Consumer Law

U.S. Supremes Hand Consumers Another Major Win?This Time With Arbitration

By Andy Hoffman

Just days ago, we told you about the spectacular outcome of the U.S. Supreme Court case, Wyeth v. Levine.  Well, it may be time to pop open another bottle of champagne, because the Supremes have come down on the side of consumers once again?this time ruling 5-4 that they can sometimes resist being pushed into mandatory arbitration to resolve credit card disputes. 

As loyal readers of ThePopTort know, we are no fans of mandatory arbitration (see here, here, here).  In fact, we?ve spoken at length about why we disdain the dreaded practice, so we won?t go into the details here.  Suffice it to say, it?s an obscenely lopsided, anti-consumer process.

With respect to yesterday?s decision, the details are a little technical, but here?s the upshot.  The case involved a woman named Betty Vaden whom the folks at credit card issuer, Discover Bank, claimed owed them about $10,000.  Her credit card agreement required arbitration for such disputes.  But Vaden responded by filing a class-action counterclaim (take that Discover!), saying the company?s finance charges and late fees violated state law, which would land the matter in state court.  (Still with me?)

Here?s where things get especially dicey.  Wanting to settle the matter in federal court - which would possibly be less hostile to its arbitration position than state court, and give it the opportunity to use federal law to preempt Vaden's counterclaim - Discover tried doing a little legal jujitsu, saying, ?Oh, yeah?  Well we?re going to ask a federal court to force you into arbitration, and avoid dealing with that crumby state court altogether.?  (Got that?  Whew?)  So, long story short, the majority of the Supreme Court found that because the dust up between Vaden and Discover originated from ?Discover?s garden-variety, state law debt collection claim against Vaden,? arbitration of the matter could only be ordered by a state court?not a federal court.

Actually, if you think about it, it was really a fairy tale ending.  Discover?s legal jujitsu failed, the consumer won, and the U.S. Chamber of Commerce and the American Bankers Association (both of which were backing Discover), cried wah, wah, wah all the way home!

Full post as published by ThePopTort on March 10, 2009 (boomark / email).