Justice for Sale, Part 3: The War on Consumer Class Actions

"Companies are now free to scam their customers out of small amounts, Bland said, and even if the customers realize they’re being scammed, they’re almost certainly not going to bother fighting the company in an individual arbitration.

"And, even if they wanted to challenge the company, few lawyers would be willing to take on such small cases, he said.

“'Concepcion is being interpreted in a way that lets corporations get away with cheating people, in complicated ways, out of sums of money that aren’t that big to the individual, but add up to hundreds of millions of dollars to the company,' Bland said."

Justice for Sale, Part 3: The War on Consumer Class Actions
By: Will Carless
Voice of San Diego
May 28, 2013

See Omar Passons and Maura Larkins comments on this story HERE.
See Part 1 HERE.
See Part 2 HERE.

Hal Rosner is an attorney with the Auto Fraud Legal Center. In a case pending before the California Supreme Court, Rosner is seeking to limit the scope of mandatory arbitration clauses.

Hal Rosner was apoplectic.

The Scripps Ranch lawyer turned ever-darker shades of pink as he outlined what he called the U.S. Supreme Court’s war against consumers. He was brandishing a 28-inch, yellow automobile purchase contract and waving it like a pennant.

“It’s a basic, fundamental attack on the United States Constitution, and it’s why our Supreme Court should walk around with shame,” Rosner said. “Our Supreme Court violated the United States constitutional right to jury trial like a group of little whores.”

Rosner’s a trial lawyer, so it’s fair to chalk up some of his outrage down to the natural theatrics of his profession.

But he’s also got good reason to be mad. And so do consumers.

In a game-changing 2011 decision, the U.S. Supreme Court dealt a huge blow to consumer advocates. In a 5-4 ruling, the court essentially said that not only is it OK for companies to put clauses in their contracts forcing customers to settle disputes in private arbitration, but they can also bar customers from bringing class action lawsuits against them or even arbitrating their disputes as a class.

The decision in the case, AT&T Mobility v. Concepcion, a class action lawsuit that originated in San Diego, involved customers who had been charged small amounts for phones advertised as “free,” overturned years of law developed in the California Legislature and upheld by its courts to protect consumers against a seemingly unstoppable trend.

For decades, businesses across the country have increasingly been writing their way out of the judicial system. By inserting “mandatory arbitration clauses” into their contracts, companies ranging from auto dealers to cell phone companies to health care providers have cut off their customers’ access to the courts, forcing them instead to settle disputes in private arbitration.

That has long concerned consumer advocates and even some industry insiders, who say arbitration is biased in favor of big business. But, for many observers, those worries are nothing compared with the Supreme Court’s 2011 decision.

“It’s earth-shattering. It takes away your right to hold companies accountable for transactions that we all engage in every day,” said Deepak Gupta, one of the attorneys who represented the plaintiffs in the Concepcion case before the Supreme Court. “We all assume that we have a right to hold a company accountable if they’re cheating us. We assume the consumer protection laws will apply. What’s frustrating is the average person doesn’t know that when they take out a contract … they’ve given away their rights.”

The Golden State for Consumer Protection

Historically, California hasn’t been a bad place to be a consumer.

The legislature in the Golden State has spent the last few decades trying to protect the little guys, and successive big court decisions have upheld consumer rights.

In the 1990s and early 2000s, as mandatory arbitration clauses became all the rage for corporations across the country, the California Legislature pounced, passing a slew of laws in 2002 aimed at protecting consumers from the ever-growing trend toward private justice. (Though one of the key laws has since been widely ignored by much of the arbitration industry).

The activism wasn’t limited to lawmakers. Several high-profile lawsuits concerning arbitration clauses found their way to the California Supreme Court. The granddaddy of these was a case called Discover Bank v. Superior Court, in 2005.

The California Supreme Court ruled in that case that companies couldn’t put blanket bans on class action lawsuits in their contracts. To do so was “unconscionable” in legalese. It wouldn’t fly.

Over the next few years, at least 13 other states ruled that blanket class action bans by companies were illegal, according to a research paper by Myriam Gilles of the Cardozo School of Law and Gary Friedman, a New York attorney.

Then, in 2011, California’s groundbreaking rules were put to the ultimate legal test.

The Concepcion case originated in 2006, when a San Diego couple, Vincent and Liza Concepcion, signed a deal offered by AT&T to receive a “free” phone if they signed a two-year cell phone contract. The couple was later charged $30.22 in sales tax for the phone, and they sued AT&T in a class action.

But AT&T had a mandatory arbitration clause in its contract with the Concepcions and other customers barring them from suing the company in court. The clause also said that each customer had to arbitrate his or her case individually, and that groups of consumers couldn’t come together to fight their cases as a class arbitration.

AT&T asked the U.S. District Court in San Diego to dismiss the class action based on that clause. But the court refused, citing the rule that had been established in the Discover Bank case. AT&T appealed to the 9th Circuit and eventually, the Supreme Court agreed to hear the case in 2010.

The high court’s ruling — which found that the Federal Arbitration Act trumped individual states’ decisions to forbid class action bans — largely dismantled California’s years of consumer protection efforts.

The impact of the ruling was swift and far-reaching.

A 2012 report by Public Citizen, an advocacy group, and the National Association of Consumer Advocates, found that judges nationwide had struck down 76 potential class action cases since the ruling.

“These cases undoubtedly would have included the claims of thousands — if not hundreds of thousands — of consumers,” the report states.

F. Paul Bland, a senior attorney at Public Justice, a public interest law firm in Washington, D.C., and one of the country’s leading consumer advocates, said the Supreme Court took away the only method by which consumers can get justice when they’ve been bilked out of small amounts of money.

Companies are now free to scam their customers out of small amounts, Bland said, and even if the customers realize they’re being scammed, they’re almost certainly not going to bother fighting the company in an individual arbitration.

And, even if they wanted to challenge the company, few lawyers would be willing to take on such small cases, he said.

“Concepcion is being interpreted in a way that lets corporations get away with cheating people, in complicated ways, out of sums of money that aren’t that big to the individual, but add up to hundreds of millions of dollars to the company,” Bland said.

Creating a Better System

Andrew Pincus, the attorney who argued the Concepcion case on AT&T’s behalf, said the shift away from class actions is actually good for consumers.

Pincus said AT&T’s mandatory arbitration clause provides excellent remedies for consumers who have been legitimately wronged. Consumers can recoup bonuses from the company worth thousands of dollars more than their claim, he said, and lawyers have impetus to fight arbitrations, since they’re entitled to double their fees if they win.

Mandatory arbitration clauses like AT&T’s are a much better way to filter out frivolous claims against companies, Pincus said.

Pincus’ arguments would have more merit in a world where every business has an arbitration clause that provides legitimate, generous bonuses to successful plaintiffs, Gupta countered. But many arbitration clauses don’t, and only allow wronged consumers to recoup the small amounts of money they have lost, he said.

And Gupta argued there’s no incentive for companies to provide such bonuses in their contracts.

The End for Consumer Class Actions?

Jeremy Robinson, a class action attorney at San Diego firm Casey Gerry, said the Concepcion decision has undoubtedly had a dampening effect on his firm’s class action business.

But that doesn’t mean consumer class actions are dead, Robinson said. His firm’s lawyers still look closely at all potential class actions brought to them, even if the consumers have signed a contract that bars class actions.

That’s because the Supreme Court left another door for consumers open just a crack.

At its core, the Concepcion case was all about the legal concept of “unconscionability.” The key question was whether it was unconscionable for companies to flat-out bar class actions in their contracts. The Supreme Court said no, it wasn’t.

But in the same decision, the court left open the possibility that mandatory arbitration clauses in consumer contracts can be found unconscionable for other reasons.

There are all sorts of ways that mandatory arbitration clauses can, and are, struck down by the courts. A company is unlikely, for example, to get away with a mandatory arbitration clause that includes a $10,000 bill to consumers for arbitrating the case.

That’s where Rosner, in Scripps Ranch, comes in.v Rosner currently has a big case pending before the California Supreme Court. The lawsuit hinges on that long, yellow contract that Rosner is fond of waving about.

Rosner’s case, Sanchez v. Valencia Holding Co. LLC, argues that the standard-issue contract long used by California car dealerships is unconscionable for a number of reasons, including the fact that the mandatory arbitration clause is printed on the back of the form.

The lawsuit is significant because it’s an opportunity for the California Supreme Court to further define what is allowable in a contract, Bland said.

But it’s also limited — if the court finds that the specific form of contract the car dealers were using was not allowed, they can simply rewrite the contract, he said.

To avoid class action lawsuits, then, all big companies need to do is to bar customers from bringing such lawsuits in their contracts, and make sure the contracts are otherwise legally airtight, Bland said.

Rosner’s case illustrates the remarkable sea change that’s taken place in consumer laws in California: Not long ago, California was pioneering measures that enshrined consumers’ rights. Now consumer attorneys must pore through corporate contracts, picking apart clauses or insertions that might be unfair and asking courts to toss them out in a piecemeal attempt to regain some of those rights.

All Eyes on Washington

For consumer advocates, this issue has pretty much hit a dead end in the judicial branch of the American political system.

Unless the U.S. Supreme Court makes a U-turn on arbitration clauses, advocates like Bland are only going to get incremental help from the court system.

That leaves the legislative branch and executive branches.

“Until something comes out of Washington, D.C., consumers, workers, patients, investors, are in a lot of trouble,” said San Francisco attorney Cliff Palefsky, a longtime opponent of mandatory arbitration.

On the legislative side, Sen. Al Franken (D-Minn.) re-introduced legislation he wrote in response to the Concepcion ruling. But several consumer advocates said the Arbitration Fairness Act is dead in the water, given that the Republican House majority is unlikely to even consider the bill.

That leaves the executive branch.

Last year, President Obama’s newly minted Consumer Financial Protection Bureau launched a public inquiry into arbitration clauses.

That was more than a year ago, and there’s been little movement from the agency since.

Without action from the very top, Californians will just have to live with the fact that a longtime remedy against the companies they spend their money on is rapidly disappearing.

Chris Brewster comment

...If arbitration is better for the consumer and the merchant, why not make it an OPTION? If they both prefer it, fine.

See Omar Passons and Maura Larkins comments on this story HERE.


COMMENTS BY OMAR PASSONS AND MAURA LARKINS

"Most people, particularly the people to whom the $30.22 is most critical, do not have the time and/or skill to pursue these issues."--Maura Larkins

Omar Passons May 28, 2013

I almost don't know where to begin. A 3-part series and you dedicate 3 sentences in the final part of the series to the opposing view? Wow. $30.22 is enough to buy food for almost a week, so it's nothing to shake a stick at.

But the ATT Mobility case is the paradigmatic example of why we need class action reform. You left out that the Concepcions only had to fill out a 1-page form to have their issues heard. And you left out that their MINIMUM recovery if they were right on their $30 claim as $7500. And you left out that they had the option to pursue their $30 claim in small claims court, where there are no lawyers and the judges are very relaxed with the rules, if they didn't want arbitration.

You also left out that class action cases can very easily cost more than $100,000 before you even address whether anyone did anything wrong. The "liability" portion of a class action doesn't even really get going until a judge certifies a class. I get it, your a journalist, not a lawyer, but as I mentioned previously there are plenty of lawyers around town who would give you a more fair picture. Or, for that matter, call any in-house lawyer for any large company. Or better, call the CFO. These cases are huge sources of awards for attorneys, not so much for the little guy or woman you claim is being so wronged by class waivers.

Your article also fails to acknowledge that there is no requirement that people actually have been wronged to bring a class action suit. They just need a few plaintiffs to be willing to stand in as the named plaintiffs and then a very expensive fishing expedition can begin to attempt to find people who are actually wronged. And put all this aside for a moment. The whole reason class actions exist is to create a way to make people whole when there is no incentive for them to bring the suit on their own. Here, where the barrier to getting your rights vindicated is a one-page form and a telephone call, there is almost no fear of it not being worth someone's time to file. In fact, with a recovery of more than 1000 times their actual harm I'm surprised everyone who bought an AT&T phone didn't try to use their more than generous dispute resolution procedure. I'm not even a particular supporter of the system of arbitration, it is frequently patently unfair. But this journalism isn't even an attempt to give people enough information to make an informed decision about the topic.


MAURA LARKINS' RESPONSE TO OMAR PASSONS May 28, 2013

Omar, I found that I disagreed with a number of your statements. Here are those statements with my responses:

[Passons] "$30.22 is enough to buy food for almost a week, so it's nothing to shake a stick at."

[Maura Larkins' response] Most people, particularly the people to whom the $30.22 is most critical, do not have the time and/or skill to pursue these issues.

[Passons] But the ATT Mobility case is the paradigmatic example of why we need class action reform.

[Maura Larkins' response]"Paradigmatic"? Why didn't you just say it's a good example? And are you really sure that there is only one paradigmatic example? I doubt that very much. I'm sure many people consider other examples to be more significant in arbitration reform.

[Passons] You left out that the Concepcions only had to fill out a 1-page form to have their issues heard.

[Maura Larkins' response] That's just the start, Omar. Then they have to deal with the big corporation for heaven knows how long.

[Passons] And you left out that their MINIMUM recovery if they were right on their $30 claim as $7500.

[Maura Larkins' response] Since when did arbitration decisions depend on who was "right"? Did you look at the graphic in part 2 of this series? No matter how right the Concepcions might be, they are almost certainly going to lose.

[Passons] And you left out that they had the option to pursue their $30 claim in small claims court, where there are no lawyers and the judges are very relaxed with the rules, if they didn't want arbitration.

[Maura Larkins' response] That would require serving a subpoena on a huge corporation (AT&T) after they discover who it AT&T's agent for service. Then AT&T's lawyers would probably contest everything, including whether service was proper. Then the Concepcions would have to prepare documentation and arguments and go to court. And that still wouldn't guarantee that the judge would side with the little guys against a big corporation.

[Passons] You also left out that class action cases can very easily cost more than $100,000 before you even address whether anyone did anything wrong.

[Maura Larkins' response] That's why you need a big class of people, Omar. So that the payoff will be bigger than the cost.

[Passons] The "liability" portion of a class action doesn't even really get going until a judge certifies a class. I get it, your [sic] a journalist, not a lawyer, but as I mentioned previously there are plenty of lawyers around town who would give you a more fair picture.

[Maura Larkins' response] Don't be patronizing. I think Will got a very fair picture of the situation. And I think there are plenty of lawyers around town who would be happy to give Will an unfair picture.

[Passons] Or, for that matter, call any in-house lawyer for any large company. Or better, call the CFO.

[Maura Larkins' response] We already know AT&T's position. It's in the case pleadings, and in the Supreme Court decision. It's the OTHER side of the story that we need, and Will did a good job on that.

[Passons] These cases are huge sources of awards for attorneys, not so much for the little guy or woman you claim is being so wronged by class waivers.

[Maura Larkins' response] [But the little guy usually can't represent himself effectively. That's why we need lawyers who will represent consumers and make sure that the powerful respect the legal rights of the powerless. Plaintiff lawyers wouldn't have to work so many hours and collect so much pay if there weren't lawyers on the other side being paid big bucks to come up with one reason after another to slow down the case.]

[Passons] Your article also fails to acknowledge that there is no requirement that people actually have been wronged to bring a class action suit. They just need a few plaintiffs to be willing to stand in as the named plaintiffs and then a very expensive fishing expedition can begin to attempt to find people who are actually wronged.

[Maura Larkins' response] [We all know what planet we're on, Omar. Yes, people make false claims all the time. Big corporations are among the worst offenders, making claims that they are owed money when they are not owed anything at all.]

[Passons] Here, where the barrier to getting your rights vindicated is a one-page form and a telephone call, there is almost no fear of it not being worth someone's time to file.

[Maura Larkins' response] [You know very well that you have to do a lot more than fill out one page and make a phone call to get your rights vindicated. And you must have a lot of time on your hands, Omar. Most people go to bed every night wishing they had had time to do things plenty more important than trying to get $30.22 back from AT&T.]

[Passons] In fact, with a recovery of more than 1000 times their actual harm I'm surprised everyone who bought an AT&T phone didn't try to use their more than generous dispute resolution procedure.

[Maura Larkins' response] [If this surprises you, Omar, then you must walk around in a continual state of shock as you observe the incomprehensible behavior of the ordinary people you meet. But I get the feeling that you rarely find the actions of corporations to be anything other than completely reasonable.]

Maura Larkins May 28, 2013

The Concepcion suit never should have been filed in the first place. ATT didn't collect the sales tax, the state did. So to suggest that ATT scammed anybody out of their money is false. It's no wonder companies want to reduce the possibilities of lawsuits when lawyers can talk simple-minded people into filing class actions based on false premises. Carless wants to paint business as the bad guy because that's what he fundamentally believes: that business is bad. Power to the people and all that nonsense. But the sad fact is that if it wasn't for lawyers of questionable moral value hooking up with simpletons, the courts wouldn't be full of bogus lawsuits and our ladders wouldn't have a dozen stickers telling us not to do stupid things. If the lawyers were so worried about the Concepcion's thirty dollars, they should work to rewrite the state law that says the state can collect sales tax on something a company is willing to give away for free.

Moving on from My Dream Job
By: Will Carless
May 2, 2013

...In July, my family and I will be packing our bags and heading off on a new adventure. My wonderful wife, Christin, has accepted a job with the Uruguayan American School in Montevideo, Uruguay. I have decided to follow a new path in my career: From a base in Montevideo, I plan to work as a foreign correspondent, reporting on current events across South America...

Justice for Sale Part 2: Mandatory arbitration clauses a part of almost every consumer contract including medical care

"Arbitration companies in California have long been required to make their records public, but many don't bother, leaving consumers in the dark about a rapidly growing sector of the state's justice system."

Justice for Sale, Part Two: Ignoring the Law
By: Will Carless
May 23, 2013

See Part 1 HERE.
See Part 3 HERE.


Graphic by Amy Krone

A 2008 lawsuit by the San Francisco city attorney alleged that one large private arbitration provider, the National Arbitration Forum, found against consumers 99.8 percent of the time in hearings between Jan. 1, 2003 and March 31, 2007.

A decade ago, California lawmakers decided to act in response to a startling trend in consumer law.

Corporations across the country had increasingly been inserting clauses into their contracts that barred consumers from taking them to court. Instead, consumers who signed the contracts were limited to challenging the companies in arbitration, a privatized form of justice that some experts and attorneys say is often heavily biased in favor of companies.

Mandatory arbitration clauses were becoming a part of almost every consumer contract from cell phones to car rental to medical care. Employers were inserting mandatory arbitration clauses into their workers’ contracts, barring employees who challenged their dismissal from taking their hearings to court.

Concerned about the growing ubiquity of mandatory arbitration, the state Assembly’s Judiciary Committee put together an aggressive, bipartisan package of legislation aimed at protecting consumers. One of the key bills to come out of that effort in 2002 required arbitration providers to make public key information about the thousands of cases being heard by their private judges.

If arbitration was to become widespread, lawmakers at least wanted the process to be transparent.

But a decade later, as arbitration has expanded into almost every corner of Californians’ lives, this private world of justice remains as secretive as ever. Many of the providers of arbitration in the state have paid little or no attention to the legal requirement to provide data about their cases, and when companies do provide information, it’s almost always unwieldy and hard to find.

That’s prompted the Judiciary Committee to take a fresh look at its efforts to regulate arbitration. After a March hearing in which the committee learned that arbitration firms are frequently ignoring the law, the committee chairman introduced a new bill AB 802 proposing hefty fines for violations.

“We want to be very clear that if you don’t do this, here’s the penalty,” said Democratic Assemblyman Bob Wieckowski, who chairs the committee. “These people are flouting the law and they’ve got enormous power over people’s lives.”

By compelling arbitration firms to be transparent, lawmakers and academics hope to answer a key question: Is arbitration as biased as its critics say, or as fair as its proponents claim?

In addition to anecdotal evidence from attorneys and academics who complain that the system is an uneven playing field, consumer advocates got some stark proof of just how one-sided arbitration can be a few years ago.

One of the country’s leading arbitration providers, the National Arbitration Forum, was sued separately in 2008 by San Francisco City Attorney Dennis J. Herrera, and in 2009 by Lori Swanson, state attorney general of Minnesota, where the company is based.

The claims made in the lawsuits were extraordinary: Herrera said NAF was finding in favor of corporations in 99.8 percent of the thousands of cases brought before it. Perhaps even more shocking, Swanson alleged that NAF was actually owned by an investment group that also owned many of the companies its private judges were siding with in arbitration hearings. NAF denied all the claims against it.v Now, California attorneys, academics and lawmakers want to know if there are other arbitration firms operating in the state with similar records.

They hope the new legislation they’re pushing will finally provide the data they need to figure that out.

“The Legislature passes laws and they have no idea whether those laws are working,” said Cliff Palefsky, a San Francisco attorney who has been a vocal critic of mandatory arbitration for years. “This is the only way they can get the information they need to take corrective measures.”

‘I Don’t Know Where That Came From’

Victoria Walsh was confused.

“We don’t publish data and we never have. We very rarely release any data,” the communications specialist at arbitration giant JAMS told me on April 22. “I don’t know where that came from!”

Turns out that came from the California Legislature.

Section 1281.96 of the California Code of Civil Procedure requires companies like JAMS to put certain case information on their websites, including the name of the company being challenged, the name of the arbitrator who ruled on the case and how much the winning side received.

The law was introduced back in 2002. At the time, California was leading the country: No other state required arbitration firms to make their findings public.

Lawmakers wanted individuals and attorneys to be able to find out about the company that would oversee their hearings and provide the private judge who would decide their case.

They hoped the data would allow plaintiffs lawyers to avoid so-called “repeat players” — arbitrators who made a name for themselves as being business-friendly and received more work from companies as a result.

And by collecting data on arbitrations, more could be learned about how often plaintiffs win challenges against companies that have forced them into arbitration.

Two months ago, the Assembly Judiciary Committee discovered just how little attention was being paid to the law.

“Many firms simply don’t comply with the reporting requirements,” David Jung, director of the Center for State and Local Government Law at the University of California, Hastings College of the Law, told the committee.

Jung and his staff had spent months studying arbitration providers in California.

They had scoured the internet searching for arbitration firms doing business in the state and came up with a list of 26 companies. After investigating each one, Jung’s team concluded that about half the firms weren’t making any information public whatsoever. Of the rest, only one, the American Arbitration Association, even came close to meeting the legal requirements.

“It’s really shocking that they’ve just disregarded this legal obligation,” committee chair Wieckowski said. “How can I be confident and trust them if they’re not going to do their reporting?”

After hours of testimony, including from San Diegan Jon Perz, whose six-year journey through the world of arbitration has made him the poster boy for the case against mandatory arbitration in California, the lawmakers were left to ponder how to fix a clearly broken system.

The day after her flustered response to my requests for data from JAMS, Walsh called back.

She had been mistaken, she said, and would email a link to the information I requested.

Walsh then sent a link to a sprawling 3,000-page document that was missing much of the required information.

Justice for Sale Part 1: Signing away their access to the justice system, consumers almost always lose in arbitration

See all posts on arbitration.

Will Carless

Justice for Sale, Part One: Arbitration Purgatory
By: Will Carless
Voice of San Diego
May 20, 2013

See Part 2 HERE.
See Part 3 HERE.

Jon Perz contends Mossy Toyota sold him a defective used car, and that the arbitration system he was forced into is stacked against consumers.

Six years ago, Jon Perz bought a used blue Ford Escort from Mossy Toyota in Pacific Beach.

The Story

Companies across the country insert wording into their small-print contracts that bars consumers from taking them to court.

So?

The contracts require consumers to settle disputes in arbitration, a private form of conflict resolution. As mandatory arbitration clauses have become ubiquitous, companies have carved out a world of justice that some insiders and academics say is deeply flawed and biased against consumers.

How?

Not only do corporations write arbitration into their contracts, they’re also increasingly stipulating the exact company or organization that will facilitate the arbitration. “It is almost impossible for us not to be self-serving,” says one arbitrator. Another disagrees.

During a test drive, Perz said he noticed a jarring vibration emanating from the car’s bowels every time he stopped at a red light or a stop sign. He said the salesman told him not to worry, that the engine’s idler needed a minor adjustment, and that he could bring the car in any day for a quick fix. Satisfied, Perz signed a contract to buy the vehicle for a cash price of $7,995.

As he drove home to Hillcrest, Perz noticed the vibration again. A couple days later, he brought the car back to Mossy for the adjustment. But when he picked it up, he said the car was still shaking violently. That’s when he started to get worried.

Perz said he took the car back to the dealership another two times, and tried to negotiate with Mossy repeatedly over the next few weeks. “They basically laughed in my face,” he said.

Perz said an independent expert he hired concluded the car had probably been submerged in water, causing the electrics to fail and rotting the vehicle’s frame with rust. Perz decided he couldn’t in good faith sell it to recoup his money. So he hired a lawyer.

That’s when he learned that he couldn’t take Mossy to court.

“My lawyer said I had to go to to arbitration,” Perz said. “I didn’t know even what that was.”

It was the first time he had heard the word, but arbitration was about to become a big part of Perz’s life. He had signed a contract that included a section known as a “mandatory arbitration clause,” meaning he had essentially waived his right to sue Mossy.

For the last decade or so, companies across the country have been inserting wording into their sprawling, small-print contracts that bars consumers from taking them to court.

Instead, the contracts require consumers to settle disputes in arbitration, an alternative, private form of conflict resolution that has none of the oversight or transparency of the courts. As mandatory arbitration clauses have become ubiquitous in contracts for everything from cell phones to employment, companies have carved out an alternative world of justice that some insiders and academics say is deeply flawed and biased against consumers from the outset.

Bob Fellmeth, a University of San Diego professor who has taught about consumer law, calls the shift toward the secretive world of arbitration “the most important consumer issue of our time.”

Over the last six years, as he has fought Mossy Toyota, Perz has become the poster boy for the burgeoning campaign against consumer arbitration in California.

As the blue Ford Escort sits in his garage, un-driven, gathering rust and dust, Perz has taken to the internet to tell his story. A video detailing his legal fight has raked in more than 280,000 views on YouTube, and Perz has attracted the attention of consumer advocates across the nation.

Richard J. Ritchie, who represents Mossy, said none of Perz’s claims about the car, or the way he has been treated by the dealership, are true.

He said the car was mechanically sound when Perz bought it, and said any claim that it was submerged in water is completely false. Mossy Toyota even tracked down the previous owner of the car, who stated in a deposition that it was in good shape when the dealership took ownership of it and had never sustained water damage, Ritchie said.

Mossy would love to have the case heard as soon as possible, he said, but Perz has spent the last six years coming up with excuses to keep the matter out of a hearing.

Ritchie said Perz has turned his fight into a crusade against the arbitration industry as a whole. Perz’s argument would quickly evaporate if he were to ever have his case examined on its merits, he said.

“His fight against the arbitration business has swallowed his initial complaint completely,” Ritchie said.

Perz counters that the only reason he is bound to arbitration is because Mossy forced him into it.

“I’ve spent six years in arbitration purgatory,” he said.

Signing Away Access to the Court System

It’s almost impossible to live in modern America without regularly signing away one’s constitutional right to a jury trial or even access to small claims court.

Those multi-page contracts you sign or click through online without reading invariably contain mandatory arbitration clauses that bar you from taking disputes to court.

The clauses are ever-present in contracts for medical procedures, car rentals and countless other services. Manufacturers have even begun placing mandatory arbitration clauses inside the plastic wrap on their products. The moment you unwrap the plastic on some new electronic products, you’ve lost your chance to take the company to court.

“When you pay your utility bills, you consent to arbitration. When you pay your credit card bills, you consent to arbitration, when you buy a house, you consent to arbitration,” said Hal Rosner, a local plaintiffs attorney. “There’s nothing you’re doing anymore that isn’t consent.”

Arbitration is supposed to provide a cheaper and quicker way to settle legal disputes than the court system. But academics, attorneys, plaintiffs and even an independent arbitrator contacted for this story described arbitration as an uneven playing field, with consumers facing an uphill battle from the start.

A Stable of Lame Horses

The challenge for consumers starts with the selection of the arbitrator, essentially a private judge who will hear the case and rule on its merits.

Not only do corporations write arbitration into their contracts, they’re also increasingly stipulating the exact company or organization that will facilitate the arbitration.

In California, most arbitrators are affiliated with one of several large organizations. The largest is the American Arbitration Association (AAA); another big one is JAMS (formerly Judicial Arbitration and Mediation Services). Both have offices in San Diego. Both companies declined to comment for this story.

When Perz started his legal fight, he was told to choose from one of a handful of arbitrators with AAA. His attorney, Michael Lindsey, researched each one and finally settled on Toni-Diane Donnet, a former plaintiffs attorney.

Two weeks before the case was due for a hearing, however, Lindsey said he discovered Donnet had previously run a website offering legal advice to car dealerships. And as the hearing approached, the arbitrator began to send him and Perz solicitations for her real estate business, Lindsey said.

Worried his client was headed for an unfair hearing, Lindsey requested that Donnet be removed from the case. She was disqualified, and the process began anew.

Donnet, who now works as a mediator for the San Diego Association of Realtors, said she didn’t recall the Perz case. She said she spent much of her legal career suing car dealerships, and was surprised, looking back, that it was Perz and not Mossy Toyota who asked to have her disqualified. She also denied sending the real estate solicitations.

In a brief in San Diego Superior Court years later, Ritchie wrote that the objection to Donnet was the first in a series of attempts to delay the case because Perz wanted it to be heard in court, not arbitration.

Indeed, Perz and Lindsey later rejected another arbitrator, JoBeth Halper. Out of the 40 cases Lindsey could find that she had arbitrated for AAA, he said, Halper had never once found in favor of the consumer.v But AAA declined to disqualify Halper. Desperate, Lindsey appeared before Superior Court Judge Steven R. Denton, who sided with Mossy, and said the matter should continue in arbitration. Frustrated, Lindsey pulled out of the arbitration a few weeks later.

Ritchie said that was just another stalling tactic. Perz and Lindsey couldn’t prove that the second chosen arbitrator was biased, he said, and they just didn’t want the case heard on its merits.

These disagreements highlight one of the problems frequently cited with arbitration: The process is controlled by an arbitration provider, which makes the rules for the hearings and selects the private judges a plaintiff can choose from.

Kevin Baker, deputy chief counsel for the state Assembly’s Judicial Committee, which is currently looking into the growth of arbitration clauses in California, likened that aspect of the process to a rigged horse race.

The company gets to choose which stable the consumer selects their horse from, Baker said. Inside that stable might be five horses, all showing signs of impairment.

“Once you’re in that stable, you can say, ‘That horse is lame,’ or, ‘That horse is foaming at the mouth,’ but you’re still limited to those horses,” Baker said. “You can pick, but you only get to pick the least-worst horse.”

‘How Often Would You Rule Against Your Family?’

The selection of an arbitration company isn’t the only factor working in big business’s favor.

There’s also a more fundamental flaw with the arbitration system: volume.

Most often, the cost of arbitration is borne by the company being sued. Some arbitrators charge hundreds of dollars an hour or thousands of dollars a day. Put simply: Arbitration is big business for a few people who make a name for themselves, primarily retired trial judges.

That causes an inherent conflict: Large businesses naturally want to hire arbitrators likely to rule in their favor, said Alan Schulman, a law professor at USD.

“Arbitrators want to be hired again and again, and they won’t be selected again if they get a reputation as ruling for consumers,” Schulman said. “If they get a reputation for having awarded plaintiffs damages repeatedly, businesses are not going to select them.”

Schulman acknowledged that there are checks in California law to guard against companies and arbitrators developing relationships that handicap plaintiffs. Individuals who believe they have been wronged by a biased arbitrator can appeal to a judge, he said.

“But the reality is that a business would rather have its case decided by a professional judge than by 12 jurors,” Schulman said.

Victoria Pynchon has been working as an independent arbitrator for almost 10 years. The San Diego native didn’t mince words when asked whether the system is fair.

“It’s a huge justice problem,” Pynchon said. “Consumers are getting screwed. Every single day, their constitutional right to a jury trial is being stolen from them.”

“Consumers are getting screwed. Every single day, their constitutional right to a jury trial is being stolen from them.”

Pynchon, who works in Los Angeles, said she makes an enormous effort to discard her biases when she’s judging cases. But she said it’s almost impossible for arbitrators to completely forget who is buttering their bread. The result is “asymmetrical warfare,” she said.

“It is almost impossible for us not to be self-serving,” she said. “Just think of family. How often are you going to rule against your family?”

Longtime local arbitrator Mandel Himelstein begged to differ. He acknowledged that the system has room for unscrupulous individuals, but he said all of the hundreds of arbitrations he has worked on have had fair outcomes.

He said most arbitrators aren’t in it for the money. Rather, they’re trying to provide a fair, balanced forum where parties can get their disputes settled quickly, easily and cheaply, he said.

“I may live in a Pollyannaish world, but the people I work with are fair,” Himelstein said.

Arbitration Purgatory

At this point, the stakes have risen considerably for Perz.

His dispute is no longer just about the money he paid for his blue Ford Escort. He could find himself on the hook for tens of thousands of dollars that Mossy has spent on legal fees over the past six years.

Last year, in an arbitration hearing, retired Judge William J. Howett ruled that Perz had taken too long to bring his case.

In the six years Perz had been fighting his battle, the statute of limitations for bringing a lawsuit against Mossy Toyota had expired, Howett said.

Lindsey has appealed the decision, and is trying to get the case in front of a different arbitrator — one who doesn’t work for AAA.

For his part, Perz seems at times a little confused by the case that has defined his life for the last half-decade. There have been so many legal documents, arguments, claims and counter-claims over the years that his tale can get rather overwhelming.

He believes he could prove that Mossy sold him the lemon of all lemons. All he wants is the chance to make that case in a courtroom.

“In no way in my wildest dreams did I realize an arbitration agreement would allow them to do this,” he said. “It’s so frustrating. It’s just heartbreaking.”

Next in the series: Arbitration companies in California have long been required to make their records public, but many don’t bother, leaving consumers in the dark about a rapidly growing sector of the state’s justice system.

Texas DA murders: wife of former justice of peace says her husband killed DA McLelland and wife and prosecutor

"Could three people all be dead because someone stole a computer?"

Police: Wife says JP killed Kaufman County DA, spouse and prosecutor
Apr. 17, 2013
By Bill Hanna
star-telegram.com

The wife of a former Kaufman County justice of the peace told authorities that her husband shot and killed Kaufman County District Attorney Mike McLelland, his wife, Cynthia, and Assistant District Attorney Mark Hasse, according to an arrest warrant affidavit.

In an interview Tuesday with an investigator, Kim Williams, 46, "confessed to her involvement to the scheme and course of conduct in the shooting deaths," according to the affidavit signed by Sgt. Matt Woodall of the Kaufman County Sheriff's Department.

The affidavit said "Kim Williams described in detail her role with that of her husband, Eric Williams, whom she reported to have shot to death Mark Hasse on January 31, 2013, and Michael and Cynthia McLelland on March 30, 2013."

Kim Williams also "gave details of both offenses which had not been made public," the affidavit said.

Kim Williams was booked into the Kaufman County Jail at 2:58 a.m. Wednesday. Her bond was set at $10 million.

Eric Lyle Williams remains in jail on a terroristic threat charge in connection with a threatening email sent March 31, the day after the McLellands were killed in their home near Forney.

The email threat said that "unless law enforcement officials responded to the demands of the writer, another attack would occur," according to his arrest warrant affidavit. The affidavit said Eric Williams used "unique identifiers" found at his home to send the message.

Eric Williams, 46, a 1985 graduate of Azle High School, also graduated from TCU and the Texas Wesleyan University law school. He was arrested Saturday and is being held on $3 million bond. He has not been charged with the slayings.

Eric Williams, while working as a justice of the peace in Kaufman County, was convicted last year of stealing county computers in a case prosecuted by McLelland and Hasse. As a result, he lost his peace officer's license and his law license was revoked.

He has appealed his theft conviction, and a day before the McLellands' bodies were found, a state appeals court in Dallas agreed to hear oral arguments in the case.

During the sentencing phase of Eric Williams' trial, Kim Williams testified in her husband’s defense. She said she suffers from several illnesses, including rheumatoid arthritis and chronic fatigue syndrome. She said her husband is her sole caregiver as well as the caregiver for her two ailing parents.

"Eric is a loving man," she testified. "He wouldn't do anything to hurt anybody. I'm standing by him 100 percent."

Kaufman County Judge Bruce Wood said Tuesday that McLelland was steadfast in his belief that Eric Williams was responsible for Hasse's death, something he reiterated on the Wednesday before he was killed.

"He thought that from Day One," Wood said. "He never wavered. ... He said he knew he did it, but he just couldn't get the evidence to prove he did it."

Both McLelland and Hasse began carrying handguns regularly after Williams' trial "because they believed Eric Williams to be a threat to their personal safety," according to Kim Williams' arrest affidavit.

Glenda Rand, a Kaufman native and owner of the Daisy’s clothing store on the town square, said on Tuesday that she has mixed feelings about the recent developments.

"But I don’t know how I feel that it might have been one of our own who did this," Rand said. "Could three people all be dead because someone stole a computer?"

Sandra Day O'Conner comes clean about Bush v. Gore twelve years after contested election

Retired Justice O’Connor suggests for 1st time that court should have avoided Bush v. Gore
By Associated Press
April 29, 2013

WASHINGTON — Retired Supreme Court Justice Sandra Day O’Connor is suggesting for the first time that the court should have stayed out of the 2000 presidential election dispute between George W. Bush and Al Gore.

The 83-year-old O’Connor tells the Chicago Tribune editorial board that perhaps she and her colleagues should have turned down the Bush campaign’s appeal of a Florida Supreme Court decision to allow a recount requested by the Gore campaign.

O’Connor was in the majority in the high court’s 5-4 decision that stopped the recount and sealed Bush’s election. She has long lamented the controversy over the decision that she said gave the court a “less-than-perfect reputation.”

But in the past, O’Connor has said the court had no choice but to take on the case. She retired in 2006.


Ex-Supreme Court justice has second thoughts on Bush v. Gore
By Mark Murray, Senior Political Editor
NBC News
April 29, 2013

Former U.S. Supreme Court Justice Sandra Day O'Connor expressed doubts that the nation's highest court should have ruled on the controversial Bush v. Gore case that decided the outcome of the 2000 presidential election.

"It took the case and decided it at a time when it was still a big election issue," O'Connor told the Chicago Tribune editorial board on Friday. "Maybe the court should have said, 'We're not going to take it, goodbye.'"

The Tribune has more from O'Connor:

The case, she said, "stirred up the public" and "gave the court a less-than-perfect reputation."

"Obviously the court did reach a decision and thought it had to reach a decision," she said. "It turned out the election authorities in Florida hadn't done a real good job there and kind of messed it up. And probably the Supreme Court added to the problem at the end of the day."

O'Connor, who was appointed to the court by Ronald Reagan in 1981, was part of the 5-4 majority deciding to stop the recount in the crucial battleground state of Florida.

Judge recommends disbarment for Del Norte DA

Judge recommends disbarment for Del Norte DA
By Amy Yarbrough
The California Bar Journal
Official Publication of the State Bar of California
May 2013

Noting that for 20 years he had “repeatedly violated his ethical and professional duties,” a State Bar Court hearing judge has recommended Del Norte County District Attorney Jon M. Alexander be stripped of his law license.

Alexander [bar # 129207], 64, was also placed on involuntary inactive status as a result of Judge Lucy Armendariz’s April 4 disbarment ruling.M Armendariz found Alexander culpable of communicating with a defendant without her attorney’s consent, withholding evidence from the defense and acts of moral turpitude. The disbarment does not go into effect until it is approved by the California Supreme Court.

It was the first time in recent memory that an elected district attorney was the subject of a disciplinary trial. According to published reports, Alexander was suspended without pay by the Del Norte County Board of Supervisors following the decision.

In her ruling, Armendariz wrote that Alexander’s misdeeds were aggravated by the fact he refused to acknowledge his wrongdoing, and that he had failed to uphold his duties as a district attorney.

“Respondent’s misconduct frustrated the administration of justice,” she wrote. “His abuse of his prosecutorial power has negatively impacted the reputation of the district attorney’s office and the public’s trust in the justice system.”

A controversial figure who overcame methamphetamine addiction and other personal struggles to win the district attorney election in 2010, Alexander had a string of State Bar disciplinary problems prior to the case that now threatens his law license. In 1996, he received a private reproval for failing to abide by agreements that were made in lieu of disciplinary prosecution, and for two misdemeanor convictions for driving with a suspended license. In 2003, he received a six-month actual suspension for failing to return unearned fees to a client and for the unauthorized practice of law while he was suspended for not paying his bar dues.

Alexander then received a 60-day actual suspension for misconduct in four matters, including failure to perform services competently, failure to communicate with clients, engaging in the unauthorized practice of law and engaging in an ex parte communication with a judge in a criminal case in order to influence the sentence. He was still on probation for this disciplinary action in 2011, when the conduct that triggered the current case against him occurred.

In the current case, Alexander was initially charged with seven counts of misconduct in three matters, although Armendariz found him culpable in only three of the charged counts. She found that he had talked with a defendant privately in his office about her drug case, despite knowing that the woman had an attorney. During the conversation the defendant recanted statements she made at the time of her arrest, in which she implicated her co-defendant and admitted to Alexander that the drugs at issue in the case actually belonged to her. Alexander failed to tell the defense attorneys about the conversation and did not share the woman’s incriminating statement with her co-defendant’s lawyer until after he learned their conversation had been tape-recorded.

During Alexander’s misconduct trial, 31 witnesses testified on Alexander’s behalf, attesting to his good moral character and extensive community service, much of it to help others struggling with substance abuse problems. Although Armendariz said that testimony carried some weight, she noted that Alexander’s community service had already been considered a mitigating factor in his third State Bar discipline case.

“The court finds that these character witnesses represent a demonstration of respondent’s good character attested to by a wide range of references in the legal and general communities. But they invariably dismissed respondent’s misconduct as either insignificant or not at all unethical,” she wrote. “Many did not comprehend its egregiousness.”