Hiding Behind a Contract

With crowded courts and an understaffed judiciary, given the seemingly interminable time line and “tell me what you know before a hearing” discovery process, the law has always favored private agreements to take civil judicial disputes into private arbitration. Organizations have arisen to service this need all over the earth, often adding expedited processes and limited discovery. Cheap (not really) and efficient (depends on your goals)?

This may be fine for well-balanced equal opponents to a commercial dispute, but big companies are inserting mandatory arbitration proceeds as the first venue for dispute resolution with consumers, often making the consumer share the burden of paying for a very expensive alternative to the court system. And courts are upholding such agreements as a matter of public policy to take pressure off of an over-taxed American judicial system.

You can often find such clauses with your stock broker if you have one, your bank, even under various insurance policies you might have, etc. “Arbitration clauses have proliferated over the last 10 years as companies have added them to tens of millions of contracts for things as diverse as cellphone service, credit cards and student loans.” New York Times, February 20^th.

Remembering that these private arbitration companies are in a competitive industry, it stands to reason that they attract the big corporate clients that generate big bucks only to the extent they generate a value to such corporate clients beyond the neutral forum that is publicly available to all. And let’s face it, consumers don’t refer much if any business to these arbitration companies. Hmmm.

So not only are companies pushing people into these dispute resolution venues avoid the possibility of a jury – likely to identify with the less powerful litigant – but there is sort of a wink-wink understanding of a “slight lean” in favor of the bigger, referral-generating, party. Further, arbitration is conducted privately, far from the prying eyes of the press and unlike courtrooms, inaccessible to the general public. Opinions and results are not public records, and outrageous facts remain hidden. Corporations have to love the ability to keep their dirty laundry far from embarrassing public scrutiny.

The NY Times shows one particularly ugly arena where arbitration has produced some pretty nasty, and hidden, results: “Nursing homes in particular have embraced the clauses, which are often buried in complex contracts that are difficult to navigate, especially for elderly people with dwindling mental acuity or their relatives, who can be emotionally vulnerable when admitting a parent to a home.

“State regulators are concerned because the secretive nature of arbitration can obscure patterns of wrongdoing from prospective residents and their families. Recently, officials in 16 states and the District of Columbia urged the federal government to deny Medicaid and Medicare money to nursing homes that use the clauses. Between 2010 and 2014, hundreds of cases of elder abuse, neglect and wrongful death ended up in arbitration, according to an examination by The New York Times of 25,000 arbitration records and interviews with arbitrators, judges and plaintiffs.

“Judges have consistently upheld the clauses, The Times found, regardless of whether the people signing them understood what they were forfeiting. It is the most basic principle of contract law: Once a contract is signed, judges have ruled, it is legally binding.”

But today courts are now looking at who signed the agreement that placed the elder into the nursing home in the first place, often challenging that if the individual signing the agreement was not the person entering the home, absent an enforceable power-of-attorney or a full-on conservatorship, the contract might not be binding… and hence the arbitration clause is not applicable. The signing power might just not have had the power to bind the elder or the elder’s estate to binding arbitration.

“It is a straightforward argument that is catching on. Appeals courts across the country have been throwing out arbitration agreements signed by family members of nursing home residents… For years, judges hearing elder-abuse cases rejected arguments that arbitration clauses in nursing home contracts were patently unfair because they were signed by people who did not understand them or perhaps even realize they existed.

“In a circuit court case involving a man in a Mississippi nursing home who could not read, write or sign his name, the judges held that under state law, ‘illiteracy alone is not a sufficient basis for the invalidation of an arbitration agreement.’

‘Any normal human being would say that these contracts don’t pass the smell test. But the courts don’t accept this,’ said Martin S. Kardon, a plaintiff’s lawyer in Philadelphia with a focus on nursing home cases… A few years ago, Mr. Kardon and a small network of lawyers across the country tried a different tack. They began making hyper-technical arguments about the validity of nursing home contracts… They argued that unless family members had power of attorney, they lacked the authority to agree to arbitration… ‘We had to start speaking the language of judges,’ Mr. Kardon said.”

As Americans rail at the special privileges and legal prerogatives accorded to our richest segments, it may be high time to reexamine this almost axiomatic judicial support for contractually-mandated arbitration. If fairness and justice are the goals, pushing little guys out of the judicial system through form contracts would seem outrageous, particularly given the many benefits accorded to the bigger party at the expensive of the little guy. I think courts should be required by statute to allow the smaller party in unequal litigant disputes to vitiate the mandatory arbitration provisions and take the case to court. Either you believe in fairness… or you don’t.

I’m Peter Dekom, and there are so many adjustments our society needs to recreate that level playing field we seem to have lost a long time ago in this heavily polarized country.