See http://caselaw.lp.findlaw.com/data2/circs/9th/0675424p.pdf

And discussion in http://writ.lp.findlaw.com/ramasastry/20070809.html.

CT RULES AOL CONTRACT BLOCKNG CLASS ACTION UNENFORCEABLE

…[T]he Washington State Supreme Court has ruled that a forum selection clause in AOL’s terms of service that has the effect of depriving Washington residents of their state-law right to aggregate small-dollar claims into a class action suit is unenforceable in that state. The plaintiffs alleged that America Online engaged in unfair and deceptive trade practices–in violation of the state consumer protection act–by creating unauthorized secondary accounts, charging subscribers for those accounts, and failing to fully credit subscribers who complained that the additional account was not unauthorized. Case name is Dix v. ICT Group Inc.

FYI.

There is a considerable academic literature on contracts of adhesion (standard forms presented on a take-it-or-leave-it basis). As with most things in life, the issues aren’t all resolved. However, it is too simple to assume that because hardly anyone reads such contracts their terms are to the unilateral advantage of the seller. That’s not because sellers are “doing us a favour.” It’s because if the value of a contract term to the buyer exceeds the cost to the seller, there is an incentive to include the buyer’s value in the overall price.

I am not going to dispute that terms in contracts of adhesion should be regarded with a colder eye than those in contracts negotiated between sophisticated parties with independent legal advice. But arbitration clauses probably improve consumer welfare because the cost of civil class actions have to be reflected in prices and the benefits are small.

The word “lawyer” may trigger images of attractive people making clever arguments in wood-paneled courtrooms, but most spend the majority of their time in back offices drafting and redrafting small print that almost no one will read. At least if you flipped burgers for a living you’d have the satisfaction of giving people momentary pleasure.

The lawyer who drafted Rogers’ Trojan horse clause, which allows the corporation to unilaterally change the contract, post the changes to the internet, and from there presume consumer consent, almost guaranteed that nobody but an academic would ever read the tediously belaboured words. I’m not sure, then, whether the lonely soul stuck in a back room shoveling up unilateral modifications to Rogers web site on a revolving basis was grateful for the wholly unexpected attention when I pointed out the lack of basic intelligibility in yet another clause on the March, 2007 consumer contract, one that had not only been posted on-line but printed and distributed to Rogers outlets and third party dealerships across the nation:

Term 37: The provisions of Sections 8,25,26,27,28,29,31,32,33,34,35,36,37,38 and any other provisions of these terms which by their meaning are intended to survive termination.

In a further exchange between me and Rogers’ corporate counsel, Natalie Talsky acknowledged that, yes indeed, this provision was not a proper English sentence and therefore fundamentally incomprehensible. She thanked me for pointing it out and the error has now been corrected on-line.

Apart from the profound sense of futility that this gives rise to in the intelligent young minds that we graduate from law school, is there something so shameful in admitting that which is so obvious that only a child would have the naiveté to point out?: There is no semblance of consent on consumer contracts. Nobody expects there to be consent. Nobody reads the contract – not even those who draft it, nor those who commission it. The contract’s purpose is fundamentally little other than raw and cunning coercion.

For a lovely example of the radical contractual shift away consumer centrism that occurs when the market falls prey to increasing monopolization within an industry, compare Fido’s contract before and after Rogers swallowed up its competition:

1. http://web.archive.org/web/19970712075322/www.fido.ca/engl/ado/enga.htm

2. http://www.rogersandme.ca/Rogers_Wolfs_Down_Fido_by_Harry_Gefen_000.htm

With appreciation, I’ve added The Times article to my web site at: http://www.rogersandme.ca/TruthinAdvertising.htm which is located in the following context: http://www.rogersandme.ca/Rogerse_Legal_Team.htm

I will not have a moment (until this evening) to respond to your thesis that corporations are doing us all a favour when they ensure they can’t ever be sued, nor your thesis that market forces will save us all from the tyranny of lawyers. However, as it is a brief intervention, I would like to direct you to a report by the Public interest Advocacy Centre that addresses many of the concerns you raise about the perils of trading on consumer ignorance. The full report can be accessed here:

http://www.piac.ca/consumers/mandatory_arbitration_and_consumer_contracts

I have also reproduced excerpts here:

http://www.rogersandme.ca/9reasonswhyarbitrationisbadforconsumers.htm

If this argument makes sense, then there is no reason to restrict it to class actions. We should just return to the common law position of prohibiting irrevocable arbitration clauses in contracts.

The trouble is that it doesn’t make sense. A system where the claimant can choose the forum may also have inefficiencies that both parties would benefit from avoiding ex ante. This is particularly likely in the class action context, where entrepenurial lawyers with little real connection to the client class determine what the settlement is going to look like. Since these lawyers have to be paid, all settlements are going to cost the defendant firm more than they benefit the plaintiff class. These costs must, in turn, be internalized by consumers. Sometimes the benefit to the plaintiff class will be tiny, and it would have been better off bargaining away the class action forum in the first place. All the American experience shows is that there are enormous market pressures for this to happen.

The real issue is whether this market pressure is because consumer class actions are lawyer-driven inefficient monstrosities with no real benefit to consumers or because contracts of adhesion allow corporations to take advantage of consumer ignorance.

“David, you seem to be falling into the same trap as did some of the judges in this case.” …

… The issue is not “which is better: arbitration or courts?”.

… The real issue here is: “under what circumstances should consumers be denied access to the publicly-funded justice system?”. The answer is (or should be): only after the dispute has arisen, when they are in a position to make an informed decision. “

I hope not, and didn’t intend to make that mistake, and I’m not certain what I said that leads you to that concern [g].

I don’t believe I said anything which indicated that I was addressing the merits of the court vs private adr stream. I became involved to challenge the suggestion that the adr process (mandatory or otherwise, whenever it became applicable) was inherently (or even seemingly) biased because Rogers was paying for it.

Whether there’s merit to the belief that the “publicy-funded justice system” is better for consumers, other than that it’s on somebody else’s penny and lawyers get to make money at the public’s expense, is a question for another time.

Regards,

David

Standard clauses in contracts of adhesion generally benefit both sides of the transaction. If they didn’t, there would be market pressure for them to change. Banning mandatory arbitration clauses transfers wealth from both “big corporations” and consumers to plaintiff lawyers.

The real issue here is: “under what circumstances should consumers be denied access to the publicly-funded justice system?”. The answer is (or should be): only after the dispute has arisen, when they are in a position to make an informed decision.

As you point out, arbitration can work to the benefit of consumers – if it is inexpensive, unbiased, timely, etc. If this is so, then consumers will choose it voluntarily. There is no need to force it upon them.

Courts are free to encourage or even require efforts at ADR/settlement by the parties; that is a completely different matter from denying access to the court in the first place.

This is an unfortunate decision from the consumer perspective, but will hopefully have the positive effect of encouraging all those provinces who haven’t already invalidated mandatory arbitration clauses in consumer contracts, to do so.

Senator Russ Feingold (D-Wis) and Rep. Hank Johnson (D-GA) have introduced a bill entitled The Arbitration Fairness Act of 2007 which would ban the use of pre-dispute mandatory arbitration provisions in consumer, employment and franchise agreements. According to Feingold’s website, the bill would “prevent a party with greater bargaining power from forcing individuals into arbitration through a contractual provision. It will ensure that citizens have a true choice between arbitration and the traditional civil court system.

Although the draft legislation doesn’t speak to class action waiver specifically, it shows some increasing awareness on the part of federal legislators as to the unfairness that mandatory arbitration can create.

While legislative initiatives are slow in coming, courts are beginning to respond to the increasing use of class action waivers in consumer contracts. For example, just last week, the Washington State Supreme Court struck down a class action waiver in Cingular’s cell phone contracts with its customers as unconscionable under state law. That court joined the growing number of state and federal courts around the U.S. striking down class action bans.