DirecTV Escapes Liability with Another Binding Arbitration Clause

Mandatory Binding Arbitration Clauses are the latest way for corporate America to avoid having to stand before a jury and have its unfair business practices judged. DirecTV is the latest example of how corporate America skirts liability. As reported by Paul Bland and Spencer Wilson, DirecTV was able to avoid a jury trial because of a clause in their contract with consumers.

Public Justice represents a group of consumers who sued DirecTV and Best Buy for engaging in an ugly bait-and-switch scheme: the plaintiffs each thought they were purchasing a DirecTV receiver from Best Buy, but sometime after the consumers had purchased and installed their equipment, DirecTV allegedly mailed a document to the consumers — although most deny ever receiving the document — informing them that they had to begin making lease payments to DirecTV because they were actually just leasing the item they thought they had purchased. Could the consumers just return the equipment? Not without paying a stiff fine.

The consumers sued Best Buy and DirecTV, alleging that they had violated California consumer protection laws. But unbeknownst to the consumers, DirecTV had a get-out-of-jail free card. Buried in the DirecTV document was a reference to an arbitration clause saying that any disputes concerning the purported lease agreement must proceed individually in arbitration — not in court and not as a class.

What is the significance of this? The fact that the case could not move forward as a class has major access to justice implications. Let’s assume that the penalty for returning the equipment was $1000. Or that the lease cost was $1000. It would be hard, if not impossible, for a consumer to find an attorney to take a case where the most that could be recovered is roughly $1000. Filing and copying fees alone would make the cast cost prohibitive.

If the case could proceed as a class–and that $1000 in damages turned into $100,000–things might be different. The case might then economically be viable. But with such small damages, consumers would have a hard time finding a lawyer who could afford to take the case.

Corporate America knows this well. Companies, like DirecTV, know that if cases must proceed on an individual basis, consumers will likely never find an attorney to represent them. Consumer cases can be complicated, so no attorney, no lawsuit, no responsibility.

There was some good news from the opinion:

Unlike DirecTV, Best Buy didn’t have an arbitration clause with our clients or its other customers. Faced with the prospect of actually being held responsible for violations of consumer protection laws, deep into the lawsuit Best Buy suddenly decided to try to borrow DirecTV’s arbitration clause. It didn’t bother Best Buy that it wasn’t mentioned in the arbitration clause and wasn’t a party to any contract containing the arbitration clause. Best Buy argued that it could enforce DirecTV’s arbitration agreement under a bunch of specious theories, the gist of which was that since Best Buy was in cahoots with DirecTV in the scheme, it should be allowed to hide behind its corporate buddy’s arbitration clause.

In a sweet decision extending the protections for consumers in this area, the Ninth Circuit rejected each of Best Buy’s arguments. In particular, the Court was not amused by Best Buy’s effort to hide the ball. The Court reprimanded Best Buy for arguing that it was DirecTV’s agent when it had previously submitted under seal the agreement between Best Buy and DirecTV, which showed that the exact opposite was true. The Court of Appeals admonished that Best Buy’s actions constituted “apparent violations of the duty of candor toward the tribunal,” and left open the possibility of sanctions against Best Buy. (We earlier posted a strong piece explaining how one of Best Buy’s formalistic arguments was unfounded and unfair.)

Public Justice is doing some of the most cutting edge legal work in fighting these types of anti-consumer arbitration clauses. But American consumers need to be wary of them. When possible, consumers should do what they can to avoid signing up for mandatory binding arbitration.