For information about draft legislation related to forced arbitration, go here.
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Michael Dunne: While no one wants to sue a corporation for a wrongful act, most of us believe that such an avenue is available to us if we need it. What most of us don't know, however, is that in many cases, tucked away in those lengthy terms of service agreements we see constantly, is a provision called forced arbitration that effectively takes away our ability to sue. What makes this a double blow for consumers is that forced arbitration is seen by some experts as deeply slanted in favor of corporations. Today on the show, you'll meet such an expert: the head of the Public Integrity Project, who will explain how forced arbitration became so ubiquitous and how it can do tremendous harm to consumers already harmed by a corporation. Brendan Ballou is the CEO of the Public Integrity Project, a former federal prosecutor, and for two years he prosecuted rioters who attacked the Capitol on Jan. 6. He is also the author of a book just released: "When Companies Run the Courts: Forced Arbitration and America's Secret Justice System." Brendan, thanks so much for coming on the program.
Brendan Ballou: Thank you so much for having me.
Dunne: I'd love to start with a very simple question: What is forced arbitration, and how does it differ from simple arbitration?
Ballou: It's a great question, and I'm so glad you made that distinction. Forced arbitration is an alternative to the public justice system. Instead of having your case decided by a judge or a jury in public proceedings that can be appealed, your case is decided by a private judge, called an arbitrator, who is often paid for by the very company you're trying to sue. When one side is effectively the employer of the judge, that side typically wins. It's not just that forced arbitration is biased toward big corporate defendants. The proceedings also occur in secret and can almost never be appealed. When you combine those factors, you have a system where consumers and employees almost always tend to lose, which really isn't the case in our regular court system. You asked about the distinction between forced arbitration and simple, or regular, arbitration. The difference is whether a person can consent to it. An alternative to the public justice system with simpler procedures can make a lot of sense in many circumstances: complicated business disputes both sides agree to, or custody proceedings, for example. When I talk about forced arbitration, I'm talking about the agreements you sign with your employer or with companies you buy from, often in those click-to-accept agreements where you have no power to negotiate. It's those forced arbitration agreements that I believe are making life so unfair for consumers and employees.
Dunne: How did forced arbitration become so popular?
Ballou: To the extent that people feel companies are increasingly beyond the reach of the law, behaving worse, offering worse customer service, and scamming consumers more often, forced arbitration is in large part the explanation, because it has really taken off in the last 15 years. There's an old law from 1925 that allows arbitration in very limited circumstances: the Federal Arbitration Act. It was meant to promote what you're calling simple arbitration, the idea of parties with roughly equal bargaining power, merchants or companies with a dispute, binding each other to arbitration. It was never meant to expand to cover employees, consumers, or those click-to-accept contracts we sign every day. Beginning in the 1980s, the Supreme Court began to reinterpret that law ever outward to cover all those groups. Then, in the 2010s, the court said that forced arbitration could be used to eliminate class actions: those cases you join when a bank harms or overcharges many customers by a few dozen or a few hundred dollars, or when the same product injures or kills many people. Without class actions, companies are effectively beyond the reach of the law for all but the most expensive and deadly harms. If you can't join a class action for a scam that costs you a few hundred dollars, it's economically impossible for you to bring that case alone. Forced arbitration has expanded dramatically in the past decade or two, with the practical result that all those small scams you feel like you're experiencing more often can largely be explained by it.
Dunne: In listening to another interview you gave, I was struck by something you brought up: that Americans have been told over and over that we are a lawsuit-happy nation, and that so much suing was going on that this system perhaps seemed to make a certain amount of sense. Can you address that? Are we actually super litigious?
Ballou: No, and I'm so glad you asked, because the data doesn't back that up. The most comprehensive study of this issue found that America really isn't lawsuit crazy, at least not in the way people think. When the idea of a litigation explosion really took off in the late 1970s and early 1980s, there was growth in federal cases, but in large part it was driven not by people suing companies, but by the government suing people: the Reagan administration pursuing Social Security beneficiaries and veterans to claw back money the administration said they weren't owed. Over that period, lawsuits against companies over securities and antitrust cases actually declined. And to the extent there was growth in litigation against big companies, it was driven overwhelmingly by lawsuits over one specific product: asbestos. So the data doesn't support the idea of a litigation explosion in America, or that we bring vastly more cases than other developed countries. When you think about specific stories, one that often comes up is the woman who spilled coffee on herself at McDonald's, which became something of a cultural meme in the 1990s and 2000s. It turns out that woman, Stella Liebeck, got third-degree burns on her thighs, buttocks and groin, was in the hospital for several weeks and in treatment for several years, and tried to settle the case for just $50,000 to cover her medical bills. At trial, it was revealed that McDonald's had a policy of heating its coffee very near the actual boiling point of water, and on top of that had settled or received complaints at least 700 times from people who had allegedly been burned by its coffee. That single case was meant to get McDonald's to change its policy, and the damages amounted to roughly two days of total coffee sales for the company. These examples really collapse on closer inspection. What you find is not that ordinary people sue companies too often, but rather the opposite: that companies too often are beyond the reach of the law for really serious harms, when people are cheated or discriminated against, when products injure or kill people. Few people believe that companies aren't powerful enough right now, and the reason they are so powerful is largely because we have developed the law so that it is almost impossible to hold them accountable for so many wrongs they perpetrate.
Dunne: Your book, "When Companies Run the Courts: Forced Arbitration and America's Secret Justice System." I want to focus on that word "secret," because as you describe it, this has expanded enormously, and yet I'm sure the vast majority of people listening had no idea. Talk about how this has become so pervasive in secret.
Ballou: It is secret, and yet it's all-pervasive. About 80% of Fortune 500 companies use forced arbitration with their consumers or employees. Some 60 million private-sector employees are covered by forced arbitration agreements with their employers. There are more forced arbitration agreements in America than there are Americans. The chances are good that you are bound by many forced arbitration agreements with your bank, your credit card company, and the nursing home your parents might be in, and you're probably agreeing to new forced arbitration agreements every single day. And yet it is so hard to see. In part, that's because forced arbitration proceedings are almost always conducted in secret, which means we never know what happens in them. Unlike in an ordinary court, the decisions from these cases are rarely, if ever, published. In a democracy, the rule of law depends on public, published proceedings so that similar cases can be treated similarly. We don't have that in forced arbitration. All of this occurs in the shadows, and as a result, the law really doesn't develop. Instead, what we have are individual arbitrators making unreviewable decisions that we almost never know about. While forced arbitration surrounds us, it is also extremely hard to know what's happening within it.
Dunne: Let's talk about a case many people may have heard of, one that is terrifying in some respects: the woman who dined at a Disney restaurant at a theme park and had a fatal allergic reaction. Tell that story so listeners can really understand how far this can go.
Ballou: Jeffrey Piccolo and his wife, Kanokporn Tangsuan, were eating at a Disney restaurant. She had severe food allergies, and as was subsequently alleged, they repeatedly asked the wait staff whether the food was safe. They were repeatedly assured that it was. It was not, and she died of an allergic reaction. When Mr. Piccolo tried to sue for wrongful death, Disney attempted to compel him into arbitration, arguing that he had agreed to arbitrate this dispute because he had signed up for a Disney Plus account with the company several years earlier. It seems rather astounding that signing up for a streaming service would mean giving up the right to sue over your wife's wrongful death. And yet, to be clear, the law was almost certainly on Disney's side. There are cases after cases of seemingly unrelated arbitration agreements compelling people to arbitrate disputes over everything from racial discrimination to the killing of someone's son, simply because they signed these click-to-accept agreements. In this particular case, Disney backed down because the press coverage was so overwhelmingly bad for the company. But again, Disney probably would have won that argument and gotten the case sent to arbitration. That's how far the law has gone.
Dunne: Some listeners might say: I'll just opt out of forced arbitration when I sign up for cellular service or something like that. Is that a realistic strategy?
Ballou: It's entirely understandable to think that way, but it's not going to work. Most of these agreements are click-to-accept, and you have no ability to cross out a section you don't like. When opt-out provisions are offered, they're incredibly onerous: requiring you to mail in a letter and jump through various hoops. Think about how many agreements you probably signed today across all the websites you visited. Are you willing to do that four or five times a day? Probably not. If we're going to solve the problem of forced arbitration, it will have to be through legislation. I don't think Congress or this president is particularly interested in solving this problem. Instead, it's going to happen at the state and local level. I have model legislation on my personal website. You can simply search my name and download it, then send it to your state representative or city council member. What we can do is make arbitration, when people are stuck in it, fairer and more transparent, and give people ways to avoid it entirely. We can solve this problem, but not alone. We're going to have to solve it together through collective action.
Dunne: I do want to switch gears, because there's something else you're involved in that I think people are taking tremendous interest in. When the Trump administration dropped a lawsuit and somehow created what your organization is calling a slush fund, talk about what you and your organization are doing to address that.
Ballou: The president has created a $1.8 billion fund that will be used to pay potentially his own businesses, various associates, and most importantly, rioters, militias and paramilitary groups that attacked the Capitol on Jan. 6. We are representing two Jan. 6 officers who defended the Capitol that day and who continue to speak out to make sure that Jan. 6 isn't forgotten or its history rewritten. They continue to receive death threats from the very people who may be receiving money from this president. This creates a very real danger for our clients, which is why they had to bring suit. On top of that, the fund itself is almost blindingly illegal, in so many ways. We filed suit just last week, and we hope to act quickly to make sure the fund does not disperse money to people who might threaten or harm people like our clients, and to ensure that the fund itself is disbanded.
Dunne: How can a president sue his own government and then, through dropping that lawsuit, obtain seemingly unrestricted funds?
Ballou: It's a great question, and the short answer is: he can't. For the Department of Justice to settle a case, there needs to be what lawyers call a case or controversy. There actually needs to be a genuine dispute between the two sides. That wasn't the case here. Donald Trump sued his own Internal Revenue Service over the disclosure of his tax returns, alleged $10 billion in damages, and then proposed to settle the case. It is functionally a sham settlement agreement that the Department of Justice cannot legally enter into. But even if it could, the Department of Justice cannot use the fiction of a settlement to functionally create a new government department or agency. My colleague Sam has a great analogy: Barack Obama couldn't have used the fiction of a lawsuit to create the Consumer Financial Protection Bureau, and Republicans probably wouldn't have liked that. Nobody should be comfortable with this approach. This president seems to be creating a new department that he controls, one where he can determine who sits on it and where the money goes, all without congressional authorization. It's very clear that this is a fund that violates the law, and we're hoping to get it invalidated.
Dunne: My last question takes us back to forced arbitration. You mentioned model legislation you've drafted. Give us a sense of what that legislation could look like, and are any states actively taking this up?
Ballou: Yes. A couple of states have been real leaders on this. California is one of them. The legislation really does two things. First, for people who are stuck in arbitration, it makes the process itself a bit more fair. They can conduct investigations, obtain what lawyers call discovery, take depositions and essentially build a case for themselves. It also adds more transparency, so people can find out how arbitrators have ruled in the past and assess whether they're likely to get a fair shake. But the real innovation is that California has allowed employees who have been shortchanged by their employers to bring suits not on their own behalf, since they're often bound by arbitration agreements, but on behalf of the state government, which is not bound by an arbitration agreement. The state, in effect, says: you can enforce our state labor laws, and if you win, you get a share and the state gets a share. That means people can functionally circumvent these arbitration agreements and bring cases they otherwise couldn't. We need legislation like that not just in California but in all states, and not just for employment disputes about wages, but also for consumer protection, discrimination, antitrust and environmental statutes, so that if a company harms you, injures you, or kills someone you love, you can sue and aren't trapped in a secret justice system.
Dunne: He's Brendan Ballou, CEO of the Public Integrity Project, and author of "When Companies Run the Courts: Forced Arbitration and America's Secret Justice System." Mr. Ballou, I really appreciate your time. Thank you so much for coming on.
Ballou: Thank you for having me.
Dunne: That's the show for today. All episodes of Oregon on the Record are available as a podcast at KLCC.org. It could be the worst industrial accident in Washington state history, and Monday on the show we'll get an update from our OPB colleague about the deadly Longview paper mill disaster. I'm Michael Dunne, host of Oregon on the Record. Thanks for listening.
