Maughon v. Carnival, Court Allows Arbitration Clauses That Effectively... Legal Advocacy

Court Allows Arbitration Clauses That Effectively Prevent Any Consumer Recovery

Read AARP's (PDF) A federal appeals court allowed an arbitration clause to stand even though by its terms the clause made it virtually impossible for consumers to seek remedies for unfair and deceptive practices and thereby removed an important incentive businesses have to comply with the law.

Background

Arbitration is an out-of-court process that was originally developed to resolve disputes between businesses with equal bargaining power in industries which benefited from having a decision maker with specialized expertise in a particular field. Arbitration is increasingly forced upon people in standard form contracts for virtually everything, including phone service, employment, health insurance, nursing home care, medical services, and banking and credit cards. Unlike in contracts between businesses, arbitration clauses in contracts for consumer goods and services are designed to prevent disputes from being raised at all and may also limit remedies and ban class actions. Often, the only effective means to challenge unfair practices that can cheat people out of billions, a few dollars at a time, is by joining the claims of all the people injured by that practice in a single class action. Challenging a corporate practice is expensive and difficult. Arbitration clauses that force people to proceed individually usually prevent people from seeking any remedy. Maughon v. Carnival arose out of a seven-day $700 cruise purchased in April 2009. After passengers boarded the liner and set to sea, Carnival cruise line informed passengers that all port stops to Mexico were cancelled due to the H1N1 outbreak. Plaintiffs sued Carnival, alleging unfair and deceptive business practices and arguing that Carnival could have, but failed, to inform passengers about the cancellations before they left port and while the passengers had the opportunity to use their cancellation options. Carnival cruise lines sought to have the lawsuit dismissed by enforcing the forced arbitration clause, which included a class action ban, required all arbitration to be held in Miami (although passengers live in and purchased tickets in locations across the U. S.), and whose arbitration fees would cost each passenger more than the price of the cruise itself, rendering it highly unlikely any passenger would seek individual redress. AARP’s friend-of-the-court brief, filed by attorneys with AARP Foundation Litigation, argued that Carnival’s arbitration clause eviscerates Florida’s consumer protection laws, which were in large part designed to be enforced by private law suit rather than by a regulatory agency. The brief outlined the way in which class action bans frustrate enforcement of consumer protection laws. The Court of Appeals for the Eleventh Circuit ruled that the arbitration clause is enforceable, in light of the U.S. Supreme Court decision in AT&T v. Concepcion.

What s at Stake

Arbitration clauses prevent consumers from challenging many business practices that are fraudulent, deceptive and unfair. By reducing the ability of people to seek redress for illegal and harmful business practices, one of the most important incentives for companies to maintain high standards — its financial self-interest -- is lost. Consumers forced into arbitration often lose the protection of laws that are not enforced in arbitration.

Case Status

Maughon v. Carnival was decided by the U.S. Court of Appeals for the Eleventh Circuit.

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