ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Monday, November 21, 2011

Quote of the Day [On Consumer Choice and Pre-Dispute Arbitration]

Victor Schwartz testifying before the Senate Judiciary Committee concerning the Arbitration Fairness Act:

"It may seem extraterrestrial, but I have lived in a world where people did not have cell phones or the gadgetry we see in our daily lives. Folks did survive."

I happened upon the quote in this piece by Public Citizen in favor of the Arbitration Fairness Act.  The reaction to the quote in that article:

"[Schwartz'] comment was obviously puzzling in a modern context, and distracted from the real issue at hand, consumer rip-offs perpetuated by wireless companies, particularly in the fine print of cell phone contracts. Schwartz’s answer to the problems: Give up your mobile device." 

To be fair, I will place the quote in its greater context within Schwartz' testimony:

Another commonly employed argument against pre-dispute arbitration provisions is that
they disadvantage consumers and employees because these groups have no bargaining power or
have unequal bargaining power. This argument adds that these arbitration clauses are often
buried in the “fine print” or are in contracts written in “legalese,” leaving many consumers or
employees unaware that these provisions even exist. But, here is the key point mentioned in the
beginning of my testimony. Consumers and employees voluntarily enter these contracts. It may
seem extraterrestrial, but I have lived in a world where people did not have cell phones or the
gadgetry we see in our daily lives. Folks did survive. If consumers balked at these agreements
and refused to buy products or services unless they could litigate disputes, it is my belief that at
least one or more companies would offer a non-arbitration alternative; in fact in many industries
where arbitration is used, some non-arbitration alternatives exist. The argument that consumers
lack bargaining power is a fallacy; consumers gain more bargaining power everyday through
increased competition and more avenues, such as on the Internet, to rate products and services.

So, who has the better side of the debate?  Is not participating in consumption a solution?  If you don't like pre-dispute arbitration, don't have a cell phone? Would enough consunmers really give up their cell phones to create a market for a "non-arbitration alternative"?  

[Meredith R. Miller]

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Schwartz's "Folks did survive" comment would seem to apply to procedural unconscionability analysis generally, not just in respect of arbitration provisions. It's fascinating that some courts have been willing to make the leap from "everyone has X these days [e.g., cell phones]," to "therefore, providers must package X with contract terms that their customers prefer." That sounds like industrial policy-making.

It's a different analysis, though, in the case of employment contracts. _Pace_ Schwartz, it's a lot harder to survive without a job than without a cell phone. This means the employment relationship is more than just a purely-private matter: it's a crucial piece of the social contract that helps us all live together.

Posted by: D. C. Toedt | Nov 22, 2011 4:35:03 AM