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Today’s Arbitration Outrage: Second Circuit Says Destitute New York Resident Consumer Must Arbitrate Case in Arizona

Today’s Arbitration Outrage: Second Circuit Says Destitute New York Resident Consumer Must Arbitrate Case in Arizona

By Paul Bland, Senior Attorney @PblandBland

Periodically, people ask me rhetorical questions like, “How much worse can the law of arbitration get? I mean, it’s so incredibly bad that it has to have bottomed out, right?”

As Jane Wagner famously wrote, no matter how cynical you become, it’s never enough to keep up.

The Second Circuit has just issued an opinion that reminds us that it is still possible for the law of arbitration to become even more terrible for consumers. In Duran v. The J. Hass Group, a woman who is essentially on the edge of being destitute alleges (very credibly) that she was the victim of a last-dollar scam, promised services that she didn’t receive.

The defendants allegedly operated a credit repair scheme, under which they took a fee of almost $4,000 from the consumer to settle all of her credit card debt, and then did nothing for her. So her credit card companies were suing her, she owed all the money that she’d owed when she first interacted with the defendants, and she was now completely broke. These allegations make an extremely strong claim under the Credit Reporting Act. The allegations and facts are discussed in greater detail in the district court’s opinion, available at 2012 WL 3233818 (E.D.N.Y. June 8, 2012).

It probably will not surprise anyone who follows consumer law (although it would come as a surprise to nearly any actual consumer) that the defendant had an arbitration clause. What’s striking is that the clause requires consumers (including the New York resident Ms. Duran) to arbitrate their claims across the country IN ARIZONA.  Now, courts have been striking down these kinds of distant forum provisions in decisions going back 20 years.  E.g., Patterson v. ITT Consumer Fin. Corp., 18 Cal. Rptr. 2d 563 (1993). But in the wake of more recent U.S. Supreme Court decisions, particularly the catastrophic Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (2010), a lot of bad actors out there have been experimenting with how unfair they can make their arbitration clauses and get away with it.

This strategy worked pretty well for the defendants in this case. The Second Circuit required Ms. Duran to arbitrate her claim, and enforced the provision requiring it to take place in Arizona. They noted that there is a “logical flaw” and an “unusual” quality to the result, because if Ms. Duran’s only remedy is to argue to the arbitrator that it’s unfair and unconscionable to require her to arbitrate in Arizona, she first has to GO to Arizona to do it. Oh well, the Court explains, this is what the Supreme Court would have wanted.

I think the decision is wrong, and that the better arguments are with the plaintiffs, and I’m very hopeful that a lot of other courts wouldn’t go with this conclusion. 

But the case does show how the U.S. Supreme Court’s ongoing adventures in re-writing and expanding the Federal Arbitration Act have a cost. What will the next scam artist put in their arbitration clause? Is there any reason that the Second Circuit would not have enforced a clause requiring the arbitration to take place in New Zealand on Leap Day? After all, why couldn’t the New Zealand arbitrator figure out if that’s fair?  What if the arbitration clause required that the arbitration take place on the newly non-planet Pluto?

If bad actors can get away with making arbitration clauses increasingly grossly unfair, and all the courts just wash their hands, do a Pontius Pilate, and say “well, this may SEEM really unfair, but oh well, it’s what the Supreme Court would have wanted,” mandatory arbitration will have no conceivable claim to any sort of legitimacy. It will become a complete joke, an openly rigged deal.  

Because saying that a poor person in New York can only get a refund of money stolen from her if she travels across the United States to begin the process of trying to get it back IS a joke, and it IS a rigged deal.

photo credit: jepoirrier via photopin cc