Posts Tagged ‘Barnes & Noble’

Arbitrations and the Corporate Litigants Who Love Them

Tuesday, September 11th, 2012

Tim Cushing at Techdirt picked up on the post I did on the Barnes & Noble case (where I, in turn, was picking up on the post Venkat Balasubramani did on Eric Goldman’s Technology & Marketing Law Blog).

In my post, I tried to explain why arbitration is such a great deal for corporations. For various reasons I didn’t dwell on the question of whether corporations get better-than-fair treatment in the arbitration itself. But they do. Much better.

Cushing picked up where I left off by citing to a Seattle Post Intelligencer article reporting the results of a Public Citizen study finding that corporations beat consumers about 95 percent of the time in arbitration.

The Public Citizen study the PI was talking about appears to be this one: The Arbitration Trap: How Credit Card Companies Ensnare Consumers [pdf].

The details are interesting. The key statistic in the study is actually 94 percent – that’s the winning rate for corporations in the cases handled in California by the private arbitration service provider called the National Arbitration Forum. (California formed the sample pool because California, unlike other states, requires public reporting of some limited data by arbitrators.)

The 95 percent figure is for just a small group of specific 28 arbitrators. But it’s that elite group that gets almost all the work!

The Busiest Arbitrators Produce the Results Corporations Seek: In California, a small, busy cadre of 28 arbitrators handled nearly 9 out of every 10 NAF cases. This group ruled for businesses 95 percent of the time. Another 120 arbitrators handled slightly more than 10 percent of the cases in which an arbitrator was assigned. They ruled for businesses 86 percent of the time and for consumers 10 percent.

Can you imagine what it would be like if, instead of judges getting their salary from the government, they were paid by litigants. And can you imagine if there were different court systems competing with one another, all vying for the repeat business of litigants who constantly find themselves being sued? Well, you don’t have to imagine it: That’s arbitration.

As a corporate user of arbitration, you pick the arbitration firm upfront by selecting it in the terms of service or credit-card holder agreement. Of course, you are going to pick the firm that gives you good results. And since arbitration firms are competing for the loyalty of corporate customers, they are going to pick the arbitrators that give those corporate customers what they want. That’s not something dirty for the corporation to do, mind you. That’s just a general counsel doing her or his job. But it sure creates incentives that are skewed.

The report explains:

Arbitrators have a strong financial incentive to rule in favor of the companies that file cases against consumers because they can make hundreds of thousands of dollars a year conducting arbitrations. The arbitrators are chosen by the arbitration firms hired by MBNA and other corporations, which are unlikely to pick arbitration firms that produce results they do not like. Arbitrators routinely charge $400 or more an hour. Top arbitrators can charge up to $10,000 per day and some make $1 million a year. In comparison, California Superior Court judges earn $171,648.

(Yeah, judges don’t make as much. But, in fact, the judgeship is a great stepping stone to being an arbitrator.)

The Public Citizen report explains how systemic bias can develop:

A Race to the Bottom for Arbitration Firms: Companies track how arbitrators rule, and do not choose arbitrators who do not rule in their favor. One NAF arbitrator, a Harvard law professor, was blackballed after she awarded $48,000 to a consumer in a case in which a credit card company filed a claim against the consumer. After the same credit card company had her removed from other pending cases, she resigned, citing NAF’s “apparent systematic bias in favor of the financial services industry.”

Hey, do you get the feeling that Harvard law professor they might have been talking about was Elizabeth Warren? Yeah, me too! Warren was thanked in the acknowledgments section, but it’s just as likely she was their source for information about a different Harvard law professor. (Harvard does have a huge faculty.)

Barnes & Noble Loses in Court for Lack of Notice on Terms of Service

Wednesday, September 5th, 2012

Barnes & Noble logoVenkat Balasubramani over at Eric Goldman’s Technology & Marketing Law Blog talks about a defeat for online retailer Barnes & Noble in their attempt to enforce a terms-of-service arbitration clause.

The case is interesting to any bloggers wondering what they can and can’t get away with by linking to a page of “Terms of Service.”

The plaintiff in Nguyen v. Barnes & Noble 12-cv-0812-JST (RNBx) (C.D. Cal.; Aug. 28, 2012) sued because after he purchased two HP TouchPad tablet computers at a price he was happy with, Barnes & Noble e-mailed him saying they had cancelled the order.

Before getting to the merits – whether Nguyen be able to get his tablets at the price at which he allegedly purchased them (and of course he should!) – B&N moved to enforce an arbitration clause in the B&N terms of service.

An arbitration clause allows a party – generally a huge corporation – to prevent a plaintiff – usually a consumer – from being able to litigate in court and get a trial by jury. Instead, the case goes to arbitration, where one or more arbitrators decide the case wholly outside the court system.

Corporations love arbitration in consumer disputes because arbitration alleviates the possibility of huge jury verdicts. It also can force plaintiffs to withdraw from the fight, because in the typical arbitration, both sides must pay the arbitrators fees, which can be too steep for a consumer to bear (in the thousands of dollars), especially when the potential recovery from an arbitration is likely to be low (maybe just in the hundreds or even less in a typical consumer dispute). Corporations also love arbitration because it prevents class-action litigation, which makes it economical to sue companies for having ripped off large numbers of people where any given individual’s loss was small. (It will come as no surprise that Nguyen’s suit was brought in a such a way that it could have blossomed into a large class action if the facts warranted.)

So B&N lost its bid to put Nguyen’s case into arbitration. Why? B&N couldn’t show that Nguyen had notice of the terms.

B&N buried the arbitration clause in terms of service that were linked to at the bottom of the bn.com pages. B&N could have had a pop-up “I agree” window or even just a box that Nguyen had to check saying he agreed to and had read the terms of service. They also could have written on the checkout screen about the transaction was subject to terms of service. But they didn’t do any of that. So, as a result, it looks like Nguyen will get his day in court.

Sounds like a win for consumers, huh? Balasubramani says not so fast:

It’s temping to see this case as a pushback on terms of service that contain arbitration clauses. However, it’s more likely an outlier in the sense that B&N’s terms of service implementation was so shoddy that it’s not likely representative of the typical terms of service case. If B&N had provided ample notice, the court would have probably enforced the terms and, as in the Slide and Zynga cases, required the consumer to arbitrate his claims.

Balasubramani sarcastically calls Nguyen’s claim “a tragic and sad story,” but says, “It’s tough to have much sympathy for B&N here … there’s zero excuse for not requiring the consumer to check the box and indicate assent to the terms as a condition of completing the transaction.”

Well, I think it’s hard to feel much sympathy for Barnes & Noble for the simple reason that they ripped Nguyen off. I say, give the man his tablets at the price he bought them! Barnes & Noble even sent an e-mail confirming the order … before they cancelled it. B&N has seller’s regret. Too bad. A deal’s a deal, I say. Cough up the tablets.

Unfortunately, you can bet Barnes & Noble will get their terms-of-service assent right next time.

Big online retailers like Barnes & Noble, eBay, and Amazon have consumer reviews and ratings to help consumers avoid getting ripped off when buying unfamiliar products or purchasing from a third-party seller. That’s great – ratings and reviews have been a positive innovation for consumers.

But clickwrap arbitration clauses have been a bad technological development for consumers. The portal entities – such as Barnes & Noble, eBay, and Amazon – have privileged positions in a not-so-competitive marketplace. There are few players, making choice limited. Consumers ought to be able to take these online companies to court when warranted. Unfortunately, the twin innovations of clickwrap agreements and arbitration clauses all too often make big corporate online players answerable to no one.