2016: The beginning of the end for forced arbitration?

Medicare bans arbitration in nursing homes it funds, while Wells Fargo scandal promises to focus light on ills of consumer arbitration clauses

2016 November

We all know that 2016 will go down as the most memorable year in the history of American politics. I don’t need to explain why.

But there’s another reason why trial lawyers will recognize 2016 as a memorable, even historic year. By all accounts, 2016 will go down as the year that marks the beginning of the end for forced arbitration agreements.

After more than a decade, the efforts of trial lawyers and their advocacy groups to eliminate the onerous forced arbitration clauses foisted on consumers are finally paying off. In the past few weeks, the federal government and California’s Governor have taken real steps to end forced arbitration agreements.

Silver lining for Medicare and Medicaid

On September 29 the New York Times reported in a front page article that “The federal agency that controls more than $1 trillion in Medicare and Medicaid funding has moved to prevent nursing homes from forcing claims of elder abuse, sexual harassment and even wrongful death into the private system of justice known as arbitration. An agency within the Health and Human Services Department on Wednesday issued a rule that bars any nursing home that receives federal funding from requiring that its residents resolve any disputes in arbitration, instead of court. The rule, which would affect nursing homes with 1.5 million residents, promises to deliver major new protections.”

In a New York Times Op-Ed column that appeared the day after the front-page article, Teresa Tritch wrote that “The end of pre-dispute arbitration clauses in nursing home contracts means the end of a pervasive practice that has long shielded nursing homes from liability for claims involving neglect, abuse, harassment, assault and wrongful death. Equally important, the ruling creates a tailwind for ending pre-dispute arbitration at other corporations and institutions that receive government support.”

In California, the news was also good, even historic. A top priority for CAOC this year was fighting forced arbitration. CAOC said that “early on we explored what could be accomplished on the state level, but as expected, we faced formidable opposition from CalChamber and its corporate brethren.”

Four arbitration-related bills were sponsored by CAOC and two were signed by Governor Jerry Brown.

Wells Fargo snafu

The first protected employees. CAOC noted that multi-state employers write into their employment and arbitration contracts rigid clauses that give them huge leeway in choice of law or forum. CAOC-sponsored SB 1241 will now make it clear that these types of agreements are voidable at the option of the employee.

CAOC’s Legislative Director Nancy Peverini wrote that the second “protects California seniors from abuses ignited by forced arbitration fights. Seniors and their families are effectively victimized twice – once by the abuse and then again by nursing home defendants invoking arbitration clauses to delay justice.” Next year, elder abuse claims will not be strung out for two to three years. Under CAOC-sponsored SB 1065, these appeals must be heard and finalized within 100 days.

Another story that received considerable media attention in 2016 involves Wells Fargo, the San Francisco-based bank. Unfortunately, because of forced arbitration agreements, this story didn’t turn out well for consumers.

California prosecutors alleged that for decades millions of Wells Fargo customers were the victims of customer fraud at the hands of bank employees. The Consumer Financial Protection Bureau reported that bank employees opened more than 2 million fee-generating deposit and credit card accounts that may not have been authorized. More than 5,000 Wells Fargo employees were fired over the practice.

In September, it was reported that the bank will pay $185 million in penalties to federal and Los Angeles authorities for the fake-account scheme. But the customers are being denied justice because of Wells Fargo’s forced arbitration policy.

Adding insult to injury

Michael Hiltzik of the LA Times wrote in his column on September 26 that “In the category of adding insult to injury – or perhaps piling one injury on top of another – Wells Fargo is an expert. Nothing demonstrates that more than the bank’s insistence on forcing the victims of its vast fake-account scam into binding arbitration, a system in which customers are at an overwhelming disadvantage.”

Hiltzik writes about James Rufus Koren’s report that the San Francisco-based bank has succeeded in getting several judges to toss fraud lawsuits over the bogus accounts by asserting that, even though the accounts are fake, they stem from legitimate accounts the victims opened, in which they agreed to submit any future disputes with the bank to an arbitrator.”

But the issue may not end there. Wells Fargo CEO John Stumpf appeared last month before the U.S. Senate Banking Committee and during the hearing, he incurred the wrath of Sen. Elizabeth Warren (D-Mass.). Sen. Warren and five other Senate Democrats followed up the hearing with a letter urging Stumpf “to immediately end Wells Fargo’s use of mandatory arbitration clauses in your customer agreements.”

While it is unlikely that Wells Fargo will take the advice of Sen. Warren, Hiltzik ended his column with a plea that explains why I believe 2016 may be the year that signals the end to forced arbitration agreements.

Hiltzik wrote, “But the most important consequence of Wells Fargo’s over-reliance on arbitration is that it brings home the drawbacks of allowing big businesses to saddle their customers with clauses the latter probably don’t read and certainly don’t fully understand. If Congress wishes to extract a silver lining from the Wells Fargo scandal, it could do worse than outlawing binding arbitration that keeps aggrieved customers out of court, entirely.”