Class Action Arbitrations in California
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Class Action Arbitrations in California

Mandatory arbitration clauses are contained in a wide range of consumer contracts because arbitration benefits big business and penalizes consumers.

Manufacturers, banks, HMOs, and corporations use arbitration to shield themselves from consumer litigation and to make it expensive and difficult for consumers to assert their legal rights.

To successfully assert their rights, consumers must overcome a number of practical challenges in cases controlled by arbitration agreements.

First, arbitrators are virtual legal "outlaws," because arbitration, by definition, is outside of the legal process. There are no pro-consumer laws regulating arbitrations or arbitrators. Anyone can declare himself or herself an arbitrator. Arbitrators are not required to have any special knowledge of the law or expertise in a particular subject area. There are no requirements that arbitrators have any training, engage in continuing education or follow a code of ethics. Most importantly, they do not have to follow the law and when their decisions are against the law there is no right to appeal.

Second is the concept of a neutral arbitrator. Most consumers will only use an arbitrator once in a lifetime. HMOs, manufacturers and banks do so regularly and only agree to arbitrators who have rendered favorable decisions in the past. These "agreed" upon arbitrators are not truly neutral.

Third, big business claims that arbitration is an inexpensive method of resolving disputes. It is very expensive for consumers. Arbitrators do not work for free; charges of $200 to $300 per hour are not uncommon. California judges are paid by the public to resolve disputes.

Fourth, under private arbitration, hearings and decisions are secret. This system allows wrongdoers to hide information from newspapers, the legislature, and consumer advocates.

Fifth, in an arbitration consumers have no right to force a corporation to produce records concerning similar cases, require the company's most knowledgeable person to answer questions under oath to assist a consumer in preparing a winning case, or respond to written questions identifying corporate employees with information concerning abusive practices.

Sixth, most consumers need a lawyer to fight and win and in most cases the cost of hiring lawyers for an arbitration exceeds the value of the claim.

Consumer class actions allow individuals having similar claims, that are not economical to prosecute separately, to join together and share the cost of a lawyer and a lawsuit.

Class actions are an effective weapon for consumers to fight corporate abuse. Before the days of consumer class actions, no one would ever file a lawsuit over a $100 fraud. Many large businesses rely on that fact. They find it profitable to gouge the public because few will hold them accountable. In a nation of 275,000,000 people and approximately 75,000,000 households, taking $100 from a small share of the market represents multi-million dollar fraud.

Big business routinely complains about class actions and the fees paid to attorneys. Their goal is to turn the public against class action lawsuits because consumer class actions level the playing field against corporate abuse and are effective in holding wrongdoers accountable.

Class action attorneys work on a contingency basis and are not paid unless they are successful. Because they advance the costs of litigation needed to successfully prosecute a case, when they lose, in addition to working for nothing, they also lose the money they have advanced as case costs.

When class actions are successful, attorney's fees are strictly controlled by law. Class action attorneys have to justify their fees to the court and convince a judge of the amount they should be paid. Percentage fees awarded by courts range from 10 to 25 percent of any settlement that is approved by the court or the common fund recovered by the lawyers. These percentages are well below contingency fees paid by the public in other cases and are only paid when the class action is successfully concluded. The requirements for certifying a class and a general explanation of class action litigation can be found on The Consumer Law Page in an article entitled, "Class Actions Protect Investors And Consumers From Abuse: An Overview of the Requirements for Prosecuting and Certifying a Class" [].

Because no business wants to face consumers in mass, even in an arbitration, corporations routinely take the position that their arbitration contracts insulate them from being sued in a class action. They also claim that the Federal Arbitration Act does not recognize or provide for class actions in arbitration cases. That is not surprising because corporate interests heavily lobbied the passage of this federal law.

When classwide arbitration is unavailable, consumers lose because the cost of bringing and litigating individual claims commonly exceeds the value of the claim. Transaction costs can and do nullify a consumer's right to obtain relief, restitution and fair compensation. No one spends $5,000 to enforce a $500 right and corporate scoundrels hide behind this reality to defraud and abuse consumers. The last thing they want are consumers, and their lawyers, coming after them in class actions.

Even though the FAA does not mention class actions or consolidating multiple arbitrations, and is silent on these points, under common rules of legal analysis, class actions should be maintainable under the FAA and not precluded as a matter of law.

Regrettably, the United States Supreme Court and other federal courts have refused to come to the aid of U.S. consumers by ruling that class actions should be allowed under the FAA. Southland Corp. v. Keating, 465 U.S. 1 (1984).

The same is true for the Ninth Circuit, the federal appellate court for the Western United States, in its decision in Weyerhauser Co. v. Western Seas Shipping Co., 743 F. 2d 635 (9th Cir.), cert denied, 469 U.S. 1061 (1984). The Court held that because the FAA requires that a court must enforce the provisions of an arbitration contract "in accordance with the terms of the agreement," this language logically does not allow for consolidation of several arbitrations into one case unless the arbitration agreement [written by the wrongdoer] specifically authorizes consolidations, or class actions, which never happens because all corporations write arbitration agreements to avoid consolidation of claims and to preclude class actions. Arbitration clauses are classic "adhesion" contracts that are designed to benefit the corporation, are never negotiated in an arm's length transaction, and are imposed on consumers.

The California Supreme Court in Keating v. Superior Court of Alameda County, 31 Cal. 3d 584, 183 Cal.Rptr. 360 (1982) held for consumers in its opinion that class action arbitration is allowed both under state law and under the FAA. The Court recognized that consumer complaints arising under contracts drafted by corporate interests are the "ideal cases" to be resolved as class actions. When arbitration agreements are silent on class actions, the Court ruled that it would be inequitable to preclude classwide arbitration simply because the standardized contract does not refer to class actions. The court decided that public policy supports class actions as the preferred method to efficiently and readily resolve claims that would otherwise be financially futile.

In Blue Cross of California v. Superior Court, 67 Cal.App.4th 42, 78 Cal.Rptr. 2d 779 (1998), the California Court of Appeals took the analysis one step further and held that silence in an arbitration agreement as to class actions "neither contradicts the contractual terms nor contravenes the policy behind the [FAA]." The Court noted that the United States Supreme Court "has repeatedly indicated that sections 3 and 4 of the [FAA] do not apply in state courts" and, unlike the holding in Weyerhauser, Section 4 of the FAA does not bar states and state courts from ordering the certification of class and class action resolution by arbitration. It is for this reason that California consumers and claims involving California law can be submitted to state court judges for class certification and can be economically arbitrated as class actions.

For Californians these decisions allow defrauded consumers access to much needed class action relief when corporate wrongdoers take advantage of groups of consumers in cases involving similar products or service contracts and provide remedies for all consumers.

When consumer fraud is unprofitable it will come to an end, but litigating or arbitrating one case at a time will never end the incentive to steal from the public. Class actions not only level the playing field for consumers, but put to rest thousands of fraud claims in one lawsuit. It is exactly what corporate outlaws dread the most.

While the results that we have obtained in other cases and our clients' testimonials do not guarantee, promise or predict the outcome of your case, we do promise to do our very best for you in your case.

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