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Nathan Newman on March 17, 2008 - 9:00am
James Madison, one of the main drafters of the Constitution and the fourth President, wrote that, "Trial by jury in civil cases is as essential to secure the liberty of the people as any one of the pre-existent rights of nature." Yet, today, consumers, employees and victims of corporate negligence are increasingly being denied access to justice through the courts.
Mandatory arbitration agreements prevent cases from going to court, secret settlements hide evidence of corporate wrongdoing, and the costs of court proceedings put justice out of reach for low-income and working families. As the Brennan Center for Justice argued in a recent white paper:
[F]eatures of meaningful access to the courts are increasingly absent...the gap between America's promise of equal justice and the reality of justice on the ground is substantial, and growing.
This failure of equal justice stems from a combination of decisions by right-wing federal court appointees, new corporate strategies to undermine civil justice for employees and consumers, and diminished funding to support access to justice for low-income and working families.
Still, as this Dispatch will detail, a number of states have taken action to reverse this tide, highlighting the need for more states to step up to restore the promise of "liberty and justice for all."
Restricting the Harm of Mandatory Arbitration
Most consumers and employees believe that when companies violate the law, they can be brought to justice in a court of law. But increasingly, consumers and employees are required to sign "mandatory arbitration" clauses, often buried in long boilerplate contracts, which dictate that their cases be judged by corporate-dominated private arbitrators. These private arbitrators often ignore the law, yet the consumer or employee has little recourse since the decisions are mostly not appealable.
A once obscure 1925 federal law, the Federal Arbitration Act, overrides both federal and state legal rights and, in the words of the employee rights advocate, Workplace Fairness, creates "a process that can include excessive filing fees and arbitration costs, limits on the discovery necessary to build a case against the employer and the types of damages which may be awarded."
The Costs of Arbitration: While arbitration is often sold publicly as a "more efficient" and less costly alternative to court trials, a recent report by Public Citizen, The Costs of Arbitration, found that arbitration is almost always more expensive than the cost of bringing a lawsuit in traditional court. In fact, because it uses costly private arbitrators, the overall costs of arbitration can be up to five thousand percent higher than in court litigation for individuals. And because many arbitration agreements prohibit collective actions, consumers and employees can't cut their costs by combining their efforts into a combined lawsuit. Since arbitrators have been shown to have a bias towards "repeat players" who hire them -- i.e. major corporations -- consumers and employees are at a massive disadvantage and, as the Brennan Center emphasizes, they are rarely able to appeal a decision despite that likely bias.
What States Can Do: While the Federal Arbitration Act bars states from blocking mandatory arbitration altogether, they do have discretion to define what kinds of agreements are acceptable. The National Consumer Law Center h as developed a number of key model state laws to preserve individual rights and limit abusive mandatory arbitration, including:
- Preservation of Legal Rights -- preserves consumer and employee access to class actions, recovery of attorneys fees, punitive damages, and other equitable remedies.
- Limits on Arbitration in Insurance Transactions -- provides protection against arbitration clauses in insurance contracts.
- Cost Disclosures in Arbitration Agreements -- requires disclosure of filing fees, costs of arbitrators, any other arbitration costs, and the share of the costs that each party must pay.
- Limits on Consumer Arbitration -- limits mandatory arbitration generally to the extent allowed by federal law.
- Regulation of Arbitration Service Providers -- requires arbitration services to disclose information about individual cases and their outcomes (such as how frequently particular businesses use that service provider), to exempt low-income participants from filing fees and to prohibit consumers and employees from being saddled with a company's legal fees.
Stopping Secret Settlements that Hide Corporate Malfeasance
Aside from delivering individual justice, one other key purpose of our court system is to reveal evidence of dangers to public safety and health so that they are eliminated and other victims are quickly compensated. Unfortunately, mandatory arbitration and other "alternative dispute resolution" too often bury information about corporate malfeasance in secret settlements, thereby increasing damage to other victims for years, even decades.
For example, the first asbestos case was brought and settled in 1933, compensating eleven clients to the tune of $30,000 ($450,000 in today's dollars), but because the settlements were kept secret, the asbestos manufacturers were able to continue exposing employees and the public to the dangerous substance for additional decades. Similarly, when Goodyear tires initially led to blowouts with the Ford Explorer in the early 1990s, evidence was buried in secret settlements for a number of years before being publicly discovered in later court decisions.
Sunshine on Secret Settlements: A number of states, however, have passed laws and rules prohibiting secret settlements when they involve information about public health or safety. In 1989, the Texas Legislature ordered their state courts to develop guidelines for restricting secret settlements. The resulting Rule 76a of the Texas Rules of Civil Procedure creates a "presumption of openness" affirming public access to all court records. Similarly, Florida in 1991 passed its "Sunshine in Litigation Act" to ban settlements that conceal information about "public hazards." In fact, Goodyear Tires sought to evade Florida's law during litigation over its secret settlements, but the law was upheld.
Other states have laws or state rules that restrict secret settlements to a greater or lesser extent, including:
Louisiana's Civil Procedure Code Article 1426(D) prohibits similar secrecy orders and agreements unless they involve "trade secret or other confidential research, development, or commercial information."
- Arkansas Code 16-55-122 voids any agreement that restricts "any person's right to disclose the existence or harmfulness of an environmental hazard..."
- A New Jersey superior court ruled that confidential malpractice settlements between physicians and plaintiffs must be disclosed to the public. The state was ordered to disclose to the public all notices it received in the last 5 years from insurance companies that have made medical malpractice payments on behalf of physicians.
Opponents of sunshine laws argue that they will somehow "chill" settlements and drive up legal costs, but concealing public hazards has resulted in even greater costs to the public over the decades. Despite this, we still have even greater litigation costs in the long-term because other litigants have had to retry the same case over and over again to attain the same information in discovery. In fact, banning secret settlements makes access to justice possible for lower-income plaintiffs who are then able to seek individual justice with evidence revealed in litigation by others with deeper pockets.
Making Legal Representation Affordable
While a number of civil rights, environmental and other laws award attorney's fees to a plaintiff prevailing in a lawsuit, it is still impossible for some individuals to find a lawyer willing to take the financial risk of representing them when only smaller sums are at stake. Two reforms -- expanding state funding for legal services for low-income families and expanding the use of small claims courts -- would make the courts more accessible to low-income and working families.
Funding Legal Services: According to Access to Justice: Opening the Courtroom Door by the Brennan Center, federal funding for legal services in real dollars has declined dramatically over the last twenty-five years. In 2004, federally-funded programs turned away at least one person seeking help for each person served, leading to approximately one million cases per year being turned away due to lack of funding.
States are increasingly stepping up to help fill this need. For example, after the State Bar of Wisconsin published a scathing report, Bridging the Justice Gap: Wisconsin's Unmet Legal Needs, Wisconsin legislators stepped up with an additional $1 million in funding. While this amount proved not enough for all unmet needs, it did remove Wisconsin from the company of the remaining five states (Alabama, Alaska, Idaho, South Dakota and Wyoming) that provide no funding for legal services. A number of states have also increased funding from so-called IOLTA accounts -- lawyers' accounts whose interest is used to fund low-income legal services -- by requiring that banks provide competitive interest rates.
Because of Congressional restrictions, legal services organizations are unable to represent many legal immigrants, file class action lawsuits, support union organizing rights, or collect attorneys fees from losing defendant companies. So state funding is crucial in expanding the tools legal services organizations can use to effectively help their clients. And if state-funded legal services groups can collect attorney's fees, they can then use those fees to help additional clients.
Expanding Small Claims Courts: While states can also reform legal services to make it more accessible to "near poor" working families needing representation, a crucial additional need is expanding the jurisdiction of small claims courts where individuals can represent themselves in seeking compensation for employment, consumer and other violations.
HALT, an organization dedicated to legal reform, has been working to promote broad small claims court reforms. The goal is to allow lawsuits up to $20,000 to be heard in these streamlined courts, give small claims court judges the right to offer not only monetary damages but also injunctive relief such as "cease and desist" orders, encourage simplified procedures to make it easier for individuals to represent themselves, and provide weekend and night court hours to accommodate the needs of working families.
Just in the last few years, South Dakota raised its small claim limit to $12,000 (HB 1122), Oregon increased its limit to $7500 (HB 2316) and Illinois raised its limit to $10,000 in 2006. Tennessee and Georgia have the highest limits, allowing small claims cases of up to $15,000.
The best consumer, employment and civil rights laws on the books don't matter if individuals can't access the courts to enforce them. Even as the promise of justice has receded into dark holes of private arbitration fraught with secret settlements and litigation too costly for average Americans, many states are moving forward to protect access to justice for individuals. Reforming mandatory arbitration rules, prohibiting secret settlements that endanger public health and safety, and making the courts more accessible are all key state reforms that can help make the promise of justice in our court system a reality.