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1.4.9 Corporations Avoid Binding Arbitration When It Applies to Them

Evidence of corporations’ true motivations in requiring binding arbitration is demonstrated by their reactions when forced to arbitrate claims they would prefer to bring in court.

Arbitration clauses may force the consumer to arbitrate while as a practical matter leave the company the option to go to court in those cases when the company would be likely to sue the consumer. In the words of one commentator, the rhetorical question then becomes: “If arbitration—in particular, the arbitration system you have—is so great, why are you imposing it on your customers/employees while reserving to yourself the option of avoiding that arbitration system and pursuing litigation?”76

Franchised car dealers were so upset by having to arbitrate disputes with their franchisors—whom the dealers thought were exploiting them through their superior bargaining position—that they approached Congress to obtain an exemption from the Federal Arbitration Act, even as they continued to include arbitration clauses in their own sales contracts with consumers.77 Similarly, a study looked at whether corporations included arbitration clauses in their contracts with other companies. Only 11% of such contracts had an arbitration requirement, in contrast to dramatically higher numbers in the corporation’s contracts with consumers, indicating that corporations do not view arbitration as an efficient substitute for court litigation when their own rights are at stake.78

Another example of corporate hypocrisy is that ATT Mobility went to the United States Supreme Court to force its customers to resolve disputes through individual arbitration.79 But shortly after the company’s victory in the Supreme Court—and as it began to move forward with a merger with T-Mobile—AT&T Mobility filed suit in eight federal courts seeking to block individual customer arbitrations that could prevent the merger.80 It would prefer, apparently, to proceed in court.

Interestingly, recent studies have also shown that corporate counsel are increasingly dissatisfied with arbitration even for the commercial disputes that arbitration was initially designed to streamline. One publication for in-house counsel notes that arbitration is not significantly less expensive and time-consuming than litigation, and expresses concerns about arbitrators’ competence and neutrality.81

Footnotes

  • 76 {76} Jeffrey W. Stempel, Mandating Minimum Quality in Mass Arbitration, 76 U. Cin. L. Rev. 383, 421 (2008).

  • 77 {77} See 15 U.S.C. § 1226 (reprinted in Appx. B.7, infra). Cf. Arciniaga v. Gen. Motors Corp., 460 F.3d 231 (2d Cir. 2006) (dealer did not meet the definition of a franchisee and thus was forced to arbitrate its dispute).

  • 78 {78} Theodore Eisenberg & Geoffrey P. Miller, Cornell Legal Studies Research Paper Series, The Flight from Arbitration: An Empirical Study of Ex Ante Arbitration Clauses in Publicly-Held Companies’ Contracts (Aug. 30, 2006), available at http://papers.ssrn.com. See also Theodore Eisenberg, Geoffrey P. Miller & Emily Sherwin, Arbitration’s Summer Soldiers: An Empirical Study of Arbitration Clauses in Consumer and Nonconsumer Contracts, 41 U. Mich. J.L. Reform 871 (2008); Liz Kramer, Dissonance Between SCOTUS and BUSINESS on Arbitration, Arbitration Nation (Apr. 23, 2012), http://arbitrationnation.com; Art Levine, Why Does Chamber of Commerce Favor Arbitration for Workplace Rape Victims, But Oppose It For Union Workers?, Huffington Post (July 17, 2009), www.huffingtonpost.com (noting hypocrisy in that Chamber of Commerce and businesses “fervently . . . embrace arbitration when it allows them to avoid being held accountable for negligence towards employees or the defrauding of consumers” but oppose binding arbitration with unions under provisions of Employee Free Choice Act).

  • 79 {79} AT&T Mobility L.L.C. v. Concepcion, 563 U.S. 333, 131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011).

  • 80 {80} Martha Neil, After Supreme Court Win Forcing Customers to Arbitrate, AT&T Now Sues to Stop the Arbitration, A.B.A. J. (Aug. 17, 2011).

  • 81 {81} System Slowdown: Can Arbitration Be Fixed?, Inside Counsel, May 2007, at 50–58.