Big businesses must honor their legal commitments

Every day the attorneys and judges who make up the backbone of the American legal system strive to achieve balance between competing legitimate issues while still arriving at a just and fair outcome.

Take tort law, for example. On the one hand, there is a legitimate goal to dissuade frivolous lawsuits, but on the other, there absolutely needs to be an avenue of redress for those who have suffered serious corporate wrongdoing.

For years, class action litigation was the avenue to provide that relief. There has been a shift away from that model in recent years, however, in favor of arbitration for consumer claims against corporations. But now – even though this is a change that these corporations advocated for to be instituted – many producers of consumer products are now trying to evade the requirements of the process that they have championed as cheap, quick, fair to all concerned and effective. 

Arbitration clauses have become so commonplace in contracts that many consumers don’t give their inclusion a second thought. Those terms of agreements we all click “agree” to online? A significant majority of them include clauses that force consumers to agree to arbitration in place of litigation if they suffer some form of harm from the corporation – be it fraud, negligence, faulty products, or other harms. 

This would be fine if the system was working as it was intended. But too many times it does not, and consumers are the ones who are taking the hit. The problem is that arbitration is a private process that takes place largely behind closed doors, rather than in an open courtroom. Therefore, while proponents of arbitration argue that it is generally quicker, arbitration by design is confidential and thus not transparent. This raises the perception that the arbitration process is not as fair as traditional court proceedings. 

In some cases, simple and common-sense reforms to the process by which consumer complaints are adjudged have been enough. Unfortunately, that is not the case everywhere, and as consumers have started applying principles and strategies of class action litigation to arbitration proceedings, some large corporations have tried to skirt the rules they created. 

In one example, Samsung is facing multiple accusations from customers of violating the Illinois Biometric Information Privacy Act (BIPA) by collecting, storing and using customers’ biometric data without proper notification or consent. Despite forcing customers into waiving their rights to class action litigation in favor of arbitration, the company is trying to evade even that process by refusing to come to the table unless the customers who made the complaints pay the corporation’s share of the fees required to initiate arbitration. This is clearly a stalling tactic, as the company hopes that the longer this plays out, the greater the chance that the aggrieved consumers will simply give up.

In another case, plaintiffs say printer maker Epson is trying to avoid engaging in the arbitration proceedings they required in their agreements with consumers. After the company forced customers to install a mandatory software update to their printers, the ability to use cheaper third-party ink was disabled in what plaintiffs allege is a violation of the federal Sherman Antitrust Act. After the aggrieved parties moved to arbitrate the dispute, Epson claimed that some of them never had an agreement to arbitrate while in other cases they mirrored Samsung by refusing to pay their share of arbitration fees. The dispute is still working its way through the courts, but this is yet another example of how some companies are trying to run out the clock and exhaust plaintiffs into disinterest.

It should go without saying that this is not how the system was intended to work. It is unconscionable that such massive corporations -– in 2022 Samsung had over $234 billion in revenue and Epson had more than $9 billion in revenue –- mandate arbitration in their contracts, and then turn around and ask consumers to foot their bill or refuse to engage in the process.       

All sides can and should be able to come to the table to make our tort system work better. Arbitration was intended to be that middle ground, where quick resolution in a confidential process benefits both the corporation and the consumer. But what do we do if the corporations that sought arbitration as an alternative to class action lawsuits now refuse to let the process work? Further legislative reforms may be needed, and arbitrators should also hold the corporate defendants’ feet to the fire in arbitrations where monetary sanctions are not precluded for such disruptive, dilatory tactics.

California has laws in place that assign sanctions to the party that drafted the arbitration agreement if it fails to pay requisite fees to initiate the proceedings. That may be one approach that we might want to consider for all arbitrations in the U.S. Another approach that would surely get the attention of the non-paying party would be to bring class action litigation in lieu of arbitration and have the court declare that the non-paying party has waived its right to arbitrate rather than litigate. 

If respondent corporations would simply step up and do their part in playing by the rules that they themselves helped draft such laws and tactics would not be necessary. But if arbitration is shown not to work equitably to address legitimate worker and consumer grievances, then other options need to be on the table.

Chuck Meyer is a Fellow of the Chartered Institute of Arbitrators, a Certified Information Privacy Professional, and Registered U.S. Patent Attorney. He is a frequent commentator and advisor on legal developments in the fields of ethics, compliance, privacy, corporate governance, intellectual property, generative AI and other disruptive technologies.