The Hidden Part of User Agreements That Companies Don’t Want You to Know

PAULA NEWTON: So, when you’re signing up for something new, are you reading the fine print in the terms and conditions page? Most of us check off the box without a second thought. Guilty as charged there. But our next guest says we should be much more vigilant. Brendan Ballou is a former federal prosecutor and founder of the Public Integrity Project, an organization challenging corruption and abuses of power. He joins Michel Martin to discuss how companies are quietly limiting Americans’ access to the courts in order to evade accountability, as he highlights in his new book.

MICHEL MARTIN: Thanks, Paula. Brenda Ballou, thanks so much for talking with us once again.

BRENDAN BALLOU: Thank you for having me.

MARTIN: Today we wanna talk about something that a lot of us don’t even think about. Like when you open a new credit card account or you maybe open a bank account, or maybe if you sign up for a streaming service, you know, you’re going through the terms and conditions and you hit the thing and the thing. And you’re saying that there are consequences to that, that we’re not thinking about, most of us aren’t thinking about. What is that consequence?

BALLOU: Yeah, it’s a profound consequence, which is you are essentially signing away your right to the public justice system if one of these companies harms you. So what you are almost certainly signing is called a forced arbitration agreement. And what it means is that if one of these companies harms you, hurts you, defrauds you, even potentially injures or kills somebody that you love, you cannot sue them in public court. Instead, you have to go to a private alternative to the justice system called forced arbitration, where the judge – called an arbitrator – will most likely, or at least, you know, there’s a good chance that will be paid for by the very company that you’re suing.

MARTIN: How does that work? I mean, how, how is that, forgive me, this sounds like such a naive question, but how is that legal?

BALLOU: It works because the Supreme Court has made it so. So there’s an old law called the Federal Arbitration Act in 1925 that was really meant for some very specific purposes to really bind sophisticated parties, merchants that had disputes with one another into arbitration so that it would be faster and more informal than using the ordinary court system. But beginning in the 1980s, the conservative justices of the Supreme Court began to reinterpret the Federal Arbitration Act, really expanding it beyond whatever the history or text would’ve allowed to bind us into arbitration when we’re consumers, when we’re employees, when we sign those “click to accept” contracts that we were just talking about. None of that was necessarily in the text of the statute. But over several years, several decades, the Supreme Court has expanded this practice to encompass virtually all of us.

MARTIN: Your book is titled “When Companies Run the Courts.” I mean, that’s a pretty blunt assessment of the situation. Is that your view that companies now run the courts essentially?

BALLOU: Well, you know, the specific title refers to the system of arbitration. So, you know, we’re talking about a system where, as you said, businesses often pay for the effective judge. And so, you know, unsurprisingly, the statistics show that overwhelmingly companies win in these things. You know, consumers win something like 89% of the time in small claims court. In arbitration, before the largest providers, they win somewhere in the order of 20 or 30% of the time. You know, if they don’t have a lawyer, it might be less than 10% of the time. So in a very real way companies dominate the forced arbitration system.

MARTIN: Give us some examples of how you say this has worked. And you have several examples. I mean, in fact, you opened the book with one as a man named Jeffrey Piccolo, who went on a vacation to Disney World with his wife, who had severe food allergies. They went to a restaurant and were assured that her allergies would be accommodated. What happened then?

BALLOU: Yeah, so, you know, according to the subsequent allegation his wife, you know, had severe allergies, were repeatedly assured that the food would be okay. It ultimately wasn’t and contained allergens. And not only did she have anaphylactic shock, she died. But when Piccolo sued Disney for wrongful death, Disney moved to compel him into forced arbitration. Again, a system where the company, Disney, would pay for the arbitrator. And they moved to do so because he had signed an arbitration agreement when he signed up for his Disney Plus account several years earlier. And, you know, in that specific case, the publicity from that story was so overwhelming and so overwhelmingly bad that Disney eventually backed out. But to be clear, the law was on Disney’s side, and there’s example after example of companies being able to compel people into arbitration when they’re suing over racial discrimination, when they’re suing over the murder of their son, when they’re suing over their own rape or wrongful birth allegations of that sort, all of which have been compelled into arbitration.

MARTIN: And after this backlash, Disney issued the following statement: “At Disney, we strive to put humanity above all other considerations.” And that “the case warranted a sensitive approach to expedite a resolution for the family.”

You, you cite another case in the book where a woman who was a crew member on a cruise ship accepted an invitation from a colleague to join him for Christmas and New Years. She woke up in pain, realized that something had happened, realized she had been raped. According to your account, the crew member admitted that he had raped her. She was discouraged from going to the police. She was discouraged from filing a complaint. And then what, and then what happened?

BALLOU: Yeah. So according to the allegations, this woman was raped. The crew member admitted to the rape. And the company discouraged her from going to the police. She ultimately sues the cruise ship company. And she had a binding arbitration clause and was compelled into arbitration, not just arbitration, but private arbitration in the Philippines, her home country. And we don’t know what the outcome of that arbitration was because arbitration is overwhelmingly kept secret. And I’ll say, you know, Congress did make one meaningful improvement in the past few years, which was to exempt allegations of sexual assault and harassment from forced arbitration. But virtually any other potential violation of the law can still be arbitrated. Whether you’re talking about age discrimination, racial racial discrimination or, like we were talking about earlier, injury and wrongful death claim. So if somebody that you love dies, you may nevertheless still have to arbitrate a case as serious as that.

MARTIN: What you’re saying is that there’s a huge power imbalance now, that most people don’t know that they’re going to be put into forced arbitration. And if they do the, the, the arbiter is generally somebody paid by the company. So what’s the court’s reasoning here? I mean, the whole point I think of a court system is to balance the competing interests. So what was their reasoning in allowing it to be expanded in such a way?

BALLOU: Yeah, and I don’t think that there was really a strong textual or legislative basis for actually expanding this. And there’s been broad criticism of sort of the reasoning in a lot of these decisions. You know, really I think it boils down to a real animus towards consumer and employee lawsuits, which many conservative justices see as frivolous and against class actions specifically. So, you know, class actions being this idea that rather than each person who’s similarly harmed having to bring their own case, everybody who’s experienced the same harm can go under one umbrella, which saves enormous costs. And it’s had enormous impacts in American history. You know, you think about Roe v Wade was a class action. Brown v Board of Education was a class action. But the conservative justices have a real aversion to class actions.

And forced arbitration was a way to potentially kill them in a very specific way. Which was that many of these arbitration agreements require you not just to arbitrate your claim, but to do so individually. Each person who’s harmed has to bring their own case. And why that matters is you think about all the ways that a company might harm you, those little $30 fees that a bank might add that don’t seem to make sense or don’t seem fair, you know, they can only get resolved through a class action. And if you can kill the class action and force people to pursue their claims individually, what that means is it becomes economically impossible for anybody to actually do anything about those. And so I would say, you know, to viewers who feel like companies are increasingly sort of scamming them or increasingly beyond the reach of the law, forced arbitration is a large reason why that’s the case.

MARTIN: Because there’s no recourse. I mean, your argument is that that’s how they can afford to get away with terrible client service, terrible customer service, because what are you gonna do about it?

BALLOU: Exactly. And that’s a change over the last 15 years. So if you really see companies behaving differently to their customers than they did a generation ago, it’s because they cannot be held legally responsible by their consumers or employees for all but the biggest harms. Now, the rejoinder to that, of course, is that, you know, this is the responsibility of state attorneys general, prosecutors, the Department of Justice and so forth, but these are dramatically overwhelmed institutions. And even if they weren’t, you know, think about the current Department of Justice does not seem to show a great deal of interest or empathy towards ordinary consumers or employees on issues like this.

MARTIN: How did you come to see this? How this story come to you? Especially given that, as you said, it’s really hard to know that there’s a pattern.

BALLOU: Well, you know, for lawyers, I think class action – you know, forced arbitration is a big part of our lives because it’s effectively ended so many class actions or the ability to get justice for folks. I’ll say, you know, what brought me specifically to this story is, you know, my background was at the Department of Justice. I had been doing antitrust and white collar work. I had written a book that was very critical of private equity a few years ago. And in talking to many non-lawyers, through that work, I got the sense that many people, most people feel that the legal system is just profoundly stacked against them and really geared towards big corporations and the very rich or the very powerful. And as a practicing lawyer, I wanted to be able to explain to people that in fact, they are right. But explain it in a way that was specific so that people could understand the real mechanisms by which the legal system and the law bends towards the powerful. And also how we might bend it back to something more just.

MARTIN: I wanna hear that part in a minute, but before I do, if class action lawsuits have really been eliminated, why am I still getting these postcards telling me that I could be eligible for $30 from this bank that I don’t remember getting overcharged by?

BALLOU: Well, the bank example is a really interesting one because that is increasingly uncommon. So you look at where forced arbitration is most common, it’s really in the most highly concentrated industries. So consumer finance, telecommunications, airlines and so forth. And so, you know, you might be getting the occasional, you know, postcard about a bank that, you know, maybe you had an agreement with 10 years ago. You mentioned you didn’t even remember that you had it. But banks are increasingly sophisticated and overwhelmingly use forced arbitration. And I will say, you know, there was a broad movement to try to end forced arbitration in the consumer finance industry specifically. And the chamber of commerce was enormously effective at defeating it. So I think what you are seeing is sort of the remnants of a system where sophisticated companies did not have forced arbitration agreements. And increasingly all the businesses that you’re signing up for, all the terms of service that you’re signing up for, overwhelmingly have forced arbitration agreements, you know, to such an extent that there are far more arbitration agreements in America than there are Americans. That it’s going to be much harder for you in the future when one of these companies harms you.

MARTIN: And what – let’s say you don’t want to accept these, this forced arbitration. I actually have a specific memory of a company with which I had a credit card some years ago, and they sent me this forced arbitration agreement saying, you can opt out. So I did. I said, no, I don’t accept that. Not that I had planned to sue them because I didn’t, but I was just like, why should I do that? And they canceled my account. So, so I was like, fine, I won’t shop there anymore. Like, you know…

BALLOU: And that’s the rejoinder that the free market is going to solve this, and people are gonna gravitate towards the companies that don’t have forced arbitration agreements. The problem is increasingly they all do. And even if you want to opt out of them there’s really interesting research showing that many times those companies that offer opt-outs in the contract don’t actually have opt-out procedures. So you actually can’t do it, even if the contract says that you can. But most importantly, there’s nothing in the law that absolutely requires any of these opt-out procedures. And so many times you know, when you’re looking at those “click to accept” agreements, you literally don’t have a choice here. And so I always say, this is a problem that, you know, ethical consumerism, I would call it, is really not gonna solve. Partly because we don’t have a choice. And even if we did that number of times that we would have to fix this is overwhelming and more than I think, you know, any normal person could do, certainly more than I could do. And I think we’re gonna have to solve this collectively.

MARTIN: So before we get to that, I will just so ask you though, that we’ve all seen stories about the person who sues the fast food company because they said their coffee was too hot, we’ve all seen these stories that suggest that the courts are overburdened with ridiculous cases. Like what would you say to that?

BALLOU: I would say it’s entirely understandable that somebody might have that belief that we are sort of deluged with frivolous lawsuits that are burdening our court system and our companies and so forth. But I would implore you that many tens of millions of dollars have been spent to get you to have that belief. In fact, there has been a multi-decade long effort to create this idea that there is a litigation explosion in the United States. I think what research is out there suggests that actually that litigation explosion may never have occurred. And in fact, many of the most famous stories that we have about this are much more complicated and vastly more plaintiff friendly on inspection than we sort of get in the sound bites or in the cultural memes.

You know, you mentioned the person suing over hot coffee that was, you know, sort of like a national joke in the 1990s. The woman who sued Stella Lebeck was I believe in her late seventies. When she spilled the coffee, she got third degree burns on her thighs, buttocks, and vagina, had to have skin grafts for two weeks and physical therapy for several years. She even didn’t want to sue. She tried to settle for $50,000. McDonald’s refused. It was only after multiple refusals from McDonald’s that they went to court. And it was revealed that the company actually had hundreds of similar burn allegations And so, you know, the $2.7 million award, I believe it was, amounted to about two days of coffee sales for McDonald’s. And it was meant to be a deterrent for McDonald’s from doing these sorts of overheating policies. But I think it goes to show that those sorts of cases that are meant to deter companies from broad sort of systemic harm, are just increasingly impossible.

MARTIN: So what’s the fix?

BALLOU: You know, I was saying earlier that I don’t think ethical consumerism, you know, all of us reading our contracts really carefully is gonna solve this problem just because there’s so many of them. And, you know, in many ways we can’t actually opt out for a lot of these. It’s gonna have to be legislation. And in a world where congress is probably pretty paralyzed on these sorts of issues, it’s gonna happen in states and localities. In particular, California, Maryland and others have done good work passing legislation to make forced arbitration more fair, more transparent, more like a regular court system. And importantly, California has passed this really important law called the Private Attorneys General Act, which allows people who are ordinarily bound by forced arbitration with their employer to sue instead on behalf of the California Labor Department, which isn’t bound by forced arbitration. So essentially delegating the state authority to employees. We really need legislation like that in other states and on other issues, not just employment, but also discrimination, antitrust, consumer fraud, environmental harms, and so forth. If we do that, then arbitration is gonna become a much smaller part of our lives, and hopefully companies are gonna start behaving better.

MARTIN: Given that this is a multi-decade long trend that you’ve identified in your reporting – Do you genuinely see an opportunity to push back against it, to equalize things?

BALLOU: Yeah. So a couple specific things and then a broader answer. So, you know, I actually do have a lot of optimism here. On, you know, the Supreme Court, there’s really interesting research showing that on the less salient issues, so the things that aren’t voting rights or abortion rights or so forth, the Supreme Court is actually surprisingly responsive to public opinion. And I think the more that we can raise the salience of forced arbitration the more that the Supreme Court’s sort of expansionist agenda can be not necessarily stopped, but at least slowed. And I think we can use that time to pass the legislation that we need. And I have a level of optimism because we’ve seen states already do so.

But I think more generally, I have reason to be optimistic because, I mean, the best part of my job is that I get to talk to a lot of people who have chosen a specific issue around forced arbitration or private equity or whatever it happens to be, and they stick with it for a matter of months or a matter of years, and have an enormous impact. And so I have some optimism that we’re gonna be able to make progress here because I have seen progress happen so many times on other issues.

MARTIN: Brendan Ballou, thank you so much for talking with us.

BALLOU: Thank you.