Citizens United: The Sequel

In its continuing campaign to make sure that corporations are protected from people, the Supreme Court is about to remove the free market mechanism that prevents companies from stealing small amounts of money from thousands or millions of customers.

The case is AT&T Mobility vs. Concepcion, and the existing free market control mechanism is the class action suit.

It’s premature to say the Gang of Five on the Supreme Court decided — they haven’t formally done so.  First comes the theater of hearing arguments and the pretense of considering precedent.  They haven’t ruled yet, but the unusual decision process in Citizens United shows me that this Supreme Court is determined to do all they can for companies. If that includes changing centuries of judicial procedure by arguing cases for the plaintiffs, the “conservative” block on the court will do it.  If it means broadening a case so they can reverse a century of laws passed by Congress in one stroke, they’ll do it.

So just call it a hunch that this is a done deal.

So what is the deal?  Basically, they are going to say that any company dealing with customers who has a contract can force those customers to give up the ability to join together in a class action suit in court when they feel the company has cheated them.

If the company specifies it in that contract, each customer will have to give up impartial courts entirely, and submit their complaints to industry-appointed arbitration.

I’ve seen such a system first hand.  You don’t want to go there to get satisfaction.

The arbitrators are typically retired industry insiders who pick up some extra pay by hearing complaints and defense.  Of course, if they want to keep that flow of income coming, they’ll want to have the companies who appoint them and pay them not get too upset with them.  It only makes sense.

In the case in which I was a witness, the plaintiff was an ex-employee of a Wall Street firm.  We all knew the deal when we agreed to work on the Street.  Any dispute we had with our employers was going to arbitration.

In this case, a friend and former colleague had discovered one day that his bank account had been drained.  He was away from home for several months, so the number of bills that didn’t get paid turned into a big mess.  Through his experience I found out that when you give your bank information for direct deposit of your paycheck, you also gave permission to your employer for direct withdrawal.

As scary as it is to find out that direct deposit goes both ways, without warning, the really scary part of the story is how helpless an individual becomes when a company decides to take from them.

The money that had been taken from his account was his bonus payment from the prior year.  I had worked there that year, and I recall the bonus checks.  They had a very unusual legend on the back of the checks where you endorse them for deposit.  It said (working from fading memory) that by signing the check, you agreed to all the terms and conditions associated with it.

Naturally, we all wanted to know what these “terms and conditions” were.  We were told that some brilliant person in the tax department had come up with idea of calling our bonuses “loans” in a lousy year for the company so that the company could get a tax advantage in a later year.  Like my friend, I was told by our mutual supervisors not to worry about it, that it was my money for the prior year’s work, and that the company would not be collecting on the “loans.”

As it turned out, he and a few others who left the firm when the firm didn’t want them to leave suddenly found themselves on the receiving end of loan demands.  In the case of this one friend, he didn’t even get the demand.  He just discovered that they had taken all of his money.

In my testimony, I described the scene that had been repeated literally hundreds of times, with the management of the firm telling employees not to worry about the legend on the back of their paychecks.

Much to my surprise, my friend lost his case.  So did others who had left the firm voluntarily to take jobs elsewhere.  For all of them it was quite a financial hardship, since it happened months or even years later, well after they had paid taxes on that “income” and spent the money as if it was what their bosses told them it was.  In every case that I know about, the firm won and the employee lost.

Color me more than usually skeptical about getting a fair hearing in industry supported arbitration.

The AT&T v. Concepcion case takes it to a whole new level of corporate protection.  By allowing a company to put in the fine print a forfeiture of a customers’ day in court, the companies can save lots of money.  And if they’re dishonest, they can chisel a few pennies or a few dollars from each customer with no fear of having to pay for their problem behavior, unless the arbitration somehow decides to rule in favor of the customer.  And even then, it will only happen with one customer at a time.

In my opinion, putting all the potential cases (every one where a customer has a “contract” with a company) into the hands of arbitrators will give every customer the same problem one very bad judge in Chicago created for every member of the public who had a dispute with the futures exchange or its members.

Last month, as one of the two Administrative Law Judges charged with hearing investor complaints retired, he asked that none of his current cases be assigned to the other judge.  His reason?  To quote his letter to the Commission:

“On Judge Levine’s first week on the job, nearly twenty years ago, he came into my office and stated that he had promised Wendy Gramm, then Chairwoman of the Commission, that we would never rule in a complainant’s favor,” Painter wrote. “A review of his rulings will confirm that he fulfilled his vow,” Painter wrote.

This situation with a judge behaving like an industry-paid arbitrator is (I hope) unusual.  But the potential for abuse in the arbitration model is almost guaranteed, as long as cases are always brought by individuals and the arbitrators are selected and paid by the industry.

You might be saying to yourself, “I don’t sign many contracts, anyway, so I’m not worried.”  Think again.  Look at the claim stub you get when you park your car in a parking garage.  I think you’ll see a contract defined on the back of the stub. And virtually every company you pay for service (like the Concepcion’s getting their mobile phone through AT&T) has set up a contract.  Even your local auto repair shop has a contract. I can’t wait for every cash register receipt to have standard language making sure you can’t sue in court or join others in a class action.

As far as keeping your money safe and giving you access to it, forget doing it without a contract.  This is the time of year when every credit card and bank account I have sends me a multi-page “new” contract showing me how they are unilaterally changing last year’s contract.  I assume the only thing I can do if I don’t like the terms is take my money out and put it in the mattress, or not use the credit card, etc.  If this case goes as I expect it will, then next year’s contract will almost certainly bind me to arbitration rather than state courts if I have a dispute.

Is this what they meant when they said “small government?”  Are we about to see our public courts replaced by an arbitration system, set up and paid by each industry?

I have to wonder at the constant whining about Congress or the White House being “anti-business.”  Is that just a distraction to keep us from seeing that the other branch of government, the Supreme Court, is busy re-writing the Constitution so that people don’t have a chance (or recourse) when it suits businesses to take advantage of them?

Citizen’s United already made the corporate purchase of the executive and legislative branches easier.  And the peculiar setup where the rest of us get to subsidize tax-exempt money-laundering 501(c)4 “committees” that do the actual advertising without saying who puts up the money — that’s just insult added to injury.  Practically everything I do gets taxed, but companies who want to buy government don’t.

At least it has helped the finances in the Clarence Thomas household as his wife set up one of these conduits for money.  I have no doubt she pays herself well for running it.

Funny thing about the anonymity Ginny Thomas, Karl Rove, the US Chamber of Commerce and other political operatives offer their supporters — it was explicitly written in the Supreme Court majority opinion on Citizen’s United that we real human citizens would know who supplied the money in matter of one or two days. The truth is, we’ll never know, and the corporations and hedge fund managers putting up the dough like it that way.

I guess the majority that Thomas was part of goofed by not asking his own wife to disclose who gave her the money.

As I recall my history, the original Boston Tea Party was as much about government’s cozy relationship with an overly greedy corporation as it was about tax on that tea.



7 Responses to Citizens United: The Sequel

  1. Stephen Jencks says:

    Howard, I wholeheartedly agree with you assessment of the compulsory arbitration process. The arbitrators look towards the corporation for continued contracts and thus there is an inherent bias in favor of the corporation. I have experienced this first hand.

  2. hhill51 says:

    Right on schedule. A reporter tried to question Justice Sam Alito about his fund-raising activities for right-wing political operations, at one of those affairs. His answer? “It doesn’t matter.”
    The hubris of these corruptors of our Constitution knows no bounds. He and his fellow right-wing activists on the court believe they are above the law while they renege on their solemn oath to defend the Constitution. All to help their sponsors maximize profits.
    Though they have exempted themselves from the Code of Conduct for United States Judges, that Code binds all other judges in the system. It says “a judge should not personally participate in fund-raising activities, solicit funds for any organization, or use or permit the use of the prestige of judicial office for that purpose. A judge should not personally participate in membership solicitation if the solicitation might reasonably be perceived as coercive or is essentially a fund-raising mechanism.”
    Grounds for impeachment?

  3. J. Roth says:

    Thomas Sowell offers an interesting article on Political Judges, today.

    If I had my way, Supreme Court judges would be elected and serve for a term. We have three women on the bench right now that make me very nervous.

    • hhill51 says:

      I take it from your comment that you have no problem with Scalia and Thomas using their position on the Court to raise money for political operations, but choose instead to fear what you think the three women might do some day. Why don’t you have a problem with those who have already broken their oath to defend the Constitution? Is it because they changed it with a 5-4 vote in the way you wanted it changed?

  4. jessbee says:

    I have served as an arbitrator on FINRA cases. In the case I sat on, the broker jumped from firm A to firm B. The contract he signed with firm B said the lump sum payment he received was a loan that would be forgiven over five years, one fifth every year, if he stayed five years.
    He may have hoped it was a bonus for joining the firm, but the document he signed, which was five pages long, clearly stated it was a loan and had to be repaid if he left within five years.

    He stayed two years and jumped to firm C, and received another lump sum, also structured as a loan. Firm B brought an arbitration action to recover three fifths of the amount they paid to the broker.

    There was testimony at the hearing that it was common practice in the brokerage industry to structure payments in the form of a forgivable loan so there would be a penalty if the broker did not stay for the period called for in the contract.

    How would you decide this case?

    PS I think I was the reader who commented on AGNC transaction where they bought the upside down mortgages. They went into it in some detail in their conference call.

    • hhill51 says:

      I think it’s obvious that the broker in the case you cite had no right to take the money from several firms in a row without fulfilling his obligations. I would have ruled the way your note implies you ruled.
      The cases I wrote about were not ones where individuals had negotiated specific contracts. Instead, they were unilaterally imposed on “lifers” — the individuals I knew who got nailed had been with the firm for years in positions as clerks in the back office and programmers in the research team. Not hot-shot brokers that jump from firm to firm, in other words. It also wasn’t “upfront” money like your example, but applied retroactively to money already earned, and subject to no contract at the time it was earned. Most specifically, there was no ability of the employees to even see the “contract” before they were told it applied to them. Then the company applied the “contract” it created quite capriciously, selecting only a few individuals out of thousands to collect from.
      Turning the question around — how would you have ruled in the cases I described? And if you had ruled in favor of the employees, how many more arbitration assignments do you think you would have gotten?

      • jessbee says:

        In your case, I would have ruled the same way you would have.

        The lawyers for the parties pick the arbitrators. Ruling for the employees in the case you describe might have helped us with some attorneys and hurt us with others. I don’t think it would effect the number of cases we were picked on in the future as much as our overall qualifications.

        FINRA is thinking about using all public arbitrators, even in industry cases, and I agree with that idea.

        If you have the time, now or later, I would urge you to apply to be an arbitrator. You would be good at it, especially in cases involving mortgage backed securities. The problem might be, that with your industry background you would have a hard time qualifying as a public arbitrator.

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