Disparaging Arbitration

In 2013, Herbalife, facing a full-on assault from a hedge fund manager still bitter about not rowing varsity crew at Harvard; a class action lawsuit inexplicably emanating from Salt Lake City; and several ominous Sword of Damocles style government inquires… added a mandatory arbitration and class waiver provision to its ridiculous consumer “contract”.

Here’s the first version of that provision. (Please make sure to read every word carefully because it’s desperately important to the story. I can’t overemphasize the importance of reading the provision, in its entirety, before continuing.)

SECTION 29 ARBITRATION AGREEMENT FOR DISPUTES BETWEEN MEMBERS AND HERBALIFE This is the Arbitration Agreement incorporated into the Membership Application and Agreement. In the event that Herbalife and Member are not able to resolve any dispute in an amicable informal manner, Herbalife and Member each agree to resolve such disputes solely and exclusively by binding arbitration or in small claims court instead of in courts of general jurisdiction. Arbitration can be more informal than a lawsuit in court. Arbitration uses a neutral arbitrator instead of a judge or jury, allows for more limited discovery than in court, and is subject to very limited review by courts. Arbitrators can award the same damages and relief that a court can award. Puerto Rico Residents: Please refer to the details below which differ slightly from the information above. This is the Arbitration Agreement incorporated into the Membership Application and Agreement. In the event that Herbalife and Member are not able to resolve any dispute in an amicable informal manner, Herbalife and Member each agree to resolve such disputes solely and exclusively by binding arbitration instead of in courts of general jurisdiction. Arbitration can be more informal than a lawsuit in court. Arbitration uses a neutral arbitrator instead of a judge, allows for more limited discovery than in court, and is subject to very limited review by courts. Arbitrators can award the same damages and relief that a court can award. Any arbitration under this agreement shall take place on an individual basis; class actions and class arbitrations shall not be permitted. For any claim that does not exceed $75,000, Herbalife will pay all arbitration fees so long as the arbitrator does not find that Member’s claim is frivolous or filed for improper purpose. Moreover, in arbitration Member may be entitled to recover attorneys’ fees from Herbalife to at least the same extent as Member would be in court. In addition, under certain circumstances (as explained below), Herbalife will pay Member more than the amount of the arbitrator’s award and will pay Member’s attorney (if any) twice his or her reasonable attorney’s fees if the arbitrator awards Member an amount that is greater than what Herbalife had offered Member to settle the dispute prior to the issuance of the arbitrator’s award. Arbitration Agreement: (1) Scope Except as provided in paragraph (2) below, Herbalife and Member agree to arbitrate all disputes and claims between them. This agreement to arbitrate is intended to be broadly interpreted. It includes, but is not limited to: • claims arising out of or relating to terminations, enforcement of Member Rules of Conduct and Marketing Plan decisions; • claims by Member against Herbalife or Herbalife against Member which arise out of or relate in any way to any dispute between Member and another Herbalife Member; • claims arising out of or relating to any aspect of the relationship between Herbalife and Member, whether based in contract, tort, statute, fraud, misrepresentation or any other legal theory; • claims that arose before this or any prior agreement between Herbalife and Member; • claims that are the subject of purported class action litigation in which Member is not a member of a certified class; and • claims that may arise before, after or as a direct or indirect result of the termination of Member’s relationship with Herbalife. Member agrees that, by entering into this agreement, Herbalife and Member are each waiving the right to a trial by jury or to participate in a class action. Puerto Rico Residents: Members in Puerto Rico agree that, by entering into this agreement, Herbalife and Member are each waiving the right to a trial in any local or Federal court of justice in Puerto Rico or to participate in a class action. This Agreement evidences a transaction in interstate commerce, and thus the Federal Arbitration Act governs the interpretation and enforcement of this provision. This arbitration provision shall survive termination of this Agreement, the Member Agreement or any other agreement between Herbalife and Member. References to “Herbalife,” “Member,” “they,” “their” or “them” include Herbalife’s and Member’s respective subsidiaries, affiliates, officers, directors, agents, employees, predecessors in interest, heirs, successors and assigns. (2) Exceptions (a) Notwithstanding the foregoing, Member may bring an individual action for monetary damages in small claims court. Member may not bring any other type of action against Herbalife in small claims court. Herbalife may only arbitrate claims against Member and may not bring any actions against Member in small claims court. (b) This arbitration agreement does not preclude Member from bringing issues to the attention of federal, state or local agencies. Such agencies can, if the law allows, seek relief against Herbalife on Member’s behalf. Puerto Rico Residents: Please refer to the details below which differ slightly from the information above. (2) Exceptions (a) This arbitration agreement does not preclude Member from bringing issues to the attention of federal, state or local agencies. Such agencies can, if the law allows, seek relief against Herbalife on Member’s behalf. (3) Procedure (a) A party who intends to seek arbitration must first send to the other, by certified mail, a written Notice of Dispute (“Notice”). The Notice to Herbalife should be addressed to: Office of the General Counsel Herbalife International of America, Inc. 800 West Olympic Blvd., Suite 406 Los Angeles, CA 9001 (“Herbalife’s Notice Address”). The Notice to Member shall be addressed to Member’s mailing address as listed in Herbalife’s records. (“Member’s Notice Address”). The Notice shall (a) describe the nature and basis of the claim or dispute; and (b) set forth the specific relief sought (“Demand”). If Herbalife and Member do not reach an agreement to resolve the claim within 30 days after the Notice is received, Member or Herbalife may commence an arbitration proceeding. During the arbitration, the amount of any settlement offer made by Herbalife or Member shall not be disclosed to the arbitrator until after the arbitrator determines the amount, if any, to which Herbalife or Member is entitled. Member may download or copy a form Notice and a form to initiate arbitration at: http://www. adr.org/aaa/ShowPDF?doc=ADRSTG 004175. (b) (After Herbalife receives notice at Herbalife’s Notice Address that Member has commenced arbitration, it will promptly reimburse Member for Member’s payment of the filing fee unless Member’s claim is for greater than $75,000. (The filing fee currently is $125 for claims under $10,000, but is subject to change by the arbitration provider.) If Member states that Member is unable to pay this fee, Herbalife will pay it directly upon receiving a written request at its Notice Address. (c) The arbitration will be governed by the Commercial Arbitration Rules (“AAA Rules”) of the American Arbitration Association (“AAA”), as modified by this Agreement, and will be administered by the AAA. The AAA Rules are available online at adr.org, by calling the AAA at 1-800-778-7879, or by writing to the Notice Address. The arbitrator shall be bound by the terms of this Agreement. All issues shall be for the arbitrator to decide, including the scope of this arbitration provision, but the arbitrator shall be bound by the terms of this Agreement. (d) Unless Herbalife and Member agree otherwise, any arbitration hearings will take place in the county (or parish) of Member’s Notice Address. If Member’s claim is for $10,000 or less, Herbalife and Member agree that Member may choose whether the arbitration will be conducted solely on the basis of documents submitted to the arbitrator, through a telephonic hearing, or by an in-person hearing as established by the AAA Rules. If Member’s claim exceeds $10,000, the right to a hearing will be determined by the AAA Rules. Regardless of the manner in which the arbitration is conducted, the arbitrator shall issue a reasoned written decision sufficient to explain the essential findings and conclusions on which the award is based. Except as otherwise provided for herein, Herbalife will pay all AAA filing, administration and arbitrator fees for any arbitration initiated in accordance with the notice requirements above. If, however, the arbitrator finds that either the substance of Member’s claim or the relief sought in the Demand is frivolous or brought for an improper purpose (as measured by the standards set forth in Federal Rule of Civil Procedure 11(b)), then the payment of all such fees will be governed by the AAA Rules. In such case, Member agrees to reimburse Herbalife for all monies previously disbursed by it that are otherwise Member’s obligation to pay under the AAA Rules. In addition, if Member initiates an arbitration in which Member seeks more than $75,000 in damages, the payment of these fees will be governed by the AAA Rules. (4) Awards and Attorneys’ Fees (a) If, after finding in my favor in any respect on the merits of my claim, the arbitrator issues Member an award that is greater than the value of Herbalife’s last written settlement offer made before an arbitrator was selected, then Herbalife will: * pay Member the amount of the award or $10,000 (“the alternative payment”) whichever is greater; and * pay Member’s attorney, if any, twice the amount of attorneys’ fees, and reimburse any expenses (including expert witness fees and costs) that Member’s attorney reasonably accrues for investigating, preparing, and pursuing Member’s claim in arbitration (“the attorney premium”). If Herbalife did not make a written offer to settle the dispute before an arbitrator was selected, Member and Member’s attorney will be entitled to receive the alternative premium and the attorney premium, respectively, if the arbitrator awards me any relief on the merits. The arbitrator may make rulings and resolve disputes as to the payment and reimbursement of fees, expenses, and the alternative premium and the attorney premium at any time during the proceeding and upon request from either party made within 14 days of the arbitrator’s ruling on the merits. (b) The right to attorneys’ fees and expenses discussed in paragraph (4) shall supplement any right to attorneys’ fees and expenses Member may have under applicable law. Thus, if Member would be entitled to a larger amount under the applicable law, this provision does not preclude the arbitrator from awarding Member that amount. However, Member may not recover duplicative awards of attorneys’ fees or costs. Although under some laws Herbalife may have a right to an award of attorneys’ fees and expenses if it prevails in an arbitration, Herbalife agrees that it will not seek such an award. (c) The arbitrator may award declaratory or injunctive relief only in favor of the individual party seeking relief and only to the extent necessary to provide relief warranted by that party’s individual claim. Herbalife and Member agree that each may bring claims against the other only in Member’s or Herbalife’s individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding. Further, unless both Herbalife and Member agree otherwise, the arbitrator may not consolidate more than one person’s claims, and may not otherwise preside over any form of a representative or class proceeding. If this specific provision is found to be unenforceable, then the entirety of this arbitration provision shall be null and void. (d) Except as required by any applicable law, rule or regulation, or by order or decree from any court of competent jurisdiction, any party involved in a claim or dispute under this arbitration provision shall not disclose to any other person not directly involved in the arbitration process anything having to do with the arbitration, including without limitation, (i) the substance of, or basis for, the claim; (ii) the content of any testimony or other evidence presented at an arbitration hearing or obtained through discovery; or (iii) the terms or amount of any arbitration award. However, nothing in this provision shall preclude a party from, in good faith, investigating a claim or defense, including interviewing witnesses and otherwise in engaging in discovery. Herbalife and Member both agree that this confidentiality agreement applies to each of Herbalife’s and Member’s directors, officers, employees, clients, agents, advisors, and any other persons affiliated with Herbalife and Member in any way and that Herbalife and Member will take the steps necessary to make sure that all such persons or entities know about this confidentiality provision.

Haha! Did I trick you into reading it?

No, I didn’t.

You didn’t read it.

You never follow my instructions… and you never read legalese.

Anyway, that’s not the agreement Herbalife tried to enforce so it doesn’t matter that you disobeyed me. Herbalife says it gets to enforce whatever version of whatever contract it wants–no matter what you agreed to when you agreed to whatever it was you agreed to. In this case Herbalife wanted to enforce the 2016 version of the provision because that was most convenient to the rest of its arguments. Please read it now. It’s desperately important to the story. I’m seriously this time you guys; read it.

Chapter 12 Arbitration Agreement Distributors and Herbalife agree to submit to arbitration any disputes that they cannot resolve informally. Herbalife reserves the right (with some restrictions) to amend the Arbitration Agreement. The current version is below. References below to “Agreement” mean the entire contractual relationship between Distributor and Herbalife. 12.1 Overview Herbalife will try to resolve any dispute amicably and informally. However, if there is a dispute that cannot be resolved informally, Herbalife and Distributor each agrees, subject to Rules 12.2 and 12.3 below, to resolve the dispute solely and exclusively by binding arbitration. Arbitration proceedings are designed to provide parties with a fair hearing that is faster and less formal than a lawsuit in court. Arbitration uses a neutral arbitrator instead of a judge or jury, allows for limited discovery, and is subject to very limited review by courts. Arbitrators can award the same damages and relief that a court can award. The following provisions are referred to as the “Arbitration Agreement.” Puerto Rico Residents: Puerto Rico does not have small claims courts. Any variation in terms in this Arbitration Agreement for Puerto Rico Residents is indicated below in italics. 12.2 Jury and Class Action Waiver Herbalife and Distributor both waive the right to trial by jury. Also, any arbitration under the Agreement shall take place on an individual basis; class or representative actions shall not be permitted. If the foregoing provision is, for any reason, found to be unenforceable, then the Arbitration Agreement shall be null and void (but the Agreement shall remain in full force and effect). Puerto Rico Residents: Distributors in Puerto Rico agree that Herbalife and Distributor are each waiving the right to a trial in any local or Federal Court of justice in Puerto Rico. 12.3 Scope Herbalife and Distributor agree, with two exceptions, to arbitrate all disputes and claims between them, including, without limitation, disputes or claims arising out of or relating to the Agreement, the Rules of Conduct, Sales & Marketing Plan decisions, relationships with other Distributors, and the purchase, sale or use of Herbalife® products, and regardless of whether the dispute or claim arose before Distributor’s contractual relationship with Herbalife. The two exceptions are: (1) either Herbalife or Distributor may bring suit in court to enjoin infringement or other misuse of intellectual property rights, and (2) Distributor may bring an individual action for monetary damages (but no other relief) in small claims court where permitted by law. 12.4 Applicable Rules The interpretation and enforcement of this Arbitration Agreement is governed by the Federal Arbitration Act. Any arbitration that is commenced pursuant to this Arbitration Agreement is governed by the Commercial Arbitration Rules (“AAA Rules”) of the American Arbitration Association (“AAA”), except as modified herein, and will be administered by the AAA. The AAA Rules are available online at adr.org, by calling the AAA at 1-800-778-7879, or by writing to the Herbalife Notice Address, Office of the General Counsel, Herbalife International of America, Inc., 800 West Olympic Blvd., Suite 406, Los Angeles, CA 90015. 12.5 Commencing Arbitration Forms and instructions for giving notice and commencing arbitration can be obtained at http://www.adr.org, by calling the AAA at 1-800-778-7879, or by writing to the Herbalife Notice Address. If either Herbalife or Distributor is sued in arbitration, they may assert any counterclaims they may have against the other party. 12.6 Arbitration Fees For any arbitration initiated by Distributor in accordance with the AAA Rules, Herbalife will pay all administration and arbitrator fees and will promptly reimburse Distributor for any initial filing fee unless (i) Distributor seeks more than $75,000 in damages, or (ii) the arbitrator finds that Distributor’s claim or demand for relief is frivolous or was brought for an improper purpose under the standards of Federal Rule of Civil Procedure 11(b), in which case the payment of fees will instead be governed by the AAA Rules and Distributor must reimburse Herbalife for any payments that would have been Distributor’s obligation to pay under the AAA Rules. 12.7 Arbitration Procedure All arbitration procedures, including, without limitation, representation by counsel, determinations of arbitrability, selecting and communicating with the arbitrator, discovery, confidentiality, pre-hearing conferences, and evidentiary hearings, will be governed by the AAA Rules. Note: As explained in the AAA Rules, the arbitrator shall determine the scope and enforceability of this Arbitration Agreement and the arbitrability of any disputes. Hearings will take place in the county (or parish) where Distributor resides, unless the parties agree otherwise. 12.8 Arbitration Award The arbitrator shall issue a written award in accordance with the AAA Rules, but may only award declaratory or injunctive relief in favor of the individual party seeking relief and only to the extent necessary to provide relief warranted by that party’s individual claim. Regardless of whether attorneys’ fees and costs are recoverable by law, Herbalife will pay Distributor’s reasonable attorneys’ fees and costs if the arbitrator issues an award in Distributor’s favor, unless Herbalife made a written settlement offer worth more than the award before an arbitrator was selected. Herbalife will be responsible for its own attorneys’ fees and costs.

Just avoid eye contact with me and maybe I won’t know that you definitely didn’t read it.

You don’t even deserve the fun/sexy part of this story.

Jessie Conners Tieva, Trump University “Professor” and Failed “Apprentice”, was recently sued by the FTC for running a $15 million event scam. Jessie–who has a strict ‘No Soliciting’ policy when she’s not selling every second god sends, and whose totally-keeping-it-together husband and co-defendant Matt Tieva was just arrested at gunpoint–also had a mandatory arbitration and class waiver provision in her “contract”.

I won’t bother telling you to read it.

Dispute Resolution. Both Parties to this Agreement waive any and all right to a trial by jury. Any dispute or controversy arising under or in connection with this Agreement, including claims of fraud in the inducement, shall be settled exclusively by binding arbitration solely by written submission in Hennepin County, in the State of Minnesota, in accordance with the expedited Commercial rules of the American Arbitration Association then in effect, by one arbitrator. Limited civil discovery shall be permitted for the production of documents and taking of depositions. Unresolved discovery disputes may be brought to the attention of the arbitrator who may dispose of such dispute. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. The arbitrator shall have the authority to award any remedy or relief that a court of this state could order or grant; provided, however, that punitive, consequential or exemplary damages shall not be awarded. (a) Arbitration shall proceed solely on an individual basis without the right for any claims to be arbitrated on a class action basis or on bases involving claims brought in a purported representative capacity on behalf of others. The arbitrator’s authority to resolve and make written awards is limited to claims between Client and SPI alone. Claims may not be joined or consolidated unless agreed to in writing by all parties. No arbitration award or decision will have any preclusive effect as to issues or claims in any dispute with anyone who is not a named party to the arbitration. (b) The above notwithstanding, this Section shall have no application to claims by SPI seeking to enforce, by injunction or other equitable relief, the terms of this Agreement. Such claims may be maintained by SPI in a court of competent jurisdiction.

The bolded bit makes it a completely unenforceable one-sided non-agreement.

And by completely unenforceable, I mean, if you have a couple of years and about $2 million to drop on lawyers then the courts could ultimately decide that the provision was not enforceable and you would then be free to spend five years and $10 million trying to get your $50,000 back.

Sound good?

Class waiving arbitration provisions must be barred from consumer contracts. Arbitration can be a good thing, and often is a good thing, because the court system is 1000 years worth of completely crazy. But crappy, scammy, lying, companies need to face the specter of class litigation in court. It was one of the few remaining checks on their unchecked power to harm.

Such a practical and useful reform could never happen though, or, maybe… could it?

A stunningly important law was passed semi-recently and is just now coming into full effect. It’s called the Consumer Review Fairness Act of 2016, and it completely eliminates non-disparagement provisions from form consumer contracts. This type of provision has been used to devastating effect within Scamworld for years. Here’s Jessie’s version:

Mutual Non-Disparagement Covenant. Client hereby agrees that it will not, at any time, directly or Indirectly, make any oral or written public statements that are disparaging of SO, SO’s products or services, or any of SO’s present or former owners, employees or independent contractors. SO (limited to its officers and directors) agrees that it will not, at any time, directly or indirectly, make any oral or written public statements that are disparaging of Client. Disparagement shall be defined as any oral or written public statements that impugn the qualities, character, honesty, integrity, morality, business acumen or abilities of the subject provided, however, that nothing in this paragraph is intended to prevent buyer from publishing or submitting to any consumer protection agency any truthful written, oral, or pictorial review, performance assessment of, or other similar analysis of SO’s services, including by electronic means.

But now, not only is this speech repressing provision voided by statute, it’s a violation of law just having it in a contract and the FTC can come at you for it. This from the FTC’s complaint against Jessie:

In 2016, Congress passed the Consumer Review Fairness Act of 2016 (“CRFA”), P.L. 114-258, 15 U.S.C. § 45b. As of March 14, 2017, the CRFA renders void, and prohibits the offering of, provisions in form contracts that restrict individual consumers’ ability to communicate reviews, performance assessments, and similar analyses about a seller’s products, services, or conduct. Congress empowered the FTC and the states to enforce the CRFA with respect to contracts in effect on or after December 14, 2017.

And so…

Pursuant to Section 2(d)(l) of the CRFA, 15 U.S.C. §45b(d)(l), a violation of Section 2(c) of the CRFA, 15 U.S.C. §45b(c), in or affecting commerce shall be treated as a violation of a rule defining an unfair or deceptive act or practice prescribed under Section 18(a)(l)(B) of the FTC Act, 15 U.S.C. § 57a(a)(l)(B).

In other words, you can now get in big fat trouble for trying to tell your customers (or victims) to shut up.

This reform had such broad bipartisan support that it passed through both houses of Congress unanimously. Reforms can happen, and they can leave you saying totally fucking crazy stuff, like:

Good job Congress!