Mass arbitration attack could bring Intuit to its knees
Ever hear of “binding arbitration?” That’s a clause in a contract that says that you aren’t allowed to sue the company you’re doing business with, even if they cheat, maim or kill you. It was invented to let giant companies of equal size and power agree in advance not to spend billions and decades in court to resolve contractual disputes.
Then, Federalist Society judges led by Antonin Scalia set about clearing the way for arbitration to be crammed down everyday folks’ throats by powerful businesses. Today, it’s primarily used by doctors, mechanics, publishers, after school programs, ski resorts, fast food restaurants, gig/app work companies and tech companies of all kinds to strip the people who buy from them or work with them of the rights that Congress gave them, all at the stroke of a pen.
The advent of non-negotiable contracts with binding arbitration clauses makes a mockery of the law, and of the very idea of contracts. These clauses are a (literal) get out of jail free card for businesses that abuse the people who interact with them. They have multiplied like cancer, and today, they’re everywhere.
When you sign a binding arbitration waiver, you lose the right to sue, and, critically, to join a class action suit, which is often the only way to get justice for mass-scale, small-dollar ripoffs. Very few of us will pay a lawyer thousands to get back the $50 some business owes us, but if that business owes millions of people $50, then one lawyer can represent all of them at once through class action. But not if they’ve all clicked “I agree” to binding arbitration.
Instead of suing, binding arbitration lets you go to a fake court: an arbitration proceeding presided over by a corporate lawyer who is paid by the company you’re seeking redress against. These arbitrators overwhelming find in favor of the business that signed their paycheck, but even if you do eke out a win, you don’t set a precedent that the next person can rely on. Every arbitration case starts from scratch.
The proliferation of arbitration has rapidly eliminated the very idea of civil justice for individuals wronged by companies, with private arbitration increasingly replacing courts. For a while there, it seemed like our rights had been eliminated by a conspiracy to insert binding arbitration into every contract, terms of service and business onboarding.
But then some clever lawyers noticed a critical flaw in the arbitration scam. Businesses have to pay the arbitrator, and that costs thousands of dollars per claim. If these lawyers could figure out how to streamline the arbitration process and file thousands of claims, they could cost businesses far more in fees than they’d ever have to pay in a class action settlement. Then the businesses would cry uncle and release their workers or customers from the binding arbitration and give them a day in court.
The first serious success for this tactic came in California, where Uber drivers had been forced into arbitration to recover hundreds of millions in wages that Uber had stolen for them. When Uber found itself facing thousands of arbitration claims, it surrendered and paid the drivers $146m.
https://www.reuters.com/legal/government/uber-sues-aaa-block-100-million-fees-politically-motivated-arbitration-2021-09-20/
Mass arbitration has only gone from strength to strength. Last spring, Amazon removed arbitration from its Alexa terms of service, as a way of escaping thousands of claims over its deceptive sharing of Alexa audio with third parties:
https://pluralistic.net/2021/06/02/arbitrary-arbitration/#petard
It’s getting steadily easier to automate mass arbitration claims. The company Fairshake launched in 2020 to produce a toolsuite to enable more lawfirms to mass-file claims on behalf of their clients.
https://pluralistic.net/2020/04/11/socialized-losses/#justice-restored
And courts are starting to see through the arbitration scam. Last spring, a Massachusetts court ruled that a blind Uber passenger wasn’t subject to the binding arbitration in the company’s terms of service, because they weren’t available in accessible form, so he never read them and never agreed to arbitration:
https://pluralistic.net/2021/01/06/methane-diet/#i-agree
As the wheels come off of the arbitration wagon, there’s a delicious wave of mass arbitration campaigns crashing down upon the worse companies in America. Few companies are sleazier than Intuit. For decades, Intuit bribed and bullied the IRS to keep it from automatically sending Americans pre-completed tax forms.
https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free
This is a routine practice in most other high-income nations. After all, the tax authority knows how much you’ve earned, it knows how much you’ve had deducted, and it knows the tax code. Every year, you get a pre-completed form. If it looks right to you, you sign it and you’re done. If you want to hire an accountant, you can do that too.
By blocking free tax prep, Intuit secured billions in revenue for its Turbotax division. But for some reason, taxpayers consistently refused to accept that their own interests should take a back-seat to Intuit’s shareholders and kept pressuring the IRS to send out pre-completed tax forms for free.
To keep this at bay, Intuit teamed up with the other oligarchs in the tax-prep industry to create a program called “FreeFile” that would offer free tax prep to the majority of Americans.
They made it nearly impossible to use.
No matter how hard you tried, you it was effectively impossible to actually get a FreeFile filing. Intuit pulled out all the stops — they created programs with nearly identical names that weren’t free. They bought Google ads for “Freefile” that redirected you to these expensive, name-alike programs. If you did stumble into a FreeFile workflow, they’d bombard you with fraudulent messages implying that you weren’t eligible to use the service. If you ignored that, they’d let you spend hours inputting your tax data, then present you with an error message saying you couldn’t go any further without paying.
This was fraud. Outright fraud. Even the FTC says so:
https://pluralistic.net/2020/09/08/attack-surface-kickstarter/#tax-fraud
But, of course, everyone who got sucked into this fraud vortex clicked through a binding arbitration waiver, and lost the right to sue, and the right to join a class action to recover the billions that Intuit had stolen from them.
Enter mass arbitration. The law firm of Keller Lenkner has made a name for itself by using mass arbitration to bring companies like Postmates and Doordash to their knees on behalf of workers who’d had their wages stolen. Now they’re taking on Intuit.
https://www.propublica.org/article/turbotax-maker-intuit-faces-tens-of-millions-in-fees-in-a-groundbreaking-legal-battle-over-consumer-fraud
Writing for Propublica, Justin Elliott (who broke this story and has followed it relentlessly) tells us that more than 100,000 Intuit customers have sought arbitration over FreeFile. Intuit’s already tried to staunch the bleeding by offering a $40m settlement, but the judge said no. The company had told its customers they had to arbitrate, so it was on the hook for arbitration.
Elliott calculates the potential bill for arbitration fees at $175m, plus any settlements and plaintiffs’ lawyers fees the arbitrators award.
As US District Court Judge Charles Breyer told Intuit’s lawyers, “Intuit was, in Hamlet’s words, hoisted by their own petard…arbitration is the petard that Intuit now faces.”
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