Paul's Internet Landfill/ 2017/ Tech Companies and Class Action Lawsuits

Tech Companies and Class Action Lawsuits

I am still considering whether to join Simbi. In scanning their terms and service, I discovered a new tech trend: disrupting the legal system by (a) prohibiting class actions and (b) prohibiting lawsuits in favour of binding arbitration.

Here is an excerpt from the Simbi terms of service:

(e) Authority of Arbitrator. The arbitrator will decide the rights and liabilities, if any, of you and Simbi, Inc., and the dispute will not be consolidated with any other matters or joined with any other cases or parties. The arbitrator shall have the authority to grant motions dispositive of all or part of any claim. The arbitrator shall have the authority to award monetary damages and to grant any non-monetary remedy or relief available to an individual under applicable law, the Arbitration Rules, and the Terms. The arbitrator shall issue a written award and statement of decision describing the essential findings and conclusions on which the award is based, including the calculation of any damages awarded. The arbitrator has the same authority to award relief on an individual basis that a judge in a court of law would have. The award of the arbitrator is final and binding upon you and Simbi, Inc.

(f) Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR CONSTITUTIONAL AND STATUTORY RIGHTS TO GO TO COURT AND HAVE A TRIAL IN FRONT OF A JUDGE OR A JURY, instead electing that all claims and disputes shall be resolved by arbitration under this Arbitration Agreement. Arbitration procedures are typically more limited, more efficient and less costly than rules applicable in court and are subject to very limited review by a court. In the event any litigation should arise between you and Simbi, Inc. in any state or federal court in a suit to vacate or enforce an arbitration award or otherwise, YOU AND SIMBI, INC. WAIVE ALL RIGHTS TO A JURY TRIAL, instead electing that the dispute be resolved by a judge.

(g) Waiver of Class or Consolidated Actions. ALL CLAIMS AND DISPUTES WITHIN THE SCOPE OF THIS ARBITRATION AGREEMENT MUST BE ARBITRATED OR LITIGATED ON AN INDIVIDUAL BASIS AND NOT ON A CLASS BASIS, AND CLAIMS OF MORE THAN ONE CUSTOMER OR USER CANNOT BE ARBITRATED OR LITIGATED JOINTLY OR CONSOLIDATED WITH THOSE OF ANY OTHER CUSTOMER OR USER. In the event that this subparagraph is deemed invalid or unenforceable neither you nor we are entitled to arbitration and instead claims and disputes shall be resolved in a court located in San Francisco, California.

In other words:

This got me curious, so I looked at a few of my other favourite tech companies. As of this writing, the LinkedIn and Facebook terms of service prohibit class action lawsuits but do not demand arbitration. Uber's terms of service does force arbitration, but weirdly enough also puts demands on Uber:

Arbitrator's Decision.

The Arbitrator will render an award within the time frame specified in the AAA Rules. Judgment on the arbitration award may be entered in any court having competent jurisdiction to do so. The Arbitrator may award declaratory or injunctive relief only in favor of the claimant and only to the extent necessary to provide relief warranted by the claimant's individual claim. An Arbitrator’s decision shall be final and binding on all parties. An Arbitrator’s decision and judgment thereon shall have no precedential or collateral estoppel effect. If you prevail in arbitration you will be entitled to an award of attorneys' fees and expenses, to the extent provided under applicable law. Uber will not seek, and hereby waives all rights Uber may have under applicable law to recover, attorneys' fees and expenses if Uber prevails in arbitration.

Fees.

Your responsibility to pay any AAA filing, administrative and arbitrator fees will be solely as set forth in the AAA Rules. However, if your claim for damages does not exceed $75,000, Uber will pay all such fees, unless the Arbitrator finds that either the substance of your claim or the relief sought in your Demand for Arbitration was frivolous or was brought for an improper purpose (as measured by the standards set forth in Federal Rule of Civil Procedure 11(b)).

What's going on here? The public relations explanation is buried in the Simbi terms of service I excerpted:

Arbitration procedures are typically more limited, more efficient and less costly than rules applicable in court and are subject to very limited review by a court.

In other words: "The legal system is expensive and slow, so is ripe for disruption." I guess arbitration is supposed to be the mechanism for bypassing the legal system. The fact that Iber will cover arbitration fees for small claims is (I guess?) supposed to be evidence that this is not a naked play for power on behalf of the tech companies.

The class action exception also seems well-motivated: there exist parasites who conduct frivolous class-action lawsuits, and as these tech companies grow in power they do not want to be bankrupted by a well-funded troll case.

And you know what? I have a lot of sympathy for this perspective. One of my greatest fears is that I will get enmeshed in the legal system. I agree that it is expensive and slow and often does not work well. I agree that trollish parasites pose a real threat to businesses. At the same time, there are deep asymmetries here, and a lot of reasons I feel cynical about this trend.

Consider that these companies already enjoy legal protection. They are LLCs, which stand for limited liability companies. If I get sued I can lose everything. If I sue the company the founders and employees get to keep their assets. But that is not enough for these companies. They want even more protection from the law.

Consider the fact that contracts are supposed to be a negotiation. In a paper contract I can disagree with and cross out unreasonable terms and conditions, and then the other party can refuse or accept those changes. I have no such abilities with these online services. Either I accept these obnoxious conditions or I am locked out, which would not be so bad if these companies were not taking over the commons in ways that affect my well-being and ability to function in the world (see LinkedIn).

Consider the way this arbitration system is structured against non-wealthy people. My guess is that people have to pay arbitration fees up front, and then kind uncle Uber will reimburse us afterwards. That means people who are struggling to meet expenses won't be going through the arbitration process at all. Meanwhile, Simbi offers no reimbursement for arbitration expenses at all. The legal system has the same failing, but at least class action lawsuits can defray the cost.

Consider the class of accusations these companies avoid by forbidding class action lawsuits. It allows these companies to disclaim systematic problems as individual malfeasance. Sometimes it is difficult to prove that a company is engaging in systematically discriminatory behaviour. If a group of litigants can get together then they can compile their evidence to demonstrate a pattern. An individual has a much more difficult time. ("Was I refused the job because I am black, or because I was unqualified?")

Consider that these companies consider arbitration to be non-precedent setting. Thus if you and I have the same grievance against a company and launch separate arbitration processes, the arbitrator can decide against one of us and in favour of the other, and there is nothing we can do about it. Furthermore there is no court of appeal, so we are stuck with whatever the arbitrator decides. I have deep problems with both precedents and with courts of appeal in the legal system, but there is no question that they exist for good reasons.

Consider that these companies are putting clauses into their contracts that they know are illegal in some jurisdictions, and simply making their contracts applicable everywhere else. This demonstrates that they will get away with as much as they possibly can, which is one reason the legal system (and the legislative system) is so slow and expensive. The only response to this chicanery is for every jurisdiction to outlaw this tactic, at which point the legal geniuses working for these companies will invent another workaround that maintains company power. (My speculation is that these clauses started appearing in terms of service agreements once broader idemnification and warranty disclaimers ran into problems in the court.)

Consider that the entire purpose of these tech companies is to scale. It is not enough for them to have thousands or hundreds of thousands of users. They want to scale to millions or hundreds of millions or billions of users. In other words, they want to wield an enormous amount of power over a lot of people, but they deliberately want to minimize the obligations that come with that power.

Consider that these companies want power over a lot of individuals, but are doing their best to ensure that those individuals cannot coordinate themselves to resist that power.

Consider that these companies are obsessed with avoiding jury trials. Why do they fear juries so much?

Consider that these companies are demanding that we waive basic legal rights in order to become their product.

Consider that the link Uber provides to the Amercian Arbitration Association rules (https://www.adr.org/arb_med) in its current terms of service does not even work.

Consider that in arbitration, the parties are supposed to decide upon an arbitrator together (as opposed to the legal system where the parties do not get to select their judge). Consider that the company legal teams are much more likely to be familiar with friendly and unfriendly arbitrators than individuals, so if you have a grievance you had better get an experienced lawyer who knows what to look for in an arbitrator. In other words, there is enormous potential for the companies to get arbitrators that are friendly to their cause.

Consider that an arbitrator might work many times with a company, and only one time with an individual with a grievance. Consider the perverse incentive the arbitrator has to rule in favour of the company to encourage future business. (But of course this would never ever happen! The arbitration board has standards, of course.)

Consider that the companies are restrictive as to how they are bound by arbitration (although thankfully it looks like they are not allowed to initiate lawsuits against us for terms of service violations). Here is a gem from the Uber terms of service:

However, you and Uber each retain the right to bring an individual action in small claims court and the right to seek injunctive or other equitable relief in a court of competent jurisdiction to prevent the actual or threatened infringement, misappropriation or violation of a party's copyrights, trademarks, trade secrets, patents or other intellectual property rights.

In other words, if Uber thinks you are infringing upon their intellectual property or copyright, they can take you to court (and I think the wording does not limit that court to small claims court).

Consider that these companies know full well that the vast majority of their users will be clicking away their basic legal rights without even scanning the terms of service.

I don't know. Maybe these companies have our best interests at heart. Maybe this is a genuine attempt to resolve conflicts in less confrontational ways (that still involve a lot of lawyers). But isn't it convenient just how much power this puts in the hands of companies as opposed to their serfs?