Forced Arbitration Hurts American Families
When individuals or small businesses enter into a transaction to buy goods or services, they are typically asked to sign a binding mandatory arbitration clause. These provisions, typically buried within a purchase or service contract, force individuals into an expensive, secretive, and private system. This private system of arbitration is set up to favor corporations and eliminate the rights of individuals and small businesses to access the courts. Unfortunately, these clauses are achieving their intended purpose—undermining consumer protections for small businesses, and patients and allowing powerful corporations to take advantage of individuals or small businesses with unequal bargaining power and resources.
Below are stories about individuals and small business that suffered severe hardship due to forced arbitration clauses.
- Nursing Home Residents
- Student Loans
- Debt Relief
- Credit Cards Customers
Nursing Home Residents
Richard Embry, Kentucky
In 2008, Richard Embry was involved in a serious automobile accident where he suffered a cervical spine injury that went undetected by emergency room physicians. As a result of the undiagnosed spinal injury, Richard’s physicians ordered the removal of his cervical collar which caused him to become paralyzed. Richard was transferred to a nursing home facility where, despite being awake and competent, nursing home staff asked his daughter, Kristen Blincoe, to sign her father’s admission documents which included a forced arbitration clause.
When Kristen asked if she needed to read the documents before signing them the nursing home employee flipped to the signatory page and assured Kristen that the documents were required for her father’s stay and that she didn’t need to read them. During his four month stay at the facility, nursing home staff failed to properly care for Richard’s bed sores and he developed endocarditis despite orders that he was to be moved every few hours because of his paralysis. Richard never recovered and passed away shortly thereafter. When Mr. Embry’s estate filed suit against the nursing home their lawsuit was dismissed and forced into arbitration because of the clause hidden in Richard’s admission documents. Adding insult to injury, the arbitration forum mandated by the arbitration clause in Richard’s admission documents was no longer able to arbitrate health care claims because it had enforcement action taken against it by the State, rendering the estate’s claim against the nursing home worthless.
Mary Irene Hight, Mississippi
In 2002, Mary Hight entered a nursing home in Kosciusko, Mississippi. Her daughter, Janice, was rushed to complete the admission forms with no explanation of the mandatory arbitration clause that was included. In September of 2003, Janice and her siblings noticed Mary’s deteriorating health. One day, Janice called her mother who said she was not feeling well so Janice hurried over. Mary’s skin was drawn and taught against her bones, her eyes were bulging and her mouth was sunken in. Mary had not had any fluids in 24 hours, she was not urinating and she suffered from diarrhea. When Janice arrived she could barely recognize her mother because of her mother’s horrible physical condition. Janice told the nurses to call the ambulance, but they refused. The nurses said that they could not call an ambulance unless it was an emergency because Medicare would not cover the expense. Janice called everyone she knew but could not reach anyone. Janice pleaded for help, and the charge nurse told Janice that to wheel Mary to the hospital in a wheelchair on her own. Janice asked the charge nurse if an aide could go with her to help. The charge nurse asked an aide to accompany Janice. However, the aide said that she was busy so Janice wheeled her mother from the nursing home up a hill to the hospital across the street. Before leaving, the nursing home asked Janice to make sure she brought the wheelchair back. Mary died four hours later while in the emergency room. Janice and her family did not want anyone else to suffer from negligent treatment as her mother had suffered so they sued the nursing home. They quickly discovered that they had signed away their right to a trial by jury and were forced to settle the dispute in mandatory binding arbitration.
Charles Miller, Massachusetts
Charles Miller Jr. filed suit in January 2005 in Worchester Superior Court alleging that his 91-year-old father, Charles Miller Sr., received negligent care while a resident of the Birchwood Care Center, a nursing home in Fitchburg. His father died as a direct result of the grossly inadequate care received from his physician, Eric Cotter, and the staff at the nursing home. On the date of his admission in October 2003, Charles Miller Jr. and his wife met with a representative from the facility and signed a number of documents including an arbitration clause. Charles Miller Sr. was admitted, but he was not evaluated by a physician until three weeks after his admission. During that time he lost 19 pounds, suffered from dehydration and worsening pneumonia, all of which led to his death. Charles Miller Jr. brought suit as representative of his father’s estate, but the nursing home argued that the valid arbitration clause compelled dismissal. The courts decided that the plaintiff could go to court against the negligent doctor and nurse but had to go to arbitration against the nursing home. This result not only harmed and inconvenienced the plaintiff but also the defendants who may have benefited from going to court jointly with the nursing home.
Charles McAlister, Mississippi
After being hospitalized, sixty-five-year-old veteran Charles McAlister was taken to a nursing home owned by Beverley Enterprises. Charles had no legs, he was illiterate, he could not hear or see well and he suffered from the early stages of dementia. While being admitted, he was given a binding mandatory arbitration contract. Instead of reading the clause to Charles, one of the employees paraphrased it in a misleading way. Since Charles is illiterate, the only way he could sign the contract was to make his mark. The mark found on the contract was later determined not to be Charles’. Charles developed serious, debilitating bed sores on his right and left hips. One of the sores had a foul odor and became severely infected. The negligent care of the nursing home led to his death on May 8, 2003. His family attempted to sue the nursing home for the negligent care he received, but they were forced into arbitration and initially lost. They later went back to arbitration and recovered from the nursing home. However, these unsafe, unfair and deceptive practices are likely to continue because arbitration is a secret process and the arbitrator did not have the authority to make the nursing home change their policies.
Sarah Hogan, California
In January 2001, Sarah Hogan named her daughter, Barbara, as her agent, granting her power of attorney. In May 2004, when Sarah was suffering from Stage II Alzheimer’s disease, Barbara admitted her to Country Villa Plaza Healthcare Center, a skilled nursing care facility. At the time of admission, Barbara signed two arbitration agreements. Both were optional and each contained a 30-day rescission right. Unknown to Barbara, County Villa Services had implemented a plan to under-staff their nursing homes in order to increase profits. While in the facility, Sarah received substandard infection protection and she was not hydrated properly. She suffered severe dehydration and infections of the blood and urine, which led to her death on July 10, 2004. In July 2005, Barbara and her three brothers filed a complaint for wrongful death, elder abuse and violation of patient rights, but Country Villa forced them into arbitration. This is currently under appeal.
Dortha Bagley, Indiana
Dortha Bagley, suffering from Alzheimer’s disease, was forced to move after her nursing home shut down its Alzheimer’s unit. During her admission to Castleton Care Center facility, her daughter, Cheryl Sanford, had three grandchildren with her, adding to the high level of stress of checking in her mother. She quickly signed the admission forms, unaware that the contract contained an arbitration agreement. The Center failed to provide adequate care to Dortha. Dortha fell twice, due to lack of assistance from the staff. She was taken to the local hospital with a fractured hip and a urinary tract infection. Dortha died 21 days after her admittance into the facility following her hip surgery. Cheryl tried to hold the negligent Center accountable through the courts. However, the court upheld the arbitration agreement, and the case was settled soon after. After suffering through the pain of losing her mother, Cheryl had to go to court just to fight to have her case heard by a jury of her peers. Arbitration added an additional layer of lawsuits by adding a contract case that must be resolved before any other proceedings can continue.
Matthew Kilgore, Rohnert Park, California
Ever since he was a child, Matthew Kilgore wanted to be a helicopter pilot. Kilgore thought he was on his way to achieving his dream when he enrolled at Silver State Helicopters, a for-profit aviation school in Oakland, Calif. that offered pilot training and certification. According to court documents, the school representatives at the seminar indicated that the tuition could be paid through lender Keybank, National Association. Kilgore took out a $55,000 loan to take courses at the trade school. Kilgore’s ambitions came to a sudden end when the school abruptly went out of business and filed for bankruptcy in 2008, leaving Silver State students with tens of thousands of dollars in student loans but with no marketable skills and no diplomas, certificates or other accreditation. Since then, Kilgore’s loans have accrued interest and have nearly doubled to $103,000, he said.
Kilgore and Other Keybank Borrowers Are Blocked from the Civil Justice System
Kilgore filed a lawsuit on behalf of himself and other Silver State students against Keybank. The students sought an injunction to prevent the bank from enforcing their loan agreements or reporting their non-payment to credit reporting agencies. According to the students, Keybank knew that “the private student loan industry—and particularly aviation schools—was a slowly unfolding disaster,” yet continued to loan tuition money to students and disburse the loan proceeds to the school. However, Keybank loan contracts contained an arbitration clause and prohibited class actions. Keybank sought to force Kilgore into individual arbitration. The Ninth Circuit Court of Appeals concluded this month, that based on the Supreme Court decision AT&T Mobility v. Concepcion, the students would have to settle their disputes with Keybank on an individual basis in arbitration.
Class Actions Against Second Silver State Lender Result in Redress for Some Students
Meanwhile, student loan borrowers of a second company Student Loan Express, Inc. (SLX), which had also marketed educational loans to students of Silver State, received a different result. The allegations against SLX were substantively similar to those against Keybank. However, in this case, by virtue of the lack of an arbitration clause in the loan contracts, the students who received loans through SLX were able to seek redress for the harm caused by the trade school’s shutdown. In the settlement which encompassed multiple actions alleging consumer fraud, racketeering, and violations of public policy and state consumer protection statutes, many borrowers of SLX loans received up to 75 percent debt forgiveness. Without admitting liability or wrongdoing, SLX agreed to forgive more than $150 million in debt, forgive interest, or to provide lower interest rates to all identified class members, depending on the category of borrower described in the settlement agreement.
In contrast, Matthew Kilgore and other Keybank borrowers who were bound by a contract that prohibited class actions and forced individual arbitration have had far more difficulty seeking relief. Their experience demonstrates the need for a federal law that would restore consumers’ ability to choose the forum in which to resolve legal disputes. That way, he would have been able to present his legal claims on behalf of himself and other students in court.
Kilgore said he thinks about his situation on almost a daily basis. “It’s been more than a drain on me. Everyday I’m thinking, if it had gone right I would be living my dream as a pilot right now,” but instead, “my family is going to have a tough time for years,” Kilgore said.
Bernardita Duran, New York
Bernardita Duran is a 53 year old woman from Queens, New York with only $700 in Social Security income. Ms. Duran contracted with an Arizona debt relief company to settle her credit card debts. $4,000 later, Ms. Duran realized that she had been scammed. Using a federal anti-fraud statute, Ms. Duran sued in federal court in New York. In turn, the company pointed to an arbitration clause in their contract that stated an arbitrator in Arizona would decide any and all disputes. Ms. Duran agreed that she had to arbitrate her claim, but protested that she could not afford to travel to Arizona as it would cost more than a month’s worth of her income thereby preventing her from paying her rent. Although she argued that a federal court must decide if the Arizona forum for arbitration was unconscionable (and thus order arbitration in New York), the Second Circuit ruled that the legality of the forum selection clause was for the arbitrator in Arizona to decide. Therefore, Ms. Duran must first travel across the country to Arizona to argue to the arbitrator that it’s unfair and unconscionable to force her to arbitrate her case in Arizona.
Jordan Fogal, Houston, Texas
Jordan bought her dream retirement home in Houston, Texas. Within months of moving into her new home, she discovered over $150,000 worth of damages–damages so severe that her doctor insisted that she move out immediately, because of the harmful health effects. Jordan pleaded with her builder to fix the damage on the home but instead she was forced into arbitration because, as with many homebuyers’ contracts, her contract included a binding mandatory arbitration clause. Jordan went through arbitration, spending thousands on experts and witnesses. After successfully proving fraud against her builder she only received $26,000 for her $300,000 home, which is now uninhabitable. Jordan now cannot appeal and has no other recourse for action. She is left homeless and stripped of her basic American right to get justice through the courts.
Dale Beinusa, Dixon, Mississippi
Dale Beinusa is a US Army Combat Veteran of 22 years and recently returned home from a tour of active duty in Iraq in October 2006. While still on active duty, stationed at Fort Leonard Wood, Missouri, he purchased a newly constructed home in November 2002 in Waynesville, Missouri.
There were multiple problems with the home, including major structural damage and an unstable, un-level kitchen floor. Dale notified the builder about the problems but the builder only fixed a few of the many problems with the home. Dale was forced to settle the dispute through arbitration, as required by his warranty. Dale paid $500 in arbitration fees and $80 in additional travel expenses for a meeting that only lasted 38 minutes. The arbitration process was severely slanted in favor of the builder. The arbitrator had not read the information on the case and he did not inspect the structure of the house as requested. The final arbitration ruling provided no remedies that would allow him to fix his home. Dale did not understand the references in the ruling so he asked for clarification. He was told that the arbitration ruling would stand and that the case was closed with absolutely no explanation. While he tried to fight this unfair ruling, Dale received orders to return to Iraq.
Greg Cole, Marietta, GA
Greg and his wife bought their dream home for their two boys. Greg noticed a few structural problems with the home so he hired an engineer who discovered three pages worth of defects in the house. In particular, there was mold growing throughout the house. His family was diagnosed with dangerously high levels of mycotoxins in their bodies because of the mold. His two boys have mold in their bloodstream and his wife has a fungus eating away her ear canal that her doctor cannot cure. The family’s doctors say they are all slowly dying. Greg tried to go to court with the builder, but was forced into arbitration. When he bought the home, he was instructed to initial a box on arbitration, which was never explained to him. The arbitrator instructed the builder to make some minor repairs but he did not address the largest problems, most importantly the mold. Despite his supposed “victory,” Greg was told to split the arbitration fees with his builder. The house was uninhabitable, so he was forced to tear it down and rebuild. Greg is too sick to work. He has no home and he has mounting arbitration bills and medical bills from his family’s deteriorating health. The arbitration process denied him access to justice that would have held the builder accountable and provided a remedy for the wrongs Greg and his family suffered.
Guy Combs, Alpine, TX
Vietnam veteran Guy Combs bought a house in his hometown of Alpine, Texas. After living in the house for only four years, Guy discovered that his home had severe structural problems. He asked his builder to repair the damage, but the builder offered to pay only $3,000 for $300,000 worth of damages. When Guy bought the home he unknowingly signed an arbitration agreement, which was not explained to him at the time. Therefore, he was forced to settle his dispute in arbitration. Guy describes arbitration as “third world justice.” The arbitrator refused to recognize that there were damages to Guy’s home despite the testimony of twenty expert witnesses that Guy hired. The arbitration process cost him $77,000. The arbitrator billed him a flat fee of $150,000 but after negotiations he brought the fee down to $50,000 plus interest. Guy did not want to lose his ranch and, since there was no means for appeal, he paid the fees. Guy has a PhD from Brown and he thought he understood our legal system, until his rights were eviscerated by arbitration.
Mary Finn, Cincinnati, Ohio
Eighty-two-year-old Mary Finn had a home built for her by Ray Murphy Homes but due to numerous structural problems (the home did not meet building standards) she did not purchase the home. She tried to get her down payment back, but was told she was bound by an arbitration clause. Using the “fast track” system, she went through arbitration with the American Arbitration Association. The builder and attorneys kept cancelling, so it was not a fast process, as advertised. During arbitration Mary encountered misrepresentation and fraud. The builders hid the damage on the house by limiting inspections and Mary paid high costs and was misled about the costs of arbitration. The builder’s lawyer took money out of their retainer to pay for the builder’s filing fee without their knowledge or approval. She still can not get the builder into arbitration because he refuses to make himself available.
Billy W. Collinsworth, Louisiana
Billy Collinsworth signed a 10-year contract with ConAgra Poultry to raise chickens. The following March, ConAgra notified Billy that they would be cancelling his contract after his latest batch of chickens matured. Because Billy’s contract included an arbitration clause that gave him 10 days to file a claim, Billy completely lost his ability to bring a wrongful termination claim against ConAgra as soon as this unreasonably short deadline lapsed. Most state laws would have allowed Billy ample time to find an attorney and file a civil claim over the contract, but the Louisiana appellate court upheld the 10 day time limit in the arbitration clause. The arbitration clause’s severe 10 day filing requirement essentially denied Billy the right to any legal remedy for the wrong he suffered.
Minnesota Hog Farmers, Minnesota
When a group of Minnesota hog farmers banded together to negotiate their contracts with Morrell, the team understood that they could negotiate pricing, ledger balances, and the number of hogs to be delivered. They never learned that they could also negotiate arbitration and choice of law provisions in their contracts. So when the hog farmers attempted to bring claims of wrongful termination and fraudulent inducement against Morrell, the subsidiary to one of the largest hog processors in the world, responded that their claims would need to be arbitrated under Morrell’s choice of state law – Ohio state law. Unfortunately for the Minnesota farmers, Ohio state law does not consider arbitration unconscionable even when a multinational corporation like Morrell, with substantially greater bargaining power, contracts with a group of local hog farmers.
Elizabeth and Don Steed, Mississippi
Having raised cattle before, Elizabeth and Don Steed decided to try growing broiler chickens as well. The Steeds incurred extensive debt to finance the purchase of a poultry farm previously used to grow chickens for Sanderson Farms, Inc. Prior to purchasing the farm, the Steeds were assured by Sanderson Farms that this property had been fully upgraded, fully operational, and ready to receive Sanderson poultry. As soon as the Steeds signed their contract with Sanderson Farms, Inc., the corporation demanded that Elizabeth and Don make significant expenditures, perform farm upgrades, and purchase new equipment and supplies before the couple could continue receiving and growing chickens. When the Steeds questioned these sudden requirements, Sanderson Farms, Inc. began sending the Steeds inferior chicks and feed. The Steeds were punished with low rankings and inadequate compensation.
A Sanderson Farms employee later informed the Steeds that the corporation grossly misrepresented the age of the chicken houses. Sanderson Farms, Inc. refused to send any more chickens until the Steeds upgraded their farm, but the bank would not accept the aged houses as collateral. Caught in this tragic web, Elizabeth and Don Steed could no longer make mortgage and debt payments on the poultry farm. When the Steeds filed a claim against Sanderson Farms, the court concluded that the Steeds’ contract contained an enforceable arbitration clause, notwithstanding the fact that Steeds were only told about the arbitration clause for the first time (after six months of extended negotiations with Sanderson Farms) on the day they signed the doomed contract. According to the court, enforcing arbitration would not be unconscionable because the Steeds were never forced to be a Sanderson Farms grower. It did not matter that the Steeds would face significant economic hardship if forced into arbitration and lose all of their rights to seek justice through the courts.
Deborah Williams and Richard Welshan, Annapolis, MD
Deborah Williams’ and Richard Welshans’ dreams came true when they opened their own franchise of the Coffee Beanery in suburban Maryland. Unfortunately, it quickly turned into a nightmare. The company had used deceptive business practices to make the franchisees look more profitable than they actually were. They went into arbitration with the company to try and recover some of their losses. When Deborah and Richard found out that the arbitrator shared an accounting firm with the Coffee Beanery, they unsuccessfully tried to get her removed. Before the hearing, a state Securities Commissioner had already ruled that the company had violated Maryland law; however, the arbitrator overruled this finding. The arbitration procedure took place in Ann Arbor, Michigan so Deborah, Richard and their attorney had to fly to Michigan three times over the course of eleven days, costing thousands of dollars. The arbitrator ordered Deborah and Richard to pay the Beanery $150,000. This miscarriage of justice has forced them to mortgage their home and file for bankruptcy.
Credit Card Customers
Donald White, Colorado
Donald had an account with MBNA America. Sometimes he had trouble making timely payments, so they sold his account to a third party collection agency, Scott Lowery of CACV of Colorado. Beginning in 2005, he paid a penalty every month and the penalty kept increasing. He asked them if he could pay it without interest because they had bought his account for just pennies on the dollar. But they only increased their relentless, “strong-arm” tactics. Against FTC rules, they called his job and his family and they threatened to sue him. When he explained that his daughter had a rare terminal condition which contributed to his difficult financial situation, the representative told him, “Well, maybe you’re being punished for not filling your obligation.” The third party took him to arbitration with NAF, reported to be one of the worst arbitration companies. He filled out all of the necessary information, about 15-20 pages, and mailed it to them. They said it was incomplete and did not contact him again. Finally, a month later he got a decision from the arbitrators that notified Donald that they had awarded CACV $17,000.
Investment News, Sept. 15, 2013, BofA quashed on arbitration; Court denies request by bank, Merrill on overtime suit
Read our blog for our take on the latest developments in forced arbitration.