AARP Asks Courts to Reject Arbitration Clauses That Prevent Consumer Recovery

AARP's brief in a cruise line ticket contract case argues that forced arbitration makes it virtually impossible for consumers to seek remedies for unfair and deceptive practices and removes an important incentive businesses have to comply with the law.

Background

Arbitration is an out-of-court process that was originally developed to resolve disputes between businesses with equal bargaining power in industries that benefited from having a decision maker with specialized expertise in a particular field. Now, arbitration is increasingly forced upon people in standard form contracts for virtually every good and service they buy, without any opportunity to negotiate. For the average person, arbitration can sharply limit access to remedies and permit corporations to evade any consequences for violating their legal obligations.

Often, arbitration clauses are designed not simply to move a dispute to an alternative forum, but to prevent a dispute from being heard at all. This is because arbitration is expensive and difficult for the average person. Clauses may also limit remedies and ban class actions. Class actions are often the only effective mechanism to challenge unfair or deceptive practices that can cheat people out of millions, a few dollars at a time. Because litigation is expensive, forcing people to litigate or arbitrate such claims individually is both cost prohibitive and impractical.

Increasingly, businesses include forced arbitration clauses with class action bans in contracts for a wide variety of ordinary consumer products and services. They are routinely used in contracts for phone service, employment, health insurance, nursing home care, medical services and credit cards.

The Dispute

Maughon v. Carnival Corp. is before the U.S. Court of Appeals for the 11th Circuit.The case arises out of a seven-day $700 cruise bought in April 2009. After passengers boarded the liner and set to sea, Carnival Cruise line informed passengers that all port stops to Mexico were canceled due to the H1N1 outbreak. Plaintiffs sued Carnival, alleging unfair and deceptive business practices and arguing that Carnival could have, but failed, to inform passengers about the cancellations before they left port and while the passengers had the opportunity to use their cancellation options.

Carnival Cruise lines sought to have the lawsuit dismissed by enforcing the forced arbitration clause, which requires arbitration of all disputes and bans all class actions. The arbitration clause also requires all arbitration to be held in Miami, although passengers live and bought tickets in locations across the United States. Finally, the fees associated with the arbitration would cost each passenger more than the price of the cruise itself, rendering it highly unlikely any passenger would seek redress.