Arbitration

Employees Able to Avoid Fox News Arbitration Clause and Pursue Sex Harassment Litigation

September 8, 2016 | Peter S. Lubin and Patrick Austermuehle

It’s wonderful that the legislation in our country has made so many strides to recognize women’s rights to live and work alongside men without fear of harassment or intimidation. Unfortunately, as has happened with so many other progressive civil rights, what the law says, and what actually happens don’t always coincide.

Companies are not legally allowed to fire employees or refuse to hire candidates based on their gender or as the result of a discrimination lawsuit, but there are other ways employers can (and do) retaliate. Most women who speak out against male colleagues who have harassed them suffer from both personal and professional estrangement. It’s easy enough for employers to find seemingly unrelated reasons for firing their workers and almost impossible for those workers to prove the root cause of their dismissal really stemmed from the fact they dared to defend their own civil rights.

Even companies that publicly claim to support their female employees and condemn sexual harassment are rarely doing more than paying lip service to the law. For example, 21st Century Fox recently released a statement claiming they do not tolerate any behavior that is disrespectful or creates an uncomfortable environment for its employees, but the company has allegedly been failing to live up to that promise for decades. Continue reading ›

Appellate Court Finds Company Waived Arbitration Provision By Filing a Counter Claim

July 20, 2016 | Peter S. Lubin and Patrick Austermuehle

A corporate defendant waives the right to enforce an arbitration clause in an employment agreement if it asserts an affirmative defense to a complaint that is unrelated to arbitration. So ruled the First District Appellate Court of Illinois in a recent breach of employment contract case called Koehler v. Packer Group Inc., 2016 IL App (1st) 142767.

Michael K. was CEO of Packer Engineering, a subsidiary of The Packer Group. When he reported evidence of alleged financial improprieties on the part of Packer’s chairman to the company’s board, he claims he was dismissed in retaliation. He filed suit against the company for breach of his employment contract, and also against various Packer officers individually for tortious interference with contract, claiming they induced the company to breach the contract. The defendants argued that, pursuant to the contract’s terms, Michael’s claims should have been resolved in arbitration.

Michael’s four-year employment agreement contained an arbitration clause waiving the right to resolve disputes in court. The contract was signed by Michael, Packer’s chairman, and several Packer executives. Michael claimed that after he refused to go along with the alleged financial improprieties, he was offered the option of demotion or termination and chose termination. In his complaint, he sought future salary and bonus compensation plus punitive damages. In its answer, Packer asserted the affirmative defense of Michael’s own breach of the employment agreement, then later moved to dismiss the complaint on the grounds that the arbitration provision deprived the court of jurisdiction. The individual defendants argued that the arbitration clause also applied to Michael’s suit against them for tortious interference, claiming they had signed the agreement in their corporate and not individual capacities. The circuit court ruled that Packer waived its contractual right to arbitrate when it answered Michael’s complaint without asserting the right. Continue reading ›

Consumer Protection Bureau Protects Consumers by Banning Forced Arbitration and Class Action Waivers Used by Predatory Lenders

May 11, 2016 | Peter S. Lubin and Patrick Austermuehle

Have you ever wondered if that bank fee or overdraft charge from your bank was legal? If you tried to challenge your bank in a court of law, chances are you found out you had signed an arbitration agreement, which meant you could not settle the dispute in a court of law. Instead, you had to go through arbitration to accuse your bank of charging illegal fees or mismanaging your money.

If you choose to use arbitration, you have to cover all your legal fees yourself, which can quickly reach thousands of dollars. If you believe your bank has illegally taken funds out of your account, the chances are the amount they took was negligible. Three dollars for an overdraft fee may not seem like much, but for some people it can mean passing on a box of groceries. Even if it’s not much for the individual consumer, if the bank is improperly charging these types of fees to a large portion of its customers, it’s probably making a fortune illegally. Continue reading ›

7th Circuit Refuses to Enforce Arbitration Agreement and Class Action Waiver Because Consumer Never Agreed to it Via Online Form

May 4, 2016 | Peter S. Lubin and Patrick Austermuehle

Any time you do anything online, even it’s just visiting a website, you usually have to agree to the company’s Terms of Service. Because these documents can be pages long and we live in an increasingly time-crunched world, very few people actually read the Terms of Service before checking the “Agree” box. Sometimes this lack of diligence gets people into trouble, but depending on how it’s presented, it could be the company that gets into trouble.

When Gary Sgouros filed a proposed class action lawsuit against TransUnion Corp. for allegedly providing worthless credit scores, the company tried to have the dispute sent to arbitration in accordance with the arbitration agreement contained in its Terms of Service.

Sgouros had paid almost $40 for the credit report in 2013 in the hopes of using it to help him negotiate a loan on a new car he was looking to purchase. But the score provided by TransUnion was higher than the number provided to the car dealership by at least 100 points. Sgouros argues this made the credit score he paid for effectively worthless.

In 2014, Sgouros filed the proposed class action lawsuit in Illinois federal court on behalf of himself and all other similarly situated consumers across the country who purchased a credit score from TransUnion any time since 2012. Sgouros is also seeking to represent a subclass of TransUnion customers in Missouri, his home state. Continue reading ›

More Arbitration Agreements Blocking Class Actions in Certain Settings May Soon Be Banned

May 2, 2016 | Peter S. Lubin and Patrick Austermuehle

Consumer advocate groups have long been saying the inclusion of arbitration agreements in all sorts of contracts, from cell phone agreements to student loan contracts, unfairly benefits corporations while harming consumers. Corporate advocates claim consumers also benefit from these arbitration agreements, which has turned the argument into a bit of “he said/she said” issue, but the Consumer Financial Protection Bureau (CFPB) might be able to put the issue to rest.

The bureau published a report in March 2015 that found that mandatory arbitration clauses benefit companies while harming consumers.

An arbitration clause is an agreement included in a contract that states any dispute between the parties will take place in arbitration, rather than in a court of law. Arbitration is handled by private, for-profit arbitration companies, does not provide an explanation for the ruling, and it prohibits appeals and class actions. Because arbitrators are companies that are in business to make money, they’re not always as neutral as court judges. Although there are some arbitration companies that have a reputation for being fair and unbiased, most of them can be influenced by clients that bring in a lot of business for them, even if they’re not consciously aware of this bias.

Arbitration was designed as a way for businesses to handle disputes between themselves without crowding the courts, but in recent years companies have abused the option for arbitration by including clauses in their contracts with their customers and employees that force all disputes into arbitration. It’s hard enough for an individual to get a fair trial in the courts when fighting a large corporation with vast resources, but the arbitration system makes it considerably more difficult for individuals to get a fair hearing. Continue reading ›

Lack of Power of Attorney Used to Defeat Nursing Home Arbitration Clauses

March 9, 2016 | Peter S. Lubin and Patrick Austermuehle

Arbitration agreements have been sneaking their way into all sorts of contracts, from employment contracts to loan agreements. Originally intended to allow businesses or parties to settle complex disputes between themselves more efficiently, many companies have perverted their use so that they can require arbitration whenever anyone at all has a dispute with them, even individual employees or consumers over relatively small amounts of money or in situations where courts are much better suited to resolve the disputes. The Courts honor freedom of contract principles and allow for enforcement of arbitration agreements so businesses are using them frequently.

Arbitration agreements can have a number of drawbacks for plaintiffs. The first is that they don’t allow class actions, which means individuals with small claims against a company have no way of combining their claims with other people to create one lawsuit large enough to justify the expenses associated with filing a legal complaint.

Arbitration is also private. They are heard and ruled by for-profit companies, not objective judges or juries. Companies that pay for the arbitration, or bring a lot of business to a single arbitrator, are more likely to get a favorable ruling from that arbitrator. There are arbitrators known for their objectivity and fairness, but some corporations retain the right to choose the arbitrator, and when they have the opportunity to choose between one they have a relationship with and one whose ruling may be unpredictable, the company has little motivation to choose the unbiased arbitrator. Continue reading ›

Senators Propose Statute That Would End Forced Consumer and Employee Arbitration — Our Chicago Auto Fraud Lawyers Take On Car Dealers in Used Car Fraud Cases

February 13, 2016 | Peter S. Lubin and Patrick Austermuehle

The Federal Arbitration Act was enacted in 1925 in order to allow businesses to settle disputes between themselves in arbitration, rather than in the courts. Arbitration is generally cheaper, faster, and easier, than filing a lawsuit, but businesses have expanded what they consider to be business disputes and now use mandatroy arbitration to settle disputes with their employees and even their customers.

It has become increasingly common for businesses to include arbitration clauses in all their employment contracts, as well as contracts with their consumers for everything from car loans to leases to credit cards. Because contracts are so long, many people don’t read them thoroughly before signing and aren’t even aware they’re signing away their right to sue the company in court in the event of a dispute. With small purchases such as cell phones or rental cars, the provisions are clearly take it or leave and consumers really have no choice. But with large purchase such as a car, the consumer has the option if careful to cross out the provision. Many car dealers may not want to lose the deal over arbitration and are relying on the consumer not reading the contract or knowing the consequence of agreeing to arbitration is giving up the right to go to court. Arbitrators are often more overly attentive to large corporations and even if they rule in the consumers favor “split the baby” and don’t provide a truly just result that is a more likely outcome if the case had been heard in court. Continue reading ›

Consumer Financial Protection Bureau Considering Barring Arbitration Agreements That Restrict Consumers From Going to Court

March 10, 2014 | Peter S. Lubin and Patrick Austermuehle

Companies have been writing more and more contracts for both their customers and their employees, which require any disputes to be settled in arbitration. Companies prefer arbitration over court litigation because the company usually chooses and pays for the arbitrator. As a result, arbitrators generally tend to decide in favor of the company.

Arbitration also bars consumers and their employers from bringing class actions against the company. This is detrimental to the individual’s ability to attain redress for their claims, as many consumers and employees have small individual claims. On their own, they’re not worth the costs of bringing a suit to court, or even arbitration. Richard Cordray, director of the Consumer Financial Protection Bureau, stated that, “there are almost no disputes over amounts less than $1,000.” So, if multiple consumers suffered in the amount of $50 or $100 as a result of a company’s illegal actions, and the consumers are barred from filing a class action, then they have no way of getting compensation for their claims.

When combined, however, they may make a substantial sum, which not only might warrant bringing legal action against the company, but might also send a message to the company and to others that such conduct is wrong and punishable under the law.

Class actions also provide consumers and employees with greater leverage against large companies who are sometimes equipped a team of attorneys. An individual would have a difficult time finding and paying for sufficient representation against such a formidable foe. A class of plaintiffs on the other hand, is much more capable of attaining adequate representation.
Proponents of these arbitration agreements argue that they actually benefit consumers. For example, the U. S. Chamber of Commerce issued a letter to the federal bureau which said that “prohibiting or regulating arbitration would harm consumers more than it would benefit them. … Arbitration is at least as likely, and often more likely, than litigation in court to result in positive outcomes for consumers.”

Such assertions don’t hold up against the statistics, though. A report conducted by Public Citizen in 2007 found that, over a period of four years, in disputes between credit card companies and their consumers, arbitrators sided with the credit card companies 94 percent of the time.
Consumer advocates, on the other hand, have been arguing that any means used to deny people the right to sue or band together in class actions is unfair. The U. S. Supreme Court created much controversy when it ruled in 2011 that businesses such as phone companies, credit card issuers, and cable companies could not legally be barred from including arbitration clauses in their service contracts.

However, the Consumer Financial Protection Bureau also gets a say in the matter. According to the same financial-reform law that created the bureau in 2010, the bureau has the authority to “prohibit or impose conditions or limitations on the use” of arbitration clauses for credit cards, checking accounts, and other financial contracts.

While the federal bureau’s investigation into the legality of these arbitration agreements may mean relief for consumers, it looks like employees will have to wait. Although the National Labor Relations Board had reached a decision which barred arbitration agreements that prohibit class action suits over pay and hours, a federal appeals court recently overturned that decision.

U.S. Supreme Court Rules that Arbitration Agreement Bars Class Action and Class Arbitration Claims – AmEx v. Italian Colors Restaurant

July 25, 2013 | Peter S. Lubin and Patrick Austermuehle

The United States Supreme Court recently ruled that federal law does not permit a court, based on a finding that individual arbitration is cost-prohibitive for a plaintiff, to strike a class arbitration waiver clause in a contract. American Express Co., et al. v. Italians Colors Restaurant, et al (“AmEx”), 570 U.S. ___, No. 12-133, slip op. (Jun. 20, 2013). The decision builds on prior decisions that have generally affirmed the enforceability of mandatory arbitration clauses, class arbitration waivers, and class action waivers, even in contracts where the bargaining power between the parties is far from equal.

The plaintiffs in AmEx are businesses that accept payments using American Express credit cards. The contract between the plaintiffs and American Express includes clauses requiring submission of all disputes to arbitration and waiving class arbitration procedures. The plaintiffs brought a federal antitrust class action lawsuit against American Express, claiming that the company engages in various monopolistic practices. The defendant brought a motion to compel arbitration under the contract and the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. In response, the plaintiffs offered an economist’s declaration stating that the cost of arbitration for an individual merchant asserting a federal antitrust claim would exceed any possible recovery.

Illinois Federal Court Finds Putative Class Action Precluded by Arbitration Agreement – Collier v. Real Time Staffing Services

June 7, 2013 | Peter S. Lubin and Patrick Austermuehle

A putative class action alleging violations of the Fair Credit Reporting Act, 15 U.S.C. §§ 1681 et seq. (FCRA), must be submitted to binding arbitration, according to the court in Collier v. Real Time Staffing Services, Inc., No. 11 C 6209, memorandum opinion and order (N.D. Ill., Apr. 11, 2012). The court found that a clause in the contract between the plaintiff and defendant required both parties to submit any disputes between them to arbitration. On the question of whether the class claims asserted by the plaintiff were subject to mandatory arbitration, the court left it for the arbitrators to decide.

The plaintiff, Darion Collier, submitted an electronic job application to the defendant, Real Time Staffing Services, which did business as SelectRemedy. According to the court’s order, the plaintiff signed an acknowledgment that said his employment with SelectRemedy would begin once he started an assignment for one of its clients, and that it would be on an “at-will” basis. The acknowledgment further said that SelectRemedy could at any time modify the terms and conditions of his employment. Order at 2. SelectRemedy did not hire the plaintiff after reviewing his application, allegedly based on information in his consumer credit report.

The plaintiff filed suit on September 7, 2011, alleging violations of the FCRA on behalf of himself and a proposed class. SelectRemedy filed a motion to dismiss under Rule 12(b)(1) of the Federal Rules of Civil Procedure, asserting that an arbitration agreement signed by the plaintiff with his application precluded the lawsuit. The agreement stated that the plaintiff agreed to submit any disputes to binding arbitration in accordance with the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (FAA). In opposing the motion to dismiss, the plaintiff argued that the arbitration agreement was unenforceable for lack of consideration, that SelectRemedy’s ability to change the terms of employment rendered the contract illusory, and that the arbitration agreement should not cover class claims.