U.S. Chamber of Commerce’s Memo on Forced Arbitration Intentionally Biased & Factually Inaccurate

When corporations commit widespread fraud and violate state and federal laws, consumers need an avenue to hold them accountable.  Consumers’ ability to join together is often the only way to hold those corporations responsible.  Forced arbitration clauses that ban class actions prohibit consumers from bringing claims, period.  It is too costly for consumers to bring claims on an individual basis in any forum—arbitration or court.  Forced arbitration grants corporations a license to steal and violate the law.    

The U.S. Chamber’s recent class action memo inaccurately skews the data and completely ignores the benefits class actions have to consumers, employees, and workplace safety and stability.  In the U.S. Chamber's ideal world, bank executives would be free to defraud their own employees, credit card corporations would be able to change the terms of any deal, and corporations storing customers’ personal information would be under no obligation to protect that data.  The memo is problematic for myriad reasons, including the following:

The memo is entirely biased; it was written by a corporate defense firm.

  • Rather than an academic institution or think tank, this memo comes from large corporate defense firm Mayer Brown LLP, and was commissioned by the U.S. Chamber.
  • It was written by corporate defense lawyers Andrew Pincus and Archis Parasharami, neither of whom could be described as unbiased. 
  • Mr. Pincus represented the likes of AT&T and American Express in their efforts to use forced arbitration to eliminate accountability (AT&T Mobility LLC v. Concepcion and American Express Co. et al v. Italian Colors Restaurant et al.). 
  • Mr. Parasharami authored an extensive guide explaining how corporations can attempt to use constitutional objections to thwart class actions.  
  • Mayer Brown has itself been the target of class actions.  In 2009, Mayer Brown was alleged to have conspired with brokerage giant Refco to commit massive fraud by documenting loans to hide massive losses (the law firm managed to evade the class action, but ultimately settled the claim confidentially). 

The fundamentally flawed methodology led to intentionally misleading results and inaccurate data.

  • The U.S. Chamber memo was neither peer reviewed nor published in a reputable journal, and does not follow reasonable standards of academic rigor.  The memo's basis for its statements on claims rates, for instance, comes not an external source but rather an affidavit from a Mayer Brown lawyer. 
  • The memo's authors picked 148 class actions - having thrown out many for no obvious reason - but admit they have no idea if this is a representative sample, or even what percentage the sample represents: "the sample is undoubtedly smaller than the total number of class actions filed in 2009.  Attempting to estimate that number reliably—let alone to examine those cases—would have exceeded the scope of our review...  it would not be useful to calculate a margin of error or otherwise attempt to quantify the extent to which the sample differs randomly from the population of all class actions filed in 2009."
  • The U.S. Chamber extrapolates wildly from these tiny samples.  For instance, its analysis of awards to class members is based on just six out of 148 cases.  In other words, the Chamber drew a conclusion based on just 4% of its own sample, which it admits is itself an unknown percentage of the true total.
  • The U.S. Chamber concludes from its small sample that attorneys’ fees in class actions are often excessive.  Far more comprehensive studies have concluded the opposite.  A 2009 study of 16 years of class actions (as opposed to the small sample of one year the Chamber chose) found that "attorney fees in class action cases have displayed a strikingly strong linear relation to class recoveries... Fees and costs decline as a percent of the recovery as the recovery amount increases, suggesting the efficiency of this form of aggregate litigation." 

The memo highlights the importance rather than so-called “frivolity” of class actions.  

  • The U.S. Chamber cites several cases to support its proposition that class actions should be abolished; however, the same cases actually make the case for preserving the class action mechanism.  In Gianzero v. Wal-Mart Stores, Inc. , for example, Walmart allegedly conspired with insurance companies to deny medical care to more than 13,000 of its own employees.  Not only did the workers receive monetary compensation ($520 or $50 depending on the circumstances of their medical care) but more importantly, Walmart agreed to reform its practices.
  • Similarly, in In re Chase Bank USA, N.A. “Check Loan” Contract Litigation , No. 09-md-2032, JP Morgan Chase promised thousands of customers permanent low interest rates on "check loans," then turned around and changed the terms, more than doubling interest rates and tacking on new monthly fees.  Chase paid $100 million to compensate customers, but more importantly also agreed to stop the practice.  As an aside, there is little question class actions are one of the few ways banks like Chase can be held accountable for this kind of tactic - making hundreds of millions of dollars by cheating individual customers a few hundred dollars each - too little for them to be able to take Chase to court through individual cases. Since this case settled, Chase has paid over $13 billion to settle a wide variety of claims against them, including unfair practices and outright fraud.   
  • The U.S. Chamber decries other cases for allegedly providing no benefits to class members, even though the actions clearly did make a difference for the public at large.

For instance:

  • In Claridge v. RockYou, Inc. , a software company using no encryption to protect its data allowed the personal information of 32 million customers to be breached.  It was forced to agree to independent audits of its security measures (it is also important to note class members reserved the right to sue for monetary damages as well).  Prior to this case, major corporations had escaped any accountability for privacy breaches, a fact that experts said meant there was little incentive for corporations to improve security. This case established a potential precedent that could motivate companies to better protect customers' personal information.  
  • Red v. Unilever United States, Inc. , resulted in Unilever agreeing to remove dangerously high levels of trans fats from its margarine products - a result that benefits society at large rather than just class members. 
  • In the case of In re Colonial Bancgroup, Inc. ERISA Litig. , bank executives invested the bank's employee pension assets heavily in the bank's own stock while simultaneously committing alleged fraud to cover up huge losses.  While the employees’ losses were not fully compensated by the class action, the class members did receive $2.5 million directly from the culpable executives, and the case provided a useful precedent for holding executives - not just corporations - accountable for wrongdoing. 
  • In a footnote the U.S. Chamber remarks that the class action to resolve the Bernie Madoff scandal featured a 98% claim rate. The Chamber treats this case as an outlier.  But this case, and others like it, are exactly why society needs class actions.  The Bernie Madoff case would have involved 470 separate private actions, taxing our court system.
  • The U.S. Chamber also cites the class action that shut down Facebook's "Beacon" program as an example of a frivolous lawsuit.  Beacon was an intrusive advertising feature that broadcast personal information without permission.  The original plaintiff, Sean Lane, found out about Beacon when his surprise purchase of a diamond ring was broadcast to hundreds of his friends, including his fiancé.  The Chamber claims the suit was frivolous because the class members got nothing.  In fact, all 19 representative plaintiffs were compensated.  The rest of the "class" was essentially millions of Facebook users who may or may not have ever known about Beacon.  Facebook ended the Beacon program and agreed to provide $9.5 million to create an independent privacy foundation.