November 2, 2015

Dog Bites Man: New York Times Prefers Lawyer-Controlled Class Actions over Fair Arbitration that Enables Individuals to Protect Themselves

The New York Times has published a two-part “special report” on what it says is an “investigation” of arbitration agreements between businesses and consumers. This so-called “investigation” presents a biased, selective, and false picture of arbitration, ignores scholarly support for arbitration and omits the reality of class actions where lawyers benefit and consumers gain little or no benefit.

Given that the Times’ editorial page has repeatedly and vociferously attacked arbitration and praised “expansive” class action litigation in recent years, it’s no surprise that its “investigation” came to the very same conclusion. (The very issue containing the “report” has yet another editorial endorsement of class actions.) What is surprising is that the Times didn’t even pretend to undertake a balanced investigation—it set out to laud class actions and attack arbitration.

Here’s one example of the Times’ technique: Newspaper investigations typically quote partisans on each side of an issue, but also present the views of “experts” that are not identified with one side or the other. Every single supposedly independent “expert” quoted in the Times story—law professors and judges—opposes arbitration.

Indeed, the Times would have its readers believe that there are no law professors or judges that think arbitration is better for consumers than class actions. That, of course, is clearly not the case.

Plenty of scholars support arbitration or criticize class actions—because they recognize that class actions can often do more harm than good. Professor Linda Mullenix of the University of Texas Law School, for example, has noted that class action lawsuits appear to “serve [only] a slight deterrent function and provide scant compensatory redress to class members.” This, she writes, makes it “fair to question the continued legitimacy of a class action category [i.e., consumer class actions] that exists primarily to remunerate (and reward) entrepreneurial attorneys with outsized fee awards.”

Profs. Jason Johnston of the University of Virginia Law School and Todd Zywicki of George Mason University Law School similarly point out that “reckless and irresponsible class action cases can be harmful to consumers, businesses, and the economy as a whole” and that arbitration appears to be a superior alternative in many situations. The Times failed to include any such balanced comments from credible experts.

Many courts have noted that arbitration can be a fair and efficient alternative to consumer class actions. Indeed, although the article castigates the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, it fails to mention that even the lower courts whose decisions were overturned concluded that the plaintiffs “were better off under their arbitration agreement with AT&T than they would have been as participants in a class action.” Further, they conclude that “aggrieved customers who filed claims would be ‘essentially guarantee[d] to be made whole.’”

By failing to include any of these views, the Times skillfully but misleadingly created the entirely false impression that only corporate lawyers support arbitration and everyone who is “independent” agrees with the Times’ one-sided characterization of arbitration.

This alone would disqualify the Times’ “investigation.” But the bias in the Times report goes much deeper. It (a) assumes that class actions provide consumers with real, unalloyed benefits; (b) ignores any possible benefits provided by arbitration; and (c) concludes that arbitration therefore must be harmful.

That simplistic syllogism ignores reality at each turn. As a columnist for Forbes noted, “The Times reports without skepticism the plaintiff-lawyer version of the story[.]”

In fact, the class action system has real, documented problems. Arbitration gives consumers benefits not available through the judicial system. And the real policy question is whether the reality of arbitration provides consumers with more options to protect themselves than the reality of lawsuits in court.

That apparently was too complex an issue for the New York Times; it decided that a false, cartoon version of the policy question was all that its reporters could address and all that its readers deserved. (This isn’t the only public policy issue that the Times has addressed in such a deceptive manner; see former Washington Post publisher Donald Graham’s scorching critique of another Times “investigation”—where its news page again followed the views of its editorials.)

These are serious and important issues—and here’s what the Times left out.

The Reality of Class Actions

The Times carefully omits any discussion of how class actions—its preferred alternative to arbitration—actually work in practice. As a 2013 study conducted on behalf of the U.S. Chamber revealed, most class actions provide no benefit to class members at all. Moreover, even the Consumer Financial Protection Bureau—which is just as hostile to arbitration as the Times—produced results from its own (flawed) study demonstrating that consumer class actions deliver few benefits to the vast majority of consumers. The report revealed that 87 percent of the class actions studied offered no benefits to class members. Of the remaining 12 percent of cases that were settled on a class-wide basis, on average only 4 percent of consumers received any monetary relief—meaning that 96 percent of class members did not benefit. You won’t find these numbers anywhere in the Times’ article, although the article clearly depends on interviews with current and former CFPB staff opposed to arbitration.

Nor did the Times tell its readers that, according to the CFPB’s own data, plaintiffs’ lawyers do far better than the class members they claim to represent. That information shows that the average fee paid to plaintiffs’ lawyers was 41 percent of the total announced settlement (not the smaller amount actually distributed to class members). (The median fee was 46 percent.) Put another way, the average attorneys’ fees that plaintiffs’ lawyers received are more than $1 million per case—$424 million for 419 cases, according to the CFPB’s data. Meanwhile, the average settlement payment per class member was just $32.35.

Although the Times never mentions it, these figures offer further proof of a phenomenon that academics have long recognized. The real beneficiaries of class action lawsuits aren’t consumers or the public, but plaintiffs’ lawyers, who, as Professor Martin Redish has explained, are often “[t]he real parties in interest” in class actions and “the ones primarily responsible for bringing the proceeding.” Indeed, most class actions aren’t initiated by consumers, but by plaintiffs’ lawyers, who, as Professor John Coffee of Columbia has described, “find the client after [they] first research and prepare the action.”

In short, plaintiffs’ lawyers pursue class actions aggressively because they make out far more handsomely than their clients in most class litigation: they can settle class actions for peanuts while reaping large fees for themselves.

Class actions are such a bonanza for plaintiffs’ lawyers that the trial lawyers’ lobbying arm, the American Association for Justice, identifies ending arbitration as one of its top priorities—a fact the Times was careful to omit. After all, how could the Times make its case if it admitted that its primary sources in the plaintiffs’ bar have more than a million reasons per class action to distort arbitration?

The Selective and False Picture of Arbitration

While it described class actions in glowing terms—even though facts and common sense show otherwise—the Times went out of its way to paint as negative a picture of arbitration as it could. But it failed to recognize that arbitration provides consumers with access to procedures that offer consumers greater potential benefits than class actions and that are easier to use than lawsuits in court:

  • Most consumer injuries aren’t large enough to attract a lawyer’s attention, because they involve only excess charges on a bill, a defective piece of merchandise, and the like. Even if a consumer with such a small claim could find a lawyer willing to take her case, as even Justice Breyer (who dissented in Concepcion) has observed, without arbitration, “the typical consumer who has only a small damage claim (who seeks, say, the value of only a defective refrigerator or television set)” would be left “without any remedy but a court remedy, the costs and delays of which could eat up the value of an eventual small recovery.” By providing a fair and efficient means of adjudicating small consumer claims, therefore, arbitration redresses consumer injuries that would go unresolved without arbitration.
  • Arbitration is procedurally simpler and thus more accessible to consumers. Indeed, as Professors Johnston and Zywicki noted in a recent paper, the data on arbitration suggest that in arbitration, “hiring an attorney offers little value to a consumer and is often unnecessary.” Arbitration plaintiffs can submit the relevant documents and a commonsense statement of why they are entitled to relief, and can do so without a lawyer.
  • Because arbitration is less expensive than litigation in court, it lowers companies’ costs of dispute resolution—and as numerous academics explain, companies are able, in turn, to pass those cost savings on to consumers through lower prices.

For these and other reasons, in a recent survey of members of the Kaiser Foundation health plan, which uses mandatory arbitration, almost 50 percent of the parties and attorneys who went through arbitrations that year reported that the arbitration system was better than going to court. Another 42 percent reported that it was the same as going to court—and only 10 percent reported it was worse.

The Times decried the arbitration process as “largely favor[ing] companies,” but even its own cherry-picked anecdotal evidence doesn’t support that view. The story describes the case of Patricia Rowe, who sued AT&T in a class action over a bill dispute; the article states that when the court upheld her arbitration agreement, Dr. Rowe “was forced to give up and pay the $600” because it “would have cost far more” for her to pursue arbitration. The Times failed to disclose, as the court’s opinion in the case clearly states, that AT&T “offered to pay all of [Dr. Rowe’s] arbitration costs and fees if this case was referred to arbitration”—as it does with all its customers.

Indeed, many companies now agree to make arbitration cost-free for consumers and give consumers the choice of whether to resolve a dispute via written submissions, telephone hearings, or in-person proceedings. Some companies, such as AT&T, even agree to pay customers a bonus if they prevail in arbitration and receive more than the company’s last written settlement offer. Moreover, if a consumer requires an expert witness or complex discovery in order to pursue a claim, many companies have arbitration provisions that allow for such costs to be shifted to companies if the claimant prevails—even when the underlying law does not provide for such cost-shifting and cost-shifting therefore would not be available in a judicial lawsuit. (The Times, of course, wrongly suggests that consumers in arbitration have no hope of hiring expert witnesses.)

These consumer-friendly features of arbitration agreements give companies a powerful incentive to settle any non-frivolous claim in full. This incentive also causes companies to resolve as many customer claims as possible before the need for arbitration ever arises—which is one important reason why, as the Times observes, so few arbitrations are filed. (The other reason is that plaintiffs’ lawyers do everything they can to discourage consumers from using arbitration.)

Thus, the Times’ caricature of arbitration agreements as one-sided contracts that solely benefit business is badly misleading. In reality, arbitration is a fairer and more equitable way to resolve more consumer disputes than litigation.

The Times’ Conspiracy Claim

Every good story needs an enemy, and the Times decided that “corporate America”—particularly large banks—engaged in a conspiracy to promote arbitration. Never mind that the landmark case discussed in the story, AT&T Mobility v. Concepcion, involved a telephone company that had developed its own arbitration agreement with provisions very different from those used by other companies.

Not content with the claimed corporate conspiracy, however, the Times decided to add some innuendo attacking the Supreme Court. It describes a 2002 case in which Chief Justice Roberts, who was then a lawyer in private practice, represented a client petitioning the Supreme Court to review a California state court decision refusing to uphold its arbitration agreement. The story notes that by the time of the Concepcion and American Express v. Italian Colors decisions on arbitration, Roberts was Chief Justice, and it suggests that this shows that he was a “player[] behind the scenes” in those decisions.

In the Times’ telling, the Chief Justice had to save the day in Concepcion by substituting his 2002 legal theory for the arguments made by AT&T. That is false on multiple levels. Most significantly, AT&T made the argument the Court adopted as one of two ways that the Court could rule in its favor. The argument was detailed on pages 48-56 of AT&T’s opening brief on the merits as a “second, independent reason” for declaring “California’s rule invalid.” The article simply omits this fact. Moreover, the Chief Justice’s 2002 briefs didn’t make the argument, which focused on the incompatibility of class procedures and arbitration, because that argument relied extensively on a Supreme Court ruling issued in 2010.

It is particularly surprising that the Times would intimate that the Chief Justice’s involvement was somehow inappropriate when it has lauded other Justices for involvement in cases with issues they dealt with earlier in their careers.

For example, Justice Breyer, an “architect and longtime supporter of the Federal sentencing guidelines,” “helped steer a bill through Congress” that led to the adoption of the guidelines while he was chief counsel to the Senate Judiciary Committee and later served “as one of the original members of the United States Sentencing Commission.” Years later, the Times noted—without criticism—that “Justice Breyer remains a guidelines enthusiast, and . . . in United States v. Booker, he managed the unlikely feat of keeping the guidelines alive despite the conclusion by a majority of his colleagues that they were unconstitutional.”

Similarly, Justice Ginsburg was a pathbreaking litigator in gender discrimination cases; she subsequently wrote important gender discrimination decisions as a Justice. Virtually no one—certainly not the Times—ever suggested that Justices Breyer and Ginsburg were behaving inappropriately by hearing cases that related to subjects they had worked on earlier in their careers, and rightly so.

Is it because the Times disagrees with Chief Justice Roberts’ ruling in the arbitration case that his work in private practice warrants such a negative inference? Would the Times prefer a Court made up of Justices who had never worked on any important legal issues?


There is an honest debate to be had over the role of class actions in our society and whether arbitration offers consumers a positive alternative. Unfortunately, the Times approached this issue with a closed mind. Its “investigation” is little more than an opinion piece masquerading as fact. And the fact that its analysis is incomplete, misleading, and one-sided is only underscored by the article’s resort to innuendo about the ethics of a Supreme Court Justice—an attack that the Times would never dream of making in parallel situations involving more liberal Justices.

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