CHAPTER ◆ 7
Corporations
In June 2008, the Supreme Court decided a case arising out of the Exxon Valdez oil spill, which had occurred nearly two decades earlier. The Exxon Valdez oil tanker ran aground in March 1989 after going off course in Alaska’s Prince William Sound. The resulting oil spill was catastrophic: more than one thousand miles of coastline polluted, hundreds of thousands of animals killed, and serious economic damage to about one-third of Alaska’s commercial fishermen.
Exxon was sued for negligence, and much of the lawsuit’s focus was the role that the Exxon Valdez captain’s alcohol consumption played in the disaster. Joseph Hazelwood, a serious alcoholic, had completed a twenty-eight-day treatment program while he worked for Exxon. Hazelwood reportedly continued drinking heavily in an array of settings, including bars, restaurants, hotels, and airports. There was testimony that Hazelwood had drunk at least five double vodkas in waterfront bars before the incident and evidence suggesting that his blood alcohol level at the time of the spill was three times the legal limit for driving in most states. It was not clear why, given Hazelwood’s record, Exxon would entrust him with captaining an oil tanker.
After a monthlong trial, on June 14, 1994, a federal jury found that Exxon was reckless for putting a captain with a known history of alcohol abuse in command of the Exxon Valdez. It also found that Hazelwood was negligent for drinking heavily on the afternoon before the accident. The jury awarded compensatory damages to more than ten thousand fishermen and over twenty thousand other Alaskans affected by the spill, which ultimately came to $507.5 million.
A few months later, the jury awarded $5 billion in punitive damages against Exxon. Financial analysts said that Exxon, which had revenue of $111.2 billion in 1993, would not be greatly harmed by the award, and Exxon stock rose after the verdict came in. Exxon chairman Lee R. Raymond took a harder line. He called the award “excessive by any legal or practical measure” and declared that Exxon would “use every legal means available to overturn this unjust verdict.” On appeal, Exxon got the award cut in half, to $2.5 billion. Even after that, Exxon took its case to the Supreme Court, arguing that $2.5 billion in punitive damages was excessive and violated its rights under the Due Process Clause.
To anyone not following the Court’s punitive damages decisions, Exxon’s claim must have seemed like an odd one. Punitive damages have a venerable history. The law has imposed higher awards when defendants engaged in particularly bad behavior as far back as the Code of Hammurabi, in ancient Babylon. In American law, punitive damages, which trace back to English legal traditions, were uncontroversial by the middle of the nineteenth century. In an 1851 dispute between the owners of adjacent mill dams in Great Barrington, Massachusetts, the Court said that it was already well established that “a jury may give what are called exemplary or vindictive damages depending upon the peculiar circumstances of each case.”
Punitive damages punish egregious conduct, such as intentional or reckless behavior that exposes others to considerable risk of harm. They also allow a jury to “send a message” to a defendant, especially a large or powerful one that might not be deterred by merely having to pay for the actual damage it caused. There was no formula for assessing punitive damages—it was left to jurors to figure out after weighing all the relevant circumstances. In exceptional cases, trial or appellate judges could reduce an award they considered excessive.
It would also not have been obvious to the casual observer why the Due Process Clause of the Fourteenth Amendment should be relevant to Exxon’s punitive damages challenge. Its text, which says that “no state” shall “deprive any person of life, liberty, or property, without due process of law,” did not appear to have anything to do with the size of punitive damages imposed on large corporations. Nor did the history of the Fourteenth Amendment, which was adopted after the Civil War to help lift freed slaves up to equality, suggest it was meant to protect a corporation that had injured thousands of people from a large punitive damages award.
This discussion of the Due Process Clause and punitive damages was occurring against the backdrop of a decades-long campaign by corporate America to rein in litigation against businesses. Starting in the 1970s, insurance companies and other large companies had promoted a “tort reform” movement, which was coordinated in large part by the U.S. Chamber of Commerce. The business community was concerned about the cost to its bottom lines from lawsuits over “torts”—negligent or intentional actions that cause harm, which could be over anything from a defective product to fraud. Tort reform advocates insisted that there was a litigation crisis, with out-of-control jury verdicts that were unfair to corporations, medical professionals, and other defendants. They wanted Congress and state legislatures to adopt punitive damages caps and other restrictions that would make it harder to hold defendants liable for large amounts of money.
The movement worked to win over popular opinion with an expensive propaganda campaign. Industry-funded think tanks and advocacy organizations like the American Tort Reform Association churned out reports, position papers, and model legislation. The reformers played up the threat posed by “frivolous lawsuits,” including a highly distorted story about a purportedly greedy plaintiff who had made off with a $2.9 million jury verdict because she spilled a too-hot cup of McDonald’s coffee on herself. Tort reformers put up billboards declaring: SPILL HOT COFFEE, WIN MILLIONS: PLAY LAWSUIT LOTTO.
Consumer groups, plaintiffs’ lawyers, and many legal scholars resisted the move to cap punitive damages, arguing that it was an effort by big business to avoid responsibility for its actions—and that it would remove an important deterrent that kept corporations from harming more people. These opponents refuted many of the tort reform movement’s specific claims, including its account of the hot-coffee case. The truth was that the elderly woman involved had been served coffee so unusually hot that, when it spilled on her, she required a series of skin grafts and was partially disabled for almost two years.
The tort reform movement had limited legislative success. While Republicans and the business community pushed hard to get laws passed, Democrats, consumer advocates, and trial lawyers worked just as hard to oppose them. Only a small minority of state legislatures adopted punitive damages caps. Tort reformers also made little progress in Congress, scoring only modest victories in a few specific areas.
The one bright spot for the movement was the judiciary. Presidents Reagan, George H. W. Bush, and George W. Bush all supported tort reform, and they nominated justices who shared their concern about protecting corporations from litigation. Starting in the 1990s, the Court began to adopt the kinds of aggressive caps on punitive damages that Congress and most state legislatures were unwilling to impose. It was a case of what one legal commentator called “do-it-yourself tort reform.”
The Court’s war on punitive damages began in 1996, in BMW of North America, Inc., v. Gore, a case about a defective BMW automobile. Dr. Ira Gore Jr. had bought a new black BMW sports car from an authorized dealer in Birmingham, Alabama. Gore later found out that the car had been repainted, which BMW had not told him. His car’s top, hood, trunk, and quarter panels had all been given a new coat of paint before it was sold to him as new, apparently because the car had been exposed to acid rain in transport from Germany. BMW had a policy, it turned out, that if a new car was damaged and the cost of repair was less than 3 percent of the retail price, it would sell the car as new without telling the dealer.
Gore sued for damages, and at trial his expert witness testified that his new car, for which he paid $40,750.88, was worth about 10 percent less than an undamaged one. The jury awarded Gore $4,000 in actual damages. It also found that BMW’s policy constituted “gross, oppressive or malicious” fraud and awarded him another $4 million in punitive damages. On appeal, the Alabama Supreme Court held that the jury had erred in its calculations and lowered the punitive damages award to $2 million. BMW thought the award was still too high and took the case to the Supreme Court.
The Court ruled 5–4, in a vote that did not break down neatly on ideological lines, that the $2 million punitive damages award was excessive and violated the Due Process Clause. Stevens, writing for the majority, said that “elementary notions of fairness” dictated that corporations and individuals should have fair notice of the severity of punishment they may be subjected to. To offer that kind of guidance, he said that punitive damages should be analyzed for excessiveness according to a set of “guideposts,” including how bad a defendant’s conduct was and what the ratio was between actual and punitive damages. BMW’s conduct was not sufficiently “reprehensible,” Stevens said, to warrant $2 million in punitive damages. He also objected that the punitive damages were disproportionate to the actual damages of $4,000. “The ratio is a breathtaking 500 to 1,” Stevens said. The Court ruled that the award was “grossly excessive” and “transcends the constitutional limit.”
The Court continued to refine its doctrine of excessive punitive damages. In 2003, it rescued another corporate bad actor from a jury’s damage award. Curtis Campbell, a Utah man, had been sued for his part in a serious car accident. The injured parties offered to settle for $50,000, which was the limit of his insurance policy with State Farm. State Farm rejected the settlement offer and insisted on going to trial, but it promised Campbell he would not be personally liable for any award over $50,000 if they lost the case, and that he did not need his own lawyer. They did lose the case, and Campbell was held liable for $185,849. Despite its promise, State Farm refused to cover the extra $135,849 and Campbell had to hire his own lawyer to appeal. Campbell ended up suing State Farm for bad faith, fraud, and intentional infliction of emotional distress.
Campbell’s lawyers later turned up evidence that State Farm had forced him to go to trial as part of a corporate strategy to increase its profits by limiting payouts, which it called its “Performance, Planning and Review” program. Former employees testified that they were told to target the “weakest of the herd,” State Farm’s most vulnerable customers, including the elderly, the poor, and others considered “least knowledgeable about their rights and thus most vulnerable to trickery or deceit.” Campbell fit the profile: he had Parkinson’s disease and had suffered a stroke. A jury found State Farm liable, and Campbell was awarded $1 million in actual damages and $145 million in punitive damages, amounts later approved by the Utah Supreme Court. State Farm took the case to the Supreme Court.
On April 7, 2003, the Court reversed the Utah Supreme Court by a 6–3 vote and held that the punitive damages were excessive. In State Farm Mutual Automobile Insurance Co. v. Campbell, which again did not break down on ideological lines, the Court said more about the limits that due process placed on punitive damages. Kennedy, writing for the majority, conceded that State Farm’s conduct “merits no praise,” but he insisted that the punitive damages were unconstitutionally large. The Court was more precise than in the BMW case, declaring that “few awards exceeding a single-digit ratio between punitive and compensatory damages . . . will satisfy due process.” When it said “single-digit ratio,” the Court meant that punitive damages should not be more than about nine times the size of the compensatory damages. In this case, where the compensatory damages were $1 million, the Court suggested the punitive damages award against State Farm should have been closer to $9 million, or even $1 million, than $145 million.
In dissent, Ginsburg said the Court was changing the law on punitive damages very quickly—in favor of corporate defendants. Until the BMW case, in 1996, it had never held a state-court punitive damages award to be unconstitutionally excessive. Now the Court was imposing what looked like a mathematical cap. The “flexible guides” of the BMW case were, she said, starting to “resemble marching orders.” Ginsburg also disputed the majority’s suggestion that State Farm’s conduct was not all that reprehensible. A jury might well want to send a message, she pointed out, about State Farm’s Performance, Planning and Review program, which seemed expressly designed to provide bad service, to the point of creating serious financial problems, for the “weakest of the herd.” It might also, she said, have wanted to punish conduct it regarded as “egregious and malicious.”
In 2007, the Court came to the rescue of another corporation that had been hit with a large punitive damages award, this time the world’s largest tobacco company. An Oregon jury had ordered Philip Morris to pay the widow of Jesse Williams, who had died of lung cancer, $821,000 in compensatory damages and $79.5 million in punitive damages. The Oregon Supreme Court upheld the punitive damages, even though the ratio to the compensatory damages was almost 100 to 1. It found that Philip Morris’s conduct was “extraordinarily reprehensible,” since it “knew that smoking caused serious and sometimes fatal disease, but it nevertheless spread false or misleading information” for nearly half a century.
The Supreme Court in Philip Morris USA v. Williams, by a 5–4 vote, again with liberal and conservative justices on both sides, overturned the Oregon Supreme Court’s decision. Breyer, writing for the majority, said the award had been made in a way that suggested the jury might have been punishing Philip Morris for harm to smokers who were “strangers to the litigation”—not part of the lawsuit. He worried that Philip Morris was being punished for an indeterminate number of victims, whose precise injuries were not known, which would “add a near standardless dimension to the punitive damages equation.”
Ginsburg again dissented, emphasizing that the jury had been responding to the “reprehensibility” of Philip Morris’s conduct. It was not punishing the tobacco giant for harm to smokers who were strangers to the litigation, she said. It was properly considering “the harm that Philip Morris was prepared to inflict on the smoking public at large.”
The Court’s decision was widely criticized by the media, legal scholars, and the general public. Many people who did not follow the intricacies of punitive damages law saw the Court protecting a large tobacco company that had marketed cigarettes in misleading ways long after their lethality had been scientifically settled. In an editorial headlined “Shielding the Powerful,” The New York Times lamented that the Court had stretched “due process in a way that will make it easier for companies that act reprehensibly to sidestep serious punishments.” A case note in the Harvard Law Review objected that the Court had turned the Fourteenth Amendment, which was intended to help the least powerful, “into a boon for railroads, monopolies, utility companies, bankers, and other large commercial interests.”
These cases—involving a car BMW knew was defective, a State Farm policy that hurt some of its most vulnerable customers, and the death of a cigarette smoker—provided the backdrop for Exxon’s challenge to its own punitive damages award. Exxon’s case had an unusual wrinkle: because of where the injuries had occurred, the Court considered it under maritime law, rather than relying on the Due Process Clause. Maritime law is a separate field of law, with its own precedents handed down over centuries. Although the Court took into account its past rulings under the Due Process Clause, it did a new analysis, which looked at what punitive damages awards were considered reasonable by judges and juries in maritime cases, and tried to come out in the middle of that range.
The Court decided, by a 5–3 vote, that the $2.5 billion punitive damages award against Exxon Shipping Company was excessive. The $2.5 billion was actually well within the “single-digit” ratio of punitive damages to compensatory damages the Court had called for in its State Farm decision. The compensatory damages were $507.5 million, so the ratio was about 5:1. Souter concluded, however, that in maritime cases like this one, a “fair upper limit” for the ratio of punitive damages to compensatory damages was 1 to 1. Therefore, he said, the punitive damages against Exxon should be reduced to $507.5 million.
Once again, Ginsburg protested in dissent. She objected to the 1:1 ratio as “the Court’s lawmaking” and insisted that if there was going to be a limit on the ratio of punitive damages to compensatory damages it should come from Congress. She also worried that the 1:1 ratio the Court was creating for maritime law would one day be imported into due process law and a new rule would emerge prescribing that punitive damages could never be more than compensatory damages.
The punitive damages decisions are one of the few controversial legal issues involving corporations where the Court has not broken down predictably along ideological lines. In these cases, ideology worked in an erratic way. Some of the conservatives took their expected pro-business positions, and some of the liberals sided against the corporation. Other liberal justices, however, were inclined to impose a limit on punitive damages because they were drawn to the idea of using the Due Process Clause to make punishment more predictable and fair. Some conservative justices disliked the idea of reading broad rights into vaguely worded constitutional provisions. One thing, however, went according to ideological script: Ginsburg, who was among the most committed liberals, reacted with sustained outrage as the Court’s new, pro-corporate punitive damages doctrine emerged.
The punitive damages decisions are disturbing on several levels. One problem with them is that the Court was clearly not particularly concerned that it was taking away an important function of punishment: deterring future bad conduct. BMW, State Farm, and Philip Morris had all intentionally engaged in seriously harmful actions, and Exxon Shipping had been extraordinarily negligent. They were also all corporate behemoths, with annual revenue and market capitalizations that far exceeded the punitive damages that were imposed on them. State Farm was the nation’s largest insurance company and in 2003 it was number 21 on the Fortune 500, with annual revenue of just under $50 billion. The jury’s punitive damages award of $145 million was just 0.29 percent of what it brought in that year, an amount that might easily be ignored. The $9 million maximum award the Court approved, representing 0.018 percent, certainly would be ignored. The Court’s decisions made it far more likely that when juries wanted to send a message to corporations to stop engaging in bad conduct that hurt the little people, those messages would not be heard.
Another troubling aspect of the punitive damages decisions is that the Court took the perverse position that corporations deserved special protection in the justice system. One of the reasons it gave for reducing the award against State Farm was that juries have “wide discretion in choosing amounts” of punitive damages, “and the presentation of evidence of a defendant’s net worth creates the potential that juries will use their verdicts to express biases against big businesses.” The Court did not explain why juries, which are entrusted not to use their verdicts to express biases against defendants’ race, religion, sex, and other attributes, should not be trusted to treat big business fairly.
The pro-corporate bias of these decisions is unmistakable. In its punitive damages rulings, the Court flipped the principle of Carolene Products’ footnote 4 on its head. Footnote 4 said that “discrete and insular minorities” who faced discrimination and lacked influence in the political system deserved special protection under the Equal Protection Clause. The modern Court has decided that wealthy corporations, which exert outsized influence in the political system, deserve special protection against jurors’ possible “biases against big businesses.” It was a sad conclusion to the Warren Court debate about whether the poor should be recognized as a suspect class under the Equal Protection Clause. Poor people never were, but in punitive damages cases, at least, the Court has extended special protection to wealthy corporations under the Due Process Clause.
A final disturbing aspect of the punitive damages cases is the difference in how the Court viewed the constitutional issues in punishing corporations and punishing people. A month before it decided the State Farm case, the Court had rejected an Eighth Amendment challenge to California’s “three strikes and you’re out” law. The challenge was brought by an Army veteran and father of three who stole nine children’s videotapes from Kmart and, because of the “three strikes” law, was sentenced to two consecutive terms of twenty-five years to life. The Court ruled that there was no unconstitutional disproportionality in sentencing a human being to spend fifty years to life in prison for a $153.54 theft. A month later, it declared that it violated the Constitution to impose more than $9 million in punitive damages on a corporation with $50 billion in annual revenue that had badly abused a physically disabled customer.
The campaign against punitive damages was part of a larger agenda: the Court, which in the Warren era had looked for ways to use the law to improve conditions for the nation’s poor, was now championing corporations. This transformation was due, more than anything else, to a dramatic change in the Court’s membership. The Warren Court was led by a chief justice who made increasing racial, economic, and political equality a personal mission and who cared deeply about the poor. The liberal majority behind him included justices like Thurgood Marshall, the legal architect of the civil rights movement. The Court that decided the Exxon Shipping case was led by John Roberts, a former corporate lawyer and son of a steel plant manager, who strongly favored business interests. His conservative majority included Clarence Thomas, who had moved the EEOC in a pro-employer direction and attacked his own struggling sister for accepting welfare.
Legal experts who followed the Court were increasingly calling out its pro-business transformation. A few months before the decision in the Exxon Shipping case, The New York Times published an article under the headline “Supreme Court Inc.” In it, George Washington University law professor Jeffrey Rosen discussed the Court’s embrace of a “pro-business jurisprudence” that valued free markets. That same year, Erwin Chemerinsky, who is now the dean of the University of California–Berkeley Law School, declared that in its first three years, from 2005 to 2008, the Roberts Court had shown itself to be “the most-pro-business Court of any since the mid-1930s.”
This widely held view that the Court had veered sharply in the direction of the rights of corporations was backed up by statistical data. A scholar who analyzed the Court’s rulings in business cases going back to the 1960s found a steady progression in how often it ruled in favor of business: 28 percent for the Warren Court, 48 percent for the Burger Court, 54 percent for the Rehnquist Court, and 64 percent for the Roberts Court. The study, which was published in the Santa Clara Law Review in 2009, noted that, while the justices nominated by Republican presidents were the driving force, a contributing factor was that recent Democratic nominees were more pro-business than the Democratic nominees of the Warren era.
The evidence showed that the Court’s conservative justices were not just pro-business—they were extraordinarily so by historical standards. A study released in 2013 calculated that all five members of the conservative majority at that time—Roberts, Scalia, Thomas, Kennedy, and Alito—were among the top ten most pro-business justices to serve on the Court since 1946. Strikingly, the study—by Lee Epstein, of the University of Southern California Law School; William Landes, of the University of Chicago Law School; and Judge Richard Posner, of the U.S. Court of Appeals for the Seventh Circuit—found that Alito was the single most pro-business justice of the thirty-five who had served since 1946, and Roberts came in second. Agreeing with the Santa Clara study, the authors found that the Court’s extreme shift in corporate cases was due in significant part to the fact that the conservative justices were “extremely” conservative, while the liberal justices were only “moderately” liberal.
Just as the Warren Court systematically looked for ways in which the poor were unfairly disadvantaged—in the criminal justice system, in voting, and in welfare benefits—the Rehnquist and Roberts Courts appeared to be looking for ways to protect corporations from oppression. In many cases, the Court seemed to be following corporate America’s own list of ways it felt aggrieved by the law and providing it with the relief it was not getting from the political branches.
Another long-standing goal of corporate America was reining in the use of class action lawsuits. Class actions made it possible for large numbers of employees or consumers to band together and file a single lawsuit. In many cases, poor and middle-class people who would not have been able to sue on their own because of the cost of hiring a lawyer were able to do so as part of a class. Large class actions often produced sizable damage awards, which had a noticeable effect on a company’s bottom line. When Public Citizen examined more than five hundred cases litigated by the U.S. Chamber of Commerce, it found that the biggest legal issue area it was involved in was “court access,” which included trying to rein in class actions. It was such a priority that Chamber of Commerce president Thomas Donohue once said, “We spend half our time trying to reduce the number of suits by class-action lawyers.”
Class action lawsuits have a long history as a populist legal tool. The concept traces back to medieval England, and versions of it existed in the earliest American law. Class actions became more important in the industrial age, when corporations began to engage in conduct that harmed large groups of people in the same way. A single mass-produced product could create a class of victims with similar injuries, who could most efficiently bring their claims together. Class actions entered a new, modern era in 1966, when it was widely recognized that they could play an important role in challenging racial segregation in the South. The drafters of the federal class action rule, Rule 23 of the Federal Rules of Civil Procedure, liberalized it to make it easier for victims of racial discrimination and other injured individuals to proceed as a class.
In the 1960s, legal scholars and advocates for disadvantaged groups believed class actions would be a revolutionary tool for ordinary Americans to achieve justice. Benjamin Kaplan, Harvard Law School’s Royall Professor of Law, who played a key role in drafting the newly expanded class action rule, emphasized its populist possibilities. The changes would, he said, advance the class action’s “historic mission of taking care of the smaller guy.”
In the golden age after the 1966 liberalization of Rule 23, class action lawsuits were used by civil rights lawyers to desegregate public schools, restaurants, and transit systems and to improve conditions in prisons and mental hospitals. The leading poverty law cases of the 1960s and ’70s were class actions. King v. Smith was brought on behalf of families receiving AFDC benefits in Alabama. Rodriguez v. San Antonio Independent School District was brought on behalf of students in poor school districts throughout the state of Texas.
Class action lawsuits have proved invaluable to consumers, employees, shareholders, and other “smaller guys” suing large corporations. They allow many individuals to share a lawyer, who is often paid from money won in the lawsuit, and to put on a single case. Class actions also allow courts to impose sweeping remedy orders vindicating the rights of many people at once. Another major advantage is their ability to aggregate a large number of small claims. Corporations often cheat many customers or employees out of small amounts of money. It is not worth it for a customer to sue over a $10 overcharge, but through a class action, a lawyer can sue on behalf of a million customers who were each cheated out of $10 by the same company.
Class action lawsuits have held corporations accountable for a wide range of malfeasance, with damage awards that have run into the billions of dollars. A class action by Vietnam veterans and their families against manufacturers of the Agent Orange herbicide, for death and disabilities among veterans and birth defects in their children, led to the creation of a $180 million victim compensation fund. Investors in WorldCom, the telecommunications giant, brought class actions against banks and an accounting firm after the company collapsed in 2002, charging that they had helped WorldCom inflate revenue and hide expenses, or should have discovered what the company was doing. They reached $6.1 billion in settlements.
Class actions have not been a perfect tool, and at times they have faced criticism not only from the corporations and others they target, but from more neutral observers. A common complaint is that class action lawyers often do better financially than members of the victim class. While that certainly happens, the criticism has been overstated. In a scholarly article entitled “Do Class Action Lawyers Make Too Little?” Vanderbilt University law professor Brian Fitzpatrick calculated that in the three hundred or so class actions settled in federal court annually in the years he examined, there was about $16 billion in settlements, and the lawyers were awarded about $2.5 billion in fees. That amounted to roughly 15 percent of the amount won, which was, Fitzpatrick noted, considerably less than what lawyers generally earn when they take a case on a contingency basis. Fitzpatrick concluded that in class actions whose main purpose is deterring bad corporate behavior, from the vantage point of maximizing social welfare, class action lawyers were actually underpaid.
As class actions proliferated and large awards became more common, corporations pushed back, arguing that class actions were part of the “litigation explosion” that was terrorizing businesses, enriching greedy lawyers and undeserving plaintiffs, and ultimately hurting consumers. Tort reform advocates, many of whom were paid by business interests, insisted that class actions were unfair to corporations—even ones that had harmed people on a mass scale.
The corporate campaign against class actions began to score some significant victories. In 1998, a change to the Federal Rules of Civil Procedure allowed defendants to appeal immediately when a class was certified by a court, instead of having to go to trial first, which reduced pressure on corporations to settle when a class action was filed. In 2005, Congress enacted the Class Action Fairness Act, a law heavily promoted by big business, which made it easier to move class actions from state court to federal court, where the rules and judges were generally more sympathetic to defendants. Ed Markey, who was then a Massachusetts congressman, called the law a “payback to the tobacco industry, to the asbestos industry, to the oil industry, to the chemical industry at the expense of ordinary families.”
For decades, the Court largely remained on the sidelines of the war that corporate America was waging on class actions. In recent years, however, the pro-business Roberts Court has handed corporations a pair of major victories in their drive to rein in class actions. In 2011, it issued its ruling in Betty Dukes’s class action lawsuit against Wal-Mart, which said that women suing Wal-Mart could not proceed as a class unless they could show that they had all suffered the “same injury.” The flip side to the case’s being an enormous setback for employees suing for discrimination is that it made it far easier for companies being sued to insulate themselves from legal liability. The ruling “tipped the balance in favor of powerful employers over everyday workers,” Suzette Malveaux, a Catholic University of America law professor, wrote in an analysis of the case, titled “How Goliath Won.” Erwin Chemerinsky, dean of the University of California–Berkeley Law School, and Catherine Fisk, a professor of law there, examined the Wal-Mart decision and concluded that it was “premised on a frank hostility to class actions and an expressed desire to protect big business.”
The Court’s ruling in the Wal-Mart case has “reshaped the American legal landscape” in favor of corporate defendants, a study by ProPublica found. In its first two years, federal and state courts cited it more than twelve hundred times, and it led to jury verdicts being reversed, plaintiff classes decertified, and settlements undone. Its new standards have helped defense contractors, media conglomerates, and other large corporate defendants fend off lawsuits filed by their employees.
In 2013, the Court protected corporations from consumer class actions the same way it had protected them from employee class actions in the Wal-Mart case. A group of cable customers in New Jersey, Pennsylvania, and Delaware, led by a consumer named Caroline Behrend, sued Comcast for $875 million for overcharging them. They said that Comcast had violated antitrust law by using a strategy of establishing local monopolies, which it secured by swapping territories with competitors. Behrend and several other named plaintiffs were seeking to represent a class of more than two million current and former Comcast subscribers.
The Court refused to recognize the class of customers suing Comcast. The vote was 5–4, as it had been in the Wal-Mart case, with the justices again divided on ideological lines. Scalia, writing for the conservatives—himself, Roberts, Kennedy, Thomas, and Alito—said the two million people in the class had been injured in different ways depending on what state and county they lived in and the “permutations” in the cable services offered. The liberal dissenters insisted that there was “well nigh universal” recognition that class actions should not be rejected because members of the class were entitled to different damages—or, at least, there had been up until then.
The Wal-Mart and Comcast decisions were two more examples of the Court providing corporate America with “do-it-yourself tort reform.” The rulings reduced the chances that big business would be held accountable for harm to their employees and customers, particularly in the largest cases, which corporations worried about most. With these decisions, the Court significantly eroded the class action, and its ability to serve as a revolutionary tool for the “smaller guy” to obtain justice.
The Court’s campaign against class actions has shown no sign of slowing down. The old rhapsodic scholarship about the extraordinary possibilities of class action lawsuits has been replaced in recent years with articles with titles like “The Failing Faith in Class Actions,” “The Decline of Class Actions,” and “A Bleak Future for Class Actions?” In “The End of Class Actions?” a law professor declared that his assessment was “a pessimistic one,” and he warned that it was hard for him “to conclude that a world without class actions will be anything other than a world with greater corporate wrongdoing.”
The Court has also been tilting the law in favor of corporations in the arcane but critically important area of “forced arbitration,” the requirement that businesses are increasingly building into their contracts with consumers, employees, and smaller businesses to waive the right to sue in court. These forced arbitration clauses ensure that disputes will be resolved not by neutral judges and jurors, but through a system that is heavily stacked in favor of corporations. Advocates for workers and consumers have been sounding the alarm against forced arbitration. In its report on forced arbitration, the Employee Rights Advocacy Institute for Law & Policy used the subtitle “How America’s Wealthiest, Most Powerful Companies Use Fine Print to Subvert Employee Rights.” The Court has been a strong supporter of forced arbitration clauses, generally, in recent years, by a 5–4 vote.
Arbitration once had positive associations. In 1976, in what has been called the “big bang” moment for alternative dispute resolution, Harvard Law School professor Frank Sander gave a speech to a distinguished legal conference on “Varieties of Dispute Processing,” which argued that arbitration, mediation, and other alternative mechanisms could resolve certain kinds of disputes more efficiently and fairly than litigation. Before long, a movement was born.
Sander was a passionate and persuasive advocate for the cause, who presented alternative dispute resolution in idealistic terms. Sander had escaped Germany after Kristallnacht and made his way to the Netherlands and England without his family. He reunited with them in the Boston area and gained admission to Harvard College. After attending Harvard Law School and clerking for Frankfurter when Brown v. Board of Education was before the Court, Sander returned to Harvard Law School and became a pioneer in the field of family law. After a sabbatical in Sweden, he returned to Harvard with ideas about reforming the American legal system. In his 1976 speech, which he delivered to the Pound Conference, a special conference of judges and lawyers called by Warren Burger, Sander made a high-minded argument for abandoning the “one-size-fits-all” justice system and replacing it with a more modern one that matched disputes with the most effective way of resolving them.
In the years after Sander’s speech, an alternative dispute resolution movement took hold. Reformers argued that arbitration, mediation, and other alternative mechanisms would allow litigants to avoid the formality, complexity, high costs, and delay of traditional litigation. Much of the arbitration early on was done under the supervision of courts, and the costs associated with it were often minimal.
Before long, however, corporations began to transform how alternative dispute resolution worked. They saw arbitration as a more advantageous way for them to resolve disputes than going to court, and they began writing mandatory arbitration agreements into their contracts with customers and employees, often buried in small print. Since the corporations were drafting the agreements, they could include terms that benefited them.
There were many ways these agreements became slanted in favor of the corporations that drew them up. In some cases, arbitration agreements specified that employees or customers had to file complaints in as little as thirty days. The employee or customer could also be required to travel long distances for the arbitration, at their own expense. Arbitration agreements often contained class action waivers so that employees and consumers who had been cheated could not band together in a single arbitration, represented by the same lawyer. Employees and consumers also often had to pay significant fees, and it was not always clear in advance how much it would cost. Corporations had enormous freedom in setting the terms, because, unlike litigation, which runs according to established laws and procedures, arbitration can take any form that the drafter of an arbitration agreement wants. As one arbitration firm said in a Q&A on its website, “What rules of evidence apply? The short answer is none.”
For corporations, the biggest advantage of arbitration was who made the final decision. When disputes go to arbitration, they are not resolved by judges or juries, whose independence is protected. Federal judges have life tenure, and state court judges are rarely removed from office. Juries resolve a single case and do not face any negative consequences for the decisions they reach. Arbitrators, by contrast, generally have no job security. In most cases, they are hired for specific arbitrations, and they always need to worry about where their next case will come from. This creates a strong incentive to rule in favor of corporations, who generally select either the arbitrators or the companies that employ them.
Arbitrators who take on corporate matters can easily find themselves blackballed if they rule for an employee or consumer. Harvard law professor Elizabeth Bartholet experienced this firsthand when she was recruited by a prominent arbitration firm. In fourteen months, she arbitrated, and issued decisions in, nineteen cases involving a single credit card company, ruling for the company eighteen times. In the nineteenth, she ruled for the cardholder and awarded about $48,000 in damages. Bartholet said the arbitration firm removed her from seven pending cases she was scheduled to preside over. She resigned, and publicly decried the company’s “apparent systematic bias in favor of the financial services industry.”
Many arbitrators keep their jobs by not ruling against powerful interests. In an article headlined “Is Justice Served?” the Los Angeles Times quoted a Los Angeles attorney, Mitchell Shapiro, whose partner gave him a heads-up before he went into arbitration on a franchise matter. “You’re not going to lose,” the partner told him. Their law firm gave the arbitrator so much business, the partner said, that “he has never decided against us.” The prediction proved correct: the arbitrator ruled for Shapiro’s client.
Ruling exclusively, or almost always, in favor of corporations can be a lucrative career. While federal district court judges make just over $200,000, and state court judges can make far less, some arbitrators charge as much as $10,000 a day and make over $1 million a year. A California appellate justice told the Los Angeles Times that “private judging,” an oft-used expression, “is an oxymoron,” because arbitrators “are businessmen. They are in this for money.”
Arbitrators understand the incentive structure well. When they arbitrate disputes between corporations and customers or employees, they do not often rule against the corporation. Public Citizen examined more than nineteen thousand cases involving arbitrators who worked for a company that is often hired by the credit card industry to resolve disputes with customers. It reported, under the bullet point “Stunning Results that Disfavor Consumers,” that 94 percent of the decisions sided with business.
In addition to arbitrator bias, the arbitration process has other attributes that work in favor of corporations. The proceedings are usually secret, and generally there is no transcript or written explanation of the reasoning behind the arbitrator’s ruling. As a result, companies that hire arbitrators often know how they have ruled in previous cases, while consumers do not. The secrecy also makes it difficult for media and public interest organizations to monitor arbitration proceedings for systematic bias or misconduct. Public Citizen concluded in its report that forced arbitration was “a deliberate strategy to substitute a secret, pro-business kangaroo court for an open trial on the merits.”
As with campaign finance, the Court was not divided along ideological lines about arbitration in its early days. In the years after Sander’s “big bang” speech on the virtues of alternative dispute resolution, many liberals supported mandatory arbitration as a more flexible, speedy, and cost-effective way of resolving legal conflicts. That included liberal justices. In 1983, Brennan wrote the Court’s opinion in a decision that required a North Carolina hospital to arbitrate a dispute with a contractor, saying that doubts about the scope of issues for arbitration “should be resolved in favor of arbitration.”
In time, however, the Court began to view arbitration cases more ideologically, with the conservative justices generally in favor and the liberal ones opposed. The division emerged as it became clear how corporations were using arbitration. The cases arriving at the Court showed that arbitration, which had arrived on the scene with so much idealism behind it, was becoming a means for corporations to deny the less powerful and less sophisticated people they had harmed a day in court.
A major turning point came in 1991, when the Court decided a case that posed a critical question: whether employees could be forced to arbitrate legal disputes, including discrimination cases, with their employers. Robert Gilmer, a financial services manager, had sued the company that fired him under the Age Discrimination in Employment Act. When he registered with the New York Stock Exchange, he had signed a form saying that any legal actions he had over his employment had to be resolved through arbitration. Gilmer wanted to bring his age discrimination suit in federal court, where he would have a far greater chance of prevailing, but his former employer insisted he had to go into arbitration.
The Court ruled against Gilmer by a 7–2 vote, holding that he could not bring his discrimination claim in federal court. White, writing for the majority, relied heavily on the Federal Arbitration Act, a federal law enacted in 1924, which he said created a strong national policy in favor of arbitration. Stevens, in a dissent joined by Marshall, argued that the Federal Arbitration Act made clear in its own text that it did not apply to employment contracts. He also insisted that it was wrong to force someone into arbitration when he was suing under a federal law that Congress had enacted to protect Americans from discrimination, something only the courts could be relied on to do effectively.
The dissenters were right in their reading of the Federal Arbitration Act. The act was adopted in 1924 at the urging of New York merchants to give them a fast and efficient way of resolving their disputes with each other. Congress passed the law to help those merchants, not to change employment relationships across the country. In fact, as Stevens pointed out, the arbitration act expressly said that it was not intended to apply to any workers “engaged in foreign or interstate commerce.” The Federal Arbitration Act “was about agreements between two sophisticated business people,” Imre Szalai, a law professor at Loyola University New Orleans, has said. “Unfortunately, the Supreme Court . . . has grossly misinterpreted the statute. It was never intended to apply to workers.”
With its 1991 ruling, the Court sent a clear message to corporations nationwide: if they wanted to take their disputes with the workers they fired, or discriminated against, or cheated out of wages, out of the court system, they could do so by putting a forced arbitration agreement in their employment contract. It was a generous offer the corporations were quick to take the Court up on. In the future, many more workers would find themselves in Gilmer’s position, of desperately wanting their claim against their employer to be heard by a judge or jury, and being forced to take it to an arbitrator.
In 2000, the Court’s conservative majority made it clear that it would enforce arbitration agreements against consumers just as unrelentingly as it had against workers. The case before it was brought by Larketta Randolph, who had purchased a mobile home in Opelika, Alabama, with financing from Green Tree Financial Corporation. Randolph sued Green Tree, charging that it had violated federal truth-in-lending laws. The contract she signed with Green Tree contained a forced arbitration clause. Green Tree insisted that their dispute had to go to arbitration. Randolph had a specific and very reasonable objection: the arbitration clause in her contract did not specify how much she would have to pay in fees for the arbitration, and she did not think she could afford it. She did not believe that to vindicate her rights under a federal consumer law she should be forced into a private arbitration process that could drive her into bankruptcy.
The Court ruled for Green Tree by a 5–4 vote. Rehnquist, writing for the conservative justices, made the perverse argument that Randolph had no grounds for objecting to the cost of arbitration, since she had no idea how much the fees would be. That was, of course, precisely Randolph’s point—that it was the not knowing that was unfair to her. The Court did not seem to care that for a person of modest means like Randolph, being told that she had no right to know the cost of arbitration in advance made it very likely she would simply not bring her claim at all.
Ginsburg, writing for the four liberal justices, said she would have given Randolph a chance to be told the cost of arbitration in advance. It was notable that the Court divided 5–4 along ideological lines, something it would increasingly do in forced arbitration cases. It was around this time, as one commentator observed, that “the Court’s liberal wing woke up to the potential of arbitration to simply preclude the prosecution of claims by consumers and workers.”
With the Court strongly on their side, corporations had enormous power to use forced arbitration clauses that protected them from being sued in court and to force people into arbitration when they did not want to go. They also had great freedom to write terms that stacked the arbitration process heavily in their favor. There was, however, one aspect of forced arbitration that still eluded them: they wanted the courts to make it clear that they had the right to include a provision in their mandatory arbitration clauses prohibiting employees and customers from bringing class actions in arbitration. Corporations knew that when employees and customers were forced to go into arbitration alone, they were deprived of the many advantages that came with proceeding as a class—and often, they did not bother to bring their claims at all. In recent years, both of these groups—consumers and employees—have asked the Court to hold that the class action waivers in their arbitration agreements were not enforceable, for different reasons. The Court, however, has come down strongly on the side of enforcing class action waivers, in a series of ideologically charged rulings.
In 2011, the Court considered a case involving consumers locked into a forced arbitration agreement with their cell phone provider. Vincent and Liza Concepcion had signed a cell phone service contract with AT&T that offered free phones. The Concepcions sued after they were told that they had to pay $30.22 in sales tax for their “free” phones, based on the retail value of their phones. The Concepcions filed a class action lawsuit against AT&T, alleging that charging tax on free phones was fraud.
AT&T said the contract the Concepcions signed required them to resolve any complaints in arbitration and did not allow them to enter arbitration as part of a class action. If AT&T got its way, the Concepcions would, as a practical matter, have no recourse. If people are cheated out of $30.22, they are not likely to file a non-class-action lawsuit or to go into arbitration as individuals. It would not be worth the time and expense.
The federal district court that heard the case said that the Concepcions had a right to go into arbitration as part of a class action. It relied on California state law, which held that class action waivers are legally “unconscionable,” or so one-sided and unfair that they are not enforceable. The San Francisco–based U.S. Court of Appeals for the Ninth Circuit agreed and held that the Concepcions could proceed as a class in arbitration.
The Supreme Court, by a 5–4 vote, ruled that the Concepcions had to proceed in individual arbitration. Scalia, writing for the majority, said that the Federal Arbitration Act gave anyone drawing up a contract the right to include a class action waiver. Under the doctrine of “preemption,” when there is a conflict between federal and state law, the federal law generally takes precedence, because of the Constitution’s Supremacy Clause. As a result, Scalia said, California’s law was not valid—and AT&T could force the Concepcions into individual arbitration.
In his dissent, Breyer, writing for the four liberals, emphasized that the Federal Arbitration Act expressly says that arbitration agreements should not be enforced in ways that are inconsistent with state laws. Congress had made it clear that it wanted states to have “an important role” in deciding how arbitration would work, Breyer said, and it wanted to respect state rules like California’s ban on class action waivers. Breyer also underscored the real-world impact of the Court’s decision: if companies like AT&T were allowed to put bans on class actions in their forced arbitration agreements, they would be free to cheat their consumers out of small amounts of money with impunity. “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?” Breyer asked.
The AT&T case might have been a dispute over forced arbitration in consumer contracts, but it was really yet another ruling against class action lawsuits—and, in some ways, the most damaging one of all. It gave corporations an easy way to protect themselves against being sued in class actions by their customers. They simply had to bury two provisions somewhere in the fine print of their sales contracts: a forced arbitration clause and a class action waiver. There was virtually no chance customers would notice them, and even less that they would raise any objections. The Court’s ruling, one class action expert said, “basically lets companies escape class actions, so long as they do so by means of arbitration agreements.”
Two years later, the Court enforced a class action waiver even though it meant that the party being forced into individual arbitration would effectively have no chance to protect its rights. Italian Colors Restaurant, in Oakland, California, sued American Express, claiming that the credit card giant was using its monopoly power to force it to pay higher fees than other cards charged. American Express said Italian Colors had to go into individual arbitration, based on the contract it had signed. The restaurant said it would not be able to bring its claim if it had to proceed on its own. To prove its case about monopoly power, it would need to hire an antitrust expert who would cost hundreds of thousands of dollars or more, while the maximum damage award it could receive would be less than $39,000.
The Court ruled for American Express by a 5–3 vote, in another opinion by Scalia for the five conservative justices. For the majority, the case was simple: the contract Italian Colors Restaurant had signed with American Express, and its bar on class actions, was binding. The Federal Arbitration Act, Scalia said, required arbitration clauses to be enforced “rigorously.”
Kagan, in dissent, said the majority was wrong to force Italian Colors into individual arbitration. The Court had a doctrine, she noted, called the “effective vindication” rule, which said that arbitration agreements were not binding if they forced parties into arbitration under circumstances that would not allow them a fair chance to enforce congressionally created rights. The rule clearly applied to Italian Colors Restaurant, which was asserting its rights under federal antitrust law, she said. Taking away its ability to bring its claim as a class action effectively meant denying it an opportunity to protect its federal right not to be injured by a monopoly. Kagan provided what she said was a “nutshell version” of the majority’s opinion: “Too darn bad.”
In 2018, the Court imposed individual forced arbitration on a group that corporations were particularly eager to extend it to: employees. The case was a lawsuit by Jacob Lewis, a technical writer, against Epic Systems, the health care software company he worked for, charging that it had failed to pay him and other technical writers for overtime hours. Lewis filed his case as a class action lawsuit, but Epic Systems said that an arbitration agreement he had consented to required him to go into individual arbitration. There was, however, a strong argument that employees could not be denied the right to bring class actions with fellow employees. As Lewis pointed out, Section 7 of the National Labor Relations Act guarantees workers the right to work together to protect their interests.
The Court, in an opinion by Gorsuch, again said that the Federal Arbitration Act required arbitration agreements to be enforced as written. This time, the conservatives were more emphatic than ever about using the act as a battering ram against any attempts to rein in mandatory arbitration. Gorsuch said that it protected “pretty absolutely” the enforceability of class action waivers in arbitration agreements. That included, he said, a class waiver in a contract with workers, despite the protections of Section 7.
In a dissent that she read from the bench, Ginsburg underscored that the conservative justices were ignoring decades of well-established labor law in reaching their decision. When Congress enacted the NLRA, she said, during the Great Depression, it had become clear to the nation that the only way for “vulnerable workers” to protect their rights was to band together and work for their interests collectively. To ensure their ability to do so, Congress included Section 7, which guaranteed workers the right to engage in “concerted activities . . . for mutual aid or protection.” Jacob Lewis’s class action was the sort of concerted action the 1935 Congress was intent on protecting. The Court’s conservatives, however, would not allow even the Magna Carta of American labor to stop its mandatory arbitration juggernaut.
The Epic Systems Corp. v. Lewis decision was a major victory for corporations and an enormous setback for workers. If corporations put the right provisions in their employment contracts—a mandatory arbitration clause and a class action waiver—they would now be protected against class actions from their employees in court or in arbitration. Lawyers for employees immediately began looking for ways around the ruling, but it would almost certainly bring to a standstill the vast majority of class actions by employees of corporations that had drafted their employment contracts well. That would leave many employees forced to enter a hostile, and often costly, arbitration system on their own—or simply not bother to bring their claims at all.
There are many other areas in which the Court has actively pushed the law in favor of corporations, to the detriment of consumers, employees, and other victims of their harmful acts. The Court has often sided with corporations that are accused of violating environmental protection laws. One of these rulings came in 2009 in a challenge to Coeur Alaska, a mining company that pumped “slurry discharge,” a toxic form of wastewater, into an Alaska lake, even though Environmental Protection Agency rules prohibited it. The Court held that the Clean Water Act permitted Coeur Alaska to do the pumping with just a permit from the U.S. Army Corps of Engineers, and that it did not need one from the EPA, as environmental groups insisted it did. The permit that Coeur Alaska received from the Army Corps of Engineers allowed it to dump 4.5 million tons of waste, even though it would wipe out all life in the lake.
Ginsburg, writing for herself, Stevens, and Souter, said the Court had allowed mines to improperly classify their discharge to evade the EPA’s pollution standards. The holding, she said, was “antithetical to the text, structure, and purpose of the Clean Water Act.” Earthjustice, an environmental group, warned that the Court’s misreading of environmental laws would have wide-ranging implications. “If a mining company can turn Lower Slate Lake in Alaska into a lifeless waste dump,” it said, “other polluters with solids in their wastewater can potentially do the same to any body in America.”
The Court has also moved antitrust law in corporations’ direction, giving wealthy monopolists more room to stifle competition and extract unfair profits. One important area in which the Court has favored corporate monopolies is the essential facilities doctrine, which could have helped to rein in large technology companies, including broadband internet companies and platforms like Facebook and Google. The doctrine was designed to prevent companies from abusing their monopoly over a service or product that its competitors need. The Court recognized the essential facilities doctrine in a 1912 decision that ordered a railroad consortium organized by robber baron Jay Gould, which controlled the only railroad bridges over the Mississippi River in St. Louis, to allow competing railroads to use them at a reasonable cost. In a 2004 decision involving the prices phone companies charge competitors to use their phone lines, the Court gutted the doctrine.
Diane Wood, a judge on the Chicago-based U.S. Court of Appeals for the Seventh Circuit, suggested in a 2019 speech that the Court had made a mistake by eviscerating the essential facilities doctrine—and at just the wrong time. Wood, who taught antitrust law at the University of Chicago Law School before President Clinton nominated her to the bench, and who was a leading contender for a Supreme Court nomination under President Obama, noted that as a result of the 2004 ruling, the main legal doctrine for taking on so-called bottleneck monopolies had been badly weakened just when the digital revolution might make it more necessary than ever.
Many technology activists share Wood’s concerns. The Electronic Frontier Foundation, which promotes civil liberties in the digital world, has called on the Federal Trade Commission to “revitalize” the essential facilities doctrine. The doctrine is, the group said, one of the most obvious ways of challenging the threat of monopolistic behavior and censorship posed by the dominant technology platforms. The timing is “ideal for a fresh look at the doctrine,” the EFF said, with the “harmful effects of Internet platform dominance” becoming increasingly obvious. It is unlikely, however, that even if the FTC wanted to breathe new life into the essential facilities doctrine, the current Court, with its skeptical approach to antitrust, would allow it to be revived.
The Court’s pro-corporate rulings have increased economic inequality in many ways, large, small, and incalculable. Each of the Court’s business decisions is a financial transfer—from the Alaska fishermen to Exxon Shipping, from Curtis Campbell to State Farm, from Betty Dukes to Wal-Mart, from Jacob Lewis and his colleagues to Epic Systems, and from other corporate victims to corporations everywhere. The dollar amounts are enormous.
In the punitive damages decisions, the economics are straightforward: the Court’s rulings have saved corporations many billions of dollars that otherwise would have gone to people they had injured or cheated. In the single year 2001, just before the State Farm decision, more than $162 billion in punitive damages were awarded at trial or affirmed on appeal. Punitive damages were also growing rapidly. In 1992, there were no punitive damages awards over $100 million, but by 2001 there were sixteen. Corporations were worried about this fast-growing expense, as their enthusiasm for the tort reform movement showed. After the Court established its single-digit-ratio formula, corporations could worry a lot less.
Much of the hundreds of billions of dollars corporations were saving came directly from ordinary Americans, who would have been awarded the punitive damages. The loss to society, however, goes beyond the money damages that will not be awarded or distributed. The Court’s decisions also encourage more corporate wrongdoing in the future.
Lawsuits that are filed when corporations engage in misconduct operate as what New York University law professor Arthur Miller has called a “satellite regulatory system.” Working alongside the government’s regulatory system, these lawsuits pressure corporations not to harm people. This satellite system is necessary because the real regulatory system does not always work properly. Administrative agencies are invariably short of resources. They are also often “captured” by the industries they are supposed to regulate, giving their loyalty to the corporations they are meant to watch over rather than to the public. The problem of regulatory capture has been particularly severe in recent years as President Trump has appointed corporate executives and lobbyists to watchdog positions, including a onetime coal lobbyist chosen to run the EPA and an acting director of the Consumer Financial Protection Bureau who once called his own bureau a “sick, sad” joke.
The result of the Court’s weakening of the satellite regulatory system will be more of the conduct that punitive damages once discouraged. Companies will sell more products with hidden defects, like the BMW that Ira Gore bought. Insurance companies will cheat their customers more often, as State Farm did Campbell, and energy companies will take fewer precautions against massive oil spills. Corporations will save money, while customers and employees and innocent bystanders will face a higher likelihood of being hurt. The injured parties will still be able to sue for the actual damages they suffer, but as a practical matter, people like Gore will in many cases not go to the trouble of suing for actual damages of $4,000 and very small punitive damages.
The Court’s class action decisions have created another windfall for corporations that have infringed on the rights of consumers and employees. As predicted, many class actions have been thrown out under the new rules. A year after the Concepcions lost their case against AT&T, Public Citizen found that at least seventy-six class action lawsuits had been stopped from going forward, including ones the presiding judges said should have proceeded. After three years, the group released a report that described some of the class action lawsuits that were blocked. One was a suit by car detailers who said that CarMax had refused to pay them the overtime wages they earned. Public Citizen said that “potentially hundreds of CarMax employees” had been “left without any recourse because their only option is to pursue their claims individually in a private arbitration.”
The result of this decline in class actions is that corporations are paying out far less in damages and settlements to groups of people they have harmed. In 2018, class action settlements fell to $1.32 billion, from $2.72 billion in 2017, according to the Workplace Class Action Blog—a more than 50 percent decline. The author of the report attributed much of the plunge to the Dukes case’s higher barriers to certifying a class and the individual arbitration rule upheld in Epic Systems.
The Court’s forced arbitration rulings are also having the effect many experts predicted. Corporations are increasingly insulating themselves from consumer lawsuits by placing mandatory arbitration clauses in their sales contracts. Of the Fortune 100, eighty-one have used arbitration agreements in connection with consumer transactions, according to a study published in 2019 in the UC Davis Law Review. There were more than 826 million consumer arbitration agreements in force in 2018, in a nation with fewer than 330 million people, the study found. “The ability to access the courthouse is disappearing for American consumers because of the proliferation of arbitration agreements among the majority of America’s leading companies,” the study concluded.
Corporations have also been including forced arbitration clauses in more of their employment contracts. The number of employers using forced arbitration clauses was already growing rapidly before the Epic Systems ruling. In 1992, only 2 percent of non-unionized employers used mandatory arbitration clauses, but by 2018, 54 percent did. After Epic Systems, the growth is almost certain to speed up, since forced arbitration clauses are more valuable to employers when they also contain a class action waiver.
Now that the Court has given corporations a green light to include class action waivers in their forced arbitration agreements, those, too, are proliferating. The UC Davis study found that of the eighty-one Fortune 100 companies with forced arbitration clauses in their customer contracts, seventy-eight included class action waivers. In 2019, JPMorgan Chase, the nation’s largest bank, announced that its credit card customers would be required to go into private arbitration in any dispute with the bank, even if the original agreement they signed did not contain an arbitration clause, unless they filed for a waiver. The new policy, which affected about forty-seven million accounts, specified that customers would not have the right to proceed in arbitration as part of a class.
Corporations have also been emboldened, in the wake of Epic Systems, to put class action waivers in more of their employment contracts. After the ruling, management-side labor lawyers rushed to advise their corporate clients to add the waivers with an enthusiasm that at times bordered on the unseemly. “You Had Me at ‘Class Action Waiver,’” the global law firm Baker McKenzie declared in its Employer Report blog. “For employers looking to take advantage of the benefits of individual arbitration,” the firm said, the key was “show me the class action waiver!”
These massive changes have largely occurred under the radar. Deepak Gupta, a lawyer with Public Citizen who represented the Concepcions against AT&T, said the general public is missing the enormous harm the Court has been doing to consumers, because “issues like class-action rules and preemption and arbitration” can make “most people fall asleep.” Although these cases are overshadowed by the Court’s major civil rights rulings, he says, “they actually have, I think, a much bigger impact on our everyday lives as consumers and workers.”
It is impossible to put a dollar figure on the enormous societal transformation from a system in which consumer and employee injuries were compensated to one in which they very likely will not be. Millions of Americans will eventually find out, if they have not noticed it already, that when an employer fires them or fails to pay them overtime, a bank imposes exorbitant fees, or a manufactured product injures them, they will not have their day in court. Their only remedy will lie in an arbitration system set up to deny their claims.
Just as there is no way to put a price tag on the Court’s steady erosion of Americans’ right of access to the courts, there is no way to calculate the cost of its many other aggressively pro-corporate rulings. It is impossible to know how much consumers will ultimately pay in monopolistic costs of all kinds, because the Court eviscerated the essential facilities rule just before the rise of dominant technology platforms in online retailing, internet search, and social media. A full accounting would have to include the damage done by having a small number of technology companies dominating whole areas of public life, and using their dominant position, in many cases, to exploit low-wage workers, drive journalistic organizations out of business, and exert extraordinary influence over the nation’s elections and government.
The cost of the Court’s decision to allow a mining company to turn Alaska’s Lower Slate Lake into a “lifeless waste dump,” and other environment-destroying rulings like it, likewise cannot be gauged. In the aggregate, however, the damage these decisions will cause in cancer, heart disease, lung disease, and global climate change is sizable. In 2017, Britain’s Lancet Commission on Pollution and Health tried to quantify the cost of pollution in a single year worldwide, and it estimated that in 2015 it caused economic damage of $4.6 trillion and killed nine million people. The Court’s anti-environmental rulings are responsible for a modest but definite part of this global economic reckoning.
The Court’s business rulings are not only unfair to the individual litigants who lose their cases but to whole economic classes. They have caused a massive transfer of wealth to corporations, corporate executives, and shareholders. That wealth is coming from ordinary Americans who interact with corporations not as owners or managers but as consumers, employees, and innocent bystanders. In its decisions involving corporations, the Court has made especially clear something that is true across virtually every area of the law: that it is a Court for the 1 percent, not the 99 percent.