REOPENING THE COURTROOM DOORS: A PROPOSAL FOR AN FCC PROHIBITION OF MANDATORY CLAUSES JOHN C. FERRELL*

I. INTRODUCTION In recent years, many businesses have begun including mandatory arbitration clauses1 in their agreements with customers.2 These agreements expressly prohibit consumers from bringing their claims in court (with the exception of small claims court) and instead require the consumer to submit to binding arbitration by a neutral decision-maker.3 They appear in contracts for a wide variety of consumer products and services, including car leases, credit cards, checking accounts, insurance, student loans, and

Copyright © 2018, John C. Ferrell. * J.D. Candidate, Capital University Law School, 2018; B.A., The Ohio State University, 2011. I would like to thank Professor Margaret M. Cordray for introducing me to this important issue and providing invaluable guidance throughout the process of writing this Comment. I would also like to thank Professor Scott A. Anderson for teaching me the art of legal analysis and writing and for consistently pushing me to improve this skill. Lastly, I would like to thank my wife Leslie for her constant encouragement since day one of law school. 1 Although the term “” has a broad meaning, for purposes of this Comment, the term “mandatory arbitration clause” will be used to refer to a particular type of arbitration agreement. The term will refer to clauses contained in the standard un- negotiated Terms & Conditions for a consumer product or service that requires the consumer to resolve all disputes through binding arbitration. The term will not include agreements to arbitrate that are entered after a dispute arises, nor will it include arbitration agreements in negotiated contracts between sophisticated individuals or entities. 2 Mandy Walker, The Arbitration Clause Hidden in Many Consumer Contracts, CONSUMER REPS., http://www.consumerreports.org/cro/shopping/the-arbitration-clause- hidden-in-many-consumer-contracts [https://perma.cc/HMQ2-2YUQ]. 3 E.g., Wireless Customer Agreement,VERIZON WIRELESS, https://www.verizonwireless.com/legal/notices/customer-agreement [https://perma.cc/2327- SBZR] (“YOU AND VERIZON BOTH AGREE TO RESOLVE DISPUTES ONLY BY ARBITRATION OR IN SMALL CLAIMS COURT. YOU UNDERSTAND THAT BY THIS AGREEMENT YOU ARE GIVING UP THE RIGHT TO BRING A CLAIM IN COURT OR IN FRONT OF A .”). 160 CAPITAL UNIVERSITY LAW REVIEW [46:159 cell phone and internet service.4 Businesses often successfully invoke arbitration clauses to force into private arbitration claims that were initially brought against them in court.5 As a result, when consumers are harmed by the unlawful actions of these businesses, they find the courtroom doors closed. The Wells Fargo “sham account” scandal exemplifies the broad reach of mandatory arbitration clauses.6 This scandal involved Wells Fargo employees using customers’ personal information to create fake accounts, for which fees were charged to customers, in an effort to meet sales goals.7 When Wells Fargo customers attempted to hold the bank accountable for the actions of its employees, they found the courtroom doors closed.8 Although the customers’ lawsuits involved fake accounts the customers never agreed to open, many courts nevertheless forced the claims into arbitration because the account agreements for their legitimate accounts included mandatory arbitration clauses.9 Many consumers are unaware that they give up the right to sue in court by taking actions as simple as downloading an app,10 clicking “I agree” on a website,11 receiving a bill in the mail,12 or merely purchasing a product.13

4 Walker, supra note 2. 5 E.g., Southland Corp. v. Keating, 465 U.S. 1, 4 (1984). 6 See Michael Corkery & Stacy Cowley, Wells Fargo Killing Sham Account Suits by Using Arbitration,N.Y.TIMES, http://www.nytimes.com/2016/12/06/business/dealbook/ wells-fargo-killing-sham-account-suits-by-using-arbitration.html?mwrsm&_r=0 [https://perma.cc/425V-YPZF]. 7 Id. 8 Id. 9 Id. After a large public outcry, Wells Fargo agreed to allow one of the numerous lawsuits arising from this incident to proceed in court. Dena Aubin, Wells Fargo Withdraws Arbitration Bid in Unauthorized Accounts Lawsuit,REUTERS LEGAL, Jan. 4, 2018, 1/4/18 REUTERS LEGAL 23:16:06 (Westlaw). 10 U.S. Terms of Use,UBER § 1, https://www.uber.com/legal/terms/us/ [https://perma .cc/5FMX-54AZ] (“By accessing or using the Services, you confirm your agreement to be bound by these Terms.”); Id. § 2 (“By agreeing to the Terms, you agree that you are required to resolve any claim that you may have against Uber on an individual basis in arbitration, as set forth in this Arbitration Agreement.”). 11 Myriam Gilles, Opting Out of Liability: The Forthcoming, Near-Total Demise of the Modern Class Action,104MICH.L.REV. 373, 427 (2005). 12 Marsh v. First USA Bank, 103 F. Supp. 2d 909, 916 (N.D. Tex. 2000). 2018] REOPENING THE COURTROOM DOORS 161

Even if consumers were aware, they would be relatively powerless to change the situation.14 Most agreements between sophisticated businesses and consumers are “adhesion contracts” presented to consumers on a “take-it-or-leave-it” basis.15 This means that even if a consumer understood the meaning of an arbitration clause, the consumer’s only option would be to find a different seller or service provider, many of which include arbitration clauses in their own customer agreements.16 Despite these problems, courts regularly enforce arbitration clauses.17 The recent favorable legal treatment the Supreme Court of the United States has given to the use of arbitration clauses has further encouraged businesses to include them in agreements with their customers.18 Arguably, businesses benefit the most from mandatory arbitration clauses because such clauses prevent consumers from filing class action lawsuits.19 Most mandatory arbitration clauses provide that all claims other than those in small claims court must be resolved through arbitration.20 Therefore, under most mandatory arbitration clauses, any putative class action suit must be resolved through arbitration.21 However, most mandatory arbitration clauses also expressly prohibit class

13 Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1148–49 (7th Cir. 1997) (holding that a purchaser of software is bound by legal terms enclosed with the product that is shipped to the purchaser). 14 Todd D. Rakoff, Contracts of Adhesion: An Essay in Reconstruction, 96 HARV.L. REV. 1173, 1176–77 (1983). 15 Id. at 1177. 16 Walker, supra note 2. 17 E.g., Hill, 105 F.3d at 1151. 18 A recent series of articles by the New York Times characterized this as a “privatization of the justice system” and highlighted some of its more disturbing components. Jessica Silver-Greenberg & Robert Gebeloff, Arbitration Everywhere, Stacking the Deck of Justice,N.Y.TIMES (Oct. 31, 2015), http://www.nytimes.com/2015/11 /01/business/dealbook/arbitration-everywhere-stacking-the-deck-of-justice.html?_r=0 [https://perma.cc/9EXN-Y5HE]; Jessica Silver-Greenberg & Michael Corkery, In Arbitration, a “Privatization of the Justice System,” N.Y. TIMES (Nov. 1, 2015), http://www.nytimes.com/2015/11/02/business/dealbook/in-arbitration-a-privatization-of- the-justice-system.html?_r=0 [https://perma.cc/GF6R-QLM5]. 19 Silver-Greenberg & Gebeloff, supra note 18. 20 E.g., Verizon Wireless Customer Agreement, supra note 3. 21 Silver-Greenberg & Gebeloff, supra note 18. 162 CAPITAL UNIVERSITY LAW REVIEW [46:159 arbitration.22 A recent study found that courts enforced these limitations in most cases.23 By barring class action lawsuits in the courtroom and class arbitration outside the courtroom, a business effectively insulates itself from all class action liability.24 The ability to avoid class action liability is extremely valuable to businesses.25 Indeed, the threat of a class action suit is often a major factor that motivates businesses to change certain practices.26 By eliminating the threat of class action liability, businesses are free to continue certain unlawful practices with relative impunity.27 Another advantage businesses gain from the use of arbitration comes from the “repeat player” effect.28 Businesses who repeatedly use the same arbitrator tend to receive more favorable arbitration decisions.29 One possible explanation for this phenomenon is the strong incentive of arbitrators to render favorable decisions for the businesses that employ them.30 Many arbitration clauses provide that the business will choose the arbitrator.31 Despite the fact that arbitrators are meant to be “third-party neutrals,”32 many arbitrators consider the businesses who hire them to be

22 E.g., Verizon Wireless Customer Agreement, supra note 3 (“THIS AGREEMENT DOESN’T ALLOW CLASS OR COLLECTIVE EVEN IF THE AAA OR BBB PROCEDURES OR RULES WOULD. . . . NO CLASS OR REPRESENTATIVE OR PRIVATE ATTORNEY GENERAL THEORIES OF LIABILITY OR PRAYERS FOR RELIEF MAY BE MAINTAINED IN ANY ARBITRATION HELD UNDER THIS AGREEMENT.”). 23 Out of 1,179 class actions filed between 2010 and 2014 where businesses sought to compel arbitration, courts required individual arbitration in 80% of those cases. Silver- Greenberg & Gebeloff, supra note 18. 24 Id. 25 See discussion infra Section IV.B.2. 26 DEBORAH R. HENSLER ET. AL., CLASS ACTION DILEMMAS:PURSUING PUBLIC GOALS FOR PRIVATE GAIN 119 (2000); see also Gilles, supra note 11, at 378 (“I take it as beyond dispute that the threat of class action liability plays a vital role in deterring corporate wrongdoing.”). 27 Vasquez-Lopez v. Beneficial Or., Inc., 152 P.3d 940, 951 (Or. Ct. App. 2007). 28 PUB.CITIZEN,THE ARBITRATION DEBATE TRAP 25 (2008), http://www.citizen.org /documents/ArbitrationDebateTrap%28Final%29.pdf [https://perma.cc/57KV-38WB]. 29 Id. 30 Id. 31 Id. 32 See MODEL RULES OF PROF’L CONDUCT r. 1.12 (AM.BAR ASS’N 1983). 2018] REOPENING THE COURTROOM DOORS 163 their clients.33 Because arbitrators are often competing for repeat business, their continued livelihood depends in large part on rendering favorable decisions for the businesses that hire them.34 Another key advantage to businesses, and detriment to consumers, comes from the private nature of arbitration proceedings.35 Arbitrators are not bound to follow rules of civil procedure regarding discovery, nor are they required to follow rules of evidence.36 Unlike judges, arbitrators are not required to keep a public record of the proceedings or provide a written explanation for their decisions.37 Moreover, decisions by an arbitrator are often not appealable.38 One court has even gone so far as to say that it could not overturn an arbitrator’s decision even if it resulted in “substantial injustice.”39 The use of mandatory arbitration clauses is especially harmful in contracts for internet and cell phone service. Although these services may have been considered luxuries in the past, they can be reasonably characterized as essential in our modern society.40 This means that simply “doing without” cell phone or internet service is not a realistic option for most Americans.41 However, if a consumer wishes to reject an arbitration clause, this is the only option.42 Every major cell phone and internet

33 In some cases, the unethical conflict of interest is blatant. E.g., Silver-Greenberg & Corkery, supra note 18. In one instance, an arbitrator went to a basketball game with the company’s lawyers the night before the proceeding. Id. In another instance, during a break in proceedings, the company’s lawyer and the arbitrator left the premises and returned in matching sports cars. Id. The consumer lost in both cases. Id. Although these examples are extreme, the fact remains that many arbitrators feel a certain loyalty to their corporate clients that could negatively affect their ability to render a “neutral” decision. Id. 34 PUB.CITIZEN, supra note 28, at 25. 35 Silver-Greenberg & Corkery, supra note 18. 36 Id. 37 Myriam Gilles, The Day Doctrine Died: Private Arbitration and the End of Law, 2016 U. ILL.L.REV. 371, 391 (2016). 38 Silver-Greenberg & Corkery, supra note 18. 39 Burlage v. Superior Court, 100 Cal. Rptr. 3d 531, 534 (Cal. Ct. App. 2009). 40 Catherine Rampell, Luxury, or Necessity?,N.Y.TIMES (Feb. 9, 2009, 6:02 PM), https://economix.blogs.nytimes.com/2009/02/09/luxury-or-necessity/ [https://perma.cc/TF2Z-TNEL]. 41 Id. 42 See infra note 43 and accompanying text. 164 CAPITAL UNIVERSITY LAW REVIEW [46:159 service provider in the country includes a mandatory arbitration clause in its standard Terms and Conditions for service.43 This Comment proposes a solution to the problem of mandatory arbitration clauses in cell phone service contracts through informal rulemaking by the Federal Communications Commission.44 Part II discusses the favorable legal treatment that arbitration clauses have received. This Part begins with the text and history of the (FAA),45 then discusses the Supreme Court’s expansive interpretation of the FAA, then concludes with a brief discussion of proposed legislation attempting to amend or repeal the FAA. Part III discusses recent action taken by other administrative agencies regarding mandatory arbitration clauses. Specifically, this Part provides guidance for the FCC in future rulemaking by discussing the legal authority upon which other agencies relied in their rulemaking.

43 See, e.g., Verizon Wireless Customer Agreement, supra note 3; Wireless Customer Agreement, AT&T § 2.2, https://m.att.com/shopmobile/legal/terms.wirelessCustomer Agreement.html [https://perma.cc/Q7MY-5V99]; T-Mobile Terms & Conditions,T- MOBILE, https://www.t-mobile.com/Templates/Popup.aspx?PAsset=Ftr_Ftr_TermsAnd Conditions&print=true#Dispute Resolution [https://perma.cc/EW74-LTUE]; General Terms and Conditions of Service,SPRINT 22–26, https://www.sprint.com/global/pdf /legal/general_terms_and_conditions_of_service.pdf [https://perma.cc/AU2Z-7WAE]; Comcast Agreement for Residential Services,XFINITY § 13, http://www.xfinity.com/ Corporate/Customers/Policies/SubscriberAgreement.html [https://perma.cc/DE48-7JD6]; General Terms and Conditions for Charter Residential Services,CHARTER SPECTRUM §24, https://www.charter.com/browse/content/services#/terms_TCR1 [https://perma.cc/C78N- DPSR]; Residential Customer Service Agreement,COX § 4, https://www.cox.com/aboutus /policies/customer-service-agreement.html#resolution [https://perma.cc/CB83-9FCQ]; Terms and Conditions of Agreement,U.S.CELLULAR, https://m.uscellular.com/uscellular /legal/toc_agreement.html [https://perma.cc/XJ6C-D3SD]. 44 The FCC recently reclassified internet service providers as “information services,” rather than “telecommunications services.” Restoring Internet Freedom, 82 Fed. Reg. 25,568, 25,570 (June 2, 2017) (to be codified at 47 C.F.R. pts. 8 and 20); Restoring Internet Freedom, FCC, https://www.fcc.gov/restoring-internet-freedom [https://perma.cc/DQ4K- C9WL]. Because of this reclassification, the analysis in Part IV only applies to cell phone service providers. See sources cited infra note 118. If the reclassification is struck down in court, however, the analysis in Part IV will apply to both internet and cell phone service providers. 45 9 U.S.C. §§ 1–16 (2012). 2018] REOPENING THE COURTROOM DOORS 165

Part IV includes an in-depth analysis of the FCC’s authority to regulate the use of mandatory arbitration clauses by cell phone service providers. This Part begins by identifying the sources of the FCC’s rulemaking authority and then analyzes the likely outcome of various legal actions that could be brought to strike down an FCC rule.

II. LEGAL TREATMENT OF MANDATORY ARBITRATION CLAUSES The favorable legal treatment given to the use of mandatory arbitration clauses derives from the Federal Arbitration Act (FAA).46 Although it seems likely that the FAA was never intended to authorize mandatory arbitration clauses as they are used today,47 the Supreme Court’s expansive interpretation of the Act has effectively given businesses a green light.48 A. The Federal Arbitration Act: Relevant Text and History The Federal Arbitration Act, originally called the United States Arbitration Act, was enacted in 1925.49 Because the Act was championed mostly by independent organizations,50 there was not much legislative debate surrounding its enactment;51 however, some historical information is available and sheds important light on the original purpose behind the FAA.52 First, the text of the FAA indicates that it was primarily intended to apply to contractual disputes, not statutory claims.53 Section 2 of the Act provides that “an agreement in writing to submit to arbitration an existing controversy arising out of such a contract [involving interstate commerce] shall be valid, irrevocable, and enforceable . . . .”54 Statutory claims “arise out of” the statute, not the contract itself.55 Therefore, the language of the

46 Id. 47 See infra Section II.A. 48 See infra Section II.B. 49 United States Arbitration Act, 43 Stat. 883 (1925), repealed by Federal Arbitration Act, 61 Stat. 669 (codified at 9 U.S.C. §§ 1–14). 50 See IAN R. MACNEIL,AMERICAN ARBITRATION LAW 92 (1992). 51 Id. at 107. 52 Id. at 107–20. 53 Imre Stephen Szalai, Exploring the Federal Arbitration Act Through the Lens of History,2016J.DISP.RESOL. 115, 124 (2016). 54 9 U.S.C. § 2 (2012) (emphasis added). 55 Szalai, supra note 53, at 124. 166 CAPITAL UNIVERSITY LAW REVIEW [46:159 statute indicates that it was intended to apply to contractual disputes, not statutory claims. This conclusion is supported by the primary concerns that initially drove the enactment of the FAA.56 The examples of disputes provided by proponents of the Act involved contractual disputes between merchants.57 In fact, during Senate hearings, the concern about forcing consumers or employees into arbitration agreements was discussed.58 The debate clarifies that the Act was not intended to impose arbitration on unwilling consumers.59 Second, the text of the FAA also indicates that it was intended to apply only to arbitration agreements entered after a dispute arose. Section 2 of the Act specifically refers to the enforcement of a written agreement to submit “an existing controversy” to arbitration.60 Thus, the statutory language indicates that arbitration agreements entered before a dispute arises (i.e., before there is an “existing controversy”) are not covered by the Act. Third, the FAA was intended to permit enforcement of arbitration agreements by imposing procedural requirements on federal courts; it was not intended to impose any requirements on state courts.61 Various provisions of the FAA refer exclusively to the federal courts.62 The

56 Id. at 122 n.54. 57 Id. 58 Sales and Contracts to Sell in Interstate and Foreign Commerce, and Federal Commercial Arbitration: Hearing on S. 4213 and S. 4214 Before the S. Comm. on the Judiciary, 67th Cong. 9 (1923) (statement of Sen. Thomas J. Walsh) (“Take an insurance policy; there is a blank in it. You can take that or you can leave it. The agent has no power at all to decide it. Either you can make that contract or you can not make any contract. It is the same with a good many contracts of employment. A man says ‘These are our terms. All right, take it or leave it.’ Well, there is nothing for the man to do except to sign it; and then he surrenders his right to have his case tried by the court, and has to have it tried before a tribunal in which he has no confidence at all.”). 59 “It is purely an act to give the merchants the right or the privilege of sitting down and agreeing with each other as to what their damages are, if they want to do it.” Id. at 9 (statement of W.H.H. Piatt, Chairman, Committee of Commerce, Trade and Commercial Law of the American Bar Association) (emphasis added). 60 9 U.S.C. § 2 (2012) (emphasis added). 61 Szalai, supra note 53, at 120. 62 9 U.S.C. § 3 (authorizing court to stay actions “brought in any of the courts of the United States . . . .”) (emphasis added); 9 U.S.C. § 4 (allowing parties to submit petition to (continued) 2018] REOPENING THE COURTROOM DOORS 167 legislative history also indicates that the FAA was merely intended to provide a procedure by which federal courts could enforce arbitration agreements involving interstate commerce.63 Therefore, the FAA was enacted for the limited purpose of empowering the federal courts to enforce arbitration agreements.64 B. Supreme Court Expansion of the FAA Despite the limited application of the FAA intended by Congress when it was first enacted, the Supreme Court over time has expansively interpreted the FAA to cover statutory claims65 as well as claims brought in state court.66 Two recent decisions by the Court have now limited the ability of state courts to use the doctrine to give consumers relief from the burdens imposed by mandatory arbitration clauses.67 In AT&T Mobility, LLC v. Concepcion, the Court decided whether § 2 of the FAA preempted a common-law rule from the California Supreme Court known as the Discover Bank rule, which classified most class arbitration waivers as unconscionable.68 In Concepcion, the plaintiffs brought a purported class action against numerous cell phone service providers for unfair competition and false advertising, both of which are compel arbitration to “any United States district court which . . . would have jurisdiction under title 28 ....”) (emphasis added). 63 See H.R. REP.NO.68–96, at 1 (1924). The need for the law arose from “an anachronism of our American law” which evolved from the English courts’ refusal to enforce arbitration agreements due to “jealousy ...for their own jurisdiction.” Id. 64 Id. (explaining that the enforcement of an arbitration agreement is “a question of procedure,” and therefore the FAA is necessary before such contracts could be enforced in federal courts). 65 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625 (1985) (“[W]e find no warrant in the Arbitration Act for implying in every contract within its ken a presumption against arbitration of statutory claims.”). 66 In rejecting an argument that the FAA applies only to federal courts, the Court stated that it was “unwilling to attribute to Congress the intent, in drawing on the comprehensive powers of the Commerce Clause, to create a right to enforce an arbitration contract and yet make the right dependent for its enforcement on the particular forum in which it is asserted.” Southland Corp. v. Keating, 465 U.S. 1, 15 (1984). 67 AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 352 (2011); DirecTV, Inc. v. Imburgia, 136 S. Ct. 463, 471 (2015). 68 563 U.S. at 340. 168 CAPITAL UNIVERSITY LAW REVIEW [46:159 statutory causes of action in California.69 The district court and the Ninth Circuit Court of Appeals relied on the Discover Bank rule in holding that an arbitration clause in an agreement between AT&T Mobility and its customers was unconscionable.70 The clause provided that all claims against AT&T Mobility must be brought “in the parties’ ‘individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.’”71 AT&T Mobility attempted to invoke the clause to compel individual arbitration and prevent further class proceedings against it, whether in court or in arbitration.72 In a 5–4 decision, the Supreme Court of the United States held that the Discover Bank rule was preempted by the FAA.73 In support of its decision, the Court reasoned that California’s Discover Bank rule was inconsistent with the purpose of the FAA, which was “to ensure the enforcement of arbitration agreements according to their terms.”74 Although § 2 of the FAA contains a savings clause,75 the Court explained that “nothing in [the savings clause] suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives.”76 The practical effect of this decision was immediately clear: in most cases, courts may no longer use the unconscionability doctrine to strike mandatory arbitration clauses from contracts.77 However, consumer advocates were not ready to give up just yet. Just four years later, in DirecTV, Inc. v. Imburgia, the issue of class action waivers in arbitration agreements went to the Supreme Court again.78 In Imburgia, the Court interpreted an arbitration clause in a

69 Id. at 337. 70 Id. at 338. 71 Id. at 336. 72 Id. at 337. 73 Id. at 352. 74 Id. at 344. 75 9 U.S.C. § 2 (2012) (“save upon such grounds as exist at law or in equity for the revocation of any contract”). 76 Concepcion, 563 U.S. at 343. 77 See Laster v. T-Mobile USA, Inc., No. 05cv1167DMS (WVG), 2013 WL 4082682, at *3 (S.D. Cal. July 19, 2013) (explaining the new standard under Concepcion, that any state- law contract defense that has a disproportionate effect on arbitration is displaced by the FAA). 78 136 S. Ct. 463 (2015). 2018] REOPENING THE COURTROOM DOORS 169 contract between DirecTV and its customers.79 The clause at issue provided that if the “law of your state” made the waiver of class arbitration unenforceable, the entire arbitration provision would be unenforceable.80 Importantly, the contract was drafted before the Court’s Concepcion decision, and at that time, the arbitration provision would have been unenforceable in California under the Discover Bank rule.81 However, the Court held that the phrase “law of your state” could not reasonably be interpreted to include preempted state law.82 Because the Discover Bank rule was preempted by the FAA, it could not be relied upon as the “law of your state” to render the arbitration provision unenforceable.83 The Supreme Court in Imburgia thus confirmed the broad reach of its Concepcion decision, emphasizing that any state law that conflicts with the federal policy favoring arbitration is preempted by the FAA.84 C. Legislative Inaction Given the Supreme Court’s recent expansive interpretation of the FAA in Concepcion, as confirmed in Imburgia, consumers are unlikely to find any relief through the court system. In light of unfavorable judicial interpretation, the ideal solution is for Congress to repeal or amend the FAA to restore its originally-intended meaning. However, this solution is unrealistic given the current lobbying strength of the businesses that are benefitting from the use of arbitration agreements. For example, from 2008–2012, five bills were introduced in Congress attempting to regulate the use of arbitration agreements in long-term care facility contracts.85 None of them were enacted into law.

79 Id. at 467–68. 80 Id. at 466. 81 Id. at 468–69. 82 Id. at 469–70. 83 Id. at 470. Justice Breyer, who had dissented in Concepcion, invoked stare decisis in authoring the majority opinion in Imburgia. Although he personally disagreed with the decision in Concepcion, Breyer clarified that “Concepcion is an authoritative interpretation of [the FAA]. Consequently, the judges of every State must follow it.” Id. at 468. 84 Id. at 471. 85 Fairness in Nursing Home Arbitration Act of 2012, H.R. 6351, 112th Cong. (2012); Fairness in Nursing Home Arbitration Act of 2009, H.R. 1237, 111th Cong. (2009); Fairness in Nursing Home Arbitration Act, S. 512, 111th Cong. (2009); Fairness in Nursing Home Arbitration Act of 2008, H.R. 6126, 110th Cong. (2008); Fairness in Nursing Home Arbitration Act, S. 2838, 110th Cong. (2008). 170 CAPITAL UNIVERSITY LAW REVIEW [46:159

A more comprehensive bill was introduced in the Senate in early 2015.86 This bill included congressional findings that the Supreme Court’s interpretation of the FAA is contrary to Congress’s intent, and mandatory arbitration clauses are harmful to consumers.87 The bill declared a pre- dispute arbitration agreement to be unenforceable if it required the arbitration of a consumer dispute.88 This bill was first introduced and referred to committee on April 29, 2015, but no further action was taken.89 A similar bill was introduced in the House on March 7, 2017. Like the 2015 Senate bill, this bill would render mandatory arbitration clauses unenforceable “if it requires arbitration of an employment dispute, consumer dispute, antitrust dispute, or civil rights dispute.”90 This bill was also sent to committee to quietly die.91

III. RECENT REGULATORY ACTION Although consumers have found no relief from the Supreme Court or from legislation, administrative agencies have begun attempting to address this problem.92 In 2016, three agencies—the Consumer Financial Protection Bureau (CFPB),93 the Centers for Medicare and Medicaid Services,94 and the Department of Education95—either proposed or

86 Arbitration Fairness Act of 2015, S. 1133, 114th Cong. (2015). 87 Id. §2. 88 Id. §3. 89 Arbitration Fairness Act of 2015: Actions Overview,CONGRESS.GOV, https://www.congress.gov/bill/114th-congress/senate- bill/1133/actions?q=%7B%22search%22%3A%5B%22s.+1133%22%5D%7D&r=1 [https://perma.cc/S67H-TBRR]. 90 Arbitration Fairness Act of 2017, H.R. 1374, 115th Cong. § 3 (2017). 91 Arbitration Fairness Act of 2017: Actions Overview,CONGRESS.GOV, https://www.congress.gov/bill/115th-congress/house-bill/1374/all-actions-without- amendments?q=%7B%22search%22%3A%5B%22arbitration%22%5D%7D&r=2 [https://perma.cc/TUN8-7EJY]. 92 E.g., Arbitration Agreements, 81 Fed. Reg. 32,830 (proposed May 24, 2016) [hereinafter Arbitration Agreements Proposed Rule] (to be codified at 12 C.F.R. pt. 1040); Medicare and Medicaid Programs, Reform of Requirements for Long-Term Care Facilities, 81 Fed. Reg. 68,688 (Oct. 4, 2016) [hereinafter Medicare and Medicaid Programs] (to be codified at 42 C.F.R. § 483.70(n)); Student Assistance General Provisions, 81 Fed. Reg. 75,926 (Nov. 1, 2016). 93 Arbitration Agreements Proposed Rule, supra note 92, at 32,830. 94 Medicare and Medicaid Programs, supra note 92, at 68,867. 2018] REOPENING THE COURTROOM DOORS 171 finalized regulations limiting the use of mandatory arbitration clauses within their particular regulatory spheres. A. The CFPB Arbitration Study and Proposed Rule Congress created the CFPB in 2010 as part of comprehensive legislation intended to address the problems in the financial industry that led to the 2008 housing crisis.96 In addition to broad rulemaking and enforcement authority, Congress explicitly instructed the CFPB to conduct a study and report to Congress regarding the use of arbitration agreements between consumers and providers of “consumer financial products or services.”97 Congress also authorized the CFPB to make regulations prohibiting or restricting the use of these arbitration agreements if it found that making such regulations would be “in the public interest and for the protection of consumers.”98 The CFPB completed its study and presented it to Congress in March 2015.99 Prior to this study, there was very little empirical data regarding the use of mandatory arbitration clauses and their effect on consumers.100 A year later, pursuant to its statutory authority, the CFPB promulgated a rule regarding the use of arbitration agreements.101 The rule contained two provisions relevant to this discussion. First, it prohibited providers of consumer financial products or services from relying on arbitration agreements to prevent class actions unless (1) the

95 Student Assistance General Provisions, supra note 92, at 75,926. 96 Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, Pub. L. 111-203, § 1011, 124 Stat. 1376, 1964–65 (2010) (codified at 12 U.S.C. § 5491). 97 12 U.S.C. § 5518(a) (2012). 98 12 U.S.C. § 5518(b). 99 CFPB, ARBITRATION STUDY:REPORT TO CONGRESS,PURSUANT TO DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT § 1028(a) (Mar. 2015) [hereinafter ARBITRATION STUDY], http://files.consumerfinance. gov/f/201503_cfpb_arbitration-study- report-to-congress-2015.pdf [https://perma.cc/D8BV-6EJG]. 100 Id. §1, at 2. 101 Arbitration Agreements Proposed Rule, supra note 92, at 32,925. After the CFPB finalized this rule, Congress vacated the rule by exercising its power under the Congressional Review Act. Providing for Congressional Disapproval Under Chapter 8 of Title 5, United States Code, of the Rule Submitted by Bureau of Consumer Financial Protection Relating to “Arbitration Agreements,” Pub. L. No. 115-74, 131 Stat. 1243 (2017). Although the rule no longer has any legal effect, the Notice of Proposed Rulemaking still contains valuable data and analysis regarding the effects of mandatory arbitration clauses on consumers. 172 CAPITAL UNIVERSITY LAW REVIEW [46:159 court denied class certification, and (2) all appeals were exhausted.102 Second, it required all such providers to include a notice to the consumer that the provider would not use an arbitration agreement to prevent a class action lawsuit.103 B. The Centers for Medicare and Medicaid Services Rule On October 4, 2016, the Centers for Medicare and Medicaid Services— an agency within the Department of Health and Human Services—issued a final rule which, among other things, prohibits nursing facilities that participate in Medicare or Medicaid from entering into pre-dispute arbitration agreements with its residents.104 The agency relied on broad statutory authority authorizing the Secretary of Health and Human Services to impose requirements on nursing facilities “relating to the health, safety, and well-being of residents . . . as the Secretary may find necessary.”105 Such authority is more broad than the authority conferred on the CFPB and contains no reference to arbitration agreements explicitly.106 C. The Department of Education Rule On November 1, 2016, the Department of Education issued a final rule regarding federal student loans.107 This rule contains two prohibitions regarding the use of mandatory arbitration clauses.108 First, it prohibits schools participating in the Direct Loan Program from entering into pre- dispute arbitration agreements to resolve any claim by a borrower that arises from a “borrower defense” under the Department’s existing regulations.109 Second, it prohibits such schools from using any agreement to bar class action lawsuits by borrowers arising out of such “borrower defenses.”110 The Department of Education relied on statutory authority from the Higher Education Act.111 The Act grants authority to the Department to

102 Arbitration Agreements Proposed Rule, supra note 92, at 32,925. 103 Id. 104 Medicare and Medicaid Programs, supra note 92, at 68,688, 68,867. 105 42 U.S.C. § 1395i-3(d)(4)(B) (2012). 106 Id. 107 Student Assistance General Provisions, supra note 92. 108 Id. at 75,926–27. 109 Id. 110 Id. at 75,927. 111 Id. at 75,926. 2018] REOPENING THE COURTROOM DOORS 173 include provisions in agreements with participating schools that are “necessary to protect the interests of the United States and to promote the purposes of [the Federal Direct Loan Program].”112 The Department took the position that the prohibitions on mandatory arbitration clauses and class action waivers were authorized under its “broad authority ...to impose conditions on schools that wish to participate in the Federal Direct Loan Program.”113 The authority relied upon by the Department, like the authority for the Centers for Medicare and Medicaid Services rule, is very broad and does not specifically address the use of mandatory arbitration clauses.114

IV. ANALYSIS:REGULATORY ACTION BY THE FCC The FCC’s authority is similar in breadth to the authority relied upon by HHS and the DOE for their regulations.115 This Part discusses the FCC’s authority to prohibit the use of arbitration clauses by cell phone service providers and the likelihood of such a regulation surviving a legal challenge. A. Sources of Statutory Authority The FCC may rely on two alternative sources of statutory authority to promulgate a rule prohibiting mandatory arbitration clauses.116 Section 201 of the Communications Act117 provides that all practices in connection with interstate or wire communication by a “common carrier”118 must be “just and reasonable,” and “any practice that is unjust or unreasonable is declared to be unlawful.”119 Section 201(b) also authorizes the FCC to

112 20 U.S.C. § 1087d(a)(6) (2012). 113 Student Assistance General Provisions, supra note 92, at 76,022. 114 Id. 115 47 U.S.C. § 201(b) (2012). 116 Am. Library Ass’n v. FCC, 406 F.3d 689, 692 (D.C. Cir. 2015). 117 47 U.S.C. § 201. 118 Cell phone providers are considered providers of “commercial mobile services,” which are treated as “common carriers” under the Communications Act. 47 U.S.C. § 332(c)(1)(A) (2012). Cell phone service providers are providers of “commercial mobile services” because they provide mobile services for profit and make “interconnected service available . . . to the public.” 47 U.S.C. § 332(d)(1). 119 47 U.S.C. § 201(b). 174 CAPITAL UNIVERSITY LAW REVIEW [46:159 prescribe regulations that are “necessary in the public interest” to carry out the provisions of the Act.120 The FCC also possesses authority under its “ancillary jurisdiction.”121 The FCC’s “ancillary jurisdiction” is a general authority for the FCC to “make such rules and regulations...not inconsistent with [the Act], as may be necessary in the execution of its functions.”122 1. Section 201(b) Section 201(b) of the Communications Act gives the FCC authority to make regulations that are “necessary in the public interest” to carry out the provisions of the Act.123 The FCC has considered the statutory criteria under § 201(b) to be met where (1) the “public interest” in prohibiting a practice outweighed any “countervailing policy concerns,” and (2) a regulation was “necessary to protect competition and consumers” against the practice.124 The recent study by the CFPB regarding the use of mandatory arbitration clauses in the financial context could provide helpful guidance for the FCC in deciding whether the statutory criteria are met. The CFPB conducted its study in preparation for its own regulation prohibiting the use of mandatory arbitration clauses in contracts for consumer financial products or services.125 This study was one of the largest empirical studies that has been conducted on this subject.126 In conducting the study, the CFPB analyzed approximately 850 consumer financial agreements, surveyed over 1,000 consumers regarding their knowledge and understanding of the effects of mandatory arbitration clauses, and analyzed thousands of court filings from individual consumer actions, class actions, and public enforcement actions.127 Although the study focused on the use of mandatory arbitration clauses in the financial context, many of the findings apply equally to the provision of cell phone services. Thus, based on the CFPB’s study, the FCC could find that a regulation prohibiting

120 Id. 121 American Library, 406 F.3d at 692. 122 47 U.S.C. § 154(i) (2012). 123 47 U.S.C. § 201(b). 124 Protecting and Promoting the Open Internet, 80 Fed. Reg. 19,738, 19,780 (Apr. 13, 2015). 125 ARBITRATION STUDY, supra note 99, § 1. 126 See id. §1.3. 127 Id. 2018] REOPENING THE COURTROOM DOORS 175 mandatory arbitration clauses is necessary to protect competition and consumers, and the public interest promoted by the regulation outweighs any countervailing policy concerns. The CFPB identified six reasons that such a prohibition in the consumer financial context would be “in the public interest.”128 First, the CFPB found that consumers rarely file individual arbitration claims because they often have no awareness that their rights have been violated.129 Without the assistance of an attorney, certain harms such as hidden fees go largely undetected by the average consumer.130 Attorneys play an important role in this process by providing their legal expertise and using the discovery process to obtain information consumers cannot ordinarily obtain from businesses on their own.131 Likewise, consumers of cell phone services are often unaware that their rights have been violated.132 For example, cell phone service providers have been known to engage in “cramming,” a practice by which the service provider includes charges on a consumer’s telephone bill for services that the consumer did not authorize or receive.133 According to the FCC, providers use the confusing nature of telephone bills, which often contain vague or ambiguous descriptions of services, to include these charges.134 Although consumers may feel that such charges are unfair, they often will not know that they are entitled to legal relief without the aid of an attorney.135

128 Arbitration Agreements Proposed Rule, supra note 92, at 32,855–62. 129 Id. at 32,856. 130 Id. 131 Id. 132 See Kinkel v. Cingular Wireless LLC, 857 N.E.2d 250, 268 (Ill. 2006) (“The typical consumer may feel that [an early termination fee] is unfair, but only with the aid of an attorney will the consumer be aware that he or she may have a claim that is supported by law, and only with the aid of an attorney will such a consumer be able to make the merits of such a claim apparent in arbitration or litigation.”). 133 Understanding Your Telephone Bill: Consumer Rights, Billing, Tips and FAQs, FCC, https://www.fcc.gov/consumers/guides/cramming-unauthorized-charges-your-phone- bill [https://perma.cc/U95V-G7U7]. 134 Id. 135 Kinkel, 857 N.E.2d at 268. 176 CAPITAL UNIVERSITY LAW REVIEW [46:159

Second, many harms that consumers suffer occur on a small scale.136 However, retaining an attorney for a small claim is not an easy task.137 Most consumers consider the costs associated with hiring an attorney for such a small claim to be prohibitive.138 Plaintiffs’ attorneys who operate on a contingency fee basis are also unwilling to take these cases because of the low dollar value.139 Consumers of cell phone services often encounter the same problem.140 Unauthorized fees charged by cell phone service providers are usually no larger than a few hundred dollars.141 As a result, the cost of pursuing a claim individually is prohibitive for most consumers and attorneys.142 The class action mechanism was devised, among other reasons, to eliminate this problem by providing an incentive for individuals and attorneys to pursue such claims on behalf of a large class of consumers.143 A mandatory bar of class actions eliminates this important mechanism for consumers to pursue these claims and to hold businesses accountable for deceptive or fraudulent behavior. Third, arbitration clauses are often hidden in the middle of lengthy contracts.144 The CFPB found that many consumers are entirely unaware

136 Arbitration Agreements Proposed Rule, supra note 92, at 32,855. Complaints submitted to the CFPB in 2016 that settled “for monetary relief” settled for a median amount of $134. CFPB, CONSUMER RESPONSE ANNUAL REPORT 45 (2016), http://files.consumerfinance.gov/f/201604_cfpb_consumer-response-annual-report- 2015.pdf [https://perma.cc/Q8RV-BTEH]. 137 Arbitration Agreements Proposed Rule, supra note 92, at 32,856. 138 Id. 139 Id. at 32,857. 140 Kinkel, 857 N.E.2d at 268. 141 See id. at 255 ($150 early termination fee); Coneff v. AT&T Corp., 620 F. Supp. 2d 1248, 1257 (W.D. Wash. 2009) (putative class members’ damages ranged from $4.99 to $175 per individual). 142 Coneff, 620 F. Supp. 2d at 1257. 143 Amchem Prods. v. Windsor, 521 U.S. 591, 617 (1997) (“The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor.”) (citation omitted). 144 Arbitration Agreements Proposed Rule, supra note 92, at 32,855. E.g., American Express Cardmember Agreement, at 5–6, https://assets.documentcloud.org/documents/ (continued) 2018] REOPENING THE COURTROOM DOORS 177 that they waive their right to sue when they receive financial products or services.145 Cell phone service contracts typically include arbitration clauses in the middle of lengthy contracts as well.146 In some cases, the arbitration clause is not even included in the original agreement but is amended unilaterally by the company via an “envelope-stuffer.”147 This tactic enables businesses to opt out of class action liability simply by inserting a notice in a consumer’s monthly bill stating that the consumer agrees to its terms by continuing to use the service.148 Most consumers do not read these contracts and probably would not understand them if they did.149 Fourth, the CFPB found that the threat of class actions holds businesses accountable and causes them to change their behavior.150 The CFPB found that, when deciding whether to engage in a certain practice, businesses perform a cost-benefit analysis, weighing the financial benefit of engaging in the practice against the potential litigation cost.151 When there is a threat of class action, businesses are deterred from engaging in unlawful activity, and they focus more attention and resources on “general proactive compliance monitoring and management.”152 By contrast, informal dispute resolutions produced no changes in banks’ overall practices.153 Through individual dispute resolution, businesses often manage their costs by making individualized decisions about the amount of relief to award a customer.154 By managing costs in

2488250/american-express-cardmember-agreement.pdf [https://perma.cc/63UC-UA3S] (arbitration clause located on page 5 of a 6-page agreement). 145 ARBITRATION STUDY, supra note 99, § 1.4.2 (“Consumers with such clauses in their agreements generally either do not know whether they can sue in court or wrongly believe that they can do so.”). 146 E.g., T-Mobile Terms & Conditions, supra note 43. 147 Gilles, supra note 11, at 377. 148 E.g., Verizon Wireless Customer Agreement, supra note 3. 149 Silver-Greenberg & Gebeloff, supra note 18. 150 Arbitration Agreements Proposed Rule, supra note 92, at 32,862. 151 Id. 152 Id. 153 Id. at 32,857. 154 Id. (finding that some banks award varying amounts to consumers based on the amount of profit the bank derives from those consumers). 178 CAPITAL UNIVERSITY LAW REVIEW [46:159 this way, businesses continue to receive significant profits from unlawful practices.155 The deterrent effect of class actions applies equally to most businesses, including cell phone service providers.156 In one study published in 2000, many corporate representatives indicated that the threat of class actions caused them to review their practices.157 By contrast, the ability to opt out of class actions gives businesses “a virtual license to commit, with impunity, millions of dollars’ worth of small-scale fraud.”158 Fifth, the CFPB found that public enforcement is not an adequate substitute for class actions.159 In 88% of the public enforcement actions it identified, there was no overlapping class action.160 In most cases where public and private actions overlapped, the private action was filed first.161 The CFPB believes this trend is largely due to the limited resources of public enforcement agencies.162 Because public enforcement agencies do not have the resources to pursue every claim, private class actions provide an important supplement.163 Legal scholarship supports this conclusion in other contexts as well.164 Private class actions “inherently reduce[] the burden on public officials charged with enforcement, an especially worthy goal considering the current slimmed-down government budgets and bloated federal debt.”165

155 In one case, plaintiffs in a class action challenged a practice by Wells Fargo in which it “resequenced” transactions by posting them in order from highest to lowest. Gutierrez v. Wells Fargo Bank, 730 F. Supp. 2d 1080, 1084 (N.D. Cal. 2010). As a result, Wells Fargo maximized the amount of overdraft fees it could collect from customers. Id. at 1097. Wells Fargo’s documents demonstrated that it stood to make an extra $40 million per year from overdraft fees by engaging in “resequencing.” Id. at 1098. 156 HENSLER, supra note 26, at 119. 157 Id. 158 Vasquez-Lopez v. Beneficial Or., Inc., 152 P.3d 940, 951 (Or. Ct. App. 2007). 159 Arbitration Agreements Proposed Rule, supra note 92, at 32,860. 160 Id. at 32,851. 161 Id. 162 Id. at 32,861. 163 Id. 164 E.g., Harry Kalven, Jr. & Maurice Rosenfield, The Contemporary Function of the Class Suit,8U.CHI.L.REV. 684, 687 (1941). 165 Daniel Fishman, Make Him an Offer He Can’t Refuse: The Concerning Practice that Effectively Ends Collective Litigation and How to Fix It (Without the Supreme Court),36 B.C. J.L. & SOC.JUST. 91, 115 (2016) (citations omitted). 2018] REOPENING THE COURTROOM DOORS 179

Due to the strengths and weaknesses of both private class actions and public enforcement actions, “[t]he best solution . . . is to draw upon both systems of enforcement, permitting both...to check and complement each other.”166 Finally, and perhaps most importantly, the CFPB found businesses that use class action waivers enjoy a competitive advantage over others.167 Indeed, without the threat of a class action, a business can minimize its compliance costs and profit from its potentially illegal activities.168 Thus, prohibiting the use of class action waivers would “level the playing field” by requiring all financial service providers to invest in compliance.169 Many cell phone service providers already utilize arbitration agreements to avoid class action liability.170 Due to the significant costs associated with class action liability, any company in that industry that does not use this tactic would be at a serious disadvantage.171 The above findings demonstrate a strong public interest in the prohibition of mandatory arbitration clauses. However, under the FCC’s standard, this public interest must still be weighed against any countervailing policy concerns that may exist.172 Businesses have defended the use of mandatory arbitration clauses by contending that increased exposure to class action liability would increase their overall expenses, which would ultimately be passed on to consumers in the form of higher prices.173 Thus, the argument goes, there is a strong policy reason to allow mandatory arbitration clauses in order to keep prices low. The CFPB’s arbitration study did not identify a significant correlation between consumer prices and the use of mandatory arbitration clauses.174

166 Kalven & Rosenfield, supra note 164, at 721. 167 Arbitration Agreements Proposed Rule, supra note 92, at 32,865. 168 Id. 169 Id. at 32,865 n.424. 170 Gilles, supra note 11, at 377. 171 Opting out of class action liability will always be in a company’s “economic best interest.” Id. Indeed, once this tactic becomes more widespread, “it will become malpractice for corporate counsel not to include such clauses in consumer and other class- action-prone contracts.” Id. 172 Protecting and Promoting the Open Internet, supra note 118, at 19,780. 173 ARBITRATION STUDY, supra note 99 § 10, at 3. 174 Id. § 1, at 18 (“Th[e] analysis did not identify any statistically significant evidence of an increase in prices among those companies that dropped their arbitration clauses . . . .”). 180 CAPITAL UNIVERSITY LAW REVIEW [46:159

The inability of the CFPB to prove a causal relationship does not mean that no such relationship exists.175 However, under the FCC’s standard, any evidence of such a causal relationship must be so strong as to outweigh the significant public benefit that would result from the prohibition of mandatory arbitration clauses.176 This means that the burden of showing such a countervailing policy concern lies with the party opposing the regulation. Without positive proof that mandatory arbitration clauses lower prices, this countervailing policy concern cannot be said to outweigh the public benefit of the regulation. Businesses have also argued that arbitration promotes an important public purpose of providing faster and more efficient relief to aggrieved consumers.177 A letter from a group of banking associations commenting on the CFPB’s proposed rule pointed out that damages from class action proceedings are awarded “years after the initiation of the lawsuit,” and most consumers in these proceedings receive “no benefits at all or miniscule benefits.”178 By contrast, customers who prevailed in arbitration recovered an average of $5,389.179 This argument is unpersuasive for three reasons. First, very few consumers actually prevail when forced into arbitration.180 While arbitration might be more beneficial for the lucky few consumers who prevail in arbitration, for most consumers it is a dead end. Second, even if arbitration leads to faster, more efficient relief, it does not follow that arbitration should be mandatory. The proposed regulation would only prohibit the use of pre-dispute agreements that require the consumer to submit claims to arbitration. If the FCC were to make such a

175 Id. § 10, at 4–5 (explaining that even if a correlation between the use of mandatory arbitration clauses and consumer prices did exist, it would not be indicative of a causal relationship between the two, due to the large number of other factors that could affect pricing). 176 Id. § 10, at 5–6. 177 ALAN KAPLINSKY,COMMENTS ON THE BUREAU’S CONSUMER ARBITRATION STUDY 2 (July 13, 2015), http://op.bna.com.s3.amazonaws.com/bar.nsf/r%3FOpen%3djbar-9ydsbc [https://perma.cc/L9FF-7XGS]. 178 Id. at 3. 179 Id. at 4. 180 According to the CFPB study, out of 341 arbitrated claims for affirmative relief by consumers, consumers obtained relief in only 32 disputes (<10%). ARBITRATION STUDY, supra note 99 § 1.4.3. By contrast, of the 244 claims by businesses against consumers that were resolved by arbitration, the businesses obtained relief in 227 disputes (>90%). Id. 2018] REOPENING THE COURTROOM DOORS 181 regulation, consumers could still choose to submit claims to arbitration after a dispute arose, if they so desired. Third, this argument ignores one of the fundamental purposes behind class actions—deterrence.181 Class actions motivate businesses to comply with the law, because the stakes are higher than they would be in an individual suit.182 Moreover, class actions provide incentives for attorneys to get involved and represent the aggrieved consumers.183 Increased exposure to class action liability serves an important public interest by protecting consumers in the future from the unchecked, unlawful practices of businesses. Consumers’ interest in “faster and more efficient relief” is not sufficient to outweigh the deterrent purpose that class actions serve. Class actions take longer to resolve largely because of the procedural safeguards that are not present in arbitration.184 However, the absence of such safeguards in arbitration proceedings often works to consumers’ disadvantage.185 Therefore, consumers’ interests are protected through the class action procedure, even though it takes longer to resolve. The FCC will thus be able to satisfy the first prong of its test, because the prohibition of mandatory arbitration clauses in contracts for cell phone services promotes a public interest that is not outweighed by any countervailing policy concerns The second prong of the FCC’s test requires the FCC to establish that the prohibition of mandatory arbitration clauses is “necessary to protect competition and consumers.”186 The D.C. Circuit Court of Appeals has held that, under § 201(b), a regulation is “necessary” if the FCC finds that it would “advance a legitimate regulatory objective; it need not find that [the regulation is] indispensable.”187 Therefore, a regulation is “necessary to protect competition and consumers” if it furthers the purpose of protecting consumers and competition. The prohibition of mandatory arbitration clauses would protect consumers by deterring businesses from engaging in unlawful practices

181 Arbitration Agreements Proposed Rule, supra note 92, at 32,862. 182 Id. 183 Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997). 184 Greenberg & Corkery, supra note 18 (explaining that arbitrators are not bound by rules of evidence or rules of civil procedure). 185 Id. 186 Cellco P’ship v. FCC, 357 F.3d 88, 90 (D.C. Cir. 2004). 187 Id. at 96. 182 CAPITAL UNIVERSITY LAW REVIEW [46:159 and providing consumers a fair method of resolving their disputes.188 Likewise, the prohibition would protect competition by eliminating the ability of businesses to cut corners and leveling the playing field between all service providers.189 In conclusion, a regulation by the FCC prohibiting the use of mandatory arbitration clauses by cell phone service providers would promote an important public interest by protecting consumers from unfair and unlawful practices of businesses, and no countervailing policy concern outweighs this interest. Such a regulation is also necessary to protect competition and consumers. If the FCC decided to use its rulemaking authority to make such a regulation, it would be acting well within its statutory authority under § 201(b) of the Communications Act. 2. Ancillary Jurisdiction In addition to its powers under § 201(b), the FCC also possesses authority to “make such rules and regulations . . . not inconsistent with [the Communications Act], as may be necessary in the execution of its functions.”190 In order to make a regulation under this “ancillary jurisdiction,” two requirements must be satisfied.191 First, the subject of the regulation must fall within the FCC’s general jurisdictional grant under Title I of the Communications Act.192 Second, the subject of the regulation must be “reasonably ancillary to the effective performance of the [FCC’s] various responsibilities.”193 Title I of the Communications Act gives the FCC jurisdiction over “interstate and foreign commerce in communication by wire and radio.”194 Telecommunications providers, including cell phone service providers, fall within this definition.195 The crucial question is whether a prohibition of mandatory arbitration clauses is “reasonably ancillary” to the FCC’s effective performance of its duties. Although policy statements cannot provide the basis for the exercise of regulatory authority, they can “help delineate the contours” of

188 Arbitration Agreements Proposed Rule, supra note 92, at 32,862. 189 Id. at 32,865. 190 47 U.S.C. § 154(i) (2012). 191 Am. Library Ass’n v. FCC, 406 F.3d 689, 692 (D.C. Cir. 2005). 192 Id. 193 Id. at 693 (citation omitted). 194 47 U.S.C. § 151. 195 See supra note 118. 2018] REOPENING THE COURTROOM DOORS 183 expressly delegated authority.196 Thus, statements of policy can help determine whether a regulatory action is reasonably ancillary to a duty that has been expressly delegated to an agency.197 Congress specified that one purpose of the Communications Act was to “make available...a rapid, efficient, Nation-wide, and world-wide wire and radio communication service . . . at reasonable charges.”198 The Supreme Court has approved the FCC’s use of this broad policy statement to support a regulation promulgated under its ancillary jurisdiction.199 The D.C. Circuit Court of Appeals has also encouraged the FCC’s use of this policy statement to support its rulemaking authority.200 If the FCC could demonstrate that a regulation would help the FCC make telecommunications services available nationwide at reasonable charges, the FCC would be authorized to make the regulation under its ancillary jurisdiction. Prohibiting the use of mandatory arbitration clauses would promote the overall purpose of making services available at reasonable charges. The ability of telecommunications providers to immunize themselves from class action liability removes one of their largest incentives to comply with the law. The FCC has already created regulations specifying what constitutes “unjust and unreasonable” billing practices.201 The Communications Act provides for private causes of action to enforce such violations.202 However, without the availability of a class action proceeding, many consumers who are victims of such unjust and unreasonable billing practices will not pursue any claims for relief due to the relatively small claim amounts.203 Providers will therefore have little incentive to eliminate such practices. Because the availability of a class

196 Comcast Corp. v. FCC, 600 F.3d 642, 654 (D.C. Cir. 2010). 197 Id. 198 47 U.S.C. § 151. 199 United States v. Midwest Video Corp., 406 U.S. 649, 669 (1972) (upholding FCC rules because they “serve[d] the policies” of § 1 of the Communications Act). 200 Comcast, 600 F.3d at 654–55 (D.C. Cir. 2010) (striking down an FCC rule because the FCC did not employ a policy statement from § 1 of the Communications Act). 201 47 C.F.R. § 64.2401 (2017). 202 47 U.S.C. § 206 (2012) (“In case any common carrier shall do . . . any act . . . in this chapter prohibited or declared to be unlawful . . . such common carrier shall be liable to the person or persons injured thereby for the full amount of damages sustained in consequence of any such violation . . . .”). 203 See Coneff v. AT&T Corp., 620 F. Supp. 2d 1248, 1257 (W.D. Wash. 2009). 184 CAPITAL UNIVERSITY LAW REVIEW [46:159 action is important to incentivize providers to use just and reasonable billing practices, it promotes the purpose of making services available at reasonable charges. The prohibition of mandatory arbitration clauses is therefore reasonably ancillary to the FCC’s performance of its statutorily mandated responsibilities. B. Potential Legal Challenges If the FCC promulgates a rule prohibiting the use of arbitration clauses, there are four possible challenges that opponents could make. First, the FCC exceeded its statutory authority because the FAA expressly prohibits regulating the use of mandatory arbitration clauses absent an express directive from Congress, and the Communications Act contains no such directive. Second, the FCC cannot justify the rule under the authority provided in § 201(b) of the Communications Act, because prohibiting the use of mandatory arbitration clauses is not necessary in the public interest to prevent unjust and unreasonable practices. Third, the FCC cannot use its ancillary jurisdiction to justify the regulation because the prohibition of mandatory arbitration clauses is not reasonably ancillary to the FCC’s effective performance of its duties. Fourth, the regulation is arbitrary and capricious. 1. The Federal Arbitration Act Limitation The first argument that will likely be made is that, in the absence of a direct congressional directive to the contrary, the FAA preempts any regulatory action prohibiting the use of mandatory arbitration clauses, absent explicit authorization from Congress. In Imburgia, the Supreme Court reaffirmed that the FAA speaks directly to the use of mandatory arbitration clauses by establishing a “federal policy favoring arbitration.”204 Moreover, Congress has explicitly given authority to the CFPB205 and the SEC206 to make regulations regarding the use of mandatory arbitration clauses. This indicates that, if Congress wanted to authorize the FCC to make regulations regarding mandatory arbitration clauses, it would have done so explicitly. Thus, the argument goes, any regulatory authority given to an agency may not, in the absence of a clear directive from Congress, be fairly interpreted to include the prohibition of mandatory arbitration clauses.

204 DirecTV, Inc. v. Imburgia, 136 S. Ct. 463, 471 (2015). 205 12 U.S.C. § 5518(b) (2012). 206 15 U.S.C. § 78(o) (2012). 2018] REOPENING THE COURTROOM DOORS 185

There is one major problem with this argument, however. The FAA provides that all arbitration agreements are enforceable.207 However, the proposed FCC regulation would prohibit the use of entering into new arbitration agreements in the future. It would not (and could not consistently with the Supreme Court’s interpretation of the FAA) prohibit the enforcement of arbitration agreements that have already been made.208 This is a key distinction. The FAA is silent as to whether arbitration agreements may be prospectively prohibited in certain contexts.209 It simply declares that arbitration agreements that have already been made must be enforced.210 Therefore, an FCC regulation that prospectively prohibits the use of mandatory arbitration clauses in contracts between service providers and consumers is consistent with the FAA, because the FAA does not clearly indicate it was meant to preempt regulations that operate prospectively. 2. Section 201(b) The second challenge to an FCC arbitration rule will likely be made on the basis that the use of mandatory arbitration clauses is a “just and reasonable” practice, and therefore it is not “necessary in the public interest” to prohibit their use. If a term in a statute is ambiguous, the only question for a court reviewing the agency action is whether the agency’s interpretation is a “permissible construction of the statute.”211 If so, the court must defer to the agency’s interpretation.212 The Supreme Court has held that the language of § 201(b) is sufficiently ambiguous to trigger deference to the FCC’s interpretation.213 The FCC has defined the statutory criteria under § 201(b) to be met when (1) the public interest promoted by the regulation outweighs any countervailing policy concerns, and (2) the regulation is necessary to protect competition and consumers.214

207 9 U.S.C. § 2 (2012). 208 Imburgia, 136 S. Ct. at 471. 209 9 U.S.C. § 2. 210 Id. 211 Chevron, USA, Inc. v. NRDC, 467 U.S. 837, 843 (1984). 212 Id. at 844 (“[A] court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.”). 213 Nat’l Cable & Telecomm. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 981 (2005). 214 Protecting and Promoting the Open Internet, supra note 118, at 19,780. 186 CAPITAL UNIVERSITY LAW REVIEW [46:159

An FCC regulation prohibiting the use of mandatory arbitration clauses by cell phone service providers would meet these criteria.215 3. Ancillary Jurisdiction Opponents of an FCC regulation prohibiting mandatory arbitration clauses would also likely claim that the regulation does not fall within the FCC’s ancillary jurisdiction. However, such a regulation would be within the FCC’s ancillary jurisdiction because it is reasonably ancillary to the FCC’s duty to ensure cell phone services are provided nationwide at reasonable charges.216 4. Arbitrary and Capricious Even if a regulation is within an agency’s statutory authority, a court must still set aside a regulation if it is “arbitrary and capricious.”217 The standard of review for an arbitrary and capricious challenge is highly deferential: “a court is not to substitute its judgment for that of the agency.”218 A court may only set aside an agency action as “arbitrary and capricious” if it finds either of the following: (1) the agency relied on factors that Congress did not intend it to consider, (2) the agency “failed to consider an important aspect of the problem,” or (3) the agency “offered an explanation for its decision that runs counter to the evidence before [it]” or is “so implausible that it could not be ascribed to a difference in view or the product of agency expertise.”219 If the FCC prohibited mandatory arbitration clauses, there would be no need for it to rely on factors unintended by Congress. If a statute requires the agency to determine whether certain “requirements of the Act” are met, such a statutory imperative “leaves the agency no discretion” to do anything other than ensure that the statutory requirements are met.220 For example, in Luminant Generation Co. v. U.S. EPA, the court held that the EPA’s denial of an application was arbitrary and capricious when it relied on state law standards.221 The court reasoned that the Clean Air Act directs

215 See supra Section IV.A.1. 216 See supra Section IV.A.2. 217 5 U.S.C. § 706(2)(A) (2012). 218 Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983). 219 Id. 220 Luminant Generation Co. v. U.S. EPA, 675 F.3d 917, 926 (5th Cir. 2012). 221 Id. 2018] REOPENING THE COURTROOM DOORS 187 the EPA to approve an application if it meets the “applicable requirements of the Act.”222 Because the Clean Air Act provided specific criteria by which the EPA should evaluate applications, it was not permitted to consider other criteria not specifically enumerated in the statute.223 Unlike the Clean Air Act, however, the statutory authority granted to the FCC does not provide specific factors for the FCC to consider.224 In its grant of statutory authority, the only criterion provided by Congress was that the regulation be “necessary in the public interest,”225 a wide mandate indicating that Congress intended to give the FCC broad discretion. Thus, the FCC may consider a wide range of factors in determining whether a regulation would meet the statutory criteria. Should the FCC go forward with a prohibition on mandatory arbitration clauses, it could lessen the likelihood of a successful challenge by providing sufficient factual support for its action. The FCC could ensure it considers all “important aspect[s] of the problem” by relying on the CFPB’s in-depth study, and possibly conducting a study of its own focused on the use of mandatory arbitration clauses in contracts for cell phone service. Reliance on such studies would severely diminish the likelihood of a successful arbitrary and capricious challenge due to the deferential standard. Cell phone service providers might argue that the FCC failed to adequately consider the effect of the regulation on consumer prices. To avoid this challenge, the FCC should consider the economic impact of such a rule in determining whether there are any “countervailing policy concerns” that militate against the regulation.226

222 Id. 223 Id. 224 See 47 U.S.C. § 201(b) (2012). 225 Id. 226 See supra Section IV.B.2. However, even if the FCC does not consider economic impact, the regulation may only be struck down as “arbitrary and capricious” if the statute expressly requires the FCC to consider economic impact. See Am. Mining Cong. v. U.S. EPA, 965 F.2d 759, 772 (9th Cir. 1992) (declining to invalidate agency rule based on a failure to consider economic and administrative impacts because the statute did not require the agency to consider such impacts). Section 201(b) of the Communications Act does not require the FCC to consider economic impacts of a regulation. 47 U.S.C. § 201(b). Although such impacts might be related to whether a regulation is “in the public interest,” the FCC is not required, absent an express directive from Congress, to consider such impacts to successfully defend against an “arbitrary and capricious” challenge. 188 CAPITAL UNIVERSITY LAW REVIEW [46:159

The FCC can also ensure that its action is consistent with the evidence before it by citing specific data from the CFPB’s study and its own study, should it choose to conduct one. Reliance on another agency’s study is permissible unless the study has been discredited.227 Moreover, even if the study’s findings are incomplete, an agency’s reliance on imperfect data is not a sufficient basis to strike down an agency action.228 Reliance on such data would likely be found as reasonable if it “err[s] on the side of protecting public health.”229 Moreover, the agency’s reasons for the regulation need not be correct but merely “rationally based.”230 The rule need not be the “best rule conceivable” nor “perfectly fitted to the problems the agency purports to be addressing.”231 Although the CFPB’s arbitration study focused on the financial market, the FCC could reasonably conclude that the findings apply equally to markets outside the financial context.232 The study has not been discredited, and even if the findings are incomplete, the FCC will be “erring on the side of protecting the public” by making the regulation. By carefully evaluating the data available and explaining the reasons for its action, the FCC can ensure its action is consistent with the evidence before it. Because § 201(b) provides broad discretion to the FCC in making regulations, and the use of the CFPB’s arbitration study provides an adequate factual basis for an arbitration rule, an arbitrary and capricious challenge to such a rule is unlikely to succeed.

V. CONCLUSION Mandatory arbitration clauses in cell phone service contracts are harmful to consumers and provide unfair advantages to businesses. By using a mandatory arbitration clause, a business can take advantage of its customers by insulating itself from class action liability. The Supreme Court’s decisions in Concepcion and Imburgia have emboldened

227 See Almay, Inc. v. Califano, 569 F.2d 674, 682 (D.C. Cir. 1977) (holding that the FDA’s reliance on an FTC survey constituted a “clear error of judgment” because the Director “seriously questioned the statistical integrity of the survey results”). 228 NRDC v. EPA, 529 F.3d 1077, 1086 (D.C. Cir. 2008) (citation omitted) (“We generally defer to an agency’s decision to proceed on the basis of imperfect scientific information, rather than to invest the resources to conduct the perfect study.”). 229 Id. at 1085. 230 Tex. Rural Legal Aid v. Legal Servs. Corp., 783 F. Supp. 1426, 1428 (D.D.C. 1992). 231 Id. 232 See supra Section IV.B.2. 2018] REOPENING THE COURTROOM DOORS 189 businesses in their use of mandatory arbitration clauses. Indeed, there are many products and services that consumers cannot purchase without signing away their rights to sue in court. The courts have not provided consumers relief from this problem, and attempts to introduce new legislation in Congress have been equally unsuccessful. Therefore, regulatory action will provide the best chance for consumers to regain access to court. The FCC should exercise its rulemaking authority to prohibit the use of mandatory arbitration clauses by cell phone service providers. Such a regulation would be well within the FCC’s statutory authority under § 201(b) of the Communications Act and its ancillary authority under § 1 of the Communications Act. The CFPB’s findings from its arbitration study regarding the effects of mandatory arbitration clauses in the financial context apply with equal force to other products and services, including cell phone service. The CFPB’s findings, in addition to any additional findings made by the FCC if it conducts its own study, would provide ample support for an FCC regulation to survive a legal challenge. Without regulatory action, it is unlikely that mandatory arbitration clauses will go away. The FCC should follow in the footsteps of other agencies to keep cell phone service providers accountable for their practices when providing this important service.