On Monday, I wrote about an obscure group called the American Law Institute, which was about to approve a sweeping reinterpretation of consumer contract law. It would have obligated consumers to the terms and conditions of a business even if they never read the contract or knew the contract existed.
The ALI’s vote to approve the reinterpretation was scheduled for Tuesday, but after four hours of debate, it was postponed indefinitely.
“The bottom line is that none of the substantive proposals were adopted,” said Deepak Gupta, a consumer rights attorney and former Consumer Financial Protection Bureau staffer, who attended the session. “In my view that’s a win for consumers.”
At issue was what is known as a Restatement of consumer contract law. These are summaries of common law in the 50 states. Judges, law students, and arbitration panels rely on them quite often as a reference to what the law says. Typically, Restatements are devised and approved with nary a peep from anyone outside the 4,000-member ALI, which includes top legal minds from throughout the profession, including all the members of the Supreme Court.
Seven years in the making, this particular Restatement, co-authored by a trio of law and economics professors, attempted to solve the nagging problem that nobody reads the terms and conditions of a contract, even after clicking to agree that they’ve read it. The Restatement responded to that conundrum by stating that consumers need not agree to a contract at all to be bound by its terms. As long as consumers had notice and a “reasonable opportunity to review” the contract—say, through a link on a website—that would suffice. Consumers would not have to click on the link, or even know it’s there.
Critics considered this a violation of the doctrine of mutual assent in contract law. As Gupta explained, the co-authors, known in ALI lingo as “reporters,” pitched this as a “grand bargain” of sorts. “They meant that we’re going to acknowledge that nobody reads the contract, and on the back end we’ll make it harder to enforce,” Gupta said. That enforcement would come through a tighter standard of “unconscionability,” meant to protect consumers from accepting blatantly one-sided terms.
But consumer advocates contended that this would block consumers from arguing in court that the contracts weren’t mutually assented to. Plus, the increasingly prevalent mandatory arbitration agreements tucked into the terms and conditions would put the going-to-court option formally out of reach, and consumers would be agreeing to that without even knowing they were.
Such a drastic reinterpretation of law was always going to inspire debate. Civil rights groups and consumer organizations almost unanimously opposed the Restatement, as did a bipartisan group of 24 state attorneys general. Senator Elizabeth Warren, a former ALI vice chair who had expressed concern about the Restatement in 2017, also rallied opposition yesterday, tweeting:
A group of lawyers, professors & judges are about to vote on whether to subject consumers to abusive contracts they don't negotiate and can't opt out of. This dangerous proposal will shape decisions in courts across the country – it should be voted down. https://t.co/V6aVf2QYoz
— Elizabeth Warren (@SenWarren) May 21, 2019
Consumer advocates came to the ALI meeting on Tuesday ready to vigorously dispute the Restatement. Attendees described the discussion as unusually lively, and it went on for hours. Ultimately, the ALI only approved Section 1 of the draft, which defined the scope of the project. Even that was modified to clarify that the consumer contracts in question were only for services and not for goods.
The other sections did not get a final vote. Adam Levitin, a professor at Georgetown Law and a leading critic of the proposal, issued an amendment to strike down Section 2, which was the core provision dealing with how a consumer agrees to a contract. “Everyone agrees that consumers don’t read contract terms no matter how disclosed,” said Levitin, “but there’s lack of agreement about whether the draft is accurately and completely restating the law.” In particular, there was debate over a consumer’s “reasonable expectations” of what terms belong in a contract.
Omri Ben-Shahar of the University of Chicago and Oren Bar-Gill of Harvard, two of the co-authors, forcefully argued their position. But while Levitin’s amendment was rejected, the vote indicated that ALI was deeply divided on the issue. “The nature of the word ‘restatement’ implies that you’re stating what the law is, not changing it,” said Gupta. “Everyone who’s anyone in consumer protection was opposed to this. I think the drafters mean well, but they didn’t understand that.”
Ben-Shahar and Bar-Gill, along with their colleague Florencia Marotta-Wurgler of NYU, decided to not seek an up-or-down vote on any other sections. The entire project was postponed until the next ALI meeting in 2020. In the interim, the organization could abandon the project, bring in critics to help rewrite it, or downgrade it from a Restatement to a statement of principles.
“I read it as a tacit acknowledgment that this was too controversial to approve,” said Gupta. “I don’t think we went in knowing what was going to happen. We were kind of the underdogs.”
It does appear that the narrow sliver of transparency brought to the ALI’s work served to raise public awareness and ire about what critics believe would have been a radical reinterpretation of common law. It’s a testament to the fact that, even in an environment where the public feels occasionally helpless to shape events, raising collective voices on behalf of the public interest can still make an impact.
