The following is not legal advice. Please contact Alexander Bachuwa, a New York attorney, if you have a consumer arbitration question or claim.
Did a bank charge you an overdraft fee? Did the bank subsequently charge you late fees then report you to collections for nonpayment? Was your credit ruined as a result? If so, you may be entitled to monetary relief.
While this sounds like a Better Call Saul legal advertisement, this problem is not something out of a Hollywood script. Indeed, it is far too common. Cue in the sad case of Daniel Dempsey, a consumer who chose to fight Citibank and paid dearly in his quest for justice.
“[Dempsey] estimates that he spent about $100,000 so far in arbitrating his case with Citibank, a sum that has caused him and his fiancée, to delay their wedding.”
Per a CBS Money Watch article, One Man’s $100,000 Journey through Arbitration, Daniel Dempsey had a dispute with Citibank regarding an overdrawn account which led to late fees which led to derogatory marks on his credit report which led to a massive hit to his credit score.
Understandably upset, Dempsey pursued an action against Citibank in small claims court. Citibank moved the matter to arbitration. And that was where things went terribly awry.
“The moment they see cost, the amount it would take, the hours they would have to take off from work, a lot of people would give up at that point.” Amanda Werner of Americans for Financial Reform, a nonprofit that advocates for financial reform.
With the assistance of competent counsel who has a thorough understanding of consumer arbitration, a client can avoid the pitfalls cited by Werner. To initiate the arbitration process, an attorney can advance the nominal filing fee on behalf of his client. After the claim is filed, the substantial costs of the arbitration are borne by the corporate respondent. From there, the client is consulted about developments without having to be directly involved. The outstanding variable that must be addressed is the cost of hiring an attorney.
“Dempsey hired legal counsel as well as expert witnesses, who he said charged between $200 to $300 an hour. Every time [Dempsey] paid another $5,000 for costs related to his arbitration with Citibank, he thought it would be his last.”
Although the specific facts of this case are not described in full detail, it is very easy to avoid spending $1,000 let alone $100,000 on such claims. To begin, clients should not hire an attorney on an hourly basis for routine consumer arbitration claims. This is particularly true for Dempsey’s claim which falls under the Fair Credit Reporting Act (FCRA), a federal law enacted to ensure that information reported in a consumer’s credit report is accurate. The Act has a fee-shifting provision whereby attorneys are compensated by the opposition if they succeed in proving that a violation has occurred. For an FCRA based arbitration claim, clients should insist on a contingency fee agreement in which the attorney is only compensated if the case settles or if the claimant prevails in arbitration.
In addition, claimants should avoid hiring experts unless it is absolutely necessary. In consumer arbitration, each side is responsible for the costs of retaining its own experts. A lawyer well versed in consumer protection law should understand that the FCRA has a whole host of remedies for an injured client, something that can be proven without the services of an expert witness.
“Dempsey said he believes he’s likely to face thousands more in legal fees because as [sic] the case is moving into round two. It’s time stolen from my family, my businesses. And I don’t get compensated for it.”
Dempsey prevailed in the initial arbitration proceeding and was awarded punitive damages for the willful misconduct of Citibank. The satisfaction of the victory was short-lived. Per the terms of the arbitration agreement, Citibank appealed the matter and Dempsey will have to start the process anew while enduring the same challenges as before.
“The original amount of the dispute? Less than $150 in fees.”
Dempsey’s story is a cautionary tale for those that are wronged by big companies and choose to fight back. Although his effort is commendable, his strategy was flawed. Instead of spending tens of thousands of dollars on attorneys and experts, Dempsey would have been better off heeding this advice: Do file a consumer arbitration claim regardless of the dollar amount to battle corporate mischief. Do not hire an attorney who will charge on an hourly basis. Do appeal the claim even if it takes months to ensure a just outcome. Do not delay a wedding by spending $100,000 in order to reach the same result.
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[…] my client won the case and received his $200, the question is whether this is a victory worth celebrating. To some extent, the answer is yes. My client and I were able to take on a corporate giant, present […]
[…] weeks ago I wrote an article called Don’t Let Arbitration Delay Your Wedding. The purpose of the article was to caution would-be claimants about the pitfalls of the arbitration […]
Thank you for your response! Your comments (and I’m sure the thread) are very informative. Obviously, I was solely going off the article.
I have erased ‘as is its right’ because it is misleading and an incomplete thought. Depending on the circumstances, banks can file a motion to compel arbitration, or, in your case, find a way out regardless if it is permissible. It’s a ridiculous tactic that I have seen go both ways. When I ask for arbitration they want to throw me into small claims and vice versa. I’m not saying that it’s right but it isn’t surprising.
I do not think it was a bad idea to start in small claims. Many pro se claimaints do that for the reasons you cited. I do agree that the misapplication of the rule to put it back in small claims would have been a great opportunity to see what would’ve happened next. (I’m dealing with something similar to this right now.)
Retaining counsel for the arbitrability argument is understandable because you were expecting small claims to be the venue to prosecute your claim. Your rationale for experts, given how out of control this became, makes sense. And I would have asserted the same claims.
Having said that, I wrote this article to educate consumers on the arbitration process and how, if done correctly, it can be much more beneficial to the claimant than small claims. I also want to inform the general public (which is the point of The Fine Print) that there is a lawyer out there that will take these cases on a contingency fee basis. Like I said, your case is a cautionary tale on how a tiny matter can snowball into something that is out of control. Contrary to what some believe vis-a-vis their comments, I am on your side. My objective is to use the lessons from your case to help out others that have been injured of which there are an innumerable amount.
This is Dan. My case is difficult to unpack in any short form piece, especially without all of the details. I appreciate the coverage but want to make a few clarifications.
“Citibank, as is its right, moved the matter to arbitration.”
This is incorrect. Under the AAA and JAMS consumer rules, Citibank waived any right to remove a small claim to arbitration and still access those forums. The fact that Citibank was still allowed to force my small claim into arbitration isn’t so much a flaw in my strategy as a flaw in the AAA’s process. If the arbitrator had punted back to court for a AAA rule violation (as he should have), we’d have had a jury trial.
I’ve written about this on Medium on FW extensively. I will probably do a big rewrite when I get some time.
We were looking forwarding to re-arguing arbitrability to the three-arbitrator appeal panel. We have also explored appealing to court on the basis of the arbitrator’s blatant disregard of the arbitration agreement, among other things. (The AAA and JAMS rules are a part of the agreement.)
The bottom line is the small claims carve out is not supposed to be controversial. Even the pro-arbitration legal scholars I’ve spoken to are shocked when they hear my case. After all, if we’re to have a private civil justice system, the rules must mean something.
“To begin, clients should not hire an attorney on an hourly basis for routine consumer arbitration claims.”
I agree. However, finding a contingency fee attorney to go to arbitration is not automatic. Many lawyers run for the door as soon as they see there’s an arbitration agreement.
In court, I self-represented until arbitration was unavoidable. Then I hired an hourly attorney to make the arbitrability arguments to the arbitrator. Our MSJ was denied without a reason being given (which was a surprise). Then I hired consumer attorneys 90 miles away under a different arrangement. (Well, there’s a story in between those two but it’s irrelevant to this response.)
I also agree that expert witnesses should be avoided if it all possible. $15,000 of my costs were on two expert witnesses: a banking expert and a credit damage expert. However, they were unavoidable given the accrued expenses involved. When you’re fighting Big Law and a Big Bank, you need all the reinforcements you can get. You don’t want to lose and be saddled with Citibank’s million dollar legal bill because you cheaped out on experts.
For the record, our claims were breach of contract, fraud, consumer fraud, and FCRA.
nice. you da man. your last name looks like Back-U-Up… haha…
Lol. Good slogan. New bachuwalaw.com will be up soon. Thanks for reading.
Dempsey’s ordeal with Citibank is described in more detail in a 6-part series on FWF, here’s part 6 — https://www.fatwallet.com/forums/finance/1527451. I sure hope Alex reviewed at least some of that before posting this article. Specifically, Citibank did not have the right to move the matter to arbitration, because it explicitly violated the arbitration rules.
I would first like to say to ‘doubtful’ that your comment was in moderation because of the link but I approved it for the sake of transparency.
I did not review this before I posted the article nor would I have thought to look for it.
“Citi violated the arbitration rules.” If they did, are you surprised? If they didn’t, I stand by my assertion that this was not the best way to handle this situation!
I am of a different mindset than most lawyers, most consumers, and, judging by the posts, most readers on how this should have been handled. Based on my legal expertise of the consumer arbitration process and past results, I would have filed for arbitration right away on behalf of my client. I would not have charged an hourly fee, I would not have hired an expert, and I believe (though I cannot guarantee) that I could have obtained the same result.
Furthermore, I will continue to advocate against small claims as the solution for holding corporations accountable. I’m sure one claimant has won 5k against a bank. I’m sure another has done the same. But what effect does that have on a huge company? None.
And the unicorn of class action? If anyone knows of a way to eviscerate an arbitration clause and override the Supreme Court’s rulings that arbitration clauses are enforceable, that person should be voted lawyer of the century. That person, to date, is not me.
This leaves us with consumer arbitration and the correct way of using that mechanism, something that I know how to do.
I guess you don’t follow fatwallet at all, because Dans fight against Citibank has been documented for many years now over in the finance forum, and in much more detail than the articles that have been published. It might give you better insight into why things have unfolded the way it has, and you might find yourself less inclined to criticize him on filing in small claims court and spending so much money on this if you knew the entire backstory. This whole thing started over a mistake on Citi’s part and their refusal to fix it, and it’s not like Dan went into this thinking it would drag on for this long, or be so costly. To publish an article titled don’t let arbitration delay your wedding…just wow, it clearly shows you don’t know so many of the details behind this case.
I wrote in the article that I don’t know all the details. But as someone who handles these cases frequently, I know there’s a better way of handling this.
The critical comments are all misguided. I’m on the side of the consumer. And I get results while sparing them the ordeal of spending 100k and delaying their wedding. I never said he was wrong for fighting. I said his strategy was.
The less we bicker with each other about who knows the back story, the more time we can spend as a community attacking the real culprits. I would love to share testimonials of all my clients but they signed an nda.
Enough of the outrage at the lawyer, direct your frustration at Citi, where it belongs.
[…] The Fine Print: Don’t Let Arbitration Delay Your Wedding by Frequent Miler. Another great post in this series. […]
[…] specialist Alex Bachuwa shares his take on a story this week about a man whose wedding has been delayed due to the costs of arbitra…. Clearly, that man hasn’t been following Alex’s posts — but you should be so you […]
This was an incredibly confusing way to frame your point. I liked this article, but you could have led with “I read a story in the paper, and here’s what this guy did wrong.” Dare I say your writing is elliptical.
Dare I say you will never have anything good to say? I am glad that you read the articles and are engaged but your comments never advance the discussion.
And I thought the new writer at DOC was bad
Great article Alex!
1) Why would Citi push for arb instead of SCC? They hire outside counsel either way so it doesn’t save any money, right? More favorable judge i suppose? And why/how can they change venue? Did the T&C require arb? Many give you the choice.
2) I was under the impression that you have extremely limited rights to appeal for arb. Are you suggesting that consumers and banks can appeal any case they want? Arb is meant to be binding!
Thank you
1. Regarding point one, confidentiality is a big deal and going to arbitration is foreign to most consumers i.e., Citi thought he would drop it. Regarding point two: It’s a very interesting legal maneuver on Citi’s part. I’ve seen it go both ways and is an interesting topic (probably for a law blog), but here’s my experience. If a pro se client files in small claims they remove it to arbitration to price the client out. If a lawyer files arbitration, they move to small claims to kick out the lawyer either because lawyers are allowed or the lawyer is not licensed in that state. The terms say that the client can bring it to both but the rules of the arbitration association along with the terms can be manipulated.
2. Arbitration is binding*. Having said that, in matters involving a certain dollar amount both the consumer and the company have the right to appeal to a 3 panel arbitration. That may not be the end. In rare circumstances, the award itself can be vacated by a court. So yes, it’s binding because the losing party usually respects the decision of the arbitrator but there are exceptions that are exploited from time to time.
In rare circumstances, the award itself can be vacated by a court.
Yes, as I’ve learned with FINRA arbitration, where many of the arbitrators are not lawyers, they can’t just depart from the law and do whatever feelz right.
Thanks!
I think the moral of the story is that some people will go to unreal lengths to prove that they’re right.
Unreal.
Perhaps, but there are smarter, more efficient, and cheaper ways of accomplishing the same objective.
Airlines are tough. We are at their mercy unless you booked it with Expedia or some other 3rd party company.
The only luck I had was small claims with British. https://frequentmiler.com/2016/07/29/18938/
At their mercy?
Good god man!! (putting man and god together doesn’t imply I’m calling you a god-man) You’re a lawyer!!
As we’ve discussed before, the last thing you want to tell a lawyer is, “I’m sorry, but nothing can be done”
And if Citi removes a case to court, can’t you remove it to federal court on diversity? Up the ante. I live in Vegas.
By the way, I hear there’s a huge profit center in suing robo-callers and real estate agents who call after your house goes off-listing. $500 each with triple damages in a lot of states. No real defense.
Why don’t we all list our homes and then immediately remove them so we get hundreds of calls>?
I’m not a lawyer but I play one on blogs
Where, what, who? There’s legal rules and creative moves in this game of chess and then there’s nonsense, unproven theory disguised as strategy. Yours is the latter.
You’re upset at the wrong attorney in this fact pattern.
I have a baggage claim with am airline, filed the paperwork on time, have the paperwork with me, but they are dragging the process. Already a 3 months now.
Is there an agency i can file a complaint with before going to small claims.