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July 2013

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Court Arbitration Ruling Effectively Places Corporations Outside the Law


by Glen Emerson Morris
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The title of Business Week's article on the Supreme Court's American Express decision said it all, “The Supreme Court: Corporate America's Employees of the Month.” The Amex decision held that SMBs were bound to an arbitration clause that prevented them from participating in a class action lawsuit against Amex. It was a 5 to 4 decision. Not everyone was happy with it. As Justice Kagan put it, “If the arbitration clause is enforceable, Amex has insulated itself from antitrust liability-even if it has in fact violated the law. The monopolist gets to use its monopoly to insist on a contract effectively depriving its victims of all legal recourse. And here is the nutshell version of today's opinion, admirably flaunted rather than camouflaged: Too darn bad.”

This decision is bad for SMBs for two reasons; SMBs have effectively lost the ability to seek legal recourse against large corporations for serious misconduct, and the quasi-legal arbitration system that has replaced the courts is totally stacked against the SMB.

A careful reading of its decisions on arbitration reveal that while the court has gone to great lengths to make arbitration binding, it has failed to require the most basic minimum standards for fairness for the arbitration process itself. That's because under the Roberts doctrine, the fairness of the arbitration process is simply not relevant. The only relevant fact is that the SMB agreed to it. As the saying goes, the only right you can count on the Supreme Court to uphold is your right to waive your rights. And these days, you have to waive a lot of rights to stay in business.

One of the downsides to the digital revolution is that SMBs are increasingly dependent on mega-corporations for critical services they need now, but never needed before. It's kind of like finding you have a new secret partner, a partner who is very specific about how much they want, but very vague about what they're obligated to do for it. And there's no way to avoid the problem. For instance, the average mom and pop diner will take at least two credit cards and need an ISP to process the cards, as well. That's at least two contracts likely requiring binding arbitration agreements, and that creates a longstanding liability, one that could have serious long term consequences.

With few employees left to lay-off, the major banks and telecoms will have few options available to increase profits other than to take an increasingly large share of SMB income, and they will.

Down the road, what's to keep Mastercard or Visa from demanding 15% or 20% of a SMB's total sale? Nothing. EBay is already at those numbers, and people still use it. If all of the credit card services adopted those rates they could probably make the rates hold. They would have fewer customers, but the total profits might be greater, and they'd be doing less work to earn those profits. SMBs would have some hard choices to make, especially given the uncertainty involved. Monopolies tend to raise rates considerably faster than inflation, and we're turning into a nation of monopolies. We can be certain rates will go up faster than inflation, but how much faster is anybody's guess.

The Roberts court has made it clear it will provide SMBs little protection from predatory practices from current and future business monopolies. The only option will be arbitration.

So, realistically, how much recourse is really provided by arbitration? Basically none. Arbitration is a PR move. It's there to be seen, not to be fair. Business Week reported that in general, consumers win about 0.2% of arbitration cases. It's not surprising when you take a close look at how the arbitration system works. A few years ago it was reported that one of the major American corporations was requiring its customers to use an arbitration service that the company owned one hundred percent of. Even if corporations don't always own the arbitration service, they still select which arbitration service to use, and that makes the corporation the arbitrator's client, not the customer. In general, arbitrators give corporations everything they ask for (one arbitrator in California reportedly decided 68 cases in one day, all against the consumer).

Bad as the Amex arbitration ruling is, it gets worse when you factor in the Citizens United decision. A pattern of corporate supremacy emerges. Under current court doctrine corporations may not be held accountable for their misconduct, only people can be held accountable. The fate of the corporations is up to the market alone. If you think Amex, Visa and Verizon are robber barons, your only option is to not use them. For many SMBs, that's not much of an option. Letting the court's decision stand isn't much of an option either, it's just too blatantly invalid.

It has been said that slavery is the fiction that people are property, and corporate personhood is the fiction that property is people. In that light, the Citizens United decision can be seen as comparable to the 1857 Dred Scott decision, which officially declared slaves were in fact property. It's a decision that takes people who are truly delusional to believe.

Let's hope the Citizens United decision doesn't take a civil war to resolve as the Dred Scott decision did. Even if it doesn't, it's going to be a tough fight. The court's Citizens United decision has been criticized as giving corporations the same rights as people, but that's really not quite what it did. In reality, it gave corporations far greater rights than people, and it gave corporations enormous power to defend those rights, using our money, and using our government. As a result, we have very few options left, and only one of them is remotely viable; a Constitutional amendment overturning Citizens United.

Such an amendment is a real possibility. A lot of people on all sides of the political fence felt the Citizens United decision was not only dead wrong, but also a truly dangerous threat to democracy. It compromises the integrity of our legal system and our economic system, and we need both to prosper as a nation, and as individuals. Whether the Supreme Court doesn't understand that, or they just don't care, either way, we need to overrule them.


Glen Emerson Morris was a senior QA Consultant for SAP working on a new product to help automate compliance with the Sarbanes-Oxley law, an attempt to make large corporations at least somewhat accountable to stockholders and the law.
He has worked as a technology consultant for Yahoo!, Ariba, WebMD, Inktomi, Adobe, Apple and Radius.




Copyright 1994 - 2011 by Glen Emerson Morris All Rights Reserved ' keywords: Internet advertising, Internet marketing, business, advertising, Internet, marketing. For more advertising and marketing help, news, resources and information visit our Home Page.


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