Arbitration Everywhere, Stacking the Deck of Justice
nytimes.com
nytimes.com
Even if someone is willing and able to read a 44 page contract the first time, the next time version 1.0.1 of something comes out you are generally given a 44.5 page contract to re-agree to. "Somewhere" in there, they changed something; good luck figuring it out. So even if the version you read gave you permission to sue, the amendment that you clicked-through-in-agreement later may have given away that right (an amendment they probably made because somebody sued them).
We solved this type of thing years ago, the solution just hasn't made its way into legalese: use revision control. I wish that large documents were:
- Publicly revision-controlled with a system that has clients everyone can easily use (i.e. no arcane commands, and push-buttons for the most common things like "compare to last version").
- Public accountability for the entire revision history of every single line. If somebody wants to add [Horrible Clause A] two months after I first signed it, then I get to know exactly who made the change and if I want to I can take a look at other changes they've made to other documents.
I have to imagine that the companies would at least be paying more for lawyers to shuffle contracts around like that than to amend them slightly.
As a good example, the aforementioned Texas agreement seems to have a clause that states that the landlord can enter the property at any time without previous notice. Preventing the landlord from giving up that right is not a good thing.
Diffs won't help - the aim from version 1.0 is to obfuscate.
Also, this principle already exists and has a decent track record. Which is why my lease is 3 pages long, simple, and relatively landmine-free (I had to initial key clauses) while my iTunes contract is 50 page long, impenetrable, and landmine rich. The principle just needs to be strengthened & applied in the tech world.
- states are on the side of corporations not the people
Power begets power. Good power structures redirect that concentration and redistribute power, wealth, and means of production. The question of how to go about doing this is older than civilisation, most recent example I've come up with is from a history of Caesar Augustus, addressing the optimates and populares.
Former are oligarches, latter proles.
Guess which side's plank was "strict property rights and no debt forgivenss", and which was "structured bankruptcies, land redistribution, and affordable grain"?
It's the same strict propertarian vs. living-wage argument we're having today.
Edit: Mentally tracking and integrating policy reversions[0] sounds like a good time as well.
[0] https://github.com/SimpleFinance/policies/commit/b0a644035fb...
The only contradictory 'evidence' is talk about why it's better; that is, companies claim it's an easier and cheaper process. They fail to mention that what they mean is, it's easier and cheaper to them.
As a consumer, I want the laws to be written by my elected politician, don't you? Sure, there's a lot of unfairness to it. But I can't imagine a selfish corporation, one that keeps claiming their only loyalty is the the share holder, will do much better.
Just one example. You know VWs recent emission scandal? In the USA those people signed not only an arbitration agreement, but one that disallows class actions. You won't hear the problems that arbitration is causing because those problems won't make it to a court of law to be a problem.
There is a great deal of definitive evidence that arbitration clauses undermine the purposes of class proceedings, those purposes being:
1. increased access to justice (i.e. one may be automatically included in a successful claim, as opposed to seeking prospective reward through a potentially lengthy and expensive adjudication);
2. lowering of overall cost of adjudication (i.e. many issues may be resolved at once, at lower expense to the plaintiffs, defendant, and the courts); and
3. behavioural correction (i.e. raise the likelihood of bad behaviour by corporations resulting in monetary consequence).
Contracting-away class procedural rights can undermine point #1 and #3. Most people do not litigate even when they have an excellent chance of success, and behavioural correction requires a certain percentage of individuals to bring and succeed in their cases. The percentage who tend to litigate, and whom can be confidentially settled with out of court, are empirically a fraction the aggregate exposure from a class proceeding.
Which is all to say, arbitration clauses are not a problem if you do not feel like corporations should have monetary consequence for bad behaviour. This is certainly good for the people who own the corporations.
There is a problem, whether perceived or real, of "lottery ticket litigation" where plaintiff class action lawyers receive a large payout on success. Certainly one wants to incentivize capable lawyers to take on hard and speculative projects by dangling good returns, but in the case of class actions I have always thought of it more as a public interest litigation. There should be an incentive to succeed, but properly employed class proceedings can have a substantial public benefit. Lottery litigation can attract the wrong lawyers, though in my experience there is a fairly wide spectrum. On the other hand, public service class proceedings have their own set of distinct issues.
No it doesn't. Both the extensive use of the class form and punitive damages (or close substitutes) are virtually unique to the United States. Ad hoc regulation by an entrepreneurial plaintiff's bar acting without meaningful client input is not the not the only effective means to regulate businesses. On the contrary, plenty of countries arguably do a better job without the use of them at all.
I also broadly wouldn't trust the US to be particularly good at government regulation until our elections are publicly funded. There's a lot of evidence that our legislation is distorted towards the interests of the moneyed. I don't think that's a recipe for energetic, effective business regulation.
> No it doesn't.
It is necessary for class proceedings to induce behavioural modification, which is what we are talking about here. There are other means to bring about behavioural correction, but that was beyond the scope of my comments.
> Both the extensive use of the class form and punitive damages (or close substitutes) are virtually unique to the United States.
At least a dozen states have class procedures, but you may be right on punitive damages. Canada is quite close, but punitive measures are handed out sparingly.
>> Ad hoc regulation by an entrepreneurial plaintiff's bar acting without meaningful client input is not the not the only effective means to regulate businesses.
I partially agree; class proceedings are a poor substitute for regulation. However, a few points. First, in tandem with victim compensation and reduced litigation costs, some argue the behavioural modification aspect from financial consequence can act as a check-and-balance that requires no arbitrary intervention by the government to correct and prevent wrongdoing.
Second, class action are procedural in nature and the substance of the case must be founded on existing laws – often common law torts, but sometimes regulatory or administrative. The cost of enforcement via a class proceeding is relieved from the public purse, and no additional rights are conferred on victims by way of a class proceeding – only the vehicle for exercising those rights is modified.
Third, regulators are often not as aligned with victims as plaintiff lawyers in class proceedings. It is not unheard of, and in some places quite common, for regulators to be hired by the very institutions they are charged with regulating.
Moreover, one can gauge the effectiveness of the class proceeding in behavioural modification by observing the broad resistance to it, namely the widespread introduction of arbitration clauses. Perhaps not the behaviour it was intended to modify, but that itself speaks to the point.
> On the contrary, plenty of countries arguably do a better job without the use of them at all.
I tend to agree, depending on the circumstances, but it is a hotly contested point.
Slavery waits on the end of this route.
There could be a similar law preventing anyone from signing away rights we deem too important to jeopardize.
Honestly!
Lawyers call change sets "redlines" rather than "diffs". Their use in the profession long predates modern computing. Word has a serviceable built-in diff tool called "Compare Documents", and many law firms license superior document comparison software. Prose diff is hard, and specialized law tools far surpass diff, wdiff, GitHub prose diff, &c. in areas like move detection and treatment of punctuation.
Source code revision control systems are built for, and conducive to, modes of collaboration that only occasionally resemble legal practice. In the main, lawyers trade "patches" with commentary via e-mail, which is still the practice of some important open-source projects, like Git itself. (For a nice comparison of this workflow to "GitHub flow": http://zachholman.com/posts/git-commit-history/ . See also git-send-email and git-format-patch.) A developer might be tempted to squash commits to make a "pretty" patch. In an adversarial negotiation, hiding incremental revision history is essential for maintaining confidentiality and information advantage. If you're going to squash, anonymize, remove timestamps, &c. every time, Git is overhead and potentially dangerous. Git's architecture does not allow parallel, private histories for shared commits; you can't have your secrets and share them, too.
Fortunately, there are two common situations where Git makes sense for legal docs: standard forms and public terms. GitHub is in active use in both those areas.
A few pioneers, among them Jason Boehmig, whose Ironclad is a recent YC alum, and Casey Kuhlman, now of Eris Industries, have done work on "open" form contracts in plaintext markup tracked with Git. Jason lead the effort to make the Series Seed financing documents available on GitHub: https://github.com/seriesseed/equity I've followed in Jason's footsteps with an in-development community revision of Series Seed at https://github.com/seriesnext/seriesnext and an experimental company-to-company NDA at https://github.com/obviousnda/obviousnda (More announcements in this vein to come.) Casey's "Legal Markdown" and later writing for Eris were big inspiration for my current open-source work.
Public terms, like terms of use, fall somewhere in between working on a standard form for the common good and negotiating a contentious agreement. On the one hand, what's good for the service provider may come at user expense, as with arbitration clauses or limits on liability. On the other hand, courts require that users at least have notice and a way to review changes made, and transparency goes a long way to earning user trust and avoiding PR blow-up.
When the users on the other side are devs, Git makes a lot of sense. A number of developer-tools companies use version control to track their privacy policies, and sometimes other company policies. npm, Inc.'s policies, to give one example, are here: https://github.com/npm/policies Many of these use GitHub's "prose diff" support for Markdown.
If you're interested in terms of use, privacy policies, and the like, I've written about how my open-source work on "Common Form" (https://commonform.github.io), a schema and content-addressing system for modular legal documents, will apply to those terms: http://writing.kemitchell.com/2015/08/24/TOS-Already-Read.ht...
* Legal control: Is it free/open? Is the user just a licensee?
* User privacy: Is user data collected? How much? Can the user access it? Does the user control it?
* Legal recourse: Is arbitration required? Are class actions banned?
These issues have a large impact on consumers; I don't understand why they are overlooked. It also would raise awareness, a necessary step in addressing with them.
The problems with arbitration is that it does not affect court precedents, the records are private, and there's no jury involved. This all weighs heavily in favor of the employer over the employee.
The problem is simply that people don't read this stuff in the first place. They simply sign without reading, assuming/hoping/praying that the terms are reasonable.
And really, can you blame them? Contracts are so vastly overused and they're made with the assumption that the consumer isn't going to read them. Most companies won't give you a two-page contract if a twenty-page contract will do. Many contracts are excessively long and are part of a sales process built on speed that assumes nobody will take the time to read before signing.
I would like to see a change in how contracts are handled, such that if one side knows the other side didn't read before signing, the contract is void. That wouldn't take care of everything (American Express's contract is probably handled by mail, so they can reasonably expect you to read the contract at leisure in your home before you sign) but it would put a stop to abusive situations in retail, where they had you a bunch of paperwork to sign. If they had to actually watch you and make sure you read it all before signing, the contracts would probably become a lot shorter. If people got used to reading the things, then it might even change their habits for other scenarios like doing stuff through the mail.
However, I also think it is completely insane that contracts are allowed to put any restrictions on either party's access to courts. The whole point of courts is to be the arbiter when something goes wrong. A clause saying that you must use some third-party arbitration service instead of the courts, or a clause saying that you agree not to participate in class-action lawsuits, should be completely unenforceable, just like a clause that says you agree to become the other party's slave.
There is already specific law in some jurisdictions which reduces the applicability of this kind of consumer take-it-or-leave-it contract: see https://en.wikipedia.org/wiki/Contract_of_adhesion.
1. Because long contracts would immediately cause hugely increased costs for these companies if they had to wait for every customer to read them, they would greatly reduce the length and complexity of their contracts.
2. The most unconscionable clauses are also often the least necessary, so they would likely be the first to go. Of those that remain, the consumer is now much more likely to both read and understand them.
3. Because everybody is reading the contracts, they'll become aware of unconscionable clauses immediately, rather than only when they get bitten, or when they see some news story like this one.
4. Because everybody knows they're in there, competitive pressure or widespread outcry should force the removal of any remaining unconscionable clauses. (In theory this should happen now, but in practice people mostly don't know the clauses are there in the first place.)
Reading the whole contract as an individual wouldn't change much (although I think it's a good idea anyway), but I think that forcing everyone to read them would change a lot.
It is all about bargaining power.
No, and that's the whole point. If courts nullified contracts that even a reasonable person would "sign" without reading, phonebook contracts would carry enforcement risk, discouraging the practice.
The real problem here is that companies tend to have their own legal counsel writing these documents, but customers don't have their own legal counsel reading them and advising them about potential pitfalls.
And even if you could force people to read them, you can't force them to understand them, which is really what's necessary for your plan to work. Those contracts are generally written by lawyers for other lawyers. To understand them you need the IQ of a lawyer and a fair bit of their education. Not being able to get an oil change until you've done a semester of contract law is something that nobody's going to be happy about.
You seem to be implying that many people on HN do read them, and if that's the case, I would be very surprised. I certainly don't. There's frequently a new EULA I have to consent to when I update iOS, or iTunes, or some app, or sign into a cloud console, and the list goes on. If I read all of them it would probably add up to a good workday every week. I'm willing to bet that the number of people who are willing to devote that large a chunk of their lives to reading EULAS is somewhere near zero.
I said that "most consumers" could understand what contracts say if they actually read and put in effort to understand them.
I said that "people," meaning basically everybody, don't read contracts in the first place.
"Most consumers" and "sign without reading" aren't together in my original comment, either in space or meaning!
In any case, I certainly didn't mean to imply that HN readers are any different in either respect. I'm sure most HN readers could understand contracts, and I'm also sure that almost none of them actually read the boilerplate ones.
I wonder in what sense these agreements are enforceable when they cannot prove that people actually agreed with them? Hard copies of contracts are kept for a reason, I always assumed.
When there's a EULA or similar, the company is trying to form a contract with you, usually with lots of unfair terms.
If replacing the text with your own and clicking a button that you renamed from Agree to Disagree voids the whole thing, well, mission accomplished.
There would only be a problem if the law says that not only does your modification not form a contract, but that you acted in such bad faith that you actually still somehow agreed to the original contract.
that's not the problem. I see these arbitration clauses all the time, yet I sign anyway. Because I can't function without a credit card, without a cellphone, without internet hookups to my house, etc. It's not reasonable to say that I have to forego these services, or that I need to carefully shop for those vanishingly few providers that currently don't have such a clause, only for them to add one in when the contract renews in a year.
What choice does the consumer really have if these clauses are unavoidable?
edit: waqf's comment makes this point way better.
Having the reading comprehension to read that is very different from the required legal comprehension to understand it. Customers who do read every contract they sign and see a clause about individual arbitration will have to parse it under the legal context in which the statement is put.
Either the government needs to create enough competition in the market such that consumers have choice on these issues, or the government needs to advocate for the consumers.
I think this could also be pulled off by somebody like Costco. They already have a big membership and strong negotiating power. And a large part of their job is sorting through many possible merchandise options and only providing the good ones to their members. It'd be nice to see them take it a step further.
* Many class-action suits end up with a result of lawyers get $50 million, and everyone who bought a product gets a coupon for more of that product.
* The threshold for what can be the basis of a class-action is extremely low.
* A good portion of "legitimate" class-action suits could also be construed as federal fraud / false advertising suits. (the example of a bank selling insurance that couldn't possibly be used would be an example)
All of these are different from, say, a town suing a company for environmental damage. In that case, there's no contract between the individual citizens of the town and the company, so this trend won't impact those lawsuits at all.
Who pays that $50M to the lawyers? It's a zero-sum game, where should the plaintiffs win, the defendant loses big with very little effort on individual plaintiffs' parts.
What other remedy do consumers have against abusive corporations who act in bad faith, knowing full well that individuals won't take 40 or 400 hours out of their life to fight over $300?
I can absolutely see it going the other way as well, where an activist (or sock puppet for a competitor) can rally together a mob of people against whatever company they don't like this week. My response to that is that, in general, companies are in a position to defend themselves and should regard defending these cases as a cost of doing business.
The alternative is to ask consumers (especially those in poverty) to enjoy death by a thousand cuts as dozens of companies each take their pound of flesh from each and every one of them. In this case, the "cost of doing business" takes food off the table.
There are basically three ways to have reasonably well run open markets: individual action, state action, and collective action.
Individual action often makes no sense. If a company shafts me for $10, I'm not going to spent the thousands or millions necessary to prove the error. I'll just write it off and be less trusting next time. But if a company can screw each American out of $10, they've made $3.2 billion, which is a great incentive, and also provides for fantastic legal defense. Net result: a lot of people have bad experiences, reducing consumer trust and making innovation harder.
State action is also often problematic. It's not bad at some things. But especially at HN, we don't want to encourage this as the primary means of market regulation. Governments are slow to move and risk averse. It's easier and safer for them to over-regulate, favoring incumbents and limiting innovation to what they can be persuaded to permit. (See, e.g., the car market.)
Class action, on the other hand, fills an important gap. Companies know that they can't just screw everybody without risking a big lawsuit and a big payout. But plenty of problems get solved without government having to intervene. Class action basically allows for a "forgiveness, not permission" model for regulation. As long as your customers are happy and you treat them fairly, your risk is low.
If class action stops working as a way of redressing grievances, we'll see a lot of people agitating for increased government regulation. As an entrepreneur, I'd hate to see that happen.
My small claim was removed to arbitration against my objections, and they actually mention me in the NYTimes article: https://medium.com/p/faq-citibank-the-aaa-and-arbitration-my...
The NYTimes mentions me but completely skips the small claims removal portion, which is a bit frustrating. Right or wrong, individuals should be allowed to resolve disputes quickly and cheaply.
So what? If the customers feel they were wronged and the court agrees, the company should give restitution. It is sad that the victims will get hardly anything, but getting 0.05% of a wrongfully-charged fee back is better than 0%. And the class suit was the only way a large malicious corporation would ever be held accountable, but they're trying to distract from that by complaining that someone else gets their money that was found to be unlawfully obtained.
> In interviews, corporate executives and defense lawyers predicted that consumers would use arbitration once it became more familiar.
So the old way was bad because ambulance-chasing lawyers sucked up all the money. Now there's hardly any consumer recourse happening, but it's OK, eventually they'll start hiring some lawyers... who for some reason will be a good deal for the consumers this time. It's a good thing we have a coalition of banks' lawyers looking out for the consumers' interests. /s
> “Clients were telling me they were getting killed by frivolous lawsuits and asking me what on earth could be done about it,” Mr. Kaplinsky said.
If a lawsuit can "kill" you, was it really frivolous? I am considering both a plaintiff-won suit that extracts millions from the company, or a plaintiff-lost suit that cost the company tens of thousands to defend. It would seem to me that in the former case, the judge decided they were in the wrong, so it's not frivolous. In the latter case, the more it costs to defend, the more likely it is that the plaintiffs had a reasonable complaint. I know I'm biased, but am I being naive here? It also bothers me to hear a complaint about what a corporation finds "frivolous" when the individuals on the other end are facing fraudulent charges, sub-minimum wages, and unchecked monopolostic abuse -- "frivolous" is the least of the individuals' complaints, by why is only the huge corporation's concerns protected by the law here?
As such, this has only created more surprises. But it's a folly to call it a failure due to lack of regulation, since this all takes place in an environment that is already heavily, and in fact often incomprehensibly regulated. The verbosity of standard-form contracts isn't incidental.
One further step in direction to almighty international corporations and right-less countries and people. Already, many countries are regularly blackmailed by the big corporations.
The TTIP proceedings are also controlled by the industry lobbyists -- that is the reason, that those are kept so secret, that even the parliaments of EU countries are not allowed access to the data. With such regulations like TTIP, the possibilities to abolish customer laws in the countries will be also largely enlarged.
Corporations are assuming that we don't pay attention to this. It's OK to give an app or a business a 1-star review on the reason that the arbitration clause makes you uncomfortable.
Probably, a public arbiter would be highly successful. There is great need for arbitration and those who do it best could be rewarded appropriately.
Moreover, as a consumer, all (or nearly all) establishments that sell similar products use similar contracts, so do I actually have a choice?
Contrary to what the cynics are saying elsewhere in this discussion, those consumer protection laws are actually growing stronger and adapting better to the electronic age as time passes, at least here and apparently across Europe more generally. There were some big changes just this month, in fact.
An interesting experience we had while preparing terms for a new on-line B2C service was being advised by a lawyer who is actually a barrister (i.e., one who does courtroom advocacy) rather than the more usual solicitor. Our lawyer was very strongly in favour of using plain language and of having important but potentially non-obvious or unexpected terms prominent and near the start of the agreement. In other words, he was very keen that the agreement really should be written how you would hope these things would be written. His argument was that if brown stuff ever actually hit the fan, it's going to be up to a court to interpret the agreement, and that court is going to do so in a reasonable way based on what the parties involved thought they were signing up for. As such, it's less likely that a court would uphold some sneaky term hidden on page 974 that no normal user would ever have read, but if you have something unusual and it's clearly spelled out and prominently highlighted within the first few terms then it probably would stand up unless there's some strong legal argument against it (such as being automatically unfair under the consumer protection laws, for example).
What may surprise people is it's not just the signing of a contract, which enables this clause to be enforced, but also just a business' intent to settle cases arbitrarily. For instance, opening up a package of something you just bought might show intent that the contract therein is what you agree to. One nurse wasn't going to sign her rights away to an arbitration agreement, so she told her company 'no' to renegotiating her employment contract. But the courts upheld that she knew the intent of her employer and forced her into arbitration.
These companies are hiring their own judges, basically. What's scary is that these just aren't private contracts, and private court systems we are dealing with -- but private law!
SCOTUS ruled recently that even if the parties do not like the outcome of the arbitration decision, they have no legal recourse. Imagine going into a situation where a company knows the history of a judges decision and you do not? How incredibly unfair, let alone intimidating. I wouldn't even bother to sue, would you?
I won't go on about this. I can write a lot. Here's a list of links I collected about companies shorting the normal process of laws that protect citizens. The area is non-compete agreements:
http://www.marketwatch.com/story/more-firms-requiring-non-co...
http://www.lexisnexis.com/legalnewsroom/labor-employment/b/l...
http://rickmasseyblog.com/2010/10/04/are-you-trapped-by-a-no...
http://www.romingerlegal.com/floridacourts/court_opinions2/5...
http://apps.americanbar.org/litigation/committees/adr/articl...
http://www.justice.org/cps/rde/justice/hs.xsl/19905.htm
http://www.flacorplaw.com/Non-Competes.html
http://thenoncompeteblog.com/2013/01/18/prominent-florida-ch...
http://floridamediationgroup.com/articles/spero/2000_Employe...
http://www.noncompetenews.com/?tag=/Arbitration
http://www.franczek.com/frontcenter-Nitro-Lift_Arbitration_N...
http://articles.chicagotribune.com/2012-08-01/jobs/sns-20120...
1. Why can't consumers take a class action to an arbitrator for resolution.
2. Why can't consumers shut down these arbitrators, by suing with a claim that the arbitrators are not neutral? It is impossible for a company to single-handedly choose a "neutral" arbitrator.
Opt-out of Agreement to Arbitrate. You can decline this agreement to arbitrate by clicking here and submitting the opt-out form within 30 days of first accepting these Terms.
Which links to https://www.dropbox.com/arbitration_optout
While many companies also include an opt-out provision on arbitration — typically between 30 and 45 days — few consumers take advantage of it because they do not realize they have signed a clause to begin with, or do not understand its consequences, according to interviews with lawyers and plaintiffs.
The right way to solve resource allocation problems is through the market which inevitably makes tradeoffs. Arbitration is just such a market solution. What's nice about market solutions is that we can regulate them. But it takes a long time to know what the regulations should be. Until then it's buyer beware.
There isn't much left to do now except slowly turn the dials.
EDIT: I guess the obvious next step is subverting state authority entirely, through things like the TPA, that put corporate interests above that of "democratically" elected states.