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We believe that the escalating use of mandatory, pre-dispute arbitration clauses in consumer and employment contracts is undermining the ability of consumers and employees to vindicate basic rights through the civil justice system. The private arbitration system is often costly and is selected by businesses because it will be difficult for employees and consumers to prevail. See Public Citizen Report, The Costs of Arbitration (2002). Through its lobbying arm, Congress Watch, Public Citizen has sought to attack the problem through Congress and the state legislatures.
Public Citizen Litigation Group has argued two significant arbitration cases in the Supreme Court and has participated in several others. In Barrentine v. Arkansas-Best Freight System, 450 U.S. 728 (1981), the Supreme Court agreed with our argument that a union contract arbitration clause did not preempt employees' right to sue with regard to a statutory claim under the Fair Labor Standards Act. In Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681 (1996), we argued in favor of the allowing states to refuse to enforce obscure arbitration clauses buried in form agreements. Unfortunately, the Court held that the Federal Arbitration Act preempted state protections. Most recently, we have provided assistance to counsel for the respondents (Trial Lawyers for Public Justice) in Buckeye Check Cashing v. Cardegna, a case concerning the enforceability of arbitration clauses in illegal contracts that is now pending before the Court.
Important Arbitration Decisions
The Coffee Beanery, Ltd. v. WW, LLC
In this case, we represent Richard Welshans and Deborah Williams, who bought a franchise for a Coffee Beanery store based on a fraudulent sales pitch that made the company’s stores seem far more profitable than they really were. In fact, most of Coffee Beanery’s stores have failed, the company makes its money by requiring franchisees to buy overpriced equipment, and the executive who sold Richard and Deborah the franchise was a convicted felon. Despite their best efforts, Richard and Debroah lost their life savings and were forced into bankruptcy.
Richard and Deborah sued Coffee Beanery, but were forced into binding arbitration based on a clause in their franchise contract. Even though state regulators found that Coffee Beanery’s misrepresentations violated state franchise law, the company’s hand-picked arbitrator ruled against the couple. The Sixth Circuit overturned the arbitration award, holding that the arbitrator manifestly disregarded the law. Coffee Beanery then filed a petition with the U.S. Supreme Court, arguing that arbitration awards should not be overturned even when arbitrators have manifestly disregard the law. We filed a brief in opposition, explaining that manifest-disregard review is consistent with Supreme Court decisions and there is no circuit split on the issue.
T-Mobile USA, Inc., et al. v. Laster, et al.
The Federal Arbitration Act (FAA) provides that arbitration agreements are enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Class-action bans -- contract provisions that prohibit classwide proceedings, whether in litigation or arbitration -- have been held to be unconscionable in some circumstances under the generally applicable contract law of some states.
Is such state law preempted by the FAA when the class-action ban to which it is applied is embedded in an arbitration agreement?
Deepak Gupta, Scott Nelson, and Bonnie Robin-Vergeer were co-counsel for the respondents at the cert stage, and the Supreme Court denied cert.
Picard v. Credit Solutions, Inc.
Facing over $100,000 in credit card debt, Elizabeth Picard sought debt settlement help from Credit Solutions, Inc. Credit Solutions advised Picard to stop paying her creditors and promised to pay down her debts if she gave them authorization to make direct withdrawals from her bank account. Over four months, Credit Solutions withdrew over $5,500 from her account and failed to pay any creditors. Picard’s creditors declared her in default and demanded immediate payment, forcing her into bankruptcy. Picard sued, among other things, for violations of the Credit Repair Organizations Act (CROA). Credit Solutions argued that CROA did not apply to it and moved to compel arbitration pursuant to the agreement Picard had signed with them.
In an amicus brief to the Eleventh Circuit on behalf of itself, the National Consumer Law Center, National Association of Consumer Advocates, and U.S. Public Interest Research Group, Public Citizen argues that CROA applied to Credit Solutions and that CROA precludes mandatory pre-dispute binding arbitration of claims under the Act.
John Hancock Life Ins. Co. v. Patten, No. 06-49
In this case, the U.S. Court of Appeals for the Fourth Circuit held that an arbitrator had "manifestly disregarded the law" when he dismissed a plaintiff's claim of wrongful termination and employment discrimination because he thought that the arbitration contained a time limit for bringing such claims when it clearly did not. The defendants (John Hancock Life Insurance Co. and some of its subsidiaries) have now asked the Supreme Court to take the case, arguing that arbitration awards should not be overturned when an arbitrator deliberately ignores the law, even though the courts of appeals have allowed such review of arbitration awards for half a century. PCLG is assisting counsel for the plaintiff in opposing John Hancock's request that the Supreme Court hear the case.
"How to Arbitrate A Class Action - Or Not"
One of the most controversial class action issues today is whether arbitration clauses in consumer and employment agreements should preclude class actions. A recent ABA program moderated by Scott Nelson of Public Citizen Litigation Group addressed how courts and arbitration organizations have dealt with class arbitration, and the closely related topic of whether arbitration clauses that contain class action waivers are enforceable. Free audio of the program is now available online.
Ryan's Family Steak Houses v. Walker (U.S. Supreme Court)
In this case currently pending before the Supreme Court, the U.S. Court of Appeals for the Sixth Circuit held that an arbitration clause used in all Ryan's Steak Family Houses employment contracts was unenforceable under Tennessee law on a number of grounds, including unconscionability, lack of mutuality, and structural bias. The arbitration clause would require Ryan's employees to arbitrate their disputes through EDSI, a for-profit dispute resolution service that receives 42% of its income from fees paid by Ryan's for arbitration services. We filed a brief in opposition to certiorari.
CIM Insurance v. Armettia Peach (U.S. Supreme Court)
When Armettia Peach bought a car in 2002, she signed a contract with the car dealership to purchase an "extended protection plan" through CIM Insurance. She later sued CIM alleging that the contract was a CIM form contract that contained mispresentations in violation of state consumer fraud statutes. CIM moved to compel arbitration, relying on an arbitration clause in Ms. Peach's contract with the dealership. The Illinois courts rejected CIM's attempt to compel arbitration because CIM was not a signatory to the contract. The question presented is whether a non-signatory to a consumer contract, when sued by a signatory for conduct related to the contract, can compel arbitration on an agency or equitable estoppel theory. We filed a brief in opposition to certiorari and the petition is currently pending before the Court.
Faber v. Menard (8th Circuit)
In Faber v. Menard, we represented an employee who argued that he cannot be forced to arbitrate his Age Discrimination in Employment Act (ADEA) claim under an arbitration agreement that forces him to bear his costs and attorneys' fees in arbitration, and thus denies him his statutory right under the ADEA to be reimbursed for those costs and fees were he to prevail in litigation.
Pacificare Health Systems v. Jeffrey Book (U.S. Supreme Court)
In Pacificare, the question presented was whether a court may compel arbitration of a plaintiff’s RICO claims under a valid arbitration agreement even if that agreement does not allow an arbitrator to award punitive damages, leaving to the arbitrator in the first instance the decision of what remedies are available to the RICO plaintiff in arbitration.
Green Tree Financial Corp. v. Randolph (U.S. Supreme Court)
The question in this case was whether an arbitration agreement that does not mention arbitration costs and fees may be held unenforceable on the grounds that it fails to affirmatively protect a party from steep arbitration costs. Unfortunately, the Court held that an agreement's silence with respect to such matters does not render the agreement unenforceable.
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