CHEATED AGAIN: NEW FORCED-ARBITRATION DECISION WIPES AWAY CRUCIAL CALIFORNIA CONSUMER PROTECTION LAW
By Paul Bland, Senior Attorney
California’s consumer protection laws are often thought of as some of the best in the nation, and one reason for that is that they provide great remedies for broad, systemic public injunctive relief. For example, say a company is cheating a lot of consumers in the same way, such as engaging in a deceptive practice or collecting debts that it shouldn’t be collecting. Under California’s Consumer Legal Remedies Act (CLRA) and its Unfair Competition Law (UCL), consumers who have been ripped off in various ways can bring a case and ask a court to order the company to stop its illegal practices. Over the years, consumers have literally saved billions of dollars because of the public injunction provisions of these statutes, and a wide variety of illegal corporate schemes have been halted by courts applying those laws.
When corporations first started using forced arbitration clauses back in the late 1990s, one of the things they really wanted was to eliminate consumer lawsuits under the CLRA and the UCL for injunctive relief. The idea was basically that corporations wanted to opt out of the state’s rigorous consumer protection laws so that they would be free to cheat people with impunity.
The California Supreme Court wasn’t wild about this idea, and in a pair of important cases the Court said that mandatory arbitration clauses could not be used to eliminate consumers’ rights to obtain broad injunctive relief under these two statutes. In other words, a corporation could insist upon consumers arbitrating most types of claims, but they couldn’t use arbitration clauses to erase California’s flagship consumer protection remedies – court orders putting an end to illegal practices and requiring refunds. These two decisions came to be known as the Broughton/Cruz doctrine.
But all that has come to an end. Yesterday, in Ferguson v. Corinthian Colleges, http://cdn.ca9.uscourts.gov/datastore/opinions/2013/10/28/11-56965.pdf, the U.S. Court of Appeals for the Ninth Circuit held that the Federal Arbitration Act erases the Broughton/Cruz doctrine, and that corporations can use arbitration clauses to shield themselves from claims for injunctive relief under the key California consumer protection laws. In other words, if a corporation deceives and cheats tens of thousands of Californians, it can keep engaging in the illegal behavior and keep all the money without having to worry about the enforcement of the consumer laws. Sure, an individual can bring a case, but she or he can’t ask any court to block a broad pattern of cheating.
In Ferguson, students at for-profit schools alleged that they had been enticed to enroll in the schools with systematic false promises about the schools accreditation, career prospects for their graduates, the costs of education, and the availability of financial aid. Instead of gaining degrees that would help them rise up in their careers, the students alleged that after graduating that they could not find meaningful employment in their fields.
I can’t say whether the for-profit schools in Ferguson were ripping off their students or not. Pretty much every consumer lawyer in the country knows that many for-profit schools DO mislead and lie to their students, often loading them with huge debts for educations of dubious or no value, but I don’t know if that’s true of these schools in this case.
In fact, we’ll never know the truth thanks to the Miracle of Forced Arbitration. Applying U.S. Supreme Court’s cases that regularly enforce the Federal Arbitration Act, the Court held that the Broughton/Cruz rule is preempted. The Court further held that the California Supreme Court had no business considering whether enforcing the arbitration clauses would prevent consumers from vindicating their rights under the CLRA and UCL, and that the California Supreme Court had no business considering whether it was possible for arbitrators to issue effective injunctions under the statutes.
But one thing is absolutely clear today: When Broughton/Cruz was still the law in California, if a for-profit school (or any other bad actor corporation) systematically ripped off its customers, one of those consumers could go to court and get a public injunction stopping the abuse and refunding the ill-gotten gains. And today, thanks to forced arbitration, a corporation that cheats its customers cannot be pursued for a public injunction, so long as it had the foresight to insist that its customers sign a document containing, someplace in the fine print, a forced arbitration clause.
Does this make you feel safer or better? Me either.