Fraud Exposed in Credit Card Arbitration (2009 article)

In case you doubt me, (which you should really never do as it is futile and foolish, Since when I predicting something bad I am always 100% correct. I make Nostradamus look like an amateur. You really don't want me to dream about you dieing btw) Look at this post from lawyer Ed Harness from 2009.

 

Fraud Exposed in Credit Card Arbitration

Written on July 22, 2009 by Ed in Credit Cards

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Arbitration for consumer credit cards may well be over.  The National Arbitration Forum entered a Consent Decree to no longer conduct arbitration for consumer credit cards.  Today, the Wall Street Journal is reporting the American Arbitration Association will follow NAF and get out of the debt collection, consumer credit card arbitration business.  Consumer advocates have long argued there is rampant fraud associated with the process and the providers.  NAF & AAA’s decisions are the proof in the pudding.  Below see an article from Pam Martens

Heralded by the Supreme Court as Fair, Vast Private Judicial System Exposed as Fraud

Judicial Apartheid

By PAM MARTENS

For the past 18 years, a motley mix of corporate law firms, Wall Street powerhouses and private justice providers have been serving up false testimony to the highest court of our land that mandatory arbitration is “inexpensive, fast and fair” and a proper substitute for the public court system.  And for 18 years a majority of the U.S. Supreme Court has been cozying up to these brazenly preposterous statements while gutting our Constitution’s Seventh Amendment guarantee to a jury trial.  In doing so, wittingly or unwittingly, the Supreme Court had aided and abetted the key linchpin of a wealth transfer system that has brought the nation to its knees.

Today, everything from Wall Street brokerage accounts, employment contracts, credit cards, mortgages, even cell phone contracts have routinely removed the individual’s constitutional right to file a claim in court to seek redress of a grievance or fraudulent action.  Instead, the individual’s claim is forced into one of the privately run arbitration organizations where conflicts are rampant, discovery is limited, and the right to appeal is typically impossible because the arbitrators are not required to explain the rationale for their decisions in writing.

In a saner era, these mandatory arbitration contracts would be thrown out by courts as contracts of adhesion because they were offered on a take it or leave it basis.  Under any rational interpretation of contract law, contracts must be a meeting of the minds, freely entered into, between parties of equal bargaining power.

But just as profits have been privatized on Wall Street and losses socialized, the right to a jury trial in a court system paid for by individual taxpayers is now increasingly reserved for corporations, not people.  It’s a form of judicial apartheid not dissimilar to the way the Supreme Court rationalized the segregation of blacks in its Plessy v. Ferguson decision in 1896, promising “equal” facilities, just separate.

Last week, a lone female state attorney general put the lie to mandatory arbitration.  And when she pulled back its dark curtain, what we saw was a grand theft of both justice and wealth perpetuated by the U.S. Supreme Court against the American people.

Lori Swanson, Attorney General of Minnesota, charged the National Arbitration Forum with consumer fraud, deceptive trade practices and false advertising.  The National Arbitration Forum is a private justice provider that adjudicates upwards of  200,000 consumer claims a year and acknowledges that it has been appointed as the arbitrator in “hundreds of millions of contracts.”

Swanson’s lawsuit charges that the National Arbitration Forum, which masquerades as  functioning like an independent judge and jury, is in fact financially shackled to debt collection law firms representing major credit card companies.  The lawsuit states that:

“Beginning in 2006 and through 2007, Accretive LLC…engineered two transactions.  In the first transaction, Accretive formed several private equity funds under the name ‘Agora’ (meaning ‘Forum’ in Greek), which in turn invested $42 million in the National Arbitration Forum and obtained governance rights in it.  In the second transaction, three of the country’s largest debt collection law firms (Mann Bracken of Georgia, Wolpoff & Abramson of the District of Columbia, and Eskanos & Adler of California) merged into one large national law firm called Mann Bracken, LLP.  Accretive then formed and funded (partly using federal money from the U.S. Small Business Administration) a debt collection agency called Axiant, LLC, which acquired the assets and collections operations of Mann Bracken.  Through these transactions, the Accretive hedge fund group simultaneously took control of one of the country’s largest debt collectors and became affiliated with the Forum, the country’s largest debt collection arbitration company.”

In announcing the suit, Swanson was joined at the press conference by Richard Neely, retired Chief Justice of the West Virginia Supreme Court of Appeals.  One suspects that Mr. Neely, who worked for a brief stint as an arbitrator for the National Arbitration Forum, may have assisted in providing research for the lawsuit.  Here are the choice words Mr. Neely had to say about the organization in the September/October 2006 issue of The West Virginia Lawyer:

“A few years ago I answered a request from the National Arbitration Forum to join their panel of arbitrators.  I thought I was invited because I was a former state supreme court judge.  Stupid me!  I was just another piece of raw meat…Thus I learned how Godless bloodsucking banks have converted apparently neutral arbitration forums into collection agencies to exact the last drop of blood from desperate debtors…Banks and other bloodsuckers make campaign contributions and single moms don’t.  That accounts for the current Federal system…”

Another insider glimpse at the National Arbitration Forum came on April 2, 2009 when Deanna Richert, a former employee, filed a lawsuit for employment discrimination, deceptive trade practices and consumer fraud in the U.S. District Court for the District of Minnesota.  Ms. Richert’s lawsuit alleges:

“During the course of plaintiff’s employment at defendants, she witnessed fraudulent and corrupt practices in the administration of arbitration cases by defendants which draw into question the neutrality of any arbitrator associated in any way with defendants and which practices make any alleged requirement of arbitration fraudulent and unconscionable, and thereby null, void and unenforceable.  The NAF and Forthright had regular business users of their arbitration system who were referred to in-house as the ‘Famous Parties.’  These ‘Famous Parties’ were repeat filers for arbitration who did not pay for defendants’ services as they filed like sporadic filers, but used the arbitration service so commonly that they paid on account to defendants.  Among the fraudulent and corrupt practices witnessed by plaintiff with respect to these ‘Famous Parties,’ were the following:

Management meetings in which personnel were instructed to call arbitrators and tell them, prior to the release of the decision to the parties to the arbitration, to change decisions they had issued that found against the Famous Parties;

Management meetings in which personnel were instructed to make sure that certain arbitrators who had decided cases against a Famous Party did not get any more cases;

Defendants drafting the claim forms and fictitious affidavits of service for the Famous Parties, including the placement of stored electronic signatures for the Famous Parties on these documents…

Arbitrators calling defendants to ask its attorneys how they should rule on a particular matter…

The disallowance by defendants of responses by consumers to claims filed against them simply because the consumer did not carbon copy the filer of the claim on their correspondence, thereby putting the consumer into default on an arbitration claim they had attempted to answer.”

According to Ms. Richert’s attorney, Daniel E. Warner, a motion to compel the lawsuit “into arbitration is pending in the federal district court, which we are actively resisting.”

Who are these so-called “Famous Parties?”  According to Attorney General Swanson’s lawsuit, the National Arbitration Forum has among its clients, MBNA/Bank of America, JPMorgan Chase and Citigroup; those same “infamous” parties deemed too big to fail by the Federal government, thus entitling them to the public purse as a lifeline.

Nine years ago, on March 1, 2000, Caroline E. Mayer, writing in the Washington Post, put the deception of this so-called neutral forum right under the nose of the Supreme Court justices, Congress and the Department of Justice.  Ms. Mayer had obtained documents filed in a class action lawsuit against First USA.  The documents showed that the bank prevailed in “99.6 percent of the cases that went all the way to an arbitrator” at the National Arbitration Forum.  “Since First USA implemented its arbitration clause in early 1998, it has filed 51,622 claims against consumers with the forum. The forum has made 19,705 awards: First USA prevailed in 19,618, card members in 87.”

That did not stop the U.S. Supreme Court from continuing to embrace the virtues of mandatory arbitration.  Justice Ruth Ginsburg even gave the National Arbitration Forum a plug in a partial dissenting opinion when she said:  “Other national arbitration organizations have developed similar models for fair cost and fee allocation.” Adding in a footnote: “They include National Arbitration Forum provisions that limit small-claim consumer costs to between $49 and $175 and a National Consumer Disputes Advisory Committee protocol recommending that consumer costs be limited to a reasonable amount. National Arbitration Forum, Code of Procedure, App. C, Fee Schedule (July 1, 2000).”

Ginsburg made her remarks in a case called Green Tree Financial Corp. v. Larketta Randolph where the mandatory arbitration clause left open ended the amount of fees the consumer might have to pay for the arbitration.

Former Chief Justice William Rehnquist wrote the opinion for the court, stating:

“…we have recognized that federal statutory claims can be appropriately resolved through arbitration, and we have enforced agreements to arbitrate that involve such claims…We have likewise rejected generalized attackson arbitration that rest on ‘suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants…’ These cases demonstrate that even claims arising under a statute designed to further important social policies may be arbitrated because  `so long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum,’  the statute serves its functions.”

The above twisted logic together with the phrase “liberal federal policy favoring arbitration agreements” has become the mindless mantra of a high court that has evinced willful blindness toward their role of enablers to a creeping corporate fascism.

Particularly egregious in Green Tree was the mountain of evidence the Supreme Court majority ignored.  Amici for the respondent, Larketta Randolph, submitted the following facts supporting the charge that

“many individuals asserting statutory claims against corporations have confronted arbitration fees that amounted to thousands of dollars in settings where these fees would discourage the individuals from pursuing those claims: In Brower v. Gateway 2000…an arbitration clause required individuals to pay an advance fee of $4000 (which the court noted exceeded the cost of most of the defendant’s products)…In Patterson v. ITT Consumer Financial Corp….the court found that a borrower would have to pay at least $850 to get a participatory hearing over debts as small as $2,000 and that these fees (along with other procedures) ‘become oppressive when applied to unsophisticated borrowers of limited means…In Cole v. Burns Int’l Sec. Servs…the court noted that arbitrators’ fees range from $500 to $1,000 per day.  In Jones v. Fujitsu Network Communications…the Arbitration Policy require[d] Plaintiff to pay one-half of the arbitrator’s fee, the court reporter’s fee, the fee for the arbitrator’s copy of the transcript, and facility costs….In the Matter of Arbitration Between Teleserve Sys., Inc. and MCI Telecomm. Corp…the court noted that the arbitration filing fee alone for the claimant in an antitrust dispute would amount to more than $200,000.”

In September 2007, Public Citizen published a comprehensive 74-page study of mandatory arbitration with a sharp focus on the National Arbitration Forum. The report is titled “The Arbitration Trap.”  Among its many startling findings related to the National Arbitration Forum, Public Citizen found that in California between January 1, 2003 and March 31, 2007 “…a small cadre of arbitrators handled most of the cases that went to a decision.  In total, 28 arbitrators handled 17,265 cases – accounting for a whopping 89.5 percent of cases in which an arbitrator was appointed – and ruled for the company nearly 95 percent of the time…Topping the list of the busiest arbitrators was Joseph Nardulli, who handled 1,332 arbitrations and ruled for the corporate claimant an overwhelming 97 percent of the time.”

This is known as the “repeat player” defect in arbitration and is one of the darkest secrets among private arbitral forums.  Corporate antagonism to a trial by a jury of our peers is the randomness of jury selection.  Juries are typically culled from massive voter or motor vehicle registrations.  They are not highly paid, repeat players hearing claims involving the same corporation.

And the National Arbitration Forum is not an aberration. On July 20, 2000 the Public Investors Arbitration Bar Association (PIABA) issued a press release accusing the National Association of Securities Dealers (NASD) of rigging its computerized system of selecting arbitrators.   The opening text reads as follows: “In direct and flagrant violation of federal law, the NASD systematically evaded the Securities and Exchange Commission approved ‘Neutral List Selection System’ arbitration rule requiring arbitrators to be selected on a rotating basis.  Instead, the NASD secretly programmed its computers to select some arbitrators on a seniority basis – just what the rule was designed to prevent.”

The Public Investors Arbitration Bar Association discovered the manipulation when a team of its attorneys demanded a test of the selection system at an NASD/PIABA meeting in Chicago on June 27, 2000.  PIABA predicted that “this rule violation tainted hundreds or even thousands of compulsory securities arbitration – many still ongoing.  In every such instance, the substantive rights of public investors to a neutral panel have been cynically violated.  Many public investors were thus twice cheated: first, by an NASD member firm that fraudulently conned them out of their life’s savings, and second by the NASD Arbitration Department’s rigged panels.”

The industry bias of arbitrators hearing claims against Wall Street firms is legendary.  On June 9, 1994, Margaret Jacobs exposed the systemic bias in a feature article in the Wall Street Journal on the case of  Helen L. Walters:

INDENT

“Helen L. Walters says her boss called her a ‘hooker,’ a ‘bitch’ and a ‘streetwalker.’ Sometimes he brandished a riding crop in front of her and once he left condoms on her desk.

Ms. Walters, then a trading-room secretary at a California brokerage firm, filed a complaint against him alleging sexual harassment.  In a formal hearing, he readily admitted to the whip and the condoms, and to using all of those epithets.  Her case, legal scholars agree, seems a textbook example of illegal harassment as defined by the Supreme Court: a situation in which a ‘reasonable person’ would find the work environment ‘hostile or abusive.’

So why did Ms. Walters lose?

Ms. Walters slammed into a little-known, but extraordinarily daunting, roadblock facing many women in the securities industry: Bias complaints, like any other employee dispute, must go through the industry’s mandatory-arbitration system.  That means victims’ complaints can’t be heard in court by judge or jury, no matter how strong their merit.”

Ms. Walters’ case is indicative of the final dark secret that seems to have escaped the U.S. Supreme Court, whose occupants make their deliberations in a taxpayer funded building inscribed with the words “Equal Justice Under Law.”  Arbitration cannot be a fair substitute to court because arbitrators are not bound to follow the law or legal precedent.  The big lie in Plessy of separate but equal is the big lie in Supreme Court rulings on mandatory arbitration.

In the case of Delfina Montes v. Shearson Lehman Brothers, involving a claim for overtime pay under the Fair Labor Standards Act (FLSA), the lawyer for this Wall Street brokerage firm argued as follows during the arbitration:

“I know, as I have served many times as an arbitrator, that you as an arbitrator are not guided strictly to follow case law precedent… I know it’s hard to have to say this and it’s probably even harder to hear it but in this case this law is not right.  Know that there is a difference between law and equity and I think, in my opinion, that difference is crystallized in this case.  The law says one thing.  What equity demands and requires and is saying is another….You know as arbitrators you have the ability, you’re not strictly bound by case law and precedent.  …as I said in my Answer, as I said before in my Opening, and I now ask you in my Closing, not to follow the FLSA if you determine she’s not an exempt employee.”

From defective consumer products, to denial of overtime pay, to gutting the civil rights laws, to unconscionable mortgages, derivatives, obscene rates and bogus fees on credit cards, the corporations have had quite a run over the past decade with their judicial apartheid and anointed blessing of a majority of the U.S. Supreme Court.  And just where did it get them?  Those with the most egregious mandatory arbitration contracts are either bankrupt or zombie firms struggling for survival on the taxpayer’s dime.

Pam Martens worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article.  She writes on public interest issues from New Hampshire.  She can be reached at pamk741@aol.com

 

Stolen from Ed expressly without his permission:

http://www.drcwi.com/category/home/fraud-exposed-in-credit-card-arbitration/