May 12, 2026
On May 12, The Capitol Forum held a conference call with Brendan Ballou, author of “When Companies Run the Courts,” to discuss the growing use of forced arbitration and its implications for consumers, workers, and market accountability. The full transcript, which has been modified slightly for accuracy, can be found below.
TEDDY DOWNEY: Hello, everyone, and welcome. I’m Teddy Downey, Executive Editor at The Capitol Forum. Today, I am very, very pleased to once again be joined by Brendan Ballou, founder of the Public Integrity Project and a former federal prosecutor.
Brendan joined us in March for a conference called “Corruption Enforcement, Presidential Pardons, Limits of Federal Prosecution.” We’re super excited to have him back to talk about his new book, “When Companies Run the Courts,” which was released today, May 12th. Brendan, thank you so much for joining us.
BRENDAN BALLOU: Thank you so much for having me. And we’re going to get to listener questions toward the end of the conversation. If you have questions, please enter them in the chat or the questions panel in the app.
Brendan, I promise we will spend the vast majority of our time talking about the book, which is phenomenal. But first, can you tell us a little bit about your new law firm and the recent activity around this ParamountWarner Brothers merger, which I thought was really creative and interesting.
BRENDAN BALLOU: That’s very generous of you, and it means a lot coming from you. So, yes, we have started a new small public interest law firm called the “Public Integrity Project,” and the goal is to raise the legal and reputational cost of corruption in America.
So, in a world where the Department of Justice is not only not going after white-collar criminals, but seems to be helping them in a lot of ways, we are trying to fill the gap and put some pressure on companies and individuals that have enormous incentives to engage in corruption right now to actually discourage them from doing so, and focusing not just on the folks outside of government that are enabling corruption, but also the folks that are inside a government that are more than happy to be corrupted.
So, we’ve been around for four months. Our first lawsuit was against the President for approving the illegal sale of TikTok’s U.S. assets to his various cronies. Our second was against Acting Attorney General Todd Blanche for failing to fully disclose the Epstein files related to Donald Trump. And then, as you mentioned, our most recent action is we’re representing a number of free speech organizations, pro-journalism organizations, in making what’s called a books and records demand to Paramount.
So, the public reporting says that the Ellison family may have spoken with the President and promised to make sweeping changes at CNN, discussed even firing anchors that the President didn’t like, and as a result, they got regulatory approval for the deal.
So, we’re demanding all the board books and records about that. The letter got received on Monday. They’ve got five calendar days to respond. So, after that, we can initiate litigation in Delaware Chancery Court.
And so, we think this is going to be a way to hopefully get some of those hot documents out and hopefully encourage state regulators to act here because I think they’re going to be the most powerful actors in actually stopping this deal.
TEDDY DOWNEY: Yeah, from a timing standpoint, how quickly can you get these records out? And is there something that ensures that you’ll get them in a timely way? Because I was thinking about it, is it going to be contingent on the states actually suing where you have enough time to actually get the documents? Or is it more you’ll get the documents probably before there’s—even if there’s a decision in the next month or so, you’ll probably get the documents before then?
BRENDAN BALLOU: Great question. So, yeah, we do need to move really fast here. Here’s how we’ve been thinking about it.
So, the two organizations that we’re representing, they’re not just pro-free speech organizations. They’re also shareholders in Paramount. So, as ordinary shareholders, they’re actually entitled to these records just as a matter of course. And they have a right as shareholders to understand if the directors may have breached their fiduciary duties.
So, the legal entitlement to these documents is pretty clear. And so, this isn’t like a complicated antitrust fight where you’ve got to define product and geographic markets and all these sorts of things. It’s really just a question of, do our clients actually own the stock? Are they actually entitled to these documents? Are they entitled to these kinds of documents?
And so, I could imagine a world where Paramount wants to put up a big fight and draw this out. But I don’t think that this is a particularly complicated legal question. And I’m hoping that we can get a resolution fast.
TEDDY DOWNEY: And the fight would be in the Delaware courts, right?
BRENDAN BALLOU: Exactly.
TEDDY DOWNEY: That do a lot of this corporate stuff.
BRENDAN BALLOU: And it’s interpretation of state law. They can’t appeal it to the Supreme Court or anything like that. So, we’re good to keep it in state court.
TEDDY DOWNEY: Very, very clever. Very, very interesting. Excited to see that when that comes out. I think I just want to stay on this for one more second where you’re focused on discouraging corruption. You mentioned there’s an incentive for companies to engage in corruption right now because they’re getting so much by putting money towards lobbyists to get favorable outcomes from the President.
We did an article on Monday basically where states are going to benefit potentially from if the Democrats win in November, more oversight, more documents coming out potentially around corruption. Do you see that as helpful to what you’re doing? Do you see that as further potential discouragement from doing corrupt stuff now? How do you think about discouraging corruption more broadly and strategically?
BRENDAN BALLOU: Yeah, no. So, certainly—and we’re a nonpartisan organization. So, it’s sort of irrelevant for us which specific party’s in power, as long as they actually have some sort of commitment to the rule of law. And right now, it seems like the Democrats are talking about corruption issues in a way that’s encouraging.
So, in terms of what’s actually useful here, I think there’s really two angles. And we say that our mission is to raise both the legal and reputational cost of corruption. And which of those things matters depends on who the actual target is.
For some bad actors out there, their reputation doesn’t matter at all. When you’re talking about various crypto scammers—maybe those that live abroad, where really what the U.S. public thinks about them is functionally irrelevant—reputational harm doesn’t matter.
But when you think about other companies that may be engaging in corruption or skirting the law—public companies, for instance, that need to maintain sort of a semblance of legality or commitment to the rule of law in order to be able to get public investment—those reputational harms matter a lot.
And then for others, the legal cost can be very real. Some of these people have functionally unlimited money. But even the Ellisons, if you can actually enjoin the Paramount-Warner Brothers deal, that is a huge cost to them, given how much time, how much effort, they’ve put into these sorts of things. So, I definitely think that Congressional oversight is going to be additive here.
I will add, however, though, that I think most of the action on both the legal and reputational side is probably going to be happening in the courts because that’s seems to be what’s most able to constrain corporate actors right now.
TEDDY DOWNEY: Interesting. I mean, look forward to all this activity around that going forward. But let’s turn to the book, which as I mentioned, is just absolutely phenomenal history of basically how mandatory arbitration has gone from sort of a narrow technocratic thing to something that like dominates our everyday life in a way we don’t appreciate.
The book reminded me a lot of the podcast—we were just talking about this – “The Master Plan,” which was put out by the folks at The Lever. It talks about the history of a decades long effort to allow corporations to basically pour limitless amounts of money into elections.
Your book also goes through a secret legal history. And I don’t want to give away the whole book obviously, but can you tell us a little bit about how you came to write about this topic and how you went about learning the legal history behind how mandatory arbitration has come to have such a big impact on our society?
BRENDAN BALLOU: Yeah, no, absolutely. And, I mean, that’s an incredibly kind introduction into the book. So, I had written a book a couple of years ago about private equity. You were kind enough to interview me when that came out. And in the process of researching that and promoting it, and then in my work at the Department of Justice where I spent most of it in the Antitrust Division doing white collar work, I talked to a lot of folks, especially folks that weren’t lawyers.
And I think that there was a profound sense among most of the people that I talked to that the legal system was just not built for them, that it was actually structurally organized against them and in favor of large companies and very rich people. And I found that it was almost a universal sentiment. And I wanted to write something that basically said to these people that, yeah, actually you’re right for the most part. Our legal system really is not built, for the most part, for ordinary people, but rather for the very powerful and the very rich.
But I wanted to explain it through the lens of one specific issue. And by doing that, I thought I could help people understand how the law can get evolved to actually help these large companies away from consumers, away from employees, more so than sort of a generic attack on sort of some of the trends in our legal system over the past several decades.
And I also felt, in addition to just being sort of more educational and helping people understand the process by which the law changes, I thought it could also actually be more productive. Because if we focus on this one specific issue, we can also figure out how do we actually solve this one specific issue?
So, I hoped that it would give people not just an education, but also some measure of hope too, yeah.
TEDDY DOWNEY: One thing that strikes me after reading about these types of histories when it came to the master plan and money in politics—or Barry Lynn’s book, “Cornered,” which was about antitrust law—I’m always surprised that these histories are not better known. Like how do they not teach this in law school? Like how is it not very obvious to everyone in Washington that this has gone on?
I mean, your book effectively positions what happened as a grand theft of congressional authority by the Supreme Court. It just seems like something that big would be more well understood. Why do you think it still needs a book to point it out and lay it out? Like why are we in this position where people don’t know about this?
BRENDAN BALLOU: Yeah, no, it’s a great question. I mean, part of it is, bluntly, when you use the words forced arbitration, people’s eyes start to glaze over it. They sort of think it’s this dull technical issue and it absolutely isn’t. I mean, it’s a force that is profoundly shaping your life, perhaps more so on a day-to-day level than just about any series of Supreme Court decisions. And yet, I think it’s seen and often portrayed in the media as the somewhat sort of technical, obscure topic. And so, I think you have a baseline challenge of just how do you help people understand how profoundly this impacts their lives?
But I think you make a really good point, which is why aren’t these stories better told sort of in the history books? You talk about the master plan and the Powell memo and things like this. Part of it is the whole point of a lot of these plans is that they’re not made public.
And one of the things that I found really interesting is that I think the war for forced arbitration and against class actions and against plaintiffs generally has really been about creating an alternative history for how our courts have operated. And we can get in more detail if you’d like about this, but the short version is that I think that many people have a knee-jerk sense that there’s been a litigation explosion in America in the beginning of the 1970s or so, and that courts are overwhelmed by a deluge of frivolous lawsuits on behalf of ambulance-chasing lawyers and so forth that’s raising costs for everybody.
And I think what was really interesting in doing the research for this is that, whether or not that belief is correct, tens of millions of dollars have been spent maybe hundreds of millions of dollars have been spent to get you to have that belief. And in fact, what data we have suggests that litigation explosion may not have even happened. But because I think these forces were so successful at creating this narrative about the idea of frivolous litigation, it’s profoundly affected how we’ve interpreted our laws and how we’ve reshaped our courts.
TEDDY DOWNEY: You have a great anecdote in the book about the McDonald’s hot coffee spill, which always struck me as an odd thing to downplay. Well, this person was awarded a lot of money for spilling coffee. I mean, it was sort of obvious that that burn must have been pretty bad to me, the first time I heard that story. But tell us a little bit about that anecdote. Because of the public perspective, it was mocked widely. I mean, you mentioned on late night television and things like that. But the story is actually much more complex than that.
BRENDAN BALLOU: Yeah, no. So, Stella Liebeck was in her late seventies, I believe, when she ordered coffee at McDonald’s. When the coffee was handed to her and she spilled it, it spilled on her crotch and she actually had third degree burns on her thighs, buttocks and vagina.
She was in the hospital, I believe for several weeks, had to get multiple skin grafts, was in therapeutic treatment for, I believe, two years. I believe at one point she weighed well under 90 pounds. So, I mean, it was something that just profoundly affected her life.
And far from being a sort of gold digger plaintiff here, Liebeck tried to settle the case just for the cost of the medical bills. I believe it was initially $20,000 or $50,000. McDonald’s rejected that offer.
They then went to mediation. McDonald’s rejected that offer. And it was only when Liebeck went to trial that it was revealed that, in fact, McDonald’s had had hundreds of these cases and had settled hundreds of them and actually had an office or a franchise-wide policy of overheating their coffee to, I believe, 105 degrees. And water boils at 120 degrees. So, it was just enormously hot.
And so, ultimately, Liebeck won punitive damages of, I believe, $2.7 million, which amounted to about two days of coffee sales from McDonald’s and was seen by the jury as necessary to actually get McDonald’s to change its policy around overheating its coffee.
But like you said that part of the story was never really told. And instead, this became something of a national joke, in large part because there was an enormous amount of money spent to make it a national joke. This was in the 1990s. And for those of us that are millennials or older, you kind of probably remember that that was like an era of a lot of like lawyer jokes and stuff like that. It was sort of the peak of the critique of the legal profession. And that was in large part because a number of organizations were set up dedicated to what, at the time, was called tort reform, but just generally trying to close access to the courts for plaintiffs like Liebeck. And so, rightly or wrongly, she became the poster child for that movement.
TEDDY DOWNEY: And so, that sort of amount of money flooding the system to create this sort of illusion of too many lawsuits, right? Just out of control ambulance chasing lawyers. And then you have a series of court decisions that take what you described as sort of a pretty narrow bill and widen that power dramatically. Can you tell us a little bit about a quick history of that widening of power of the arbitration?
BRENDAN BALLOU: Yeah, and I apologize if this goes on a little long, but just to set a baseline. So, just so we’re clear on terms here, when we’re talking about arbitration, we’re talking about a private alternative to the public justice system where a judge, an arbitrator, is paid for by the parties, usually oftentimes the corporate defendant, rather than how a judge is ordinarily paid by taxpayers.
And forced arbitration—we can get into the details of the problems of it—but generally, the challenges are that arbitration occurs in secret. Decisions are often not written down or rarely if ever shared, so you don’t have a common case law to develop and decisions can almost never be appealed. So, it’s actually much harder to appeal the decision of a private arbitrator than it is to appeal the decision of a Senate confirmed judge, for instance.
So, there are all sorts of reasons why forced arbitration tends to be very bad for consumers and workers. But, as you said, there was a broad movement to try to expand the scope of forced arbitration, really beginning in the late 1970s.
So, class actions really took off in the 1960s with some revisions to the federal rules of civil procedure. Companies hated it. So, you had the Dow Chemical Company, which was getting sued for allegedly causing cancer in any number of customers. You have Ford, which has its Pinto that’s exploding on minor impact. You have any number of these other businesses that decide we need to figure out a way to make it harder for people to sue us. And one of the solutions was arbitration as an alternative to the court system.
And I should, just say as a way of parenthesis, this critique that I’m making is not a critique of arbitration by itself. It is a critique of forced arbitration. So, arbitration alone can be a great thing. There are any number of reasons why people might mutually agree to arbitrate outside of the court system, its informality, its speed, and so forth. But I always joke arbitration is a lot like sex. It can be a really great thing, but it’s got to be freely chosen. If not, it should probably be a crime.
And so, what I think happened here was the idea of how do we get from ordinary arbitration, which was allowed in the law, and expand it to sort of the contours of forced arbitration? And so, you had a series of decisions beginning in the 1980s—and I won’t keep going on here, but beginning with Warren Burger, then Antonin Scalia, then John Roberts—that expanded the scope of arbitration ever outward to include not just sophisticated parties that might mutually agree to arbitrate, but consumers and employees, and expanding to the sort of take-it-or-leave-it contracts that you sign every day when you visit a website or buy a product and so forth. And so, that was a multi-decade story that has gotten us to the present moment.
TEDDY DOWNEY: You mention that these decisions are dubious really because they show no respect for the legislative history or even legal precedent generally. Can you talk to us a little bit more about how unhinged the reasoning was behind some of these decisions?
BRENDAN BALLOU: Yeah. So, the challenge that the conservative justices had in figuring out how to expand arbitration is you need some sort of legal or statutory hook for doing so. And the solution was found in this law called the Federal Arbitration Act of 1925. And that act had a really interesting history of being meant to help merchants agree to arbitrate their cases and have those agreements be legally binding.
And so, if you look at the legislative history of the law, it’s clear that the Arbitration Act was only meant to apply to sophisticated parties of roughly equal bargaining power. It was not expected to extend to, for instance, consumers or to employees or to the contracts of adhesion, those take it or leave it contracts that we were just talking about. It also wasn’t even meant to apply to state courts. So, it was really only meant to apply to the federal court system. And it was only meant to apply to large dollar dispute issues.
Now, it’s not just the legislative history that supported all this. The text of the statute really supported it. The way they had cash minimums in terms of how big the disputes were supposed to be, the way that it was justified under the federal government’s court powers rather than the interstate commerce powers, all suggest that this was meant to be a limited law. And the Supreme Court interpreted it that way for 40 years.
But beginning with Warren Burger in the 1970s and 80s, he really pulled the law by its bootstraps to say, actually, there is a federal policy favoring arbitration. And from that basic sentiment, that in fact, he believed that the law supported the idea of expanding arbitration generally, the justices were able brickbybrick to expand it ever outwards.
TEDDY DOWNEY: And you profile a couple of Supreme Court justices in there, Scalia and Roberts. How did they play a personal role in bringing this about? And I think there’s a little bit of a third person that plays a role. It’s not a person, like concept, which is sort of elitism. If you can talk about Scalia, Roberts, and how just elite people seem to be acting lawlessly here. That was a fascinating part of the book.
BRENDAN BALLOU: Well, I appreciate that. So, we just talked about Burger. I think probably the other two sort of leading characters in the expansion of arbitration are Antonin Scalia and John Roberts. And whenever I talk about Scalia, I always kind of want to make clear, I think even as critics have to admit, like, at least personally, he seemed like a really fun guy. He is by far the most compelling Supreme Court justice that I can think of. He had a sort of lust for life. And there’s this really evocative—
TEDDY DOWNEY: There’s a play. I mean, there’s a play about him.
BRENDAN BALLOU: Exactly.
TEDDY DOWNEY: It’s a pretty good play, you know? I mean, yeah.
BRENDAN BALLOU: He used to write his opinions on a computer while chain-smoking Marlboros and listening to Bach. I mean, it’s hard not to be a little charmed by that. So, I want to sort of separate what I think is, frankly, a very charming personality from the substance of his work.
And I think what’s important to understand here is that however much Scalia might be known for the idea of originalism or textualism, the idea that laws are going to be interpreted according to their original public meaning when they are enacted, that commitment to textualism and originalism really fell away when it came to forced arbitration.
And so, he issued a series of decisions that dramatically expanded forced arbitration, probably most notably the Concepcion decision from, I believe, 2011 or 2012. And what that decision said was the Concepcions had bought a mobile phone that the carrier said was free. It turned out it wasn’t free. They were getting charged several dozen bucks. They joined a class action to say, in fact, this carrier lied to us about how much this phone cost. We should be entitled to our money back.
Now, the carrier, AT&T, had an individual arbitration agreement. So, it said not only do the Concepcions have to arbitrate their claim, they have to do so individually. They can’t join something like a class action. And you have a very sophisticated largely legal audience. You can imagine once somebody has to individually pursue a case over $30, they will never do it. And so, individual arbitration was a way to kill class actions.
California said that this was unconscionable. Scalia, in his decision, said, in fact, no, this is perfectly fine. And you can use individual arbitration agreements to kill class actions, even if it makes pursuing justice subsequently unaffordable. So, Scalia was involved in other decisions too, but that was probably the apex.
The really interesting thing, to get onto the next character, was John Roberts was also a longtime advocate forced arbitration. And in fact, many of the arguments that Scalia made in his Concepcion decision were drawn from arguments that John Roberts made way back when he was a private practitioner at Hogan & Hartson. And so, Roberts actually, in many ways, laid the foundation for sort of these—
TEDDY DOWNEY: Who was he representing when he made those arguments?
BRENDAN BALLOU: I can’t remember. I think it may have been Discover, like the credit card company.
BRENDAN BALLOU: Yeah, Discover. Yeah, that’s right.
BRENDAN BALLOU: I could be wrong about that, but that was my memory.
TEDDY DOWNEY: No. that’s right.
BRENDAN BALLOU: Yeah, so he was a corporate lawyer. So, he was defending big companies. And so, he laid a lot of the arguments for that. He simply really, I think, for lawyers, issued some of the most sort of confounding or infuriating decisions about forced arbitration.
One that really gets to me—it probably only angers lawyers, but I can’t get it out of my head—one was there’s this basic idea in interpreting contracts. You learn it your first year, probably your first couple weeks of law school, that you interpret a contract’s ambiguities against the drafter. So, the idea is you want to make sure that the drafter is encouraged to be precise in things. And if they’re not precise, you interpret it against them in favor of the other side.
Roberts actually issued a decision saying, well, on arbitration and arbitration alone, we are going to flip that presumption. And, in fact, any ambiguity is going to be interpreted in favor of having an arbitration agreement and away from class actions. And that seemed to turn sort of the entire history of contract law on its head. But he said, well, we’ve got this international policy favoring arbitration, and that’s how we’re going to do it. And he’s issued any number of decisions along those lines.
But to wrap up this very long answer to your very short question, on the elitism issue specifically, I think this is really important, which is the Supreme Court has always been an elitist organization, but I think the nature of who argues in front of the Supreme Court and who’s on the Supreme Court has really changed.
So, you look back a century ago, the people on the Supreme Court included not just fancy lawyers who went to Harvard and Yale and so forth, but also lawyers who went to state schools, politicians, mayors, people who had been in state legislatures or governors, some people who never went to law school. That, I think, created a sort of breadth of experience and a level of practicality in the Supreme Court that doesn’t currently exist.
And now you have a Supreme Court that’s overwhelmingly an insular group of folks that are highly focused on appellate practice, probably never did much work in district courts, rarely were district court judges. And they’re surrounded by folks that argue an overwhelming number of cases. I believe 20 people and clinics now argue something close to half of all cases before the Supreme Court.
And those repeat players overwhelmingly represent large corporate interests. And so, you have a natural skew towards big businesses simply as a result of who’s surrounding the court now.
TEDDY DOWNEY: And Scalia and Roberts are the main players, but the Democrats on the court are not blameless. One of the decisions I think you mentioned was done by Thurgood Marshall, which was shocking to me. Ruth Bader Ginsburg, perhaps a little less surprising, went along with some of these as well. Was that surprising to you at all?
BRENDAN BALLOU: Yeah.
TEDDY DOWNEY: To know that the Democrats went along with some of these decisions without dissent sometimes?
BRENDAN BALLOU: Yeah, it was disappointing. I think Breyer helped to expand arbitration in various ways. Ginsburg had a sort of confounding opinion where Montana had a law saying that if you had a forced arbitration agreement in your contract, you had to say so on the first page of the contract. And she actually said that was illegal and discriminated against, ironically, arbitration agreements.
I do think that the liberals on the court have increasingly turned against forced arbitration just as it’s become a bigger and bigger issue. But I agree with you that I think to a surprising, confounding, disappointing degree, even the liberals on the court generally weren’t particularly bothered by forced arbitration for many decades. I think candidly, many of the more liberal justices are liberal on social issues, but less so on economic or business ones. And I think also, in a world where they so often lose on so many issues with a conservative or a super conservative majority, this is sort of an area where they can reach some level of agreement and occasionally get a win. So, that might be psychologizing the justices a little much, but that might be playing in there.
TEDDY DOWNEY: And you have a few solutions in the book. You really discuss how state law is evolving and changing to deal with forced arbitration. What do you see as the biggest solutions? We have an audience here, as you mentioned, a sophisticated legal audience. What’s the quickest—what’s the best path forward to reform the law in a way that I think restores some justice to this issue of forced arbitration?
BRENDAN BALLOU: Yeah, absolutely. So, in a world where Congress probably is not going to be able to take much action here, and they were able to act several years ago to ban forced arbitration for sexual harassment and assault claims. But that leaves open the whole range of discrimination, underpayment, fraud, deceit, wrongful death claims that can still be forced into arbitration.
So, in a world where Congress is probably not going to act, I really do think that progress is going to happen in states and even cities. So, there are really two things that need to happen.
One is that to the extent people are going to be compelled into arbitration, arbitration needs to be made more fair and more like ordinary courts. Because the more fair arbitration is the less companies are going to be attracted to it. So, California, Maryland, and other states have passed really important disclosure laws requiring arbitration companies to disclose how their arbitrators actually rule when they’re ruling for companies versus employees and consumers to create some sort of procedural fairness within arbitration. So, that, for instance, you’re allowed to get basic discovery. You’re allowed to have depositions and so forth.
So, I think we need to make arbitration itself fairer. But I think the bigger battle is helping people circumvent arbitration in the first place. I think the most clever way to do this—California has again been leading the way here. It’s what’s called the Private Attorneys General Act. And some people on this call may be familiar with that. But basically, what it is, is when employees are forced into arbitration with their employers—but they have, say, been underpaid or discriminated against or whatever it happens to be—they can bring a case not on their own behalf, but on behalf of California’s Labor Department, saying I’m actually working to enforce the labor laws that the Labor Department can enforce itself. And if I win, I will get most of the money and the Labor Department will get some of the money. And importantly, the Labor Department is not bound by the arbitration agreement because it didn’t enter into one with the employer.
And so, PAGA is a really smart, clever way to get around forced arbitration entirely. And I think what we need to do is we need to have PAGA-like laws in other states and for other issues, not just employment, but also consumer, fraud, antitrust, environmental laws, and so forth.
TEDDY DOWNEY: I mean, it’s super interesting. And you mention in the book that the federal—the courts are still trying to cut that power off, but it’s been cabined to focus primarily on state law. And so, state courts are where a lot of this is going to play out. Is that also an important part of the piece of the puzzle?
BRENDAN BALLOU: Absolutely, yeah. So, ironically, I think some of the conservative justices that were trying to kill PAGA actually accidentally strengthened it or at least removed some level of review from themselves, basically saying that PAGA plaintiffs didn’t necessarily have standing in federal court, but it turns out they still have standing in California state court.
So, I do think that state court judges—which are somewhat more insulated from Supreme Court review, and often have to deal with the practicalities of litigants every day in a way that a lot of sort of higher level judges don’t have to—I think that is going to be where we see a lot of the positive action in the next few years.
TEDDY DOWNEY: You mentioned Congress a minute ago. You don’t really focus on it as a solution. But again, I just wanted to bring up that Congress is expected to go potentially in a different direction in November. If you were talking to people running for office right now, aside from just getting rid of mandatory arbitration, like a big bill, which doesn’t seem to go anywhere, what are some other ideas that could get traction? You mentioned sexual harassment has been exempted from forced arbitration. What about conduct affecting children? Or you could see other vulnerable groups that could get bipartisan support. You mentioned wrongful death and things like that. It seems like there could be at least some opportunity to start creating broader exemptions, if not sort of roll back the entire scope of forced arbitration.
BRENDAN BALLOU: So, in an ideal world, I think we repeal the Federal Arbitration Act in 1925, as it’s currently been interpreted. In a world where we can’t do that, I think there are really two avenues at the federal level.
So, one is exactly what you suggest, which is expand the exemptions which have already been made for survivors of sexual assault and harassment and so forth to other forms of harm, racial discrimination, age discrimination and so forth, for consumers fraud or physical injuries and so forth. I think that’s certainly a good way to do it. Unfortunately, you have to do that over and over and over again to make progress.
I think another way to do it would be to just say that you can’t use arbitration to kill class actions. So, you can’t force people to arbitrate their claims individually. And once you start having class-like procedures and arbitration again, it’s going to become a marginally—actually meaningfully—fairer process.
You alluded to my—I don’t want to say cynicism about Congress. But I think just my sense that progress in the short term is probably going to happen elsewhere. I worked with a very smart, young law student earlier this year at the University of Chicago to actually draft some model legislation around forced arbitration. I have a personal website. This is my name.com. You can download it. If people are interested in this at a local level and want to push some of this stuff, please, this needs as much advocacy as it can get.
TEDDY DOWNEY: And then I have one more question. If you have questions, again, put them in the chat, put them in the Q&A panel. We’ll get to them momentarily.
What about just resolutions from Congress saying, the courts messed this up? Or is there anything short of like repeal? Because the actual text of the law isn’t actually bad. It’s just this weird precedent that has come out of it. Can’t Congress just say, you guys screwed this up. You were wrong. Like this is actually the point of this law.
BRENDAN BALLOU: Exactly. Yeah, if the law did what it was meant to do, which is apply to sophisticated parties that have roughly equal bargaining power, that’d be totally unobjectionable for all the reasons we were talking about, that there’s a lot of upside to arbitration when it’s freely chosen.
I think what you could do is you could just say, look, the Supreme Court got it wrong for the past 40 years. The Federal Arbitration Act does not apply to agreements between employers and employees. It doesn’t apply to agreements between companies and consumers, and it doesn’t apply to take it or leave it contracts. And if you do that, coupled with fixing the class action problem, you will make this a dramatically fairer legal system for most people.
TEDDY DOWNEY: All right. Let’s get to our listener questions here. First question. Court decisions that have chosen not to enforce an arbitration agreement. So, is there any hope in the court right now?
BRENDAN BALLOU: Yes. So, one of the angles that people used to try, which did not particularly work, was to say, look, this agreement is so lopsided and so unfair that it should be deemed unconscionable and not enforced. I think the Supreme Court has made clear that even if an agreement would ordinarily be considered unconscionable, it’s still, unfortunately, enforceable.
I think the other and more successful tactic has been—and maybe it almost sounds like just a change in phrasing, but it has been more effective, including with conservative justices and judges—is to say, look, the incredible procedures that this company is requiring I take to initiate arbitration that I need to file, an initial demand letter that we need to have a mediation before the arbitration, that I need to find my initial receipt or employee ID or whatever it happens to be, in order to initiate arbitration, all these steps that are supposed to just raise the cost and discourage anybody from doing anything—is to say, well, whether or not that’s unconscionable, it’s just not arbitration. The mediation is not arbitration. The requirement for the employee ID is not arbitration and so forth.
There actually have been some very successful decisions by that, including one by a fairly conservative judge in the Ninth Circuit. So, I think that might be one way to pare back some of the most outrageous aspects of forced arbitration. At least that seems to be our best hope at the current moment.
TEDDY DOWNEY: Second question here, which states have contract law favoring consumers, et cetera, on forced arbitration clauses?
BRENDAN BALLOU: Great question. So, this goes back to our earlier discussion. I think California really has been the leader on this for several decades now, beginning with a number of disclosure requirements about seeing how arbitrators rule. So that if you get compelled into arbitration and you have to choose an arbitrator, you at least can make a somewhat informed decision about who’s most likely to be fair.
I think the Private Attorneys General Act is really the game change in fighting arbitration. Unfortunately, direct efforts by states to pare back arbitration, to say, this can’t apply to employees, this can’t apply to consumers, and so forth, the Supreme Court has over and over again said, look, that is preempted by the Federal Arbitration Act. So, direct state attacks on arbitration have not been successful.
But these more clever sort of PAGA-like statutes, California succeeded on that. And I’m hoping, again, this is where the model legislation comes into play. I’m hoping that other states can consider that and consider it beyond just the employment context.
TEDDY DOWNEY: So, it would deputize the authority from the state on consumer issues, on antitrust issues, on what have you, to get back to outside being under the thumb of the forced arbitration.
BRENDAN BALLOU: Exactly.
TEDDY DOWNEY: Next question here. I have a colleague who recently went through religious arbitration as part of a cult case. Is this a common occurrence? That sounds interesting.
BRENDAN BALLOU: Yeah, that is interesting. I don’t—well, actually, I think I have heard about an occasional sort of cult arbitration. And the sad thing is, at least in our current environment, those are probably still legally binding, which is pretty extraordinary.
So, this isn’t quite a religious—this isn’t a cult example, but just to show you an example of how wild this can get. One tactic that was going on a few years ago until the main guy got finally arrested and imprisoned was to set up these extraordinary payday lender companies that were charging 700 percent interest rates, like just absolutely extraordinary amounts of money. And then saying that the company was technically owned by an American Indian tribe and disputes would have to be resolved through arbitration under procedures that the tribe set, but the tribe never actually set any procedures.
And so, you have a number of decisions where somebody is hoodwinked into this high interest loan, tries to sue, gets compelled into arbitration, and then the arbitration just doesn’t exist. And people are stuck in functionally a legal no man’s land.
So, sadly, this is a little bit of the logical consequence of the Supreme Court’s jurisprudence here, that if a company can force you into arbitration, there’s nothing to say that a foreign government can’t compel you into arbitration. And there’s nothing to say that a cult can’t compel you into arbitration.
TEDDY DOWNEY: Absolutely wild. Next question here. I would like to know what U.S. workers can do if they were forced to arbitrate as part of a company covering up payroll fraud? And how much evidence does a plaintiff have to save to get around limited discovery in forced arbitration cases?
BRENDAN BALLOU: Yeah, great question. It sounds like you might be going through something specific here. I think a couple of things.
In a world where you don’t have California employees and can’t use PAGA to try to circumvent forced arbitration, oftentimes the only way out is through. And so, people have often been bringing what are called mass arbitrations, which is rather than trying to fight arbitration, bring a ton of them. And oftentimes, that actually can create a certain amount of leverage. Because many times the companies will agree to pay for the cost of the arbitrator. And so, by bringing 20 or 200 or 2,000 arbitrations, the company is now on the hook for paying millions of dollars in fees. And that creates a level of leverage for you as an employee.
I know that there are a number of firms that do mass arbitration. My old law firm, Lichten & Liss-Riordan. Shannon Liss-Riordon is just an extraordinary lawyer, does mass arbitrations. Cory Zajdel, in Maryland, does mass arbitrations. I’m happy to talk to folks about it, but it’s not really my area of focus. But I would think about whether or not you can bring a mass arb.
TEDDY DOWNEY: Can we talk about actually these arbitrators for a second? Because these are companies with seemingly very bad conflicts of interest here. We’ve touched on it a little bit, but can you maybe tell a quick story about how captive these arbitrators are to the big businesses?
BRENDAN BALLOU: Yeah, absolutely. And I’ve been in arbitration before. I’ve represented people. And by and large, I felt like they were trying to give me a fair shake. But the financial incentives are what they are. So, unlike a judge who’s paid for by the taxpayer, the arbitrator is paid for by the parties and very often by the corporate defendant.
And importantly, most of us, if we ever arbitrate something, are going to do it once in our lives. Companies are going to do it dozens or hundreds or thousands of times. And so, the arbitrators are naturally inclined to rule for the repeat player who is in effect their employer. And you see that in the statistics, that in small claims court, consumers win close to 90 percent of the time. In the largest arbitration companies, they win between 21 and 30something percent of the time. Before one particularly conflicted arbitration company, it was 0.2 percent of the time. So, just dramatically different outcomes here.
One of the things that’s sort of most extraordinary for me is to see how companies have been able to put pressure on the arbitration providers to change their policies to become more favorable to companies.
One of the more extreme examples was DoorDash, allegedly, when it was dissatisfied with one of the more reputable arbitration providers, found another one and literally wrote the rule book with the arbitration provider’s lawyers and then even coordinated on the timing of the release and then switched all of their consumers over to that arbitration provider. You’re seeing sort of similar pushes for leverage in trying to end mass arbitration and so forth.
And so, as long as the finances are what they are, no matter how fair I think individual arbitrators are trying to be, the incentives are going to push the institution as a whole towards policies and towards decisions that favor big companies.
TEDDY DOWNEY: That anecdote about DoorDash just goes to show the true level of lawlessness that these companies are willing to engage in. It was just so shocking they would, mid-dispute, try to switch arbitrator and rewrite all the rules of arbitration. It’s just so shocking.
BRENDAN BALLOU: That was wild, yes.
TEDDY DOWNEY: So, deeply, so profoundly problematic, just in terms of someone trying to get justice. And also, just what they think they can get away with. I mean, truly shocking stuff.
Another question here from a listener. How favorable is the court and arbitration system to companies that defraud people versus companies that defraud the U.S. government?
BRENDAN BALLOU: Great question. So, as an ordinary consumer, you sort of have the least power of any possible litigant here. Employees probably have a little bit more, suppliers have more than that, competitors are sort of similarly sized companies have the most.
I will say, I am not aware of the U.S. government being compelled into arbitration with any sort of regularity. So, in fact, I’m not even—I’m sure that the government could be compelled into arbitration, but I don’t hear about it happening with any frequency. So, by and large, it really is consumers that are the ones being compelled into arbitration.
And like I said, the statistics just are not very good. If you have a 20 to 30 something percent victory rate, and that number goes down to something like 6 to 9 percent when you’re not represented by a lawyer.
The last thing that I’ll just add about that, at the risk of being repetitive, is the biggest challenge as a consumer isn’t that you aren’t going to win in arbitration. It’s that you’re not going to be able to afford it in the first place.
So, if a class action gets killed and you have to bring the case individually, it almost never makes sense for you to bring an arbitration yourself unless you’re talking about thousands and thousands of dollars. And then, even then, just think psychologically about what it takes to find a lawyer, to develop the evidence yourself, to take the time to pursue a case on your own. How many people are actually going to do that?
So, I think most profoundly arbitration is stacked against consumers.
TEDDY DOWNEY: Another question here. You make a distinction between chosen and forced arbitration. But isn’t the rebuttal that arbitration is always chosen? You do not have to buy the specific product, good or service that is being offered. Moreover, are we fine as a society to view contracts of adhesions generally as chosen, say the other terms in a privacy policy or contract of sale, but not when it relates to arbitration or class action waivers? How does that square? Or is the theory that all terms and contracts of adhesion be unlawful as abuse of corporate power?
Sounds like we have a nice defense attorney here asking a question What’s your response, Brandon?
BRENDAN BALLOU: Great question. There’s an almost sort of existentialist sort of sense in which all of our actions are chosen to a certain degree. I hear you loud and clear, which is the idea is if you don’t like your contract with Discover, you can go to American Express. If you don’t like American Express, you can go to Visa.
The practical problem is they all use arbitration agreements, and especially in the finance industry, in telecoms, in nursing homes. But only in the industries that I think people feel most often cheated in is where I think you find forced arbitration to be most common. And so, at a practical level it’s not just that people can’t negotiate your individual terms of service with Verizon. You oftentimes don’t have an alternative with a carrier that doesn’t use forced arbitration.
In terms of does this sort of turn the idea of contracts of adhesion on their head? Do we want to outlaw take it or leave it contracts? No, I don’t think we need to do anything that radical. I think our society is sort of built on those sorts of agreements in large part.
But I will say we as a society agree all the time that there are certain limits to what can be in a contract of adhesion. You cannot sell yourself into slavery. You cannot agree to commit a crime with a contract. And I would say I think you shouldn’t be able to exempt yourself from the entire justice system if you’re harmed.
I think that’s something that we can kind of agree as a democracy that we want people to be able to access the justice system when they’ve been defrauded, when they’ve been discriminated against, when they’ve been raped. Some of these assault cases have had to be arbitrated. Or when family members have been killed. I think we can carve out those sorts of disputes from contracts of adhesion without sort of having to radically reframe how we do contract interpretation.
TEDDY DOWNEY: Well, the law itself is okay, right? Like to your point, it’s the perversion of the law that happened through the courts with no democratic accountability that’s really ended up with us being in this place. So, if you believe in a democratic society, we had a law that made sense. This is not that world. So, I just think it’s a little bit myopic to say, well, that seems fine now, right? Like pretending that it’s okay.
BRENDAN BALLOU: This is the rare audience where I feel like the defense lawyer is in the minority here. So, I want to give that lawyer credit for making an argument.
TEDDY DOWNEY: It’s a bold question. I like it. We always want—and it’s practical in some respects, right? Like can’t you choose your way out of it?
I also think though there is a little bit of an imbalance of power here that you touch on, that in the original contracts for forced arbitration or that compel arbitration, you had two parties of equal power. And really to me, it’s that imbalance of power. And I want to ask you a question around that where, let’s say you do have—can the weaponization of forced arbitration be indicia of imbalance of power, be indicia of monopoly power in some respects?
So, for example, like Walmart doesn’t ever agree to arbitrate its own problems, right? It’s always forcing customers and suppliers to go into arbitration if they have a complaint. But they never have to go to arbitration, right? If they have a problem, they go to court.
Let’s say you’re a company that is getting sued successfully and then you go out and you make all your suppliers or all your partners, business partners, go into arbitration going forward. Is that kind of an exercise of market power at some level?
BRENDAN BALLOU: Yeah, well, and let me put my defense attorney cap on for a second, in that the idea that I actually do think big businesses do voluntarily engage in arbitration fairly often with their peers or with suppliers and so forth, and that it actually can really make sense for them in a lot of ways, in the same ways that it may make sense to mediate a divorce or custody dispute or arbitrate a small dollar business dispute with the supplier and so forth.
So, again, I think that there are all sorts of ways where arbitration can be a very fair process. I think it’s the ex ante commitment to forced arbitration with a consumer employee that has vastly different bargaining power. And I think just anecdotally, my sense is that more concentrated industries tend to lean towards forced arbitration. I think probably by far the most pervasive use of forced arbitration is in the consumer finance industry. And I that is a highly concentrated field. I believe airlines, by and large, use forced arbitration. We already mentioned the telecom industry uses forced arbitration.
Whereas, much more diffuse industries, in my experience, do not use forced arbitration. So, one of the things that I think is surprising is a lot of the smaller medical practices that I’ve sort of looked at don’t use forced arbitration. Now, in big ones, they do. But in little ones, I think they’re still using the ordinary court system. So, I think there may be a causal relationship there.
TEDDY DOWNEY: Well, Brendan, I can’t recommend this book highly enough. It is so good. It was so well done. “When Companies Run the Courts”, released today. Please get a copy.
Brendan, so great to catch up. So, great to do this with you. And thank you so much for doing it. And congrats on the book coming out today.
BRENDAN BALLOU: Well, thank you for the time and thank you all for being here. I really appreciate it.
TEDDY DOWNEY: Yeah. Thanks, everyone, for joining us today. This concludes the call. Bye-bye.
