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Class Action Countermeasures Discussions of the Strategic Considerations Involved In Class Action Defense

Professor Gilles on Consumer-Friendly Arbitration Clauses

Posted in Motions Practice

 Professor Myriam Gilles holds the distinction of having called the arbitration issue earlier than almost any other academic.  So when she writes a follow-up, it’s well worth paying attention. That follow up is here, in her latest working paper, Killing Them with Kindness: Examining "Consumer-Friendly" Arbitration Clauses after AT&T Mobility vs. Concepcion. And her findings indicate that corporate defendants are issuing "consumer-friendly" arbitration clauses. (Though, as she points out, few are as generous as the AT&T clause that "won" in Concepcion.)

Professor Gilles is primarily concerned with the popular plaintiff argument that arbitration clauses should not be enforced when they might prevent a "vindication" of consumers’ rights. She argues that there are four basic judicial responses to arbitration clauses: "liberal pragmatism" (any arbitration agreement that prevents a vindication of rights should fail), "practical formalism" (Concepcion has promoted a "race to the top" on arbitration clauses, and that’s a good thing), "FAA absolutism" (there is no vindication of rights exception), and "conservative instrumentalism" (the vindication of rights exception should not swallow Concepcion).

[T]he view that I perceive as becoming dominant in the post-Concepcion world is “practical formalism,” under which most claimants seeking to make the vindication of rights showing are likely to fail, as consumer-friendly arbitration clauses proliferate across the corporate landscape. Justice Scalia in Concepcion offered up the observation that the claimants in that case could have vindicated their rights under the bilateral arbitration clause at issue, principally because “the arbitration agreement provides that AT&T will pay claimants a minimum of $7,500 and twice their attorney’s fees if they obtain an arbitration award greater than AT&T’s last settlement offer.” Since that time, numerous lower courts have rejected challenges to arbitration clauses and class action waivers based upon the observation that the clause at issue would in fact allow the vindication of rights – at least, when measured against the yardstick of Concepcion

(Unitalicized emphasis added, internal footnote omitted.)

What makes this working paper especially useful is that Professor Gilles doesn’t just provide a taxonomy of different court’s approaches, she actually looks at a number of clauses offered for popular customer services like Chase Bank, Groupon, and Xbox Live.  Her findings:

A few conclusions are worth noting at the forefront. First, all the clauses I examined contained class action waivers. While this is not surprising, it represents a clear increase in the popularity of these provisions over the past decade. Second, nearly all the clauses had been amended in the aftermath of Concepcion. Indeed, I could find few arbitration clauses that hadn’t been amended in 2011-2012, and presumably, many of these changes reflect the addition of pro- consumer provisions. Third, fewer companies than I had expected have copied the more generous aspects of AT&T’s clause – i.e., provisions offering automatic cost-shifting, bounties, premiums and doubling of attorneys’ fees. Of the 37 arbitration clauses examined, only 6 companies offered anything close to AT&T’s set of incentives, and none were quite as generous."

(Emphasis added, internal footnote omitted.)  In general, Professor Gilles’s findings indicate that what companies have done in the wake of Concepcion is to amend their arbitration clauses, make an educated guess as to what level of "pro-consumer" terms would survive any court challenge, and then further amend upwards after losing court battles. And that’s certainly useful information for any in-house counsel looking to minimize their class-action risk.