How companies weaponize the terms of service against you

Brendan Ballou is founder of the Public Integrity Project and author of the new book, When Companies Run the Courts, about the rise of forced arbitration. Forced arbitration is similarly everywhere in modern life, and there have been some very high-profile cases these past few years highlighting how deeply unfair these clauses are to consumers. Brendan’s book delves into how and why we got here — spoiler: we can blame Antonin Scalia for some of it — but also, most importantly, how we may be able to fight back in the future. Read the full interview transcript on The Verge. Links: When Companies Run the Courts | Hachette Private equity bought out your doctor and bankrupted Toys ‘R Us | Decoder Press freedom groups demand access to Paramount records | The Wrap Disney gives up on trying to use Disney+ to settle wrongful death suit | The Verge Samsung, corruption, and you (2017) | The Verge The surprising case for AI judges | Decoder Subscribe to The Verge to access the ad-free version of Decode Credits: Decoder is a production of The Verge and part of the Vox Media Podcast Network. Decoder is produced by Kate Cox and Nick Statt and edited by Ursa Wright. Our editorial director is Kevin McShane. The Decoder music is by Breakmaster Cylinder. Learn more about your ad choices. Visit podcastchoices.com/adchoices

• 0:00Speaker 00

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• 0:30Speaker 01

  Hello and welcome to Decoder. I'm Neelai Patel, editor in chief of The Verge, and Decoder is my show about big ideas and other problems. Today, I'm talking with Brendan Ballou, founder of the Public Integrity Project and author of the new book, When Companies Run the Courts, which is all about the rise of forced arbitration agreements. Brendan's actually been on the show before. His previous book, Plunder, was all about the rise of private equity in America. And that conversation was among our most popular episodes. Forced arbitration is similarly everywhere in our modern lives. Deep in almost every single terms of service for almost any product you buy or service you use, there's a clause that says by buying or using the thing, you're giving up your rights to join a class-action lawsuit if something goes wrong. Instead, you have to take the company to arbitration, which the company usually pays for.

• 1:15Speaker 01

  You can see how there's a conflict there. There have been some really high-profile cases these past few years, highlighting how deeply unfair arbitration clauses can be to consumers. One you'll hear Brendan and I talk about, which we also covered here on The Verge, was the very sad example of a man whose wife died of an allergic reaction after eating at a Disney World restaurant. When the man sued, Disney tried to force him into arbitration instead, arguing that because he had signed up for Disney Plus, the streaming service, he had waived his right to sue. There was massive public pushback to this, and Disney eventually relented, as you may recall. But there are thousands, or maybe millions, of other lower-profile instances every year where consumers and employees have completely lost their rights to redress if something goes wrong.

• 1:59Speaker 01

  Brendan's book really delves into how and why we got here. Spoiler: you can blame Antonin Scalia for some of it, but also, most importantly, what we might be able to do about it in the future. One other note: Brendan and the Public Integrity Project are also in the early stages of legal action against Paramount over a possible quid pro quo with the Trump administration in its proposed Warner Brothers acquisition. So we started this conversation by talking about that. This is a really deep episode. It gets pretty existential. You'll see what I mean.

• 2:26Speaker 02

  Okay, Brendan Ballou, When Companies Run the Courts. Here we go.

• 2:42Speaker 02

  Brendan Ballou, welcome back to Decoder.

• 2:44Speaker 03

  Good to be here.

• 2:45Speaker 02

  I'm excited to talk to you. The last time you were on the show, we introduced you as a former DOJ prosecutor in the antitrust division. We talked about your book, Plunder, which is about private equity. You've got another cheerful deep dive on the rise of arbitration in America. The book is called When Companies Run the Courts. I really want to talk about that book. I have a lot of thoughts about terms of service agreements and arbitration. But it turns out you're here right after the Public Integrity Project has launched a big new initiative. You filed a lawsuit against Paramount over the Warner Brothers merger. Explain what's going on there.

• 3:17Speaker 03

  The Public Integrity Project, just to set a baseline, is a new public interest law firm that we're running to raise the legal and reputational cost of corruption in the United States. So in a world where the Department of Justice is not interested in pursuing corruption cases, and in some cases, maybe facilitating corruption, we want to go after the folks inside a government that are being bribed and the folks outside of government that are trying to bribe them. So we've brought a number of cases already. We sued the president for approving the illegal sale of TikToks, US assets to various administration allies. We sued the attorney general for failing to disclose fully the Epstein files in violation of the law. And now we are laying the foundation for bringing

• 3:58Speaker 03

  a suit against Paramount for potentially, at least based on public reporting, the Ellison family discussing with the president administration officials, potentially firing CNN anchors in exchange for regulatory approval of their acquisition of Warner Brothers. You know, that's profoundly troubling, the idea that a company or billionaires might agree to reshape the media landscape to the president's liking. And so we've made what's called a books and records demand to Paramount to understand what documents the board has about specifically these potential acts of corruption. So they have five calendar days

• 4:40Speaker 03

  to respond, and then potentially, we can bring this to litigation in Delaware Chancery Court.

• 4:45Speaker 02

  Are you the party or are you representing someone who has the right to demand books and records?

• 4:50Speaker 03

  We are representing two great organizations, the Foundation for Freedom of the Press and Reporters Without Borders, both of whom represent journalists and the interests of the free press generally. They're also individually as organizations shareholders in Paramount and so have the right to demand these books and records. And I should say, this is about a big, huge issue, but the actual thing that's being asked for here is very standard. Shareholders ask for this information all the time. So at least on the law, this is a very straightforward request.

• 5:22Speaker 02

  This strikes me as a very interesting sort of mechanical approach to how to bring corruption to light. You're going to find an interested party who is a shareholder. You're going to say, hey, there's these standard practices. Shareholders have access. Show me the documents that led to whatever deal we're going to get to. And then we can use that to prove that there is some corruption at play. I think that's very clean. Like, I respect the cleverness of it. It strikes me that maybe these guys didn't write down, like, do corruption tomorrow? How do you think that's going to go?

• 5:56Speaker 03

  Yeah, no, absolutely. And you have the question about, did they write it down? Do the documents still exist? All these sorts of things. I think there really is really interesting public reporting about the actions that Paramount took in its various acquisitions. So when David Ellison was trying to buy Paramount in the first place, when he just owned Skydance, there was really interesting public reporting saying that the Eissens had agreed to a quote-unquote "side deal" with the president to provide millions of dollars in free advertising for causes that he supported to settle a transparently bogus lawsuit that he had against 60 Minutes and in exchange, potentially get regulatory approval for the Paramount acquisition.

• 6:39Speaker 03

  So those are the sorts of decisions that actually a board would have to be involved in. And so it wouldn't be terribly surprising if there actually is some documentation at a high level about this stuff. And what's really great is this is the stuff that we can surface as private parties. And what we can get out there in the public record can be enormously important. But the folks who can really get at this information. Our state attorneys general, you know, because they have what's called pre- complaint discovery, so they can actually demand this information before even filing a lawsuit. And so if we find interesting information, potentially this is the sort of stuff that can empower state AGs to take action here.

• 7:16Speaker 02

  Let me ask about that a little more in depth because your book is about the court system and how it has generally pushed Americans towards private dispute resolution, private systems of law, and how that's bad. Hopefully you get your books and records and you can move forward with whatever happens next. Is all the emphasis on the states now? Because it doesn't seem like the federal department of justice is that interested in it. It doesn't seem like the federal courts are... that seems like chaos in a very specific way. And so just from my perspective, there's the court of public opinion, CBS's ratings are down as they transparently make moves to please Trump. And then maybe a bunch of state AGs are going to say, hey, this is actually against the laws that we are charged with enforcing and that the federal system might have nothing to do with anything.

• 8:01Speaker 03

  I'd make a distinction there between the federal enforcers and the federal courts. I think you're exactly right that the federal enforcers, now controlled by the Trump administration, are absolutely indifferent to corporate corruption and in many ways seem to be trying to enable it. You know, you see all these, frankly horrifying examples of, you know, rich people in companies giving money to various Trump allied campaign committees or businesses and so forth and seeing their government investigations dropped, their government lawsuits dropped, in some cases their criminal prosecutions dropped. Like, these are extraordinary, essentially unprecedented actions where people are able literally buy their way out of the justice system. So I think we live in an era where we absolutely cannot count on federal enforcers to have

• 8:44Speaker 03

  any interest in going after rich criminals. And in fact, if I can just add to that, you know, there's sort of these individual examples of people buying their way out of the justice system, but at a more programmatic level, the department of justice is absolutely dismantling the entire infrastructure for going after rich criminals. You know, they disbanded the tax division, which goes after rich tax cheats. They've kneecapped the antitrust division. They disbanded the klepto capture task force, which goes after Russian oligarchs. So, you know, we're really sort of... Destroying all the tools that we have for going after rich criminals. Those are the federal enforcers. I will say that there's a difference with federal courts. Now, obviously, the Supreme Court is extraordinarily conservative court that's extremely

• 9:28Speaker 03

  supportive of this administration. But I can say, as a practicing lawyer, you know, the lower courts, I think, by and large, are appalled by the corruption that's going on right now and have been taking actions to stop it. And there are a lot of tools that exist outside of federal enforcers that can be brought in state and federal court that actually can make a difference. You know, state attorneys general, like we just suggested, can be enormously valuable here. They have the ability to enforce all federal antitrust laws and are doing so. You saw them get that big win in the Ticketmaster case a few weeks ago when the federal DOJ abandoned them. That was extraordinary. But they also, you know, they have all sorts of tools on consumer protection, anti-fraud and so forth. And importantly, private plaintiffs have power here.

• 10:12Speaker 03

  And that's, you know, what the gap that we're trying to fill, which is there are so many people who have been harmed by this corruption. People, you know, we're talking about people that are buying their way out of the justice system. Many of those people owed millions of dollars in restitution to those victims. Those victims potentially have causes of action to sue in cases like that. And you can go after example, after example, after example. So I understand why people might be cynical or might be pessimistic in this moment, but there's actually an enormous amount of tools that we have at our disposal. We just need to use them.

• 10:42Speaker 02

  This feels like an excellent transition into the book. A lot of what's happened with arbitration is a reaction to the perceived explosion in litigation in the 70s and 80s. You talk about this very directly in your book. The idea that there's a bunch of dormant power that state attorneys generals should use or that private plaintiffs should use has, it's dormant for a reason. We just haven't seen it happen. And you're saying, hey, we should bring this back. And actually, the rise of arbitration agreements stands in your way, as a citizen of the United States, to get the relief that you might deserve, that the federal government or even the state governments might not be pursuing for you. How do you think about that dynamic? And why did you end up starting with arbitration specifically?

• 11:20Speaker 03

  There's a bunch of things there, so I'll try not to go on too long, but a couple of things. Read your book to me, Brendan. Yeah, exactly. Let's start with the why and then get into arbitration and then why it's bad, and then maybe we can get into the history here. So, you know, I'm a practicing lawyer. I wrote, you know, we had the, got to talk a few years ago about my first book about private equity. You know, as I was sort of doing follow-up work from that and just in my own practice, I got the sense that I think most people feel that the legal system is profoundly stacked against them and really, you know, organized to benefit the rich, you know, whether it's rich individuals or big corporations. And I wanted to explain to folks at a very practical level that I think they're, by and large, they are right. But to do it in a very specific instance so that people understood, you know, very directly

• 12:05Speaker 03

  how the legal system has changed over the past four decades or so, to really benefit large companies and, in a literal sense, not a figurative sense, in a literal sense, put them beyond the reach of the law. And I figured that if I could explain that in the specific context of forced arbitration, it would both, you know, anger people and get them mad about our current system, but also help them understand how this has happened and also how we might change things for the better. So, that was the initial motivation. If I can just add on to that, sort of what we're actually talking about here with forced arbitration, because I think it's a term that many people have heard, and it's certainly something that is affecting your life right now. But it's something that I think a lot

• 12:47Speaker 03

  of people don't actually know what it is. So, just to set a baseline here, forced arbitration is a private alternative to the justice system. So, you know, if you are harmed by a company, you know, if you are cheated, if you are discriminated against, if a family member of yours is hurt or even killed, by and large, you've probably signed an agreement with that company saying that you cannot sue them for that harm in court. Instead, you have to go to a private justice system where the judge, called an arbitrator, is paid for typically, or many times, by the company that you're trying to sue. And as you can imagine, when a judge is paid for by one party, all the incentives are for them to rule for that party and the statistics bear that out. And so, whereas consumers win 89%

• 13:32Speaker 03

  of the time in small claims court, They win 20 to 30% of the time in forced arbitration. When they represent themselves without a lawyer, it might be less than 10%. Before one arbitration company, it was 0.2%. So a 2 in 1,000 chance of winning. So it's a system of justice that is profoundly stacked towards big companies. And it's one that we are all, whether we realize it or not, a part of.

• 13:56Speaker 02

  One of the most striking stories in your book is the poor man whose wife died at Disney Park and Disney tried to move him to arbitration because he had signed up for Disney Plus. Explain what happened there.

• 14:08Speaker 03

  Jeffrey Piccolo and his wife went to Disney World. His wife was a doctor, had severe allergies, and so they were trying to be very careful about where they ate. According to his subsequent legal complaint, they went to this faux Irish pub. They were assured that the food was safe. In fact, it was not. His wife died of anaphylactic shock. But when he tried to sue Disney for wrongful death, Disney tried to compel him into forced arbitration by saying that he had consented to it when he signed up for his Disney Plus account several years prior. And I think it's kind of extraordinary for folks to imagine that by signing up for a streaming service, you could essentially sign away your right to sue over your wife's death.

• 14:53Speaker 03

  But to be clear, the law was very much on Disney's side and they would have won. I think because of enormous public pressure, they eventually backed down. But they would have won if they continued. And we actually give the next example that we gave was about a woman who worked on a cruise ship who was allegedly raped by a coworker. She tried to sue the cruise ship for having this enormously unsafe work environment. She was compelled into arbitration and compelled to arbitrate in the Philippines, which was her home country. We obviously never knew the outcome of that arbitration because arbitration is almost always kept secret. So it's a system that really does bind us all.

• 15:37Speaker 02

  There's an aspect of this where...

• 15:41Speaker 02

  It's just so obviously unfair for the regular consumer or the regular employee. And the courts have consistently looked at that and said, yeah, that's fine, but you signed up, like you signed up for Disney Plus, you entered into this contract. It occurred, you scrolled to the bottom and you hit I accept and now your life has been signed away. Why does that keep happening? Because to me, the idea that the formal justice system, the, you know, the system where you go to open court, you make your case and there's a jury, that thing should be very protective of its outcomes, right? That system should say, actually, we decide and big corporations evading our authority is bad. And I don't know why they're not more protective of that authority.

• 16:21Speaker 03

  Yeah, and it's interesting because when you describe stories of forced arbitration, I think sometimes people often think that you're just making it up because it sounds so lopsided. You know, there are stories of people being compelled into arbitration and then can't escape even when their arbitrator is exhibiting signs of senility or falling asleep during their arbitration and yet their decisions are still confirmed and actually cannot be appealed in court. So why would, you know, quote unquote, real judges sign off on a system like this? Well, by and large, they're taking their cue from the Supreme Court, which began in the 1980s, really fell in love with forced arbitration. You know, there was this idea that there was this explosion of litigation that was costing

• 17:06Speaker 03

  big companies millions or billions of dollars and there needed to be some way to get consumers and employees out of court. And forced arbitration was the way to do that. So the conservative justices, beginning with Lauren Berger, but then Antonin Scalia, John Roberts and so forth, took this little law from 1925 called the Federal Arbitration Act, which was meant to really allow sophisticated companies and merchants to bind themselves into arbitration so they didn't have to go through the headache of going to court and said, we're actually going to take this law, which is meant for sophisticated parties of roughly equal bargaining power, and we're going to extend it to employees and to consumers and we're going to extend it to the kinds of contracts that you just mentioned, the

• 17:49Speaker 03

  sort of click to accept, take it or leave it contracts that we sign every day with companies. That was never the intention of the statute and it really wasn't supported by the text of the statute either, but I think the conservative justices really saw this as a vehicle to keep.

• 18:06Speaker 03

  Certain people and certain kinds of cases out of court, and they were enormously successful in that endeavor.

• 18:15Speaker 01

  We have to take a quick break. We'll be right back.

• 18:27Speaker 04

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• 19:01Speaker 01

  Welcome back. I'm talking with Brendan Ballou. Before the break, Brendan explained what forced arbitration is and why it's bad. That led us to the Rose Gallery of conservative Supreme Court justices who have spent decades making it possible.

• 19:14Speaker 02

  I'm smiling because you devote a chapter each to these judges, these characters who have pushed us towards arbitration in this way. And maybe the most important, you can disagree, it is a chapter each, is Antonin Scalia, who is the most famous textualist in like legal history, and he's reading well beyond the law. How did that happen with Scalia specifically?

• 19:35Speaker 03

  I'm very critical of Scalia, but I always try to give credit, which is like far and away, he is the most fun Supreme Court justice we've had in a long time. He seemed to have like a real love of life. There's this very evocative picture, description of him typing his opinions on an old computer while drinking black coffee and smoking Marlboro cigarettes and listening to Bach. I mean, it's kind of hard not to be charmed by a guy like that.

• 19:57Speaker 02

  He's funny. Like, your opinions are funny. There's nothing that you can't say anything else about it. They're funny.

• 20:01Speaker 03

  Exactly. You know, so it's like, I want to both acknowledge that and then also say that, you know, the decisions that he had around forced arbitration have had profoundly damaging effects for most consumers and employees. So, you know, one of the key purposes of forced arbitration is to kill class actions. So, you know, class action is when everybody's hurt in the same kind of way, you can bring one lawsuit instead of hundreds or thousands or millions of lawsuits. And, you know, much if not most of our social progress in the courts has come through class actions. So Roe v. Wade was a class action, Brown v. Board of Education was a class action. And then in the consumer and employee context,

• 20:42Speaker 03

  you know, you have cases, for instance, of, you know, women who are dying of cancer because of defective birth control. Those are cases brought as class actions, or people whose family members all die in a plane crash, brought as class actions. Forced arbitration kills this system by requiring people into arbitration and to arbitrate their cases individually. So they, each person has to bring an individual case. And you can immediately imagine, for anything other than the most expensive harms, that makes pursuing a case completely unaffordable. So you think about all those little fees that a bank might have on your bank statement, or your cellphone company has, and you're like, why am I getting

• 21:23Speaker 03

  charged $30 a month for this? This seems like BS. You know, it may well be, but there is no effective way for you to resolve that because you're forced into individual arbitration. You can't join a class action over that $30 fee. All of that is because of Antonin Scalia. So he issued an incredibly important decision in 2011 called Concepcion that said that, you know, however, and this is a legal term, however, quote unquote, unconscionable a contract like that may seem. So unfair and lopsided to employees and to consumers, federal courts would still enforce those agreements. And there was nothing that a court could do to say, you know, this is so unfair, we're not going to allow this. And that was really

• 22:08Speaker 03

  because of Scalia. What led him to that result? You know, I don't want to psychologize too much, but I think if you look at his

• 22:18Speaker 03

  His judicial work, with the exception of some limited stuff in criminal justice, I think he was always an advocate for the powerful in pretty much any sort of dispute. He was absolutely an advocate for expansive presidential power, expansive corporate power and so forth. And so oftentimes, he's lauded as this textualist, this idea that somebody whose ultimate fidelity is to the text of the law, to the constitution. And in some cases, he was. But when textualism or originalism ran up against, by and large, ruling for corporate interests, he almost always dropped the textualism and ruled for the corporations. And I think it's really interesting. Again, one of the things that I really admire about Justice Scalia is I think he is one

• 23:03Speaker 03

  of the best writers that's ever been on the court. He has very evocative writing that's very easy to follow. But on a lot of these decisions, the actual legal reasoning is kind of incoherent because he really had an outcome in mind. And so he was trying to figure out a way to get to it. And you see in the dissents from those times sort of pointing out, it's like, this decision doesn't make sense. But time and time again, he was able to rule for the employer, for the company that was being sued by consumers.

• 23:29Speaker 02

  I mean, I have a lot of sympathy for that. My entire career is masking poor reasoning with jokes.

• 23:34Speaker 03

  Yeah, don't we all?

• 23:36Speaker 02

  Yeah. The reason I bring that up and I ask about it in that way is that Scalia was writing before pervasive terms of service agreements. He was writing before pervasive arbitration. He was writing before a pretty unhappy American public staring at tech companies, saying, no, we can just take whatever we want to make AI. Like, something has shifted in the public, in the perception of big tech, whatever you want to say. It's an angrier country. It's a more unhappy country. The people feel more exploited. And Scalia would have had to open up his Mac and click 10,000 terms of service agreements. And it just feels like something has changed.

• 24:17Speaker 02

  Like, any justice today, and maybe they're all still in bubbles in the ivory tower and they don't experience what regular people experience, but everyone else feels it. And to just participate in society, you're agreeing to 10,000 contracts every day that you definitely don't read. The legal fiction that anyone has actually read these contracts is like the foundation of the American economy. It feels like we should maybe look at that more thoroughly. No one can negotiate them and they change all the time. And all of that, you know, I'm just thinking back to my law school education. I'm like, oh, those are just unconscionable contracts. Like, those are contracts of adhesion. Like, to, to literally use my phone, I'm, I've entered into some agreement with Apple that no one can negotiate.

• 25:01Speaker 02

  That seems ridiculous to me. And to participate in society, I must use my phone. So now there's a secondary legal system that is mediating my relationship to the country and the world. And literally, no one can look at it. Do you think that that is going to change? Because it doesn't seem that tenable to me.

• 25:20Speaker 03

  I don't think it's going to change at the Supreme Court, not with a change in personnel. You know, I'm referencing some studies that are a little old now, but, you know, if you look at actually how the Supreme Court has ruled for corporations, I believe that this is the most pro corporate Supreme Court, at least since the 19th century. So I think the Supreme Court rules for the Chamber of Commerce somewhere in the order of 80, 80% of the time or, or higher. This was before Justice Jackson joined the court, but as I recall, you know, Justice Sotomayor was previously the most anti corporate justice on the court. And even, even her decisions were 50% for the Chamber of Commerce.

• 26:04Speaker 03

  So we live in an era where the Supreme Court in particular is just enormously deferential to corporations. I think that's probably for at least two reasons. One is, you know, getting appointed to the Supreme Court has now become a multimillion dollar operation. So, you know, a single donor gave $17 million to help get Justice Kavanaugh appointed to the court. Similar numbers for Justice Gorsuch and so forth. And so, you know, if you have that kind of money that's necessary to put somebody on the court, chances are the person that's going to get put on the court is pretty sympathetic to the people with that kind of money. I also think that there's something about the nature of Supreme Court litigation itself that has changed, which is the Supreme Court has become much more insular over the past several decades. So back in the day,

• 26:48Speaker 03

  The people that were arguing cases in the Supreme Court were by and large the people that started the cases in the district court, you know, in whatever state they happened to be in. Now, I think it's 20 lawyers and clinics now are responsible for arguing something like 50% of all cases before the Supreme Court. And by and large, those lawyers represent large corporate interests. And so, you know, the folks that are most successful, successful and most liked by the justices, by and large, are the ones telling them a sort of pro corporate story. So I don't think that there's really going to be a change at the Supreme Court level, but I do believe that there is going to be change nationally for exactly the reasons that you're talking about. I think that there's widespread dissatisfaction with corporate power right now.

• 27:33Speaker 03

  I think it's, I think it is the very rare person that feels that corporations have too little power in America. So I think that there's going to be a lot of change, but I think change is by and large going to happen at the state and local level rather than at least in the Supreme Court or in Congress.

• 27:50Speaker 02

  This is the, the sort of the last third of your book. How, how do you fix it? And you lay out a few ways of fixing it and getting people away from the coercion of forced arbitration agreements. The first thing you could do is you could just fix arbitration itself. What would that look like?

• 28:06Speaker 03

  One of the reasons that I think corporations are so attracted to forced arbitration is it's unlike a regular court. So, you know, in regular court, where it happens out and open, so people know that it's not corrupt, decisions are written down so that, you know, people who have similar cases can reference those and be treated similarly. And if the judge makes a mistake, that decision can get appealed. None of those things are necessarily true in arbitration, which generally occurs in secret. Oftentimes, decisions are written down. In fact, sometimes companies contract that they specifically aren't. And ironically, it's actually much harder to appeal an arbitrator's decision than it is to appeal a real judge's decision. So there are ways that we can make arbitration more fair by requiring certain disclosures,

• 28:51Speaker 03

  by allowing procedural fairness, you know, so that plaintiffs can actually get the, what we, you know, you're a lawyer, what we call discovery from the other side and, you know, allow or require decisions to actually be written down and shared. We can also require arbitration companies to actually share the statistics on how arbitrators rule. You know, one of the advantages that companies have is you and I are probably going to arbitrate one case in our life. A company might arbitrate dozens or hundreds of thousands. And so they know which arbitrators to pick and we don't. But by requiring actual disclosure on how arbitrators rule on things, you actually have a better chance of picking one that's going to be fair to you. So all those may sound like incremental changes, but I will

• 29:34Speaker 03

  say, the more that arbitration can become like a regular court, both arbitration itself will become fairer and the companies will become less attracted to it because they're specifically attracted to it right now because it's not like court.

• 29:47Speaker 02

  There are some states have tried to do all this. Is it effective?

• 29:50Speaker 03

  Yeah, California's made a lot of progress on this. You know, one of the biggest changes that they've made is not just making arbitration fairer, but actually finding ways to get people out of arbitration in the first place. And there's this law called the Private Attorneys' General Act, PAGA, and it's really smart. So what it says is, if you're an employee that's, you know, been harmed by your company, you didn't get the wages you were deserved, you were discriminated against, or whatever it happens to be, and you sign an arbitration agreement, normally that's too bad. You can't sue your company. But we're going to say to you employee that you can represent us, the state, which can enforce all these same laws in the state labor department, and you're representing us in a lawsuit against the

• 30:33Speaker 03

  company. And if you win, the state will get a cut and you'll get the rest. But what's so clever about that is while you're bound by an arbitration agreement, the state is not. And so it's effectively a way to circumvent arbitration agreements. Now, that's great for employment law, and I think it has made California employees much better treated than a lot of other states. We need to expand that sort of legislation to all sorts of laws, to consumer protection laws, securities and anti-fraud laws, antitrust and so forth. If we can do that, then we can narrow down arbitration to become a much smaller part of our lives and companies are going to treat us better.

• 31:08Speaker 02

  Can I just ask, I mean, obviously, you were a federal prosecutor in a previous life. There's a part of me that says our approach to the American legal system right now generally is like a series of hacks and magic words. Like, we can't just go and do the policy issue. We have to be like, I deputize you to be a state attorney general. So, escape the contract that you signed. And now, the state will get a cut of your private litigation. And we've just created a whole other set of weird policy problems instead of just solving the policy problem. Why does that keep happening?

• 31:40Speaker 03

  Well, you keep employing lawyers. And that's something that we do. Yeah. So, no, I think you're exactly right that we, I think we have a lot of sort of odd hacks to deal with some sort of structural injustices in our legal system that are hard to solve. You know, so much of, you know, the workarounds that we've been having about, you know, trying to come up with new regulations at the federal level is because it's become so increasingly hard to pass legislation in Congress, you know. You know, the reason why we're having to do so many things at the state level right now is because the Supreme Court has been so adverse to progressive change at the federal level and so forth. So, I definitely think that we have to have these sort of awkward workarounds. I will say, though, that, you

• 32:21Speaker 03

  know, awkward workarounds have been a fact of human existence. And, you know, as profoundly unfair in many ways as our legal system is, and probably more unfair than it was a few decades ago, it is vastly better than what we had 60 years ago, when we had effectively had an apartheid state in the United States, or 100 years ago, when, you know, during the Gilded Age, when, you know, we were interpreting our antitrust laws to break up unions, but not corporations and so forth. So, you know, maybe I'm just too captured by my own profession, but I sort of see it as a cost of doing business in any sort of human society where we're all flawed.

• 32:58Speaker 02

  Yeah. I think I just, I look at it from, I don't know, maybe I just want the system to be more elegant, right?

• 33:03Speaker 03

  That's your Silicon Valley background, yeah.

• 33:06Speaker 02

  Yeah, right. That's just, I'm a tech person. I'm like, this computer makes no sense. Like, you should make a different, better computer. You know, I think terms of service agreement should be illegal. Like, Fundamentally, I think they are unconscionable contracts. I think you can point to forcing people into arbitration as one element of them being unconscionable. You can point to just the fact that no one can negotiate them. And the bald truth that literally no one reads them is a problem. Like, I think it is bad that a huge amount of the American economy is predicated on no one reading the contract at scale. Like, you should probably fix that problem in some way. And if you take a step back and you, at least for me, it's like, how would you fix that problem? Well, the state, which represents all of us, should negotiate the contract.

• 33:50Speaker 02

  It should write a privacy law.

• 33:52Speaker 03

  Yeah.

• 33:53Speaker 02

  Right? And that should be the foundation of whatever contract comes next, but it should pre-negotiate the floor. And we, as you point out, maybe Congress seems incapable of pre-negotiating the floor.

• 34:02Speaker 03

  Yeah, you know, and maybe I'm taking this in an odd direction, but I think you're exactly right. And in a lot of ways, our governments made that literally harder to do. Like, back in the 90s, Montana passed a law to try to make it, if you had an arbitration agreement in your contract, contractually, you had to put it on the first page. You had to notify people that you had an arbitration agreement. That very straightforward law got struck down by the Supreme Court and said that was actually discriminating, ironically, against arbitration agreements. So, you know, there's a lot of impediments to those sorts of things. And I think you're exactly right, that, you know, sort of at a high level, I think this is, these are the responsibilities, as you say, of, you know, democracy to resolve a lot of these issues.

• 34:43Speaker 03

  I will say, sometimes I think talking, sort of at a high level of generality, can be paralyzing in its own way. Because, you know, when you talk about sort of how everything, in its own way, is broken, it sort of makes it impossible to fix it. It's like, if you're depressed and you're looking at your apartment, it's in a mess, you're like, I can't do anything about it. Whereas if you think of like, okay, I'm going to focus on the kitchen right now and start doing that, it becomes a much more solvable problem, which is, you know, sort of why I chose to focus on this seemingly fairly technical issue of forced arbitration, because I thought, if I get people to focus on this thing specifically, I thought it would help them understand both sort of how things get broken, but also like, here's how we can fix this one specific thing.

• 35:28Speaker 03

  And I think that actually can be kind of empowering for people.

• 35:30Speaker 02

  We're going to pause here for another short break. We'll be back in just a minute.

• 35:45Speaker 04

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends. Like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an ultra because it's not just a superior light beer. It's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser Busch InBev Michelob Ultra Beer, St. Louis, Missouri.

• 36:19Speaker 01

  Welcome back. I'm talking with Brendan Ballou about forced arbitration. We've been discussing how as a system, it's fundamentally unfair for consumers, which is to say basically everyone. And that raises an obvious question. What can we do about it?

• 36:33Speaker 02

  The reason I talked about hacks and magic words is, yeah, we can, we can try to go through the front door and fix it with state laws that tweak arbitration. And then your proposal is like, we should just break the system. We should just do mass arbitration and cost these companies a lot of money and make that entire operation just untenable. Explain what you mean by breaking arbitration.

• 36:52Speaker 03

  This was, you know, and you're talking about hacks. This was a fascinating one. So, you know, arbitration, you know, like you said, is meant to kill class actions so that, you know, each person has to bring a case individually. It's too expensive for each person to do it, so nobody ever does it. One thing that the arbitrator, that the companies who were doing this just messed up on is in order to make these agreements seem facially a little more fair, they said, we're going to pay for the initial cost of the arbitration. We didn't even pay for the arbitrator, you know? You just have to start the arbitration. And some very smart lawyers said, okay, we're going to take you, take you up on your offer and we are going to initiate thousands of arbitrations all at once. And you have to pay for all of them all at once.

• 37:34Speaker 03

  It's clear that the companies just never even considered the possibility that a lot of people would arbitrate their cases because as soon as they did, they tried to back out of their own agreements and said, we actually don't think we should pay these tens of millions of dollars that we promised to pay. There were some very funny court decisions where judges who had been watching their powers slip away and consumers' powers slip away through arbitration say, you know, it is the height of irony that these companies are now trying to escape these things and compelled them to pay these costs. So mass arbitration is really a way to turn arbitration on its head and actually say, okay, companies, if you're going to force us to do this, we're actually going to do it, but you're going to have to pay a bunch of costs, which creates

• 38:17Speaker 03

  leverage for consumers and employees. I will say, I think that's great. And in some ways, mass arbitration can actually be very helpful for certain kinds of cases. For a year, I was involved in a mass arbitration representing employees who had been illegally sued by Elon Musk at Twitter. And Shannon Ellis Reardon, who's just a fabulous attorney, was leading that whole effort. But companies are trying to get smart and figure out ways to avoid paying any money or moving to even less reputable arbitration providers that have rules that are so skewed, rules that sometimes the companies even helped write, to try to kill these mass arbitrations.

• 38:54Speaker 02

  Tell me the story of suing Elon Musk on Twitter.

• 38:56Speaker 03

  It was fascinating. And there are certain limitations of what I can talk about. And again, Shannon and her team were the real heroes on this. But it was fascinating because Elon Musk summarily fired 2,000 employees and had clearly promised severance that he refused to pay. And these employees had unfortunately signed arbitration agreements, which prohibit, by and large, prohibited them from bringing class actions. And so Shannon, the team, I was part of it, decided to say, okay, we're actually going to represent these hundreds or thousands of employees and individually arbitrate. Can't get into the details, but I think that we had enormous success. And I hope Elon Musk doesn't make the same mistake twice.

• 39:38Speaker 02

  Can you not get into the details because the arbitration agreements keep you from talking about the details?

• 39:42Speaker 03

  I don't know if it's the specific arbitration agreements, but being a lawyer in general, sometimes when you're doing these cases, you have to be kind of cagey about things.

• 39:49Speaker 02

  It does seem like Elon, he just doesn't want to pay the money and now he's like rolling up all of his companies, he might IPO SpaceX in some way, somehow Twitter is now a part of SpaceX, it's all very confusing. Did that all just wrap up because he needed it to go away?

• 40:03Speaker 03

  You know, it does seem like he's sort of rebuilding the sort of like Korean conglomerates that you see going on where you have, you know, a single family running, you know, 18 different kinds of businesses, often supporting each other, you know, financially or, you know, the Japanese, what is it, Koretsu, sort of banking conglomerates that you had. Those Koretsu collapsed in the 1990s and Japan's had a multi-decade recession as a result. So I'm not sure Elon Musk is necessarily going to do better than that, but speaking personally, I am enormously skeptical of Elon Musk's financial acumen.

• 40:39Speaker 02

  I feel like I should have you back just so we can talk about weird Korean K-ball corruption scandals and including the Samsung family and the Horracing thing. That's a different episode.

• 40:47Speaker 03

  I think you want to grow your audience, not shrink it, but yeah.

• 40:51Speaker 02

  Mass arbitration, the idea that you can cost these companies an enormous sum of money, but just by making them enforce their own agreements, they are pushing back against it, right? There's some instances where, I don't know, Valve, the video game company, took their arbitration clause out of its agreement because of mass arbitration. And then there's Bank of America, which changed its user agreement but forces individual arbitration and that's going to go into effect, I think, the week after we're talking. It's coming. Is that going to be effective? Is it going to push back on the idea that you can hack the system this way?

• 41:19Speaker 03

  At the beginning of mass arbitration, it was easy because the companies just hadn't considered the possibility. And so were completely caught off guard and had committed to paying millions of dollars to consumers that, you know, if they had been strategic, would not have done. The challenge that you've got is that there are what are called arbitration companies. So AAA and JAMs are the two largest ones that actually provide the arbitrators for these companies. They are businesses and are in the business of providing arbitration. And so the rules of the game that they set, they are naturally inclined, whether they would admit it or not, you know, they have a natural incentive to make the rules favorable to the companies that are actually paying for arbitration and that are the repeat players

• 42:03Speaker 03

  and these sorts of things. So there is a natural incentive for these guys to make arbitration ever less fair for consumers and employees, which I think, you know, to your point about the power of the state is just one more reason why we need democracy to constrain forced arbitration as an institution in general.

• 42:21Speaker 02

  Ian, it's funny, you brought up the AAA. We just had Bridgette McCormack, she was the chief justice of the Michigan's court. She's now the CEO of the American Arbitration Association. We talked about this kind of at length, right? Her proposal was we should just have AI do it. Like there's some set of arbitration that between construction firms. This is where they're starting. It's documents only construction cases. And she was like, you don't need an arbitrator. Like, these are actually both sophisticated parties. They both show up in front of us all the time. All the cases can be resolved on the nature of the contracts and whatever delivery invoice was late or on time or whatever, and the AI can just do it. And that is perceived as more fair and they can just move on with their lives. There's something to that, right? If you perceive the entire justice system to already be so unfair, I don't know, at

• 43:05Speaker 02

  least ChatGPT is going to listen to you. You can just talk to it until it gives in and says, I've issued a ruling and there's some data saying that people will perceive that to be more fair because they were at least listened to. That does feel like the next turn, right? You open your Verizon app and you're like, I didn't get serviced today. I'm arbitrating my bill for the month and some combination of arbitration and customer support merges into a chatbot and delivers you an outcome. That seems very bad. It also seems like where all of these companies want to go. What does that look like to you?

• 43:36Speaker 03

  Speaking personally, it's horrifying. I think there are, you know, I don't want to be a luddite about these things and, you know, I use, I think AI can Be very useful for certain parts of legal work, document review and so forth. I think that there are two problems here. One, it looked very high level is, you know, when you're talking about dispute resolution, you know, lawyers are one paid to understand the individual nuances of each case rather than sort of the generalities. And I have often found that sort of AI bots have been very ineffective at actually writing sophisticated legal briefs that are specific to a case because they can write sort of the generic section about what the legal standard is and so forth. But actually understanding the nuances of the case, it's more than just a matter of natural language processing.

• 44:22Speaker 03

  But even if they were perfect at it, I think, you know, the for a justice system to work, people need to be bought into its legitimacy. And I think it's very hard to buy into legitimacy of, you know, large language model that's essentially a black box. How can people possibly believe that it was ultimately fair? I'll also say, just at a more practical, technical level, one of the challenges, you know, we alluded to this earlier, that you have with forced arbitration is that decisions often aren't written down, or if they are written down, they're not made public. And the reason why that's so important in a functioning legal system, it's actually kind of sort of the key to a legal system, is that similar cases get treated similarly. You know, that's what justice is.

• 45:03Speaker 03

  And when decisions aren't made public, it's actually literally impossible to come up, you know, to actually create a case law upon which people can make decisions. And so the way that arbitration is currently structured, even if in every other respect it was fair, if you have an AI that has no corpus of case law to rely on, the decisions are going to be ultimately arbitrary and case dependent and have no internal consistency.

• 45:31Speaker 02

  When I think about that, there's so much about AI and LLMs and the ether that is related to dynamic outcomes. Right. You're going to talk to the system and the system will understand you and something will happen for you that maybe isn't happening for someone else. Uber CEO was just on the show and they're redoing all of their actual customer support to deliver dynamic outcomes. And instead of having written policies, they're basically just going to tell the AI, like, here are the vibes we want customers to feel. And I asked him, like, you're going to back into having policies because you, you still want the perception of being fair. And right next to that is all these companies instituting dynamic pricing, which is fundamentally unfair. And right next to that is they're all signing up for forced arbitration agreements, where the outcomes can be totally arbitrary and you will never know if your case was resolved

• 46:16Speaker 02

  next to the next case. And when you say justice is about like, the same set of facts having the same outcomes, it feels like that's rippling through the entire experience of being an American right now. That you can be treated differently in almost every case, in every interaction in some way. Do you think just changing arbitration is like the first step towards being like, actually, we need to treat people more fairly. We need to equalize the outcomes, instead of it every case saying, oh, like, you have a credit card that's tied to this airline, we can see your spending, your price is going to be up for this route. Which is just, we're barreling towards that every single day.

• 46:51Speaker 03

  That's a really profound question, and I had, I've never really thought about it the way, thank you for asking that. I certainly think at a practical level, forced arbitration, ending forced arbitration or constraining forced arbitration can help solve that. You know, when you talk about the problems that dynamic pricing or the sort of personalization that an Uber CEO is promising, maybe even with the best of intentions, is likely going to create, violate a whole bunch of laws. So you can imagine a world in which otherwise well-intentioned dynamic pricing dramatically discriminates against people based on their race, or dynamic, you know, hiring practices ends up discriminating, you know, in making

• 47:33Speaker 03

  job offers and so forth, dramatically discriminates against people based on their gender. So I think that this sort of attempted personalization, intentionally or not, is probably going to violate a whole bunch of laws. And unless we constrain forced arbitration, it is Going to be very hard for anybody to challenge those. I do think in a sense, you know, the sort of arbitrariness that we're all experiencing. I really like the way that that you've put it can in some ways be be chalked up to forced arbitration. I don't want to sort of over promise this one sort of thing, but it maybe it's part of a larger story. In that, as so much of our societal disputes sort of get channeled outside of the public justice system.

• 48:18Speaker 03

  And we don't have the development of the body of law and we don't have sort of public discussion of these issues. I do think we grow sort of increasingly balkanized and isolated and, you know, sort of at a certain level, sort of definitionally, what we are as a society begins to fray.

• 48:35Speaker 02

  I mean, now we're now we're deep into my own feelings, so just I apologize for. But please go with me for one second. I have always thought that what The Verge sells to people is a sense of hope. Like, we cover people who make things and we cover companies who build really remarkable things. And then people use those things to build new things like it's just the cycle of what a tech magazine is like fundamentally. We're like, here's some new stuff. Do you like it? And then people say, now I can make a different kind of music than ever existed before. And that is very fun. And lately I have sensed just an overwhelming kind of nihilism from our audience, particularly our young audience. And I relate it very much to a feeling of powerlessness. And I relate that feeling of powerlessness directly to arbitrary outcomes.

• 49:18Speaker 02

  But we started by talking about corruption, right? And what is corruption except you're rich, so you don't have the justice system won't touch you. Or you can spend enough money to make the DOJ go away. And I, you know, maybe it's a maybe forced putting on all enforced arbitration is too much. Maybe you can't bear all the weight, but there's some part of it where it's like, where do you begin? How do you escape the sense that everything is arbitrary and actually the system should be more fair? And maybe the system should be more elegant, but maybe we actually just have to do a bunch of hacks to make it more fair.

• 49:46Speaker 03

  No, that's a really deep sentiment and I both understand it and don't agree with it because I taught a class at Stanford last year on January 6 and talking to young students about like the current political moment and both and it was, you know, very unsettling both how deeply young students were thinking about so many of these issues and at the same time how scared they were to act on them, not just because the problem seemed so large that it was paralyzing, but because they were literally worried about getting doxxed or losing their, you know, job outside of college or law school or whatever it happened to be if they said the wrong thing. And so I completely understand sort of the people's

• 50:28Speaker 03

  sense of sort of overwhelming despair and nihilism. I will say, you know, I am not particularly despairing, I'm not particularly nihilistic, in large part because of the work that I do. So I am fortunate in that I get to talk to a lot of people who have done one specific thing, which is they have chosen a issue that they care about and then they stick with it for several years. And I, over and over again, this happens to me about every six to nine months, I'm astounded by the amount of change that one person has had on a specific issue just because they stuck with it for one year or three years or 20 years or whatever it happens to be. You know, I've watched a handful of people completely change the

• 51:10Speaker 03

  prison phone industry. I've watched a handful of people like make mobile housing in their communities dramatically more fair. And so, you know, it kind of goes back to what we were talking about earlier in our discussion. Whereas I think when your viewers and when your listeners and when your readers sort of see things in the macro, I completely understand how despairing it is. But I will say, I remain incredibly hopeful about the power of individual people if they stick with something to make progress because I have seen it happen over and over and over again.

• 51:42Speaker 02

  Well, Bernard, I think that's as good of a place to end it as I can think of. How should people think about escaping arbitration now? How should people think about... Taking more control over this one aspect of things.

• 51:53Speaker 03

  You're not going to escape it by reading your contracts more carefully because most of them aren't negotiable and Verizon's not going to let you negotiate them. So we're not going to ethically consume our way out of this problem. This is, to your earlier point, something we are going to solve collectively. Ultimately, that's going to happen in city councils and state legislatures. I worked with a young, very smart University of Chicago law student to draft some model legislation. I have a personal website, brendanbalu.com, where you can download it, send it to your legislator and get them starting to pass some laws. So I think that is the practical way that we're going to make progress here.

• 52:29Speaker 02

  The book is called When Companies Run the Courts. It's a great read. The previous book was called Plunder about private equity. Still comes up on Decoder all the time. I recommend that one as well. Brendan, we're going to have to have you back and we'll just do more therapy for me personally. Thank you so much for being on Decoder.

• 52:41Speaker 03

  Thank you.

• 52:44Speaker 01

  I'd like to thank Brendan Ballou for taking the time to join me on Decoder and thank you for listening. I hope you enjoyed it. If you'd like to let us know what you thought about this episode or really anything else at all, drop us a line. You can email us at [email protected]. We really do read all the emails. You can also hit me up directly on Threads or Blue Sky. Decoder's on YouTube. It's at DecoderPod. It's also on TikTok and Instagram at the same handle. Those channels are a lot of fun. If you like Decoder, please share it with your friends and subscribe or your podcasts. Decoder is production on The Verge and part of the Vox Media Podcast Network. Our producers are Kate Cox and Nick Statt. Our editor is Ursa Wright. Our editorial director is Kevin McShane. The Decoder music is by Breakmaster Cylinder. We'll see you next time.