Airlines abuse customers, who have nowhere to turn and face byzantine barriers in small claims courts

A Savory Tort Investigation

I sued Air France yesterday.

Consumer Protection and Airline Impunity

The instant matter is simple. I bought a roundtrip ticket from Boston to Paris specifically as offered by Air France because seat selection upon check-in came with the ticket. (I have a dodgy knee and an over-the-hill bladder, so seat selection on long hauls matters to me. You asked.)

Air France consistently promised seat selection.

Air France turned the flight over to Delta for operation, and Delta refused to honor seat selection upon check-in. Delta rather demanded $89 per seat assignment. Delta would not even give me a random seat upon check-in; I was told I would have to wait for a seat assignment at the gate, after everyone with higher priority was given an assignment.

I contacted Air France multiple times and was told that Delta's terms superseded Air France's, to call Delta. I contacted Delta multiple times, and I was told that my problem was with Air France.

I'm not the only person to experience precisely this problem. Redditors and online reviewers have reported the same frustration and the same shirking of responsibility by the airlines over seat selection and other purchase terms. 

That matters here, because I don't file lawsuits just for me. I believe I have a professional responsibility to use my skills as a litigator now and then if it will make the world better for many people.

I made complaints to governmental authorities, the attorney general's office in my home state of Rhode Island, and the U.S. Department of Transportation. Of course, those complaints went into the circular file.

The R.I. AG's office, while having been helpful in other matters, has in the past sent me to the feds on airline issues, notwithstanding their concurrent jurisdiction over ticket sales. And the U.S. DoT, which used to issue at least a polite email of acknowledgment, said nothing, probably distracted by the premiere of Great American Road Trip.

Delta sees things differently, blames Air France.

Delta, it must be said, sent me an email offering something, I think it was a $55 credit, on a future flight. I did not accept.

I also sent a comprehensive demand letter to Air France in June. They replied in July with yet another email, this one at least sufficiently detailed to suggest, for the first time, that they did understand the problem. They were unwilling to pay anything, of course. And more importantly, they did not say the problem was redressed, and they again blamed Delta.

This isn't about money for me, if that's still not clear. What I want is for the airlines to stop using operator agreements as an excuse to reneg on plain promises to consumers. Had Air France simply taken responsibility for the wrong and promised it's no longer happening, I would have dropped the matter.

But Air France couldn't help itself. Repeatedly, responses blamed Delta. They did not address the salient observation of the demand letter: that I have no contract with Delta, even if it were willing to accept responsibility rather than send blame back around.

So as I promised in the demand letter—one must keep one's promises—I sued for breach of contract and deceptive business practices. Like some other states, Rhode Island has a reasonably friendly statute for such consumer claims, and it entitles me to the greater of $500 statutory damages or compensatory damages, plus costs, with the possibility of a damage multiplier, up to three times, in the court's discretion. 

I am not going here to address the problem of arbitration terms among airline terms of service, slyly diverting consumers from the courts and stripping them unwittingly of their Seventh Amendment rights. I must mention that such boilerplate terms usually put any court claim of the kind I discuss here out of reach for the consumer. Worse, arbitration systems are rigged for corporate respondents, evidenced at minimum by the simple fact that they prevail in arbitration far more than reason or chance says they should. The proceedings moreover remain secret, undermining civil justice for everyone else. I have good reason to believe that I am not bound in this matter by compelled arbitration terms, but any reader or prospective plaintiff should be warned.

My goal here remains simply reform of industry practice for consumer protection. I've written before about the abuse American consumers suffer at the hands of airlines, especially in comparison with our European counterparts, and our present era of deregulation in the United States is stripping away what little enforcement there was. 

Yesterday, for example, I was shopping for an airfare online and saw a United fare with no carry-on, that is, bringing a carry-on is not allowed, not an option. That almost compels a person to check a bag, yet the fare did not include a checked bag; you could buy that later: what regulatory authorities call "drip pricing," or what President Biden called "junk fees," and which makes it exceedingly difficult to compare fares. 

These deceptive sales strategies utterly undermine absolutist economic libertarianism, demonstrating, in my view, why responsible libertarianism must support reasonable regulation to ensure a level marketplace. The Biden Federal Trade Commission regulated against junk fees. Trump has not rescinded the regulations, to my knowledge. But non-enforcement is functionally the same. A meaningful regulation would afford a private right of action with damages that would command airlines' attention.

It seems, in the great American tradition of rugged individualism, that enforcement is left to the consumer, who is scarcely given two sticks to rub together to get anything done. And at this point, it seems that a financial hit, even a small one, along with the hassle of answering in court, is required to compel Air France to own up to the simple responsibility of delivering what it sells.

If only it were that easy. 

Small Claims Court and Barriers to Consumer Protection

I am a lawyer (D.C. license) and a litigator, and I have filed many lawsuits. But what I just experienced trying to file a small claim was harrowing and would be prohibitive to a person not equipped as I am. What's worse is that touted digital tools that are supposed to make access to the courts easier are not helping at all.

Here is a series of problems I encountered in filing my small claim. Never mind, by the way, that my claim should be a class action, which is prohibitively difficult even for me to put together, if even possible under the law, which in the United States has grown hostile to consumer class actions, even while Europe, again, moves in the opposite direction.

My small claim was rejected by Massachusetts courts. And then they changed their minds.

I tried first to file a small claim in Massachusetts. It was rejected.

My personal-jurisdiction claim over Air France in Rhode Island is sufficient, but thin, based on my online ticket purchase. There's always a risk of getting a judge who is hostile to plaintiffs and not familiar with the law of internet jurisdiction. Small claims are sometimes not appealable, so if you get a bad ruling, you might be stuck, no matter the law.

Personal jurisdiction over Air France (technically, "Societe Air France") is easier by conventional measures in Massachusetts, because Air France operates out of Boston Logan airport and has assets and employees there. If I prevail in Rhode Island, Air France can make me register my judgment in Massachusetts to collect. Even though I can demand costs, registration of foreign-state judgments is a hassle, beyond the ken of non-lawyer plaintiffs, and requires an outlay of hundreds of dollars just for filing, even before executing enforcement.

Small-claims filing instructions at Mass.gov purport
to afford venue where a plaintiff works.

Happily, the Massachusetts courts website told me that small claims courts in the commonwealth will exercise venue based on a plaintiff's place of work—or home, or business. I work in Massachusetts. Even better, the courts accept e-filings.

I dutifully prepared all of my paperwork and stepped through the online e-filing procedure. It's not a bad user interface, for the most part. 

Alas, the next business morning, my claim was rejected. I had listed my home address in Rhode Island. The form asked for the address where I wished to receive correspondence, not the address I would use to assert venue. There was no field for another address. 

I called the small-claims office of the clerk in New Bedford, Massachusetts, District Court. Let me be clear here that, first, they promptly answered the phone, which is a lot more than I can say for Air France or Delta; and second, they were very, very kind. My whinging here is no denigration of the people involved, who I believe are trying do their honest best in a byzantine bureaucracy.

They told me, though, that the website is wrong, that Massachusetts courts will recognize venue only for a resident plaintiff, or a plaintiff who owns a business in the commonwealth. At least, they said, I would not be charged the filing fee ($62), and I should get in touch if my card is charged erroneously. 

By email—they have an email address, also more than I can say for Air France or Delta—I sent the office the web page I had relied on—not to hassle them, but seriously, to make sure it's corrected, so that other people, especially non-lawyers, don't waste the time and energy that I did. I also reported the error to the state IT office via the page feedback form.

I then went about several hours' work to file my claim in Rhode Island instead. I run a serious risk that Air France simply will ignore the summons; it has no assets, no liability exposure, in Rhode Island. I can obtain a default judgment. But then, again, I will have to go to the extraordinary effort and expense of registering my judgment in Massachusetts and pursuing an enforcement action there.

After I returned home from the courthouse in Providence, Rhode Island, I received an email from the clerk's office in New Bedford: "Please e-file your complaint and we will accept it."

Sigh.

I'm not going to file right now, I responded, because I don't want to pay for two lawsuits. But if Air France ducks out on the Rhode Island summons, it will be cheaper for me to sue again in Massachusetts, rather than register the foreign-state judgment in non-small-claims district court.

Small claims clerks do not understand corporate service of process. Or they do, and I don't?

A second problem I encountered relates to service of process. Neither Massachusetts nor Rhode Island small claims court would accept a service-of-process address for the defendant. Both insisted that service go to the defendant business address. That policy puts plaintiffs, especially non-lawyers, at risk of dismissal for defective service.

Every business, when it registers with a state government for licensing, in almost any state—I've seen some exceptions, and that's a whole other story in undermining consumer protection, but thankfully, Massachusetts keeps pretty good records—provides a mailing address, where it wants to receive business correspondence, and a service address, specifically for legal service of process. Big businesses, such as Air France, contract with companies, "registered agents," specially in the business of receiving legal notices.

Air France lists a New York corporate address and a Boston registered
agent in its filing with the Massachusetts Secretary of Commerce. 

In the case of Air France, its filing with the Massachusetts Secretary of Commerce lists, not unusually, an address in New York City for the corporate office, and an address in Boston for service to the registered agent, Corporation Service Company. Typically, a business relies on its registered agent only for the initial pleading, and in responsive pleading lists an address for corporate counsel to receive correspondence subsequently.

The Massachusetts e-filing system, which is not bad overall, as I said, has only one field for a defendant's address. Instructions say to provide the address where the defendant receives its correspondence. That's the defendant's corporate address. There is no field for a registered agent at a different address. 

But failing to serve a corporation by way of its registered agent means plaintiff's complaint can be dismissed for defective service. And it seems that someone knows this, because the instructions to users of the e-filing system admonish would-be plaintiffs to look up the defendant's address(es) in the database of the Massachusetts Secretary of Commerce. There's even a link to do so.

If a filing is accepted in the Massachusetts e-filing system, service follows by certified mail. There's a fee assessed for that mailing, simultaneously with the filing fee. There is no opportunity for a plaintiff to add a service address later.

So I emailed the clerk to ask about this problem. Because my filing ultimately was rejected, it never became an issue. But I asked also when we spoke on the phone. 

The clerk to whom I spoke did not seem to be familiar with corporate service of process or registered agents. She said that the small claims office always serves the business address, and that that service would effect legal process. I have my doubts, but at least I shelved that assurance for what I can tell a judge when I'm fighting against defendant's motion to dismiss.

In Rhode Island, there is no e-filing. There is a form for small claims, and it, like in Massachusetts, has only one field for the defendant's address. I entered both addresses there. When filing a civil complaint, a lawyer usually lists a "Serve on:" or "Registered agent:" address below the defendant's corporate address.

But when I went to file, the Rhode Island clerk would have none of it. She, too, seemed baffled by the idea that there would be more than one address for the defendant. She would not accept the filing that way and demanded that I cross out and initial the service address. So I did, muttering, "That's not the law," under my breath. And I filed ($75.75).

I still went by UPS to make a copy of all of the pleading papers ($6.10). I stopped home to scan a copy for myself. And when I went to the post office to send the papers via certified mail, return receipt, I sent sets to both addresses ($11.89 each).

Service of process in Rhode Island is a racket.

In ye olden times, and still when a plaintiff fears a defendant might evade accountability, service of process was effected in person, by a sheriff, constable, or professional process server knocking on the defendant's door. Private investigators sometimes picked up contract service work between meatier jobs. Personal service is so clumsy that it's sometimes the stuff of comedy in movies, such as Pineapple Express (2008).

Now we live in an enlightened age. Well, most of us. Not Rhode Island, the smallest state. Back there in a moment.

In this era of enlightenment, we understand that service of process can be effected more efficiently by paper and ink, through our perfectly well functioning postal system. This, in fact, besides state compulsion, is why companies contract with registered agents: so that we can all agree that that is the address where you send the pleading.

I hear you asking: "OK Boomer, why not use the internet?" Well, first, it's Gen-X to you. We do exist. And please don't be condescending. This is still a developing country. There's nothing wrong with triplicate forms. Press hard.

I have filed small claims in Rhode Island before, and I effected service with the usual certified mail and return receipt, even if I had to overpay the clerk's office to send it for me.

On the backs of complainants,
R.I. sheriffs get a piece of the action.
photo RJ Peltz-Steele CC0 1.0

No more, apparently. Rhode Island now requires that a small claims pro se plaintiff march from the courthouse in Providence, R.I., to the state Sheriffs Headquarters in Cranston, R.I., eight miles away, closes at 4 p.m.!, and there find a sheriff or constable to effect service ($70).

Oh, and stop by a bank or post office, because Sheriffs Headquarters does not take credit cards, debit cards, checks, or cash. You'll need a money order made out to "R.I. STATE SHERIFFS" ($2.65).

Oh, and stop by a copy shop, because you'll need two copies of all the paperwork you brought to the clerk's office, where you were instructed to bring only one, plus two copies of the summons the clerk just gave you ($6).

Alas, there's another wrinkle. R.I. Sheriffs will not serve an out-of-state defendant. How to do that? A flyer at the clerk's office in Providence instructs the pro se plaintiff to "contact that State for service." 

Anyone have the telephone number for Massachusetts? 

I was incredulous. Yet the clerk in Providence was unfazed. I asked whether I could effect service on an R.I. defendant, hypothetically, by sending certified mail, return receipt, myself. No, she said. State law requires that the Sheriffs Office or a constable effect service. I'm not so sure about that, but I'm not a Rhode Island lawyer.

How do I effect service in Massachusetts, then?, I asked. She said she could not tell me, for fear of giving me bad advice about something beyond her purview. Fair enough. But where could I find out?

I figured if certified mail, return receipt, was good enough for the New Bedford District Court, it was good enough for me. And I couldn't see a judge turning me away when I have a return receipt in hand. Still, here we are with another problem that could end the non-lawyer's case before it gets going, and flush the sunken $75 R.I. filing fee down the drain.

When the clerk returned with my summons, after having consulted with a colleague, she said, "You can send this certified mail." That must have been hard to admit. 

Yet it does prompt the question, why is certified mail fine for an out-of-state defendant, but no good for a Rhode Island defendant?

Maybe the sheriffs' slush fund is running short.

Rhode Island requires plaintiffs to prepare paperwork to a point of absurdity.

I did my homework before I went to the courthouse in Providence. I still screwed up. 

I spilled a bucket of printer ink—one of the most expensive liquids on earth, and a whole other story in regulators' failure to protect consumers against unfair and deceptive corporate practices—to prepare my filings for the Rhode Island court. I followed instructions to the letter. I even printed and had notarized an extra copy of the complaint. Not required, but I fancy myself a boy scout!

Let's pause there to note that Rhode Island requires a small claims complaint to be notarized. I used my AAA membership to avail of the service there. Still, I had to stop by that office on my way to the courthouse. That's actually the service I use most frequently at AAA—nothing to do with my car or travel. Someone stopping in at a UPS store for a one-off notarization would have to pay $10 or $15 per stamp.

Notarization of such a filing as routine and small-time as a small claims pleading is not normal in the states; Massachusetts does not require it. And it's profoundly anachronistic, having little purpose: yet another barrier to ordinary people's access to the courts.

But I haven't yet told you the best part.

To file a small claim in Rhode Island, the plaintiff must present, in hardcopy, the court form for the defendant's answer to the complaint, as well as court instructions for how to complete the answer form.

R.I. court instructions in Cambodian stand ready
to aid the New York corporate lawyer who needs them.

Wait, there's more!

The plaintiff also must present four pages of instructions on how the defendant can seek interpreter services, the pages respectively in English, Spanish, Portuguese, and Cambodian.

Cambodian.

The clerk looked at me skeptically and asked, "Do you have the papers for the answer?"

Clearly she anticipated having to send me packing, another schmuck who failed to follow directions. I could not tell from her anticipation whether she relished the seemingly inevitable rebuff, or was just wary of how another frustrated, infuriated claimant might react. 

"Yes," I said, proudly, presenting the papers. A boy scout craves the approval of authority figures.

But I couldn't help myself. 

"I even have instructions in Cambodian for my corporate defendant's team of New York lawyers," I said.

Unfazed.

Alas, I did make a mistake. I had printed the answer form without the instructions. The horror!

In my defense, the user instructions did not specify which version of the answer form to prepare, with or without instructions. I assumed, mistakenly, that it was not my job to tell New York attorneys how to file a responsive pleading, against me, for their transnational corporate client. 

To the clerk's credit, and I do appreciate this, because my parking meter ($1.60) was ticking, she provided me, gratis, a hardcopy of the correct form with instructions to include with my growing portfolio—now 19 pages for a two-sentence complaint.

I understand the need for both the instructions and the interpreter forms when the defendant is an individual. Access to justice is a two-way street, and, say, a landlord who is a frequent flier in the courts should not be able to exploit a tenant's ignorance of legal process and rights. 

But on the face of my complaint, I am suing a transnational corporation with a U.S. office on Broadway in Manhattan. Am I really Goliath in this scenario?

Is there no rule of reason? Or do we just assume that the little people ought not be bothering big corporations anyway?

It is virtually inconceivable that a non-lawyer could navigate the small claims process, at least not without rendering the case vulnerable to dismissal for a procedural fault.

I'm not sure anyone outside the U.S. Chamber of Commerce thinks we do not have an access to justice problem in the United States. And in the marketplace, consumer frustration has hit a record pitch.

Let's review. My claim is straightforward. I contracted for a service and did not get that service. I am suing for the value of the service that I did not get. That's a loss equivalent to $178, or $500, as the legislature decided is a fair statutory minimum.

Besides my hours and hours of time, my barrels of printer ink, and my fuel, parking, and heartache, I have thus far spent $105.63 on my $178 loss. And that's just to get in the courthouse door. If Air France does not answer my complaint, I'm looking at hundreds more dollars for enforcement, even with a default judgment in hand.

And I am only one consumer, of, no doubt, thousands, who bothered to follow up on a broken promise. I'm just one consumer savvy enough to know how to sue, at least in theory. 

No wonder, then, corporate America simply counts on the fact that it can rip off consumers for hundreds of dollars at a time with impunity. Even if one consumer fights back and prevails, the profits are enough to roll around and spill champagne in.

And our legal system facilitates this abuse. Small claims court was devised to redress this very problem, yet the hurdles to clear the entrance gate are so high, the court might as well shut its doors. Let's not forget that I was twice given incorrect guidance by clerks, notwithstanding good intentions, so far in my journey. I'm already supposed to know what I'm doing, and all this is before even getting to the merits of the case.

There are a lot of ways we could reform consumer protection and access to justice. For starters, I should not be bringing this claim. State AGs or federal agencies, at minimum, should be making sure that consumers get what they pay for, or at least that corporations cannot willfully continue deceptive practices after they're made aware of them.

Even writ small, there are countless ways that the ills of local courts, as I've outlined here and no doubt many more, could be fixed to make access to justice just a little bit easier. Our public officials only have to want the courts we pay for to work for people as well as they work for corporations. 

Gutting consumer protection is not libertarian

The Trump administration is gutting consumer protection upon a policy at odds with market freedom.

Moves such as the dismantling of the Consumer Finance Protection Bureau (CFPB), OK'd by the courts three weeks ago, are rationalized by libertarians as market efficiency measures. Yet even as an economic conservative myself, I have trouble seeing how predatory lending, hidden fees and terms, and unfair competition—all of which the CFPB combated—facilitate a level marketplace. 

Free market theory depends on a series of preconditions, including a free flow of information between buyer and seller. Misrepresentation unlevels the playing field, undermining the freedom of the market actor who is deceived. Knee-jerk libertarian absolutists are shilling either ignorantly or willfully for corporatocrats, ironically at the expense of individual economic liberty.

Late last week the administration abandoned rule-making on modest compensation for airline passengers upon the delays and cancellations that have become our everyday experience in air travel in America. I wrote about the EU compensation system in 2023. That system has now turned 20, while the United States becomes ever more an outlier for its passionate embrace of oligopoly and disdain for consumers. Well, we have Russia to keep us company.

Soon, my 1L Torts students will reach our study of express assumption of risk as a liability defense. They will learn how profoundly permissive are American courts of binding boilerplate, notwithstanding any realistic showing of assent, much less understanding, on the part of consumers. (More.) Solutions to this problem have been theorized capably by scholars for more than a decade, yet policy makers, even constitutional originalists supposedly committed to express liberties such as the Seventh Amendment right to a jury trial, show no serious interest in reform.

Given the futility of the consumer's plight, I got a laugh out of an on-screen notice my television recently delivered from HBO Max. 

"Your continued subscription to and/or use of HBO Max confirms that you have"—the text started, before hitting the end of the screen.

"OK" was the only permitted response.

I could have shut down my Roku and walked away. 

I didn't. I agreed and continued.

What's an immortal soul when Peacemaker season 2 beckons?

RFK, Jr. hearing prompts reconsideration of civil, regulatory responsibility for vaccine misinformation

"Are you supportive of these onesies?" Sen. Sanders asks.
© C-SPAN (YouTube; license).

The showdown between Bernie Sanders and RFK, Jr., featuring anti-vacc onesies, got me thinking about articles published by a former student, later academic and bar colleague, positing tort and regulatory approaches to harmful vaccine misinformation.

I wrote in 2017 about physician-attorney Donald C. Arthur's Commercial Deception by Anti-Vaccine Homeopathic Websites: A Consumer Protection Approach, 10:1 Biotechnology & Pharmaceutical L. Rev. 1, 27 (2017). At the time, the article was behind a pay wall; it is now freely available.  Here is the abstract.

Some internet marketers offer for sale "vaccination substitutes" that can purportedly replace actual scientifically-tested and federally-approved vaccinations. Deceptive internet advertising for vaccine substitutes has dissuaded parents from vaccinating their children, resulting in a resurgence of vaccine-preventable childhood diseases. The Food and Drug Administration and Federal Trade Commission have the authority to address dangerously deceptive product claims, including those for homeopathic preparations that have thus far avoided safety and efficacy testing. This article presents the issues involved in deceptive advertising and proposes regulatory solutions.

When Dr. Arthur and I first discussed the project in the 2010s, he was thinking about a tort theory for liability for publishers of vaccine misinformation. The tort theory is fraught, but feasible. There are problems of proof, such as the attenuated causation linking the publication of misinformation with later disease, and the inevitable First Amendment defense, which at plaintiff's most fortunate still might require culpability in excess of ignorance.

Dr. Arthur split his research into two works. He published in 2016, I didn't mention in 2017, Negative Portrayal of Vaccines by Commercial Websites: Tortious Misrepresentation, 11:2 UMass L. Rev. 122 (2016), also freely available. Here is the abstract.

Commercial website publishers use false and misleading information to create distrust of vaccines by claiming vaccines are ineffective and contain contaminants that cause autism and other disorders. The misinformation has resulted in decreased childhood vaccination rates and imperiled the public by allowing resurgence of vaccine-preventable illnesses. This Article argues that tort liability attaches to publishers of commercial websites for foreseeable harm that results when websites dissuade parents from vaccinating their children in favor of purchasing alternative products offered for sale on the websites.

When Dr. Arthur wrote both these articles in 2016, it was before the first election of Donald Trump with attendant attempts to disarm and dismantle federal consumer protection systems. The tort theory looks better now. See Dorit Reiss & John Diamond, Tort Law: Liability for Anti-Vaccine Misinformation, 4 Judges Book 107 (2020) (not citing Arthur).

Dr. Arthur is an emergency medicine and preventive medicine physician.  He served 33 years in the U.S. Navy, culminating his career as Navy surgeon general and retiring at the rank of vice admiral. He served as chief executive officer of three hospitals, including the National Naval Medical Center in Bethesda, Maryland. Dr. Arthur teaches adjunct at UMass Law and for seven years practiced of counsel with the Law Offices of Beauregard, Burke and Franco.

HT @ Melissa Colten, UMass Law public interest fellow, whose curiosity reminded me of these articles.

To contradict consistent record of impotence, DOT opens needed inquiry into airline miles programs

Washington, D.C.—The U.S. Transportation Department (DOT) last week opened an investigation of airline frequent-flier programs, and it's about time.

The old adage about wheels of justice turning slowly usually well describes the antitrust activities of the Justice Department (DOJ) and Federal Trade Commission (FTC). Only in recent years has the government begun to awaken to the rampant price-fixing in our economy that consumers have been accustomed to for decades. Runaway inflation shed light on how little choice Americans have in grocery stores, probably prompting FTC qualms over the Kroger-Albertson merger. Sky-high rents and a housing shortage similarly have prompted DOJ attention to rent-fixing.

Now it seems the emphasis is on the wheels part of the old adage, as DOT takes a belated interest in the airlines. Absurdly high prices, especially in domestic travel, probably stirred the agency giant. The Biden Administration and Buttigieg DOT have largely failed to deliver on infrastructure promises. So it's pleasing to see a glimmer of concern for consumer welfare vis-à-vis ever more profitable providers.

A window view sometimes makes flying a tiny bit less miserable.
RJ Peltz-Steele CC BY-NC-SA 4.0

Misery in the Air

As to domestic air travel, I remember President Obama saying the economy's great, but workers might have to move for jobs. Meanwhile we're encouraged to have multi-generational households to care for our elderly, and the great economy compels college grads to move back in with their parents. Is the whole family supposed to move to the same place at the same time? Air travel is a necessity for families in the vast geography of our national labor market, yet we continue to allow our oversized airlines, themselves products of mergers that should not have been allowed, to operate as if they're concierges of bespoke services.

Bespoke is ever less the consumer experience, even as prices soar. Six of my last six domestic flights, all on American Airlines, were hours late. I would be due a huge compensation check were I in the EU. From American Airlines? Nothing. To the contrary, I had to foot the bill out of pocket for transfers and overnights in pricey cities such as Chicago and D.C., else sleep in the airport. The Buttigieg DOT and Congress keep making noise about passenger compensation. But noise, to appease the electorate, is all it's amounted to. Don't even get me started on sticky trays, filthy seats, and cramped spaces on packed planes.

We All Fall Down

As to infrastructure promises, if you're thinking, "well, the Republican Congress": Save it. I don't want to hear it. The whole thing about Joe was his ability to reach across the aisle. And I didn't vote for either one of them, so if ever you tire of see-sawing between obstructionist opponents as an excuse for getting nothing done, stop voting for the only thing you're offered and come talk to me about how we dismantle the two-party system. Consumer choice indeed.

Yes, there was the infrastructure bill. Biden deserves credit for that, and I appreciate it. But even the Biden Administration knew that that would not even bring us level with our maintenance needs, much less make systemic investments.

Use of the infrastructure money, such as it is, raises serious doubts about the government's fiscal responsibility. My home state of Rhode Island is using federal infrastructure money to rebuild rotted wooden bike-path bridges that I use, so I'm selfishly pleased. But it wasn't the purpose of the bill to restore recreational paths for which the states should have planned anyway. Rhode Island failed to fund replacement for the decades when the bridges' inevitable expiry was well known; consequently, the bridges have been subject to dangerous detours for years since the failure. And the bridges are hardly vital infrastructure; the few people who actually commute on them are stymied by uncleared snow in the winter and an abrupt end to dedicated lanes at the ends.

I have doubts too about even the more clearly legitimate uses of the money. DOT and Amtrak plan to build out vital northeastern rail service westward in Massachusetts, a welcome initiative. But the trains will not be any better than the embarrassingly slow service we have in our rail system now; driving will still be preferable for speed and reliability. I remember "Amtrak Joe" saying something about high-speed trains, you know, like in the developed world. The best the administration seems to have managed is to ask Japan for help with high-speed rail. I guess we don't have the technology.

Round and Round

Topping it all off, there's the corruption that the government seems unable to get a handle on. Or as we call it in America, contracting. Rhode Island got caught with its pants down last year when the key Washington Bridge alongside the I-95 corridor in Providence was found to be fatally defective and was suddenly closed. A "junior engineer" spied the rusty deficiency, media reported, or as I like to say, a "former junior engineer" who didn't get the memo. Because the odds are nil that inspection contractors, who enjoy a revolving door with state government offices, somehow failed to notice the problem for years.

The bridge has to be torn down and replaced, and costs are spiraling. When the state bid the demolition project, intense media and public scrutiny compelled a realistic cost estimate of $31 million. But contractors don't emerge from their pools of money for realistic. The state ultimately awarded the work for close to $50 million. But wait, there's more. The company that was awarded the demolition contract is also a defendant in the state lawsuit over the defective bridge. You can't make this stuff up.

The overall estimate, no doubt too low, for the Washington Bridge replacement is about a half billion dollars, and we should pause a moment on that number. It can be difficult to assess the legitimacy of these big numbers, as the average consumer has little frame of reference to differentiate a million from a billion. For some reason I play the lottery only when the jackpot hits a half billion, as if I would not be content with a tenth as much.

The Massachusetts Bay Transit Authority (MBTA) recently estimated that it would take $24 billion to make the Boston T work the way it's supposed to. That's not to improve the system; that's just to bring it up to serviceable: timely trains, functional stations. The T is infamously unreliable and plagued by maintenance issues. Yes, it is an old system, but that doesn't fully explain the problems. An extension of the green line opened in 2022, for example, and saw such problems with defective tracks that trains had to be slowed to less than walking speed.

Chair: Wait, I see a hand. Rhode Island, you have an idea?

Rhode Island: Yes, Mr. Chair. We propose that the MBTA hire the contractor that built the green-line extension also to remove and replace it.

Chair: Thank you, Rhode Island.

Rhode Island (to camera): Baltimore, 🤙 <<call me>>.

In contrast, the city of Brisbane, Australia, is rebuilding its metro system, including a new fleet of electric vehicles and excavation of a new tunnel, for a price tag of only $1.4 billion. That's Australian dollars; it's about US$930 million. Brisbane's metro is a smaller system than Boston's, yet I can't help but think that the T couldn't mop up the urine in the system for a billion dollars.

I might not know millions from billions, but I know that 1 for new is a better buy than 24 for old. It's hard not to conclude that something is amiss in accountability for infrastructure spending. If only there were, I don't know, experts, or something, who don't work for contractors. Maybe they could work in the government, for the public.

Miles To Go

Well the good thing about antitrust enforcement is that it requires lawyers, but no new construction. Maybe the Buttigieg DOT has found its knack.

The ways in which airlines have innovated consumer exploitation in frequent-flier programs are sufficiently many to constitute a course in business school. Well, bad-business school. Violations of antitrust law are so painfully obvious that it's hard to believe we have antitrust enforcement at all.

The legal status of frequent-flier miles has evolved since the programs were conceived circa 1979. They started as little different from tenth-sandwich-free punch-card programs. It was the funny kicker on the news when they were first contested as property in legal contexts such as divorce. That's not an unprecedented evolution, by the way. Divorce has a way of showing us what's valuable to people. Dogs and cats are transitioning from mere chattel to intangible value in tort law by way of divorce court.

Notwithstanding limited legal exceptions, courts tended nonetheless to regard the airline mile as a purely contractual creature. Airlines urged that construction and delighted in it. The miles are thus controlled by terms of service, to which consumers bind themselves usually with neither meaningful choice nor actual knowledge. Per the law of boilerplate in the information age, the airlines reserve the right to change the terms more or less unilaterally. That's why the airlines can and do devalue miles routinely and add new redemption restrictions, such as blackout dates and transfer limits.

Corporations' concerted efforts to construct self-serving legal doctrine has not stopped miles from becoming "a virtual currency." The government has long tolerated this dichotomy of law and reality. And things might have continued swimmingly for the airlines had they not succumbed to greed, the Achilles heel of the American corporate ethos. Once the airlines understood that miles and money were interchangeable, they started making them, literally, interchangeable. Today a consumer can earn miles per dollar on credit cards, transfer cash-back rewards to mileage programs, and simply buy miles.

Devastatingly to the airlines' antitrust position, they doubled down on co-branded credit cards. Those agreements are a specific target of the DOT investigation. I have an American Airlines card and a United card; I've had Southwest and Delta cards in the past and probably will again. My cards get me earlier boarding and other perks. Most importantly, they (thankfully excepting Southwest) "save me" baggage-check fees. The annual fee on each card is $99; it costs $80 to check a bag roundtrip.

I put "save me" in quote marks because, remember, there didn't use to be baggage fees. Co-branded credit cards date to the 1980s, but they really took off, no pun intended, in the 20-aughts. Baggage fees were introduced in 2008. Coincidence much? Consumers have been coerced into having the credit cards; it would be economically irrational not to. Of course, paying the airfare with the card earns more miles. The cycle continues.

Ganesh Sitaraman aptly reported in The Atlantic last year, as the headlines put it, "Airlines are just banks now: They make more money from mileage programs than from flying planes—and it shows." 

But airlines are not regulated as banks.

And that's why federal scrutiny is long overdue.

Scribd has the DOT Template Letter on the Airline Rewards Inquiry, issued to the four largest carriers, American, Delta, United, and Southwest. HT @ TPG.

Can't see sports, Oscars without channel-bundle subscription you don't want? Let regulators know

Gencraft

I filed a comment today with the Antitrust Division of the U.S. Department of Justice regarding the Disney-Fox-Warner sport streaming deal, and more generally, the anticompetitive practice of streaming television sales with channel-bundling leverage and opt-out subscriptions.

---

9 March 2024

Dear sir or madam at the Antitrust Division of the U.S. Department of Justice:

I understand you are scrutinizing the Disney-Fox-Warner sport bundling agreement, and you no doubt are sensitive to the situation in televised sport since the recent congressional hearings on sport media rights.

I draw your attention to two of this weekend's top offerings in sport and entertainment, because they are demonstrative of the problem now in the streaming industry—which is to say, for our times, in the television industry.

In sports, this weekend will see a meeting of the top two, closely matched soccer teams in the world contending for the Premier League championship, Manchester City and Liverpool.  NBC owns U.S. TV rights to Premier League matches in the United States.  NBC's practice is to break up matches horizontally, across its many media properties and contractual arrangements, compelling consumers to have to pay for multiple services to follow a single team in a single sport.

The practice is worse still: high-interest matches such as Sunday's are available only with the purchase of subscription bundles to channel packages consumers do not want.  Yes, the match is available from multiple electronic packages, but each is an expensive bundle: Fubo, Sling, DirecTV, and USA on cable television.  There is no one-off purchase option, nor even a one-channel purchase option.  The price of one month on one of these services far exceeds the market value of one match, or even four weekly matches.

This leveraged bundling, compelling consumers to buy what they do not want to get what they do want, especially in a billing format of opt-out subscription renewal, is an anticompetitive practice. It is ironic that Fubo has sued in private antitrust enforcement to stop the Disney-Fox-Warner agreement. Fubo's position seems to be that it wishes to profit in the vertical market from bundling leverage, but does not want providers to profit from the same model in a horizontal arrangement. In entertainment, the Oscars air on ABC Sunday night.  Like NBC in sports, ABC is making this popular program available only through bundled channel services such as Fubo, Sling, YouTube Live, Hulu Live, DirecTV, and ABC on cable television. Again, there is no one-off purchase option, nor even a one-channel purchase option. 

Again, consumers must buy access to content they do not want, again in a billing format of opt-out subscription renewal.  Media watchers such as Vulture advise consumers to purchase a television antenna to see the Oscars on ABC broadcast.  Is it not plain evidence of ABC's anticompetitive practice that in this day and age consumers would have to regress technologically to over-the-air broadcast to avoid paying for what they do not want?  Never mind the fact that old-fashioned broadcasters have substantially dampened their signal power, so that over-the-air reception is not feasible for many Americans, even on the fringes of large markets.

Disney-Fox-Warner argue that they must forge an agreement to meet consumer demand, so their agreement is in the public interest.  They are not wrong.  However, they are right only insofar as you already have permitted an anticompetitive market to exist.  For a player in this market to succeed, it must grow bigger, must exploit horizontal and vertical integration.

The fundamental problem is that the market already is dysfunctional.  Market actors are trying to replicate the cable model in a streaming world. But the cable model came about as a function of technological limitations, not market forces.

Is it not self evident that in a free market, consumers would be able to buy what they want and not buy what they do not want?

I entreat you not to approve of the creation of another integrated market player. At the same time, I entreat you, start taking a hard look at the anticompetitive practices that already are tolerated in existing horizontal and vertical integrations, especially through the strategy of channel-bundling leverage and opt-out subscription sales.

Sincerely,

Rick J. Peltz-Steele

(for information only:)
Attorney, Washington, D.C.
Chancellor Professor, UMass Law School

Hertz/Thrifty takes reservations for cars it doesn't have, stranding customers; worse, that's the business model

I've been locked in pre-litigation combat with Hertz Corp. for almost a year, and I'm tapping out.

The problem is simple: The Thrifty Car Rental (Thrifty is a Hertz company) at Memphis Airport (MEM) has been renting cars that it doesn't have. Customers get stranded for hours, until a car comes in, rolling the problem forward. And Hertz is OK with it.

Frustrated Thrifty customers wait hours for cars in Memphis (Mar. 2023).
There's not even seating. RJ Peltz-Steele CC BY-NC-SA 4.0

Here's a rough timeline.

● March 2023: I show up for a car rental in Memphis with a time-sensitive work schedule. They're "out of cars." Lots of people are milling about in the same predicament.  Hours later, I get a car, not before my work plans are screwed up. A check of online reviews reveals that this is business as usual for Thrifty MEM.

● Later March 2023: I complain to Thrifty and the Tennessee AG and ask for just one day's refund and that the deceptive practice be abated.

● May-June 2023: Hertz Executive Customer Service reaches out to offer $50 off a future rental and pledges that what I experienced is not Hertz/Thrifty's normal mode of business. In exchange for the coupon and assurance, I drop the matter with the Tennessee AG.

● October 2023: I discover that the $50-off coupon is a sham.  The coupon can only be redeemed at the rental counter.  Premium for paying at the rental counter: $50.  I ask the Tennessee AG to reopen the matter. 

● Also October 2023: I investigate online reviews of Thrifty MEM and discover that they still are renting cars they don't have, leaving customers stranded for hours or longer. I report my finding to the Tennessee AG. The Tennessee AG suggests I also report the matter to Hertz's home jurisdiction, Florida. So I forward the report to the Florida AG.

● November 2023: In response to my reopening of the settlement with the Tennessee AG, Hertz says take a hike. The Tennessee AG closes the matter, because, you know, what can you do.

● December 2023: I send Hertz a demand letter, alerting the company that sending a sham coupon to a Rhode Island resident and knowingly doubling down on the sham renders the company liable for treble statutory damages of $1,500 under R.I. consumer protection law.

● January 2024: Hertz gives me 1,900 "Gold Plus Rewards" points for one day's car rental, in place of the $50 coupon.  I find out the points are just as useless when I need a rental from IAD to BWI; points can't be used on one-way rentals.  Meanwhile, Hertz replies angrily to my report to the Florida AG, accusing me of seeking unjust enrichment by complaining in multiple states. Oh, and Hertz tells me again to go take a hike.

That brings us to today.

---

Feb. 12, 2024

Hertz Corp. d/b/a Thrifty Rental Car
Attn.: General Counsel
8501 Williams Rd.
Estero, Fla. 33928

Open Letter

Dear sir or madam:

I write in regard to the matter originating in a car rental reservation with Thrifty at the Memphis International Airport on March 28, 2023; your subsequent proffer of a sham coupon for a subsequent Thrifty rental; my demand of Dec. 17, 2023, for compensation accordingly under Rhode Island consumer protection law; and your subsequent award of 1,900 “Gold Plus Rewards” points.

I accept your award of the points in abeyance of my demand.  I have grave doubts that the points are of any use to me.  I already have discovered that I could not use them for a one-way rental from IAD to BWI; they cannot be redeemed on one-way rentals.  And I don’t foresee a need in the future for a one-day car rental anywhere, certainly not before the points expire.  Nevertheless, I choose to see the award as a gesture of good faith.

In return, I ask just one more thing of you:  Hear me out on the following points.

(1) I never wanted from you money, coupons, or points.  I demanded the sum of only one day’s rental cost as nominal and symbolic. What I really wanted was simply that you stop your Memphis MEM Thrifty provider from accepting car reservations for cars they do not have, leaving customers stranded.  Ms. Walsh of Hertz Executive Customer Service wrote that that was not the business practice of Hertz and Thrifty (nor, one presumes, Dollar). That assurance was false. My investigation of online reviews revealed that the deceptive practice continued unabated at MEM. I subsequently rented from another company at MEM and saw the usual crowd of distressed travelers camped out at the Thrifty counter. Shame on you.

(2) A “$50 off”-at-the-counter coupon when you charge $50 more for transactions at the counter is a sham, plain and simple.  I reiterate, I didn’t want your coupon.  I would’ve dropped the matter if you simply abated the deceptive practice.  I decided to redeem the coupon only when it became clear that you were determined to continue to allow deception in your business at MEM.  Even to buy me off, you could not even make an honest offer. Shame on you.

(3) I informed the Tennessee and Florida AGs of the ongoing deceptive business practice at MEM.  Authorities should be informed, even if, as usual, they do nothing.  I forwarded the notice to the Florida AG only because the Tennessee AG bid me do so.  I did not ask for anything in Florida; I did not want dispute resolution in Florida.  The Florida AG, whether for incompetence or willful indifference, entered the notice into a private-dispute resolution system. Ms. Walsh responded in Florida with something like outrage that I had dared to complain about you in another jurisdiction. Let’s be clear: Your MEM provider was engaged in a deceptive business practice.  I notified civil enforcement authorities in that jurisdiction.  They urged me to notify civil enforcement authorities in Hertz’s home jurisdiction. So I did. I asked for nothing from or in Florida. Don’t accuse me of some kind of profiteering off of your poor choices.

You know as well as I do that you can get away with deception at MEM, and anywhere else you want to, and with your profound commitment to stick your head in the sand about it only because antitrust and consumer protection enforcement in your industry is a joke.  I wish I could say I’ll never rent again from Hertz companies. But of course I will. I won’t have a choice.

I understand how you get away with deception and subterfuge, but what I cannot understand is why.  It would be so easy simply to run an honest business.  Don’t accept reservations for cars you don’t have.  Don’t tell customers you’re doing one thing and do another.  If you give someone $50 off, give someone $50 off.  I’m sure Hertz is big and successful enough to stay in business without relying on deception.

Is it really so hard just to be honest?

Sincerely,

/s/ Rick J. Peltz-Steele

Cc: [Ms. Walsh]; [Tenn. AG]; [R.I. AG]; [Fla. AG]

Consumer-unfriendly designs resist right to repair

The nation is in the grip of a battle over right-to-repair laws. I'm a fan.

Right to repair ensures consumers' ability to repair, or to have repaired, the products they own without having to go back to the original manufacturer. Corporations in the tech era have sought to lock down their products and the business of servicing them, both to profit from service and to protect intellectual property. The behavior is anti-competitive and monopolistic, which is to say, it's how things work in America.

Consumers can be kept out of products, and independent repairers can be driven out of business, by legal and design mechanisms. Legally, a consumer might be barred from repairing a product by contractual clauses in product sale and warranty or by clickwrap terms and conditions of software. Right to repair laws are effective to fight back against these limitations.

Product design can exclude consumers from repair access, too, and this is the more challenging problem. Makers always claim that design limitations on repair are incidental or required for the integrity of the product. A car's onboard computer might be accessible only with a proprietary interface, a measure the carmakers says is necessary to protect the consumer from hacking. A cell phone might break when it's not pried opened properly, an inconvenience the maker says is necessary to pack safely the features consumers want into so small a space.

More than half the states had right to repair on the legislative docket in 2023, the National Conference of State Legislatures counted, with new enactments in California, Colorado, New York, and Minnesota. NPR reported recently on the latest from Michigan. The White House and Europe are on board, and Apple seems to have gauged the winds and decided to play nice. 

Apple's strategy is not the norm. Despite the popularity of right to repair and its obvious essentiality for a free market, right to repair has been elusive. Carmakers have been especially resistant.

Massachusetts adopted right to repair by voter initiative in 2012. The legislature came on board the next year. Carmakers resisted at every turn. Voters were compelled in 2020, despite deceptive industry political tactics, to approve another initiative that expressly expanded the law to apply to automobile telematics, that is, cars' onboard diagnostic data. 

Carmakers continue to resist, tying the law up in litigation, with claims such as federal preemption (this blog in July 2022). Federal regulators initially sided with carmakers, but in recent months, pressured and shamed by Massachusetts senators and the White House, have grown indecisive and tried to plot a middle course. The problem is exacerbated with electric vehicles, as carmakers resist right to repair by leveraging the Administration's wish to transition inventory.

In carmakers' latest fit of passive-aggressive resistance to right to repair, they're refusing to include features such as internet connectivity in states such as Massachusetts. If we insist that carmakers share, then they'll pack up their toys and go home.

A car cabin air filter usually is easily accessible behind the glove box.
Not on the 2023 Nissan Versa. (Generic image.)
Matt Woolner via Flickr CC BY-NC-SA 2.0.

I believe I saw for myself last weekend evidence of carmaker resistance-by-design to right to repair. 

My family acquired a 2023 Nissan Versa last year. The dealer purchase and the car itself have been nothing but a series of frustrations and disappointments. The seller was deceptive in pricing and failed to provide standard equipment; I might write about those issues another time. I am shopping for counsel now to bring a design-defect claim against Nissan: also a story for another time. My advice in short: don't buy a Nissan.

My latest micro-frustration was over the cabin air filter. A passenger car's cabin air filter is almost invariably located behind the glove box and easily changeable by the owner. No longer in the 2023 Versa.

Even removal of the glove box first requires the extraction of six screws; the box's latch assembly comes out too, along with two of the screws. It's not easy to replace later. 

Behind the glove box there is ample room for a cabin air filter; it's not there. Rather, a lower side panel in the passenger compartment also must then be removed. The plastic pins for the side panel are not made for repeated removal. So repeated access to the filter seems to ensure that the interior plastic walls will need replacement, too, in time.

Finally, one can reach the filter, though removing it from a too-small access window means squeezing it, thereby diminishing the integrity of the new filter one puts in.

I can imagine no good reason for the relocation of the filter than to make it more difficult for consumers to replace it themselves. And for those who don't and do take the car to a Nissan service provider, the now more involved operation, especially removal and replacement of the glove box, will increase the labor cost. Win-win for Nissan.

That's just the tip of the iceberg. Makers are doubling down on consumer-resistant designs.

I want to replace the faulty charging port on my more-than-two-year-old Google Pixel 3 cell phone. One would think it an easy and foreseeably necessary operation to replace an essential external port with pins and contacts that bend, break, and degrade over time, faster than the electronics they serve. 

But I've read online that it's nearly impossible for an amateur such as me to pry the phone open, to access the port's plug-in, without shattering an interior glass panel. Why? To sell me a Pixel 8, I suspect.

Resistance to right to repair through deliberate design will be much harder for consumers to fight than mere terms and conditions or even proprietary codes. Physical design limitations are difficult to detect and disallow. Industry capture of regulators doesn't help.

Right to repair might have won the battle of public opinion, but it's far from becoming consumers' reality.

Consumers turn tables against corporate defense in compelled arbitration of information privacy claims

Image via www.vpnsrus.com by Mike MacKenzie CC BY 2.0

Consumer plaintiffs turned the usual tables on corporate defense in the fall when a federal court in Illinois ordered Samsung Electronics to pay millions of dollars in arbitration fees in a biometric privacy case.

In the underlying arbitration demand, 50,000 users of Samsung mobile devices accuse the company of violating the Illinois Biometric Information Privacy Act (BIPA). BIPA is a tough state privacy law that has made trans-Atlantic waves as it fills the gap of Congress's refusal to regulate the American Wild West of consumer privacy.

Typically of American service providers, Samsung endeavored to protect itself from tort liability through terms and conditions that divert claims from the courts to arbitration. The (private) U.S. Chamber of Commerce champions the strategy. Arbitration is reliably defense-friendly. Rumor has it that arbitrators who don't see cases corporations' way don't have long careers. And companies bask in the secrecy that shields them from public accountability. (Read more.)

Resistance to compelled arbitration has been a rallying cause of consumer advocates and the plaintiff bar. For the most part, resistance has been futile. But consumer plaintiffs appear to have a new strategy. The Chamber is not happy.

In the instant case, consumers alleging BIPA violation were aiming for arbitration. Arbitration rules, endorsed by Samsung's terms, require both sides to pay toward initial filing fees, a sum that adds up when 50,000 claims are in play. The consumers' attorneys fronted their share, but Samsung refused. The company weakly asserted that it was being scammed, because some of the claimants were deceased or not Illinois residents, both BIPA disqualifiers.

Samsung must pay its share of arbitration filing fees for living Illinois residents, the district court answered, at least those living in the court's jurisdiction. Many of those consumer claimants were identified with Samsung's own customer records. A few whom Samsung challenged, the claimants dropped from their number. Even when the court pared the list to consumers in Illinois's federal Northern District, roughly 35,000 were still standing.

"Alas, Samsung was hoist with its own petard," the court wrote, quoting Shakespeare. The court opined:

Samsung was surely thinking about money when it wrote its Terms & Conditions. The company may not have expected so many would seek arbitration against it, but neither should it be allowed to “blanch[] at the cost of the filing fees it agreed to pay in the arbitration clause.” Abernathy v. Doordash, Inc., 438 F.Supp. 3d 1062, 1068 (N.D. Cal. 2020) (describing the company’s refusal to pay fees associated with its own-drafted arbitration clause as “hypocrisy” and “irony upon irony”).

The American Arbitration Association, the entity with which the claimants filed pursuant to Samsung's terms, estimated Samsung's tab at $4.125 million when the number was still 50,000 claims.

Attorneys Gerald L. Maatman, Jr., Rebecca S. Bjork, and Derek Franklin for corporate defense firm DuaneMorris warned:

As corporations who employ large numbers of individuals in their workforces know, agreements to arbitrate claims related to employment-related disputes are common. They serve the important strategic function of minimizing class action litigation risks. But corporate counsel also are aware that increasingly, plaintiffs’ attorneys have come to understand that arbitration agreements can be used to create leverage points for their clients. Mass arbitrations seek to put pressure on respondents to settle claims on behalf of large numbers of people, even though not via the procedural vehicle of filing a class or collective action lawsuit. As a result, corporate counsel should carefully review arbitration agreement language with an eye towards mitigating the risks of mass arbitrations as well as class actions.

Samsung wasted no time appealing to the Seventh Circuit. The case has drawn a spate of amici with dueling briefs from the Chamber and associates, favoring Samsung, and from Public Justice, et al., favoring the consumer claimants.

The district court case is Wallrich v. Samsung Electronics America, Inc. (N.D. Ill. Sept. 12, 2023), opinion by Senior U.S. District Judge Harry D. Leinenweber. The appeal is Wallrich v. Samsung Electronics America, Inc. (7th Cir. filed Sept. 25, 2023).

FTC 'junk fees' proposal needs tightening

The CFPB is attacking junk fees in banking. The FTC rule
would govern consumer sales transactions. CFPB image.

Today I submitted the following comment to the Federal Trade Commission on the notice of proposed rule-making regarding "Trade Regulation Rule on Unfair or Deceptive Fees." These are the "junk fees" that the Biden Administration has pledged to combat.

The NPRM was published on November 9, 2023. You too can comment at the Federal Register website. You can bet that business will be crying loudly about the impracticality of simply telling customers what the price of a thing is.

I support the proposed rule, though I don't think it goes far enough. My comment focuses on select points of ambiguity on which already I foresee business intransigence.

Elsewhere in the world, even tax is part of a price. When my friends and family visit from abroad, they are flummoxed by the repeated experience of seeing a price and then having to pay more. For some reason we countenance this in America, as if in some kind of wild West approach to market regulation, it's OK for a seller to put a gun to the consumer's head at the point of sale. As I say in my comment, that is not what "free market" means.

---

December 6, 2023

I support the proposed rule because I support free-market transaction and regulatory policy. A free market requires transparency around the terms of transaction to both buyer and seller. When a buyer is surprised by junk fees, that is, fees that are applied to a transaction after the customer believes that she or he has concluded negotiation of the terms, the seller is able to conclude the transaction upon an unfair advantage. It is an appropriate role for government regulation to level the marketplace by ensuring transparency, and that means upfront total pricing.

I note [a] point of potential ambiguity, and, thus, potential abuse by sellers. In the proposed rule, “Government charges” are defined as

all fees or charges imposed on consumers by a Federal, State, or local government agency, unit, or department. This definition covers only fees or charges imposed by the government on consumers and does not encompass fees or charges that the government imposes on a business and that the business chooses to pass on to consumers.

I anticipate argument over two points.

First, I expect that quasi-governmental actors, such as a corporations created by statute, and government contractors, such as service concessionaires, are not agencies of government. Sellers might disagree.

Second, if a governmental actor compels a seller to report and pay a per consumer or per transaction fee, I expect that the fee is nonetheless a fee that the business “chooses to pass on to consumers.” Sellers might disagree.

By way of example, I have just made a car reservation with Avis at BWI. My upfront price was $104.82.

On the payment page, the following fees were added:

• Concession Recovery Fee (11.11%): 12.27
• Customer Facility Charge-3.75/day: 7.50
• Transportation Facility Charge-2.25/day: 4.50
• Vehicle License Fee-0.56/day: 1.12
• Total Tax: 14.97

The additional fees sum $40.36, which is a 38.5% markup on the upfront price.

All of these fees are sanctioned by Maryland law. The former two fees are passed on by Avis to the Maryland Airport Authority (MAA), and the latter fee is, self-evidently, a tax. I do not know the beneficiary of the penultimate two fees, but I assume that the Transportation Facility Charge goes to an MAA shuttle contractor.

So first, is the MAA contractor a “government agency, unit, or department” under the proposed rule? I suggest no, because contractors and concessionaires, like quasi-governmental “sue or be sued” entities created by Congress, are expected to comply with the rules of the competitive marketplace when they act in a commercial capacity. However, Avis might disagree, arguing that the fee is set by the MAA. The MAA is a governmental unit of Maryland state government.

Second, are these fees “impose[d] on a business[,] and … the business chooses to pass [them] on to consumers”? I suggest yes, because Avis owes these fees to the MAA, et al., but is not obligated to pass them on to consumers. As long as Avis accounts for the fees with the government, Avis remains free to price its services as it pleases. Moreover, to calculate the state tax on the car rental, 11.5%, the tax basis includes the fees. Thus, it seems plain to me that the fees represent the price of service and are not akin to a tax that is imposed upon the transaction. However, Avis might disagree, arguing that the seller is a mere conduit for fees set by the MAA.

I suggest that the junk-fee rule is virtually impotent in a broad range of transactions if it does not address fees in a transaction such as this one. While I might like to see tax and all incorporated into upfront pricing—as it is in countries the world over—I understand that that is not the American custom. But any fee besides tax on sale or service should be disclosed to a customer as part of an upfront price. Otherwise, the proposed rule is completely undermined. I must go all the way to the payment page of the Avis transaction before I discover the actual price, a substantial markup, for the transaction I desire.

I hope you will clarify that government contractors and comparable quasi-governmental actors are not governmental actors within the meaning of the proposed rule. And I hope you will clarify that government-sanctioned fees that are incorporated into the tax basis of a transaction, even if imposed on a per customer or per transaction basis, are fees that a seller “chooses to pass on to consumers.”

Acuerdo en inglés para arbitrar vincula al firmante de habla hispana aunque no lo entendió, tribunal concluye

(English translation by Google: Agreement in English to arbitrate binds Spanish-speaking signatory even though he did not understand it, court rules.)

Un hombre de habla hispana se comprometió a un acuerdo de arbitraje en inglés incluso si no lo entendía, dictaminó ayer el Tribunal de Apelaciones de Massachusetts.

El día de su cirugía para corregir la visión con Lasik, el demandante Lopez firmó cuatro formularios en inglés, incluido el consentimiento y el acuerdo para arbitrar cualquier disputa. Más tarde, insatisfecho con la cirugía, Lopez presentó una demanda, alegando negligencia médica.

CC0

Revocando la decisión del Tribunal Superior, el Tribunal de Apelaciones ordenó la desestimación tras la moción del demandado de obligar al arbitraje.

Las cláusulas de arbitraje obligatorio han sido un punto de dolor para los defensores de consumidores durante décadas. Son una parte del problema de los términos de servicio densos y no negociables que son omnipresentes en las transacciones de consumo contemporáneas, tema de libros como Wrap Contracts (2013), por Nancy Kim, y Boilerplate (2012), por Margaret Jane Radin.

Los defensores de consumidores como Ralph Nader lamentan la eliminación masiva de disputas del sistema de justicia civil, un impacto en la Séptima Enmienda y una propagación democráticamente problemática de la justicia secreta. Y detrás de las puertas cerradas del arbitraje, las probabilidades favorecen a los negocios de manera tan abrumadora que alimentan dudas sobre la justicia. Los árbitros que no dictaminan la forma en que los demandados recurrentes corren el riesgo de quedarse sin trabajo.

A pesar de estos potentes motivos de preocupación, los legisladores y los tribunales se han puesto del lado de las empresas para proteger y hacer cumplir el arbitraje obligatorio, supuestamente para proteger al comercio de los intolerables costos de transacción de los litigios.

En el ley común de daños, el consentimiento y la asunción expresa del riesgo niegan la responsabilidad, porque se debe permitir que dos personas establezcan los términos de su propia relación. Podrán apartarse del contrato social siempre que los términos que fijen no violen el orden público; es posible que, por ejemplo, no acepten cometer una herida. En teoría, ambas defensas se basan en el acuerdo voluntario y consciente del demandante.

El demandante que firma un contrato sin leerlo cuestiona esta teoría. La firma evidencia el acuerdo subjetivo del demandante. De hecho, no existe ningún acuerdo subjetivo; el conocimiento y la comprensión de los términos acordados no se pueden encontrar en la mente del demandante.

La regla general es que la firma vincula de todos modos. Y en gran medida, esta regla es necesaria, incluso si significa que las personas están obligadas a cumplir términos que no habrían aceptado si los hubieran entendido. El comercio depende de la fiabilidad de los contratos. Si una parte del contrato  siempre pudiera impugnar la aplicabilidad basándose en testimonios interesados de malentendidos, entonces el litigio sería tan gravoso que paralizaría los negocios.

Un malentendido subjetivo puede causar un incumplimiento del contrato en el derecho de daños si mitiga la evidencia de la aquiescencia del demandante. Así, por ejemplo, las empresas a veces buscan establecer la asunción expresa del riesgo por parte de los clientes con un cartel que diga que "cualquiera que proceda más allá de este punto asume el riesgo de sufrir daños por negligencia." (A veces, tales carteles son exigibles por ley.) En tal caso, el demandante puede al menos argumentar que no vio el cartel, o, mejor, no lo entendió debido al lenguaje.

Desafortunadamente para Lopez, no conocía esos datos. El tribunal relató: "Lopez testificó que había vivido en Massachusetts durante doce años en el momento de su cirugía y había aprendido 'un poco' de inglés 'en las calles.'" (Las opiniones de los tribunales y el testimonio citado están en inglés; todas las traducciones aquí son mias.) El Tribunal Superior había determinado que "Lopez no tenía un comprensión suficiente del inglés para permitirle leer el Acuerdo de Arbitraje." Al mismo tiempo, la oficina de cirugía tenía un traductor de español disponible; Lopez no pidió ayuda. El hecho de su firma era inequívoco.

El tribunal razonó:

"Los contratos escritos tienen como objetivo preservar los términos exactos de las obligaciones asumidas, de modo que no estén sujetos a la posibilidad de una falta de recuerdo o una declaración errónea intencionada." [Grace v. Adams (Mass. 1868).] Esta regla de larga data 'se basa en la necesidad fundamental de seguridad en las transacciones comerciales." [Williston on Contracts (4a ed. 2022).] Estos principios legales subrayan que existe una "solemnidad [para] firmar físicamente un contrato escrito" que hace que una firma sea algo más que un simple adorno elegante en un documento. [Kauders v. Uber Techs., Inc. (Mass. 2021).]

Lopez testificó que no habría firmado el acuerdo de arbitraje si hubiera podido entenderlo. El mayor problema político para la protección del consumidor en Estados Unidos es que esta afirmación probablemente sea falsa, sin el beneficio de la retrospectiva. Es prácticamente imposible vivir en el mundo moderno—tarjetas de crédito, teléfonos móviles, sitios web, servicios públicos, viajes—sin aceptar un arbitraje obligatorio todos los días.

El caso es Lopez Rivera v. Stetson, No. 22-P-904 (Mass. App. Ct. Aug. 31, 2023). El juez Christopher P. Hodgens redactó la opinión del panel unánime, en el que también estaban los jueces Wolohojian y Shin.