Last week, the Minneapolis-based food conglomerate General Mills changed its legal terms. Three days later, in response to sweeping criticism, it changed them back. The reversion, which was accompanied by an apology and which the Times called a “stunning about-face,” is certainly a victory for corporate accountability. The new terms would have required anyone who interacted with General Mills online—for example, by downloading coupons—to forgo the option of suing the company in court, and instead adjudicate claims through a process called “binding arbitration,” in which both parties present arguments before a professional arbitrator who has legal authority to fashion remedies. The terms would also have prevented class arbitration: plaintiffs who might otherwise have filed a class-action suit would have been required to bring claims against General Mills individually.
This concerned people, and for good reason. Arbitration is generally seen as less friendly to plaintiffs than lawsuits in state or federal court. Lawsuits often allow for jury trials, and jurors tend to sympathize with harmed plaintiffs; arbitration, meanwhile, takes place before an individual arbitrator whose fees are often paid by the defendant. Furthermore, the new terms about class-wide arbitration would have meant that, in practice, many otherwise viable claims simply wouldn’t get filed. Imagine someone finding glass in her Cheerios box but—luckily—not ingesting it. Because she has suffered no medical damage, her claim against General Mills would be very small. But, if she could aggregate her claim with thousands of other people in the same situation, then the suit would become economically viable. A plaintiff’s lawyer would take the case in exchange for a percentage of the eventual winnings, and the plaintiffs would bear few to no out-of-pocket expenses. By prohibiting class-wide arbitration, General Mills’ new terms would have all but guaranteed that few consumer claims could get off the ground.
Let’s not celebrate just yet. Much of last week’s outcry cast the General Mills incident as an isolated event. In fact, the battle over the company’s proposed change of terms is just one phase of a larger, ongoing conflict over the meaning of consumer contracts—and it’s a war that big corporations appear to be winning. In two recent cases, A.T. & T. Mobility v. Concepcion and American Express Company v. Italian Colors Restaurant, the Supreme Court held that mandatory-arbitration clauses—of the same substance as the mandatory-arbitration clause in General Mills’ change of terms—should be enforced against plaintiffs, even though doing so would make pursuing a legal claim so economically irrational that, in all likelihood, no cases would ever get brought.
In 2003, Italian Colors, a neighborhood restaurant in Oakland, filed an antitrust class-action suit alleging that American Express had used its market power to make merchants pay excessive fees. The contract between American Express and Italian Colors contained an arbitration clause preventing class-wide arbitration. When American Express tried to enforce that clause, Italian Colors argued that the maximum possible award that it could hope for, on the specific facts of its antitrust claim, was just shy of forty thousand dollars—and that it would cost nearly a million dollars to pay attorneys and experts to give testimony. In other words, the restaurant’s argument was that individual arbitration made it untenable to bring a lawsuit. Nevertheless, in June, 2013, the Court held that the arbitration clause had to be enforced. In its words, existing antitrust laws “do not guarantee an affordable procedural path to the vindication of every claim.” No, apparently they do not.
This is a disquieting result. (The Concepcion case, handed down in 2011, had arrived at the same one.) As long as an aggressively drafted arbitration clause is in place, the Court has decided to effectively shield low-impact but widely dispersed violations from legal challenges: no one would have a realistic incentive to sue.
The Concepcion and Italian Colors cases represent a concerted effort on the part of our nation’s highest court to enforce consumer contracts more strictly to their letter. We often assume—and contract law reflects the assumption—that contracts are bargained over, and, in practice, many are. For instance, if you pay your neighbor to help you paint your house, the two of you are likely to negotiate a fair price, reasonable work hours, and so on. But very little bargaining typically takes place between individuals and large corporations, as you know if you’ve ever signed a contract for phone service. Partly for this reason, there are doctrines that allow courts to invalidate contracts, or portions of contracts, in the interest of basic fairness. In fact, that is exactly what lower courts did in both the Concepcion and Italian Colors cases: they looked at the arbitration clauses, and, finding them fundamentally unfair (“unconscionable,” in legalese), ruled not to enforce them. It was only after the Supreme Court stepped in—overriding the more consumer-friendly decisions of lower courts—that the arbitration clauses went back into effect.
General Mills was not the first company to roll out a mandatory-arbitration clause in response to Concepcion and Italian Colors, and it certainly won’t be the last. Dropbox, for example, recently announced very similar modifications to its terms of service. The change inspired outrage similar to the reaction to the General Mills incident, but apparently not enough to get the changes reversed. Consumer activism is an important tactic against companies seeking greater legal immunity, but a lasting solution will require action from Congress. In the meantime, more companies’ legal terms are sure to change.
Photograph: Lena Mirisola/Moment Mobile/Getty
