Third Circuit Deals Blow to Consumers Forced into Arbitration
Congress must act to ensure consumers have access to justice
Washington, DC—The Third Circuit issued an opinion in Homa v. American Express this week that wiped out consumers’ hope for meaningful access to justice when faced with a forced arbitration clause. The court found that when a forced arbitration clause with a class action ban is included in the fine print of a contract, individual arbitration is the consumer’s only remedy – even if a consumer can prove that the cost of arbitration is so high that it is not a viable option.
The Third Circuit’s hands were tied by an antiquated law and a recent U.S. Supreme Court decision. American Express used splashy ads for its “Blue Cash” credit card, promising consumers cash rebates of up to 5% of on their purchases and balances. Mr. Homa, a systems engineer, did the math and found that American Express paid him just a fraction of what they had promised. He calculated American Express owes him $354 dollars and likely millions more to the other unsuspecting customers.
When Mr. Homa went to seek justice in court, American Express pointed to the forced arbitration clause included in his contract. The fees and expenses associated with arbitration were likely to exceed any recovery Mr. Homa could expect, but the Third Circuit found that the Supreme Court’s decision in AT&T Mobility v. Concepcion left Mr. Homa with no other option for justice. In forcing Mr. Homa into “an admittedly ineffective individual arbitration,” the court held that “[e]ven if Homa cannot effectively prosecute his claim in an individual arbitration that procedure is his only remedy, illusory or not.”
“By using a forced arbitration clause in the fine print of contracts, American Express granted itself immunity from being held accountable for cheating its own customers,” said American Association for Justice (AAJ) President Mary Alice McLarty. “It is clear that forced arbitration is anti-consumer and allows corporations to get away with sweeping wrongdoing.”
Corporations are able to insert clauses into their contracts that shield them from all accountability by hiding behind the Federal Arbitration Act (FAA). Enacted in 1925, the FAA was intended to reinforce arbitration agreements in business-to-business transactions where both parties have equal bargaining power. However, it has been interpreted so broadly that it overrides both Congressional action and state laws intended to protect consumers.
“This opinion underscores just how close corporations are to being granted totally unchecked power to keep workers and consumers out of the courts and forced into arbitration under whatever terms most benefit the company’s bottom line,” commented McLarty. “It is imperative that Congress pass legislation to protect Americans from these abusive practices.”
Legislation has been introduced in the U.S. House and Senate that would limit the application of the FAA. The Arbitration Fairness Act of 2011 (S. 987
/ H.R. 1873
) would amend the FAA to eliminate forced arbitration clauses in employment, consumer, and civil rights cases, and would allow consumers and workers to choose arbitration after a dispute occurred. This legislation would not prohibit arbitration.
Since 2010, the Supreme Court has issued four major decisions on forced arbitration that jeopardize worker and consumer rights:
- CompuCredit v. Greenwood, Decided January 10, 2012, the Court ruled that that unless a federal statute clearly signals a Congressional intent to override the Federal Arbitration Act, the arbitration clause will always be enforced. This is the case even when Congress expressly provides a remedy in a court of law.
- AT&T Mobility v. Concepcion. Decided April 27, 2011, the Court ruled that major corporations can grant themselves immunity when they cheat consumers or employees by banning class actions in the fine print of contracts.
- Rent-a-Center v. Jackson. Decided June 21, 2010, the Court ruled that challenges to forced arbitration clauses must be decided not by the courts, but by the arbitrators themselves, whose best interests are obviously to rule in favor of their own systems.
- Stolt-Nielsen v. AnimalFeeds, Inc. Decided April 27, 2010, the Court ruled that arbitrators may not allow class-wide arbitration even if the arbitration clause doesn’t prohibit it – meaning claims in forced arbitration must be filed on an individual basis only.