Forced arbitration is used by both sexual and financial predators

By Lois Lupica

The Senate may soon vote on whether to strip Mainers of our day in court. Powerful financial interests are pushing Congress to block a new Consumer Financial Protection Bureau rule that restores our right to band together to confront financial giants like Wells Fargo and Equifax that violate the law.

As Maine’s senators ponder their votes, it is worth remembering how financial and sexual predators alike use forced arbitration to sweep wrongdoing under the rug, keep it out of the public eye, and prevent the courts and the public from seeing and addressing patterns of widespread abuses.

The sexual harassment allegations by multiple women against Hollywood mogul Harvey Weinstein go back years. Weinstein used nondisclosure clauses and one-by-one negotiations to keep his misconduct secret and prevent people from seeing the broad pattern of his behavior.

Forced arbitration clauses in employment contracts work in the same way. In 2008, multiple female employees at Kay Jewelers stores brought a class action alleging widespread sexual harassment. But the women were kept out of the public courts and pushed into arbitration. Declarations from about 250 women and men alleged that, throughout the late 1990s and 2000s, female employees were routinely groped, demeaned and urged to sexually cater to their bosses to stay employed. But this evidence was kept secret for years from the public and even from other victims through gag orders imposed in arbitration proceedings.

The arbitrator certified a class of 69,000 women, finding evidence of bias and stereotyping in the highest levels of the company. The arbitrator also credited claims that managers solicited sexual relations, sometimes as a quid pro quo for job benefits. But a court recently ruled that the arbitrator may not have had the authority to grant relief unless every one of those 69,000 women took action to opt into the class.

Fox News anchor Gretchen Carlson was also kept from having her case heard in open court under a forced arbitration clause with a broad secrecy provision when she brought her sexual harassment case against Fox News founder Roger Ailes. But Carlson had the public profile to force Ailes to agree to a quick $20 million settlement, which leaked out, including a rare public apology. Most cases forced into arbitration never see the light of day.

Like sexual predators, financial predators use forced arbitration to keep wrongdoing secret and prevent accountability for widespread misconduct and lawlessness. For example, beginning in 2013, Wells Fargo convinced several judges to dismiss fraud lawsuits and class actions over fake accounts, forcing people into arbitration. The absence of public court proceedings or discovery into how far the fraud went allowed the bank to continue creating bogus accounts — ultimately 3.5 million (even 217 in Maine, where the bank has no branches) — for at least another two years. Even when the massive scandal exploded in public after the Consumer Financial Protection Bureau brought an enforcement action, Wells Fargo continued — and continues to this day — to insist that people cannot join together and must pursue claims one by one in arbitration. The bank knows that few of the 3.5 million people have the time or resources to do so.

KeyBank — virtually alone among Maine banks and credit unions — has also used forced arbitration to avoid accountability and publicity. In 2010, David Johnson brought a class action against the bank for manipulating the bank accounts of millions of people, including Mainers, so it could charge overdraft fees when people actually were not overdrawn. Several other banks, including TD Bank, that engaged in similar conduct settled cases years ago and reimbursed $1 billion in wrongful fees. But a court ruled last month that KeyBank could force Johnson into arbitration and that he could not pursue a class action to help other KeyBank customers. The court did strike KeyBank’s “unconscionable” secrecy clause that requires KeyBank customers to “keep confidential any decision of an arbitrator.” (Many companies slip in these unconscionable secrecy provisions, which some courts enforce.)

When consumers are harmed by financial predators, the CFPB rule will prevent these nefarious tactics from being used– if Congress does not block it. Millions of Americans will have the choice of having their claims heard in arbitration or in court.

The CFPB rule will not help victims of sexual harassment who have forced arbitration clauses in their employment contracts. But the issue (and the problem) is the same. Powerful forces keeping those harmed from exercising their Seventh Amendment right of access to the courts. As Americans, we need (and deserve) greater public accountability for wrongdoers.

Lois Lupica is the Maine Law Foundation Professor of Law at the University of Maine School of Law

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