Direct response marketers are under assault not only from the Federal Trade Commission (FTC) but also from class action mills that are targeting the advertising of dietary supplements and other consumer products. The financial consequences of an attack from either front can be devastating. Compliant business practices normally are good enough to keep the FTC at bay, but the same can’t always be said for plaintiffs’ lawyers who specialize in the art of the shakedown. Playing the odds, they know that the threat of a class action, even against law-abiding marketers, can be enough to extract a hefty settlement and payday for themselves.
Fortunately, the U.S. Supreme Court, in a series of recent decisions, has given marketers new armor with which to defend themselves preemptively against plaintiffs’ suits: mandatory arbitration of consumer disputes. Last month, in CompuCredit Corporation v. Greenwood, its latest pronouncement on the subject, the Supreme Court barred a class action for violation of the Credit Repair Organization Act (CROA) on the grounds that CompuCredit’s credit card agreement required arbitration, and that CROA did not prohibit arbitration as the sole method of dispute resolution.
The court, in a majority opinion by Justice Antonin Scalia, went out of its way – the dissent said too far – to read CROA to permit a credit repair provider to compel arbitration over litigation. CROA is a very pro-consumer statute, affording, among other protections, a three-day cooling off period with right to cancel, and forbidding collection of fees until the seller has performed. To ensure the means to enforce those protections, it explicitly granted the consumer the “right to sue” a credit repair organization that violates CROA, and prohibits the “waiver” of any consumer rights afforded under the statute.
Seems plain enough, doesn’t it? “Right to sue” means right to sue in court, right? That’s what the Ninth Circuit below and the dissent by Justice Ruth Bader Ginsburg said was the obvious, “plain English” understanding of the phrase. But the majority had something else in mind. It said “right to sue” doesn’t mean the right to sue in court, but only the right to enforce the credit repair organization’s “liability” for “failure to comply” with CROA, which right also could be enforced in binding arbitration. The parties remain “free” to specify arbitration, the court said, so long as the “guarantee of the legal power to impose liability . . . is preserved.” Since CompuCredit had contractually provided for binding arbitration that was subject to judicial enforcement, plaintiff’s right to “impose liability” was protected.
Whether or not the majority’s “sophisticated” interpretation of the meaning of “right to sue” constituted an act of “legal legerdemain” that failed to honor Congress’ intent in enacting CROA, it demonstrates an unmistakable bias in favor of allowing sellers to avoid class actions and other consumer lawsuits by mandating binding arbitration of disputes. CompuCredit, on top of the court’s earlier pro-arbitration decisions, is a potential godsend to DR marketers that could be the next shakedown target. Mandatory consumer arbitration clauses now have the full backing of the highest court in the land. If you don’t have an arbitration provision in your customer contracts or terms and conditions now, you should. It could save your business.