About seven years ago, the American Law Institute began tackling a Restatement of law for consumer contracts. There’s agreement that these don’t work well, particularly in the internet age.
An obscure meeting of elite jurists in Washington could adopt a sweeping change to contract law on Tuesday, binding anyone visiting a website to that business’s terms and conditions, even if they never read them or knew they existed. Those terms could include mandatory arbitration clauses to settle disputes, privacy policies involving the selling of personal data, and virtually anything else a business wanted to throw in. It could even allow companies to change those terms after the fact.
These transformations aren’t being debated in the halls of Congress or state legislatures or anywhere in the public square. They would be enacted by the American Law Institute (ALI), a convening of around 4,000 lawyers, law professors, and judges (including every member of the Supreme Court). It’s “the unofficial College of Cardinals of the U.S. legal profession,” said Adam Levitin, a professor at Georgetown Law and a consumer protection expert, who has been a leading critic of the changes.
Beyond a mere social society, the ALI creates what they call Restatements, which you can generously describe as Cliffs Notes of the common laws of the 50 states. They are supposed to follow established precedent and summarize legal trends.
Nobody deputized the ALI to interpret the law, but when they do, the end result becomes a guidepost for lawyers, judges, law students, and arbitration panels, a sort of reference to what the laws actually say. Flip through legal opinions at the state level and you will see ALI Restatements throughout the footnotes. “These are very influential documents even though they aren’t formally ‘law,’” Levitin explained.
About seven years ago, the ALI began tackling a Restatement of law for consumer contracts. There’s virtually universal agreement that these don’t work terribly well, particularly in the internet age. We’ve all flipped through the terms and conditions of a website or new product purchase and blindly affirmed that we’ve read them, without actually doing so. The question is how you improve upon that, and the ALI came up with a solution in maybe the worst way possible.
The short version is that consumers would not have to read any contract to be bound by its terms. As long as consumers had notice and a “reasonable opportunity to review” the terms, like through a link on a website, that would be enough. Consumers would not have to click on the link or even really know it’s there. This is from the Restatement: “The deliberate act of entering the business’s proprietary environment and remaining in it long enough to gain access to the content and benefits it confers constitutes a manifestation of assent by the consumer to a transaction.”
The authors of the Restatement—law professors Oren Bar-Gill of Harvard, Omri Ben-Shahar of the University of Chicago, and Florencia Marotta-Wurgler of NYU—do add a safeguard, in the form of a standard of “unconscionability,” meant to protect consumers from entering into a blatantly one-sided contract. However, consumer advocates don’t feel like that will amount to much. In particular, consumers would actually have to litigate disputes in a court when not bound by the arbitration agreement embedded in so many consumer contracts. “The result is a contractual Hotel California,” said Levitin. “And the hotel’s proprietor is every large business in the United States.”
In addition, the Restatement relies on an unconscionability standard only used for the most outrageous cases to police all consumer contracts. The Restatement also appears to make the argument that the market will discipline a bad contract because consumers will not sign up. Again, Restatements are supposed to summarize judicial precedent, but as some civil rights groups noted in a letter, this novel reading “appear[s] to rely entirely on a law review article that spins out this theory … without citing any judicial decisions that support it.” In fact, much of the empirical research underlying the Restatement appears to be shoddy or outright made-up.
So while faced with a real problem—no consumer reads the contract—the authors find a solution that enshrines that lack of reading, with little or no broad protection besides. Under this standard, businesses would get to assume that consumers agreed to all their terms just by their presence. Plus, businesses would be able to modify the terms and conditions, simply by giving the consumer “reasonable notice” of the modification that the consumer “does not reject.” So silence would stand in for consent.
The Restatement’s co-authors, known in the ALI’s lingo as “reporters,” have no consumer or litigation experience. They are adherents to the “law and economics” movement, which originated at the University of Chicago and emphasizes cost-benefit analysis and economic efficiency. The law and economics movement has cast an enormous shadow over the U.S. justice system, holding seminars attended by nearly half of all federal judges in the 1970s and ’80s that had a real impact on the drift in the law in a conservative, pro-business direction.
Indeed, there’s language in the Restatement about how standard contract terms “support efficient production and distribution, resulting in lower prices and lower transaction costs,” and the entire enterprise suggests that the costs of having to obtain assent to terms and conditions outweigh the benefits.
The ALI’s proposal has generated an unusual amount of public controversy for what is mainly a secret, or at least quiet, society. Law professors, civil rights groups, and consumer organizations have all written to the ALI urging rejection of the Restatement, pointing out that the conclusions lacked meaningful consumer protections and seemed not based on the actual state of the law. Even some business groups have complained about the ALI assuming tremendous power to effectively rewrite the law. Melvin Eisenberg, a law professor emeritus at Cal-Berkeley, said the Restatement would “drive a dagger through consumers’ rights.”
Twenty-three state attorneys general (all Democrats but one, Idaho’s Lawrence Wasden) have also castigated the Restatement for weakening the doctrine of mutual assent in contract law. And these critics have an ace in the hole—a former vice chair of the ALI, now a senator named Elizabeth Warren.
In December 2017, Warren wrote a letter to ALI president David Levi expressing concern that the Restatement would abandon “meaningful consumer assent in exchange for a supposed increase in judicial scrutiny of contract terms.” That bargain, Warren wrote, is an illusion, because consumers have economic hurdles against suing big business, as well as the procedural hurdle of mandatory arbitration agreements (tucked into the terms and conditions) that put justice formally out of reach. “It would be a mistake for the ALI to proceed,” Warren said.
That was a year and a half ago. The ALI has teed up a vote on this for Tuesday. They have been remarkably prickly toward criticism of the Restatement, even issuing a takedown notice to Adam Levitin when he provided a Dropbox link to the draft in a letter to other ALI members urging opposition. Later the ALI made the draft available, but the petty behavior shows the heat they feel on the issue.
And they should feel that. This is an unelected legal society on the verge of making an unbelievably consequential change to an issue every American faces. If successful, the Restatement would lock up millions of Americans in bad consumer contracts with little leeway for an escape. It’s amazing that the future of consumer rights hinges on such an undemocratic process.
UPDATE: Senator Warren, in a statement to The American Prospect, has again come out against the proposed Restatement up for a vote tomorrow. “This supposed grand bargain will encourage judges to bind consumers to exploitive contracts drafted by expensive lawyers at giant corporations without any real opportunity to negotiate or opt out,” Warren wrote. “As a proud Life Member and former Vice-Chair of ALI, I urge members not to move forward with this dangerous approach.”
About the Author
David Dayen is the executive editor of The American Prospect. His work has appeared in The Intercept, The New Republic, HuffPost, The Washington Post, the Los Angeles Times, and more. His first book, Chain of Title: How Three Ordinary Americans Uncovered Wall Street's Great Foreclosure Fraud, winner of the Studs and Ida Terkel Prize, was released by The New Press in 2016.