Profit at the Expense of the Consumer, Part 2: Talking to India

We've all experienced poor customer service. Getting a customer service representative on the phone in the first place can be difficult and time consuming. Large companies like Chase and Citibank force customers to fight their way through computerized menus before we can talk to a human being. Some companies do not even publish their customer service phone numbers.

And, when you finally get someone on the line, they are likely to be uneducated, untrained and underpaid. Often times, they are located in India or El Salvador and might not even speak English well enough to get the job done. Hotels.com comes to mind as a company with laughably bad phone service. Their employees only speak enough English to handle two or three specific tasks. Beyond that, you'll need to speak Tagalog or Spanish, depending on which call center you get.

Part of the reason for poor customer service is a simple desire to save money. It costs a lot of money to staff a customer service line, and it is cheaper to hire someone in India whose English is less than perfect.

But there is another, and I believe more important, reason why some companies make it difficult to communicate: they want customers to just give up. Most of the time when you call your bank, for example, it is because you were charged a $7 fee you should not have been charged, and you want it removed (how many times have you called a company complaining that you were undercharged?). Many companies, United Airlines being a prime example, have an active strategy of making it difficult to communicate in order to be able to get away with overcharging or otherwise not providing what they promised.

Another way in which big American companies try to bamboozle consumers is with incomprehensible bills. If you cannot understand your bill in the first place, it is hard to know if you are being cheated, let alone convince the company to refund the $18.47 they overcharged you this month. For example, my Sprint contract is quite simple. I pay a fixed amount of money for a fixed amount of "anytime" minutes each month. Everything is supposed to be included in one price. Or at least that is how they sold me the contract. But, my current Sprint invoice has no less than 42 entries, not including the various taxes. They charge me odd amounts for various items, then credit me back for other items. None of it has anything to do with our actual agreement, and none of it makes any sense. AT&T and DirecTV both do the same thing. Their bills are actively designed to be difficult to understand so that we will not question them. It would be easy to make the bills easy to understand, but that is not what AT&T wants.

These incomprehensible bills nearly always contain mistakes, and the mistakes are nearly always in favor of Sprint, AT&T and DirecTV. I know that from experience, and if you look closely at your own bills, I am certain you will find the same thing. But, finding the mistakes, getting through to customer service and trying to get them to refund the excess charges is rarely worth the time and effort. And DirecTV is smart about the way it overbills its customers. The amounts are generally small, on the order of $10 to $30 each month. That way, some consumers will not realize that they are being cheated, especially given the complexity of the bill. Others may realize that they are being overcharged but are unwilling or unable either to figure exactly where on their complex bill the overcharge appears, or to fight through the customer service jungle to get back $18.47.

It seems that the majority of large American companies have adopted the same cynical policy of abusing their customers in order to squeeze out a few extra dollars each month. True, it is not all of them. Apple, for example, has a policy of providing excellent customer service, often giving their customers more than they agreed to provide, e.g., serving a product a month after the warranty expired. The business practices of the majority of the companies, however, are just the opposite, and the cost to society are high. The uncivilized and dishonest practices of Sprint, AT&T, United Airlines and DirecTV may net them a few extra dollars in the short run, but they make life unpleasant in small but persistent ways. These companies teach people to have low expectations, and to cheat whenever you can get away with it. And, in the long run, these companies destroy their own reputations, at their own peril.

Profit at the Expense of the Consumer, Part I: Gift Cards

Gift cards have become increasingly popular with consumers in recent years, and for good reason. Say you are looking for a gift for a friend. You know she loves music, and you know what kind of music she likes, but if she really likes an artist she may have already bought most of his albums for herself. That makes it hard to select the right gift. If you buy her a gift card, she can choose for herself, and she always gets the right gift. In a culture such as ours that frowns upon giving cash, gift cards are a good option, both for the giver and the recipient.

Gift cards are popular with merchants for an entirely different reason: about 10% them are never redeemed. Best Buy sells a $100 gift card for $100. Seemingly, there is not profit on that transaction, just a small cost in creating and handling the card. But on average, $10 of that card will never be redeemed. That money does not get forfeited to the State, nor donated to charity. Rather, it is nearly pure profit for Best Buy; a plastic card sold for $10. The business of selling gift cards is less risky and more profitable than selling televisions, computers and cell phones.

Gift cards are only profitable because consumers make mistakes. Consumers buy cards that they do not need, they lose the card or just put it in a drawer and forget about it. If everyone cashed in their gift cards, the business model would not work. It is a business designed to take advantage of people's mistakes; no mistakes, no profit.

Compare that with the ordinary business of Best Buy, which involves selling consumer electronics. Certainly, Best Buy could increase its profits by selling shoddy or overpriced goods, or by misleading or otherwise cheating customers. But none of those things are necessary in order to make money as an electronics goods store. On the contrary, at its core, the business of selling electronic goods is based on the principle of selling consumers what they want and making a profit at the same time: a win-win business model.

No, I do not think gift cards are the devil, or that they should be banned. But, consumers should be aware of what is going on. And, when you buy a gift card, you are buying a very high profit item and you should expect to get a little something in return. For example, Peet's Coffee gives a dollar off for every $20 added to a Peet's card. That makes sense; the consumers share in the windfall profits generated by the gift card business.

State Funded Religion in America

Approximately half the funding for churches in the United States comes from the government. The Federal government allows its citizens to take a tax deduction for money they give to their church (or synagogue or mosque). So do States that have an income tax. In addition, churches are exempt from property tax, and some of the money their pay to their ministers is also tax free. Add up these tax benefits, and approximately half of the money given to churches comes from our tax dollars.

This government funding is available to all religions, regardless of whether they preach love or hate. The government pays, whether or not the religion treats blacks, women or gays as full human beings. The government pays, which means you pay. So, if you are an atheist, you pay for Catholic churches. If you are a Baptist, you pay for Muslim's mosques.

Some have claimed that the First Amendment guarantees the freedom of religion, and that it would therefore be unconstitutional to tax churches. That is an obvious fallacy. The constitution also guarantees free speech, but that does not mean that money you spend on books or newspapers is tax deductible, and it does not stop the government from requiring book stores to pay property taxes, income tax and sales tax. Hospitals pay property tax. Private schools pay property tax. But churches do not. And our taxes therefore have to be higher to make up the difference.

Freedom of religion means that there should be no laws designed to discourage religion. If you want to have a church, you should be free to do so. The government should not tax or otherwise burden something just because it is religious. On the other hand, the government should not be in the business of giving benefits just because something is part of a religion. That is forcing people to fund religions in which they do not believe and, ironically, violating the rights of the religious, as well as the atheists and agnostics.

What I have written here is hardly new. No one who studies law seriously disputes it. Yet, one rarely hears anyone complain about it openly. I want to go on record saying that I am outraged that the government takes my money through taxes, then gives it to anyone and everyone who runs a church.

Asset Protection

Many people fear that they will one day lose a lawsuit, and that all their hard earned assets will be taken away. A google search for "Asset Protection" will reveal numerous companies that play to that fear, and offer strategies to prevent creditors from taking your assets. Some of these strategies are legitimate, such placing funds into retirement accounts. Others, such as buying insurance, are actually beneficial to all concerned. For the most part, however, asset protection means committing fraud on your future creditors. It is relatively easy to see why.

Asset protection usually means placing assets into a "trust" which the owner still controls. The owner can do whatever he wants with the trust assets, including spending them or taking them out of the trust. These trusts have provisions that state that, when you are sued, or a judgment is entered against you, you "lose" control over the trust. The trust is then run by some third party in an off shore location, and it is supposedly impossible for creditors to get at the funds. I am not aware of any court in the United States upholding such a provision, nor stating that it is anything other than blatant conspiracy to defraud creditors.

An asset is either yours or it is not. If you really wish to give away your assets, you are free to do so (so long as you still have enough money to pay your debts). If not, then the assets are still yours and your creditors are entitled to get them if you do not pay your debts. One major way asset protection works is by trying to have it both ways -- the assets are yours when you want, but are not yours when creditors come knocking. No court is going to let you get away with that.

The other major way asset protection works is outright fraud. Just hide your assets from the creditor. And lie. Sadly, fraud works, but then again so does robbing a bank. On the other hand, getting caught committing fraud has consequences. The consequences of engaging in asset protection is that you will have a very hard time ever filing bankruptcy if you need to do so. Bankruptcy courts generally make debtors account for their assets before they discharge debts. If you tell the Judge, "I used to have money, but I sent it all to the Cayman Islands so my creditors couldn't get it," you are not likely to get a discharge any time soon.

Some of these "asset protection" companies pretend to legitimate businesses. For example, take a look at the following website: http://www.southpacgroup.com/contact.html. These people operate a scam. My client has a judgment against them for more than $3,000,000 as a result of their attempts to help a rapist avoid paying his victim, but that does not stop them from teaching "continuing education" courses to members of the California State Bar. Or consider this website: http://www.assetprotectioncorp.com/. It is run by disbarred lawyer Robert Lambert, who says, "All asset protection techniques have one thing in common: they each make it more difficult for a creditor to either find or take assets." Ask him if he can tell you about a single plan he has devised that withstood an attack in court.

Many asset protection companies try to justify their actions by blaming the legal system. "Those evil lawyers are just predators, waiting to take your hard earned money away." I am no fan of our legal system, but asset protection does not offer reform: it offers chaos. A creditor can only take your money if, after a trial, a court determines that you owe the money. If you insulate yourself from that, you place yourself above the law. More importantly, no one can seriously hope to live in a society with things like bank accounts, long term leases, credit or home ownership if anyone can simply stick their assets into a trust and avoid paying their legitimate bills. Would you loan money to anyone, knowing that they could avoid repaying you by placing all their money in a trust?

Incredibly, no one seems to care about the asset protection industry. It would be easy enough to shut down. California has no obligation to honor corporations or trusts from countries such as the Cayman Islands or the Cook Islands, which are essentially safe harbors for white collar criminals. California could shut down most or all of Southpac's business by simply forcing the Cooks Islands to choose -- either enter into reciprocal agreements to enforce each other's judgments, or your corporations and trusts cannot do business in our State. California could shut down Robert Lambert by prosecuting him from practicing law without a license -- a felony, considering that he lost his license.

Asset protection is nothing more than a scam, designed to trap the greedy and the fearful.

Original Intent

Many judges, including perhaps a majority of the US Supreme Court, subscribe to the belief that the US Constitution should be interpreted based the drafters' intent. At first glance, the idea makes perfect sense. After all, the Common Law generally provides that a contract or law should ordinarily be interpreted as the authors' intended. When it comes to the Constitution, however, seeking original intent is completely irrational.

The Constitution is 230 years old. No one alive today voted for it. Even at the time the Constitution was ratified, only small minority of those then alive had anything to do with the decision. Women did not get the vote until over 100 years later and blacks in the U.S. were nearly all held in slavery. Moreover, no matter how good their intentions, the authors of the Constitution had no right to impose their will on their contemporaries, let alone everyone who lives in the United States (as it has now expanded) for all time.

Thankfully, human society has advanced substantially in the past 230 years. Although the authors of the Constitution may have been enlightened for their time, their views on interracial marriage, slavery, crime and punishment and numerous other matters are barbarian by today's standards. The fact that these people thought we have a right to bear arms, for example, should not control our lives. Their judgment about right and wrong is questionable at best, and perhaps more importantly they knew nothing about the weapons or society of today.

Ironically, looking for original intent ignores the true genius of the Constitution. The drafters never intended to legislate 23o years in advance. Rather than defining the rights of the citizens in clear terms, the drafters used phrases like "Due Process of Law" and "Equal Protection." These phrases were intended to be vague, so that each generation could interpret them differently and thus govern themselves. Asking what the drafters meant by "Equal Protection" is not only asking for trouble, it is actually ignoring the drafters' intent.

Is JAMS Fair?

January 11, 2008

More and more disputes are being resolved through private arbitration rather than litigation in a court. Courts are run by the government. The judges are public employees. They draw a fixed salary, and they take whatever cases are filed. The filing fees in court are minimal. On the other hand, the courts can be overcrowded, overworked and slow, although that is not true of the Los Angeles County Superior Court where I practice law. I do not mean to imply that the LASC is short of cases. In fact, it is busy, but, on the whole, cases get resolved promptly.

If the parties to a dispute agree, their dispute can be resolved by a private arbitrator, who is selected and paid by the parties, rather than by a court operated by the State. This agreement to arbitrate a dispute can be made in advance, for example in an agreement between a patient and a doctor to arbitrate any malpractice claim, should one arise in the future. Alternatively, the agreement to arbitrate can be made after the dispute has already arisen.

Courts favor arbitration for one obvious reason: it lightens the courts' burden. If a private arbitrator resolves a case, the court does not have to. The State saves money, and the individual judges have less work to do. The State Legislature loves arbitration, for the same reason. Therefore, courts send cases to arbitration whenever there is a basis to do so. Moreover, once an arbitrator had made a decision, the courts almost never set those awards aside. The fact that the arbitrator made an obvious mistake of fact or law is not a basis for a court to vacate an arbitrator's award. There is no "appeal," as there is from a judgment entered by a judge.

The increase in the number of arbitrations has resulted in an increase in the number of arbitrators. Many, although by no means all, of the arbitrators are retired judges. (In fact, some arbitrators are not even lawyers).

I have come to oppose the growth of arbitration, for two main reasons. First, some arbitrators take advantage of the fact that there is no appeal from an arbitration award. They do what they please, without regard to the facts or the law, knowing that the courts will almost certainly overlook their "errors" and affirm their awards as judgments.

Perhaps more importantly, many arbitrators are biased. For example, some health care providers, such as Kaiser, force their patients to sign arbitration agreements in advance as a condition of providing care. Imagine that you are an arbitrator who handles the resulting medical malpractice arbitrations between Kaiser and patients. If you rule against Kaiser, you run the risk of never being selected again by Kaiser to arbitrate another case. If you rule against the patient, that patient might never agree to use you again, but that hardly matters. The bottom line is that arbitration can favor the repeat customer -- the big company vs. the consumer.

Of course, that is not true of all, or even most, arbitrators. Take, for example, ADR Services. ADR provides the services of retired Judges, both as mediators and as arbitrators. I have never found any of the professionals from ADR to be biased, although admittedly I have used them more as mediators than as arbitrators.

I am deeply concerned, however, about JAMS, another company that provides the services of retired judges, who act as mediators and arbitrators. I recently had a terrible experience with JAMS, and specifically with retired judge G. Keith Wisot. I practice in a small firm, one that cannot provide any meaningful amount of business to JAMS. On the other side of the case is a large firm, which can. Judge Wisot made rulings that can only be described as bizarre. Well, that is not quite true. They can also be described as acts outside his jurisdiction and most likely a violation of my clients' Procedural Due Process Rights. In fact, that is how the Los Angeles County Superior Court described Judge Wisot's actions in finding that his award is defective and must, at a minimum, be corrected. As mentioned above, it takes quite a bit to get a court to take a second look at an arbitrator's award.

I cannot explain Judge Wisot's behavior in a satisfactory way. He is not a stupid man, and he did not simply make an honest mistake. He has no past history with me, nor with my clients. I doubt that he is taking bribes, at least not as that word is normally used. What I believe is that he ruled in favor of the big firm, knowing that, if he continues to do so, he will continue to get business from them. That is the only explanation I can come up with, although I admit it is just conjecture on my part, and I cannot prove it.

I do have one other piece of evidence: Judge Wisot's outrageous billing rate. JAMS bills his time at between $600 and $1,000 per hour, and sometimes at even higher rates. By way of comparison, there are 42 retired Judges and Justices (a higher position than a Judge in our system) on the ADR Southern California Panel. That panel includes several highly sought after individuals, such as Judge Alan Haber, Judge Enrique Romero and Justice John Zebrowski. Yet, not one of those jurists charges even $600 per hour. Judge Wisot's lowest rate -- as charged by JAMS -- is higher than every one of ADR's 42 jurists.

Moreover, Judge Wisot has no meaningful reputation. I can safely say that because, in my 18 years as litigator in Los Angeles, I cannot remember a single time when any attorney suggested Judge Wisot for anything, nor have I heard anyone curse him. By way of contrast, I have repeatedly had other attorneys suggest Judge Romero, especially for settlement purposes. I only vaguely remember Judge Wisot when he was on the bench, many years ago. Since becoming involved in the cases before him, I have asked several other attorneys for their opinions. If they remember him at all, their opinions are uniformly neutral: no one particularly likes or dislikes him.

I believe that JAMS and its overpaid mediocre group of retired judges has a cozy relationship with big law firms. The big firms agree to over pay for the services, and in return JAMS rules in their favor. I doubt very much that there is an express agreement along those lines, but my limited experience seems to suggest that is the case. I would welcome a detailed survey of the success rate of big firms in cases tried by JAMS versus cases tried in open court, and subject to review. In the meantime, I will continue to use ADR Services, and avoid JAMS.