. Brenner said.
Repeat Business
Fearful of losing business, some arbitrators pass around the story of Stefan M. Mason as a cautionary tale. They say Mr. Mason ruled in favor of an employee in an age discrimination suit, awarding him $1.7 million, and was never hired to hear another employment case.
While Mr. Mason’s experience was rare, more than 30 arbitrators said in interviews that the pressure to rule for the companies that give them business was real.
Companies can even specify in contracts with their customers and employees that all cases will be handled exclusively by one arbitration firm. Big law firms also bring repeat business to individual arbitrators, according to documents and interviews with arbitrators. Jackson Lewis, for example, had 40 cases with the same arbitrator in San Francisco over a five-year period.
Arbitration does not have to be this flawed, but as implemented it is heavily stacked in favor of those who write the contracts (the companies).
Handling disputes via arbitration is authorized by the Federal Arbitration Act, which is read about as broadly as possible (and then some). That's what makes voiding these contracts of adhesion (and getting cases heard in court) so difficult.
The traditional rationale for arbitration clauses is that arbitration saves time and money. If that's true, just require companies to give the employee/customer the choice of arbitration or formal suit. Then if the paramount concern of complainants were cost, they would still choose arbitration. But if they were seeking better odds or a public forum in which to be heard, they could go to court.
Your excerpt brings in a whole 'nuther kettle of fish - for profit schools. I won't get started with that right now.
I did find amusing the statement that the students should have "recognized as puffery" what the school promised. I doubt any of them would even recognize what "puffery" is - a word rarely seen outside of legal circles.
If all of you would just recognize the obvious--- that corporations are people, superior people--- everything would fall into place. All of your anxieties, angst, and trivial complaints of injustices would be washed away, and you would find a new contentment come into your lives. And all would be right in The Garden. http://www.esquire.com/news-politics/politics/news/a39374/corporations-are-superior-people/
@msf- I'll bet that Nero Wolf certainly knew what "puffery" is.
@heezesafe- I'm afraid that in one sense, corporations are indeed just "people". The greed, evil and immorality that oozes from some corporations has nothing to do with the articles of incorporation, and everything to do with the actual people who choose to use the fiction of a corporation to allow their most base instincts to be put into anonymous play. "We have met the enemy, and he is..."
There are currently court cases being heard that could result in recourse to arbitration being restricted. Mandatory arbitration raises the issue of duress. Situations such as hiring or providing fundamental services may disadvantage the weaker party so much that they render the contract one-sided.
Comments
The NYTimes had an article, somewhere around 1994 (I can't seem to find it now), describing how arbitration was stacked against the investor because the arbitrators came primarily from the securities industry (among other reasons I forget now).
Things have only gotten worse since then. Read a clickwrap agreement lately? I often wonder if they're making them longer and longer to discourage even the most diligent people from reading them.
Arbitration has its place. When the parties expect to continue a working relationship (e.g. employer/employee or B2B supplier/consumer), you want to reach a reasonable resolution - you can try negotiating, then mediation, then arbitration. But in many other situations, people want and deserve their "day in court".
What I don't understand, in almost any circumstance, is barring class action. (Sure it makes sense from the defendant perspective, but that's not what I'm talking about.) There are multiple purposes in enabling complaints. One, of course, is for the plaintiff to get restitution. But another is deterrence.
We don't (or at least I don't) want companies to abuse customers/employees/shareholders just because they can. If the plaintiff lawyers get most of an award because they honestly had to put in a lot of effort to achieve a ruling, so be it. The impact on the company is still felt, and may discourage similar actions in the future.
nytimes.com/2015/11/02/business/dealbook/in-arbitration-a-privatization-of-the-justice-system.html?&moduleDetail=section-news-0&action=click&contentCollection=DealBook®ion=Footer&module=MoreInSection&version=WhatsNext&contentID=WhatsNext&pgtype=article
Some of these stories about arbitration just make the whole process seem obscene and our justice system a joke. Here's an excerpt:
Debbie Brenner enrolled in the surgical technician program at Lamson College near Phoenix in her 40s with high hopes of reinventing herself. She spent hours learning about the tools used in surgical procedures as if mastering the movements of the waltz, each handoff in graceful succession: scalpel, retractor, clamp, sutures.
Whether the instruments featured in lessons were real, or just depictions in photographs, depended on what teachers could round up on any given day. Lamson students became accustomed to empty surgical trays and anatomical mannequins missing their plastic replicas of organs. One enterprising instructor fashioned hearts, livers and kidneys out of felt and string.
Students considered that instructor to be one of Lamson’s better faculty members, more than a dozen of them said in interviews. Some teachers routinely disappeared from class, leaving tests conspicuously on the desks to be copied, they said.
Ms. Brenner, a devout Christian, said she prayed that the program’s shortcomings would not diminish her job prospects. She said the enrollment officer who persuaded her to sign up for the $24,000-a-year program had promised her she would easily find a job after graduation.
When Ms. Brenner completed the program with high marks in 2009, she said, Lamson failed to find her an internship. She was volunteering at Maricopa County Hospital when, she said, a surgical technician told her that most hospitals refused to hire Lamson students because they were so poorly trained. According to students, some did not even know how to properly sterilize their hands before surgery.
“It was a joke,” Ms. Brenner said. “The school’s brochure was all about making our dreams come true, but this was a nightmare.”
Soon after, Lamson shut down the program when it was unable to place enough of its students in internships. In March 2011, Ms. Brenner and other students filed a lawsuit against the school and its owner, Delta Career Education Corporation, accusing them of fraud. The case was promptly dismissed because of an arbitration clause in the students’ enrollment agreements.
Ms. Brenner, confident she could prevail in arbitration, persuaded her husband to withdraw $12,000 from his retirement account to put toward legal fees.
By the time her case was heard in March 2013, the attorney general of Arizona had sued another Delta school for defrauding students in a criminal justice program. And a federal class-action lawsuit in Michigan had accused a Delta school of defrauding students out of millions of dollars in student loans. The company did not admit wrongdoing, but settled both lawsuits for a total of more than $8 million.
Arbitration would prove to be more advantageous for the company, records and interviews show.
Ms. Brenner’s case was conducted in the Phoenix office of Gordon & Rees, one of two big law firms defending Lamson and Delta. The arbitrator, Dennis Negron, was a corporate lawyer and real estate broker who had written papers on how to limit liability because “last on your list of desires is to be sued.”
As in most arbitrations, lawyers for both sides chose Mr. Negron from a list provided by an arbitration firm, in this case the American Arbitration Association.
Lawyers for Ms. Brenner and four other students grouped into the same arbitration said they anticipated victory because they believed that the evidence was overwhelmingly in their favor.
Even the school’s former head of admissions, Jeff Bing, testified that he had been instructed by his superiors at Delta to increase enrollment at all costs.
Mr. Bing said it was widely known that the admissions staff, whose compensation was tied to the number of students recruited, was “overpromising” on jobs. He testified that the job placement rate for graduates was around 20 percent.
To keep the enrollment numbers up, Mr. Bing said, virtually anyone who applied was accepted. He added in an interview that the only qualification was “a pulse.”
Mr. Bing and other former employees recounted in interviews with The Times how profits drove most of the decision-making at Lamson.
As administrators were pressured to increase enrollment, instructors were drilled on the importance of student retention — which factored into federal aid disbursements.
Penny Philippi and Karen Saliski, two former teachers, said they were directed not to flunk anyone, including a student who skipped classes to “chase U.F.O.s.”
Delta declined to comment.
During the arbitration proceedings, even a witness for the defense expressed concerns about Lamson. Kelly Harris, who headed the school’s surgical technician program, defended the quality of education offered at Lamson but said the school enrolled too many students.
Ms. Harris, in an interview with The Times, said she warned school executives that the practice would dilute the quality of training, flood the job market and make the Lamson degree worthless. They scoffed, she said.
“It broke my heart to see these kids treated as dollar signs,” Ms. Harris said.
She was one of only two people who testified for the defense. Lawyers for Lamson and Delta denied that enrollment officers guaranteed jobs, adding that they were hard to come by during the recession.
In the end, Mr. Negron ruled in favor of Lamson and Delta.
Mr. Negron found that the defense had presented the “two most credible witnesses” and praised for-profit education, according to his decision, a copy of which was obtained by The Times. Mr. Negron did not return repeated calls and emails seeking comment.
“There is little doubt that for-profit technical or specialty schools, like the college, serve an invaluable service to the public,” he wrote in his decision.
Mr. Negron found that the college did not make job promises during the enrollment process but may have engaged in “puffery, which each of the adult students should have known and recognized as puffery.” Chiding Ms. Brenner for not being a savvier shopper, he said she had approached her decision to enroll in a “most cavalier manner” as if “buying a Snickers at the local market.”
His opinion was not shared by arbitrators who ruled in favor of students in two nearly identical cases against Lamson, documents obtained by The Times show.
If the cases had played out in court, legal experts said, Ms. Brenner could have referred to those decisions to appeal Mr. Negron’s.
As it stands, Ms. Brenner lost far more than the case.
Mr. Negron decided that she and the other students should pay the defense’s $354,210.77 legal bill because of the “hardship” the students had inflicted on Lamson and Delta.
“I felt like I had been sucker-punched,” Ms. Brenner said.
Repeat Business
Fearful of losing business, some arbitrators pass around the story of Stefan M. Mason as a cautionary tale. They say Mr. Mason ruled in favor of an employee in an age discrimination suit, awarding him $1.7 million, and was never hired to hear another employment case.
While Mr. Mason’s experience was rare, more than 30 arbitrators said in interviews that the pressure to rule for the companies that give them business was real.
Companies can even specify in contracts with their customers and employees that all cases will be handled exclusively by one arbitration firm. Big law firms also bring repeat business to individual arbitrators, according to documents and interviews with arbitrators. Jackson Lewis, for example, had 40 cases with the same arbitrator in San Francisco over a five-year period.
Handling disputes via arbitration is authorized by the Federal Arbitration Act, which is read about as broadly as possible (and then some). That's what makes voiding these contracts of adhesion (and getting cases heard in court) so difficult.
The traditional rationale for arbitration clauses is that arbitration saves time and money. If that's true, just require companies to give the employee/customer the choice of arbitration or formal suit. Then if the paramount concern of complainants were cost, they would still choose arbitration. But if they were seeking better odds or a public forum in which to be heard, they could go to court.
Your excerpt brings in a whole 'nuther kettle of fish - for profit schools. I won't get started with that right now.
I did find amusing the statement that the students should have "recognized as puffery" what the school promised. I doubt any of them would even recognize what "puffery" is - a word rarely seen outside of legal circles.
http://www.esquire.com/news-politics/politics/news/a39374/corporations-are-superior-people/
@heezesafe- I'm afraid that in one sense, corporations are indeed just "people". The greed, evil and immorality that oozes from some corporations has nothing to do with the articles of incorporation, and everything to do with the actual people who choose to use the fiction of a corporation to allow their most base instincts to be put into anonymous play. "We have met the enemy, and he is..."