Freedom Line Blog

The Center for Individual Freedom (CFIF) today joined a coalition made up of more than two dozen free-market organizations on a letter urging Congress to use the Congressional Review Act to reverse a new rule by the Consumer Financial Protection Bureau (CFPB) that prevents financial services companies from using arbitration to resolve customer disputes.

The letter, which was organized by the Center for Freedom and Prosperity, can be read in its entirety here (PDF).

Private arbitration and other forms of alternative dispute resolution provide important alternatives to traditional court litigation, and this week the U.S. Supreme Court delivered an important and welcome victory against trial lawyers and liberals who seek to undermine them.  The ruling is particularly notable for the fact that even liberal justices Breyer and Kagan joined in the 6-3 majority.

The case originated from an agreement between DirecTV and customers under which the parties agreed to a class action waiver and to resolve any disputes through private arbitration.  Although pro-trial lawyer California state law made class action waivers unenforceable, the Supreme Court had rightfully ruled in 2011 that the Federal Arbitration Act preempts such such state laws.  In the instant case, the California courts nevertheless attempted to circumvent that 2011 ruling, but the Supreme Court was having none of it.

For their part, liberal justices Ginsburg and Sotomayor did their best Bernie Sanders and Occupy Wall Street impression.  Their dissent is worth citing simply because of its self-evident reliance upon class warfare and leftist economic policy over objective, sober legal analysis:

It has become routine, in large part due to this Court’s decisions, for powerful economic enterprises to write into their form contracts with consumers and employees no-class-action arbitration clauses…  I would read it, as the California court did, to give the consumer, not the drafter, the benefit of the doubt.  Acknowledging the precedent so far set by the Court, I would take no further step to disarm consumers, leaving them without effective access to justice.”

First and foremost, Justice Ginsburg’s claim is incorrect as a matter of fact.  Arbitration and alternative dispute resolution don’t deprive anyone of justice.  They simply move the parties away from more expensive and tedious traditional litigation in overcrowded court system, and toward fair, speedier and less-burdensome resolution by an arbiter (usually an experienced judge) selected by both parties.  Second, Justice Ginsburg’s argument rests on sentiment and her own policy preference rather than law.

Accordingly, the Court’s ruling constitutes a critical loss for the powerful trial lawyers’ lobby, which essentially by definition makes it a critical victory for Americans more broadly.

The United States Supreme Court’s recently-completed term provided those who treasure individual freedom with much reason to celebrate, including the affirmation of Second Amendment protections against state infringement in McDonald v. City of Chicago.

Another 5-4 decision announced the same day as McDonald received less celebration, but not because it was any less worthy.  In Rent-a-Center, Inc. v. Jackson, the Court dealt a justified and much-needed blow against the hyper-litigious trial lawyer industry in America.   At issue in Jackson was whether the threshold question of enforceability of voluntary alternative dispute resolution agreements could be decided by arbitrators, or instead by already-overburdened courts.

Naturally, trial lawyers loathe alternative dispute resolution agreements because they reduce the likelihood of runaway “jackpot jury” awards and reduce the oppressive costs of litigation, thereby lowering settlement value.  Although the trial lawyers’ bar dishonestly claims that alternative dispute resolution “deprives plaintiffs of their day in court,” that is simply not true.  Arbitrators who decide such cases are typically experienced judges rather than random jurors off the street, and the full array of discovery and remedies are typically available to plaintiffs who have truly suffered.  The deciding arbitrator is also agreed upon mutually by the parties beforehand, thus ensuring an unbiased decisionmaker.  But because the chance of a runaway jury award is reduced, ambulance chasers absolutely loathe them.  And had the Supreme Court ruled that overburdened courts must determine threshold questions of enforceability of such agreements, trial lawyers would have reason to cheer.

Fortunately, the Supreme Court ruled correctly, albeit by only a frightening 5-4 margin.  Writing for the majority, Justice Antonin Scalia noted that plaintiff Jackson signed the alternative dispute resolution voluntarily, and it made no sense to distinguish enforceability questions from other matters on which disputes center.  For the dissenting minority, Justice John Paul Stevens claimed that the result was “unfair,” as if the plaintiff had no ability to walk away from the agreement when it was offered to him.

Alternative dispute resolution is an underappreciated way to reduce outrageous “jackpot justice” awards in a fair, speedy, inexpensive way, which is why trial lawyers detest them.  Come to think of it, trial lawyers’ hysterical opposition to alternative dispute resolution is evidence enough of their value.  A hearty “bravo” to the Supreme Court.