Arbitration's suspect status.

• Author: Aragaki, Hiro N.

INTRODUCTION I. THE EXISTING FAA PREEMPTION PARADIGM A. Enforcement-Neutral and Enforcement-Impeding Laws B. The Single-Out/General Test II. REINTERPRETING THE PARADIGM AS AN ANTI-DISCRIMINATION PRINCIPLE A. Unjustified Hostility Toward Arbitration: Origins to 1925 B. Hostility in the Form of Suspicious Generalizations About Arbitration: 1925 to the Present C. The Anti-discrimination Logic of the Single-Out/ General Test D. Rethinking the Paradigm III. OVERPREEMPTION AND THE PROBLEM OF JUSTIFIED DISCRIMINATION A. The Tension Between Anti-discrimination and Government Regulation B. Justified Discrimination C. Potential Objections D. Application IV. UNDERPREEMPTION AND THE PROBLEM OF PRETEXT A. Unconscionability and the "New Judicial Hostility". B. "As Applied" Challenges and the Limits of the Single-Out/General Test C. Proving Pretextual Discrimination D. Application CONCLUSION By enacting [section] 2 [of the Federal Arbitration Act] ... Congress precluded States from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed "upon the same footing as other contracts." (1) INTRODUCTION

Jamie Leigh Jones, a Halliburton employee working in Iraq, was drugged and gang-raped by her coworkers. (2) When she sought justice in court, Halliburton argued that her sexual assault claims had to be arbitrated pursuant to a clause in her employment contract. (3)

African American consumers alleging racial discrimination against a car dealership discover that they are each required to pay some $14,000 in fees up front just to have their less-than-$180,000 claims heard in arbitration. (4) Filing the same action in federal court would have cost them each $350. (5)

The National Arbitration Forum (NAF), which until recently arbitrated debt-collection disputes between financial institutions and consumers, earned "at least $5 million in fees between 1998 and 2000" from one such financial institution alone. (6) In the same period, that financial institution allegedly won 99.6% of its 50,000 NAF cases. (7)

These and other "arbitration horror stories" (8) have fueled a polarizing debate within academia, in legislatures, and among ordinary individuals--individuals who increasingly find themselves surrendering their right to trial by jury just to obtain a job or basic services like a credit card or health care. Some see in this development the ugly specter of predatory corporations herding the unwary into secret trials and "kangaroo court[s]." (9) Others worry that latent prejudices about arbitration have produced exaggerated suspicions that are belied by a more complex and balanced reality. (10)

In response to real or perceived abuses, state lawmakers have increased their efforts to regulate arbitration. After all, arbitration is a "creature of contract," (11) and states have been the primary stewards of contract law. Thus, Nebraska requires form contracts containing a binding arbitration clause to provide a prominent disclosure of the clause in capitalized, underlined letters. (12) California refuses to enforce awards rendered by arbitrators who fail to disclose certain conflicts of interest. (13) Kansas forbids predispute arbitration agreements between employers and employees. (14) To some, these seem like reasonable measures that help level the playing field and protect vulnerable parties.

According to the Supreme Court's current jurisprudence, however, the Federal Arbitration Act (FAA) (15) displaces almost all of these state initiatives under the doctrine of implied obstacle preemption. (16) The dominant explanation for this result is that the FAA's purpose is to further the parties' freedom of contract, by "rigorously enforc[ing]" arbitration clauses according to their terms. (17) Given the supremacy of federal law, this interpretation of the FAA leaves state legislatures with precious little wiggle room to regulate such clauses, particularly in the "mandatory" binding arbitration area. It results in the overpreemption of state law, which cynics attribute to "the Court's own self-interested goal of reducing the number of cases pending in the federal courts." (18)

At the same time, the dominant view leaves the door ajar for judges to police arbitration agreements through standard contract law defenses to enforceability. For this reason, state courts have been viewed as "guardians" against the FAA's relentless colonization of state law domains. (19) But empirical and anecdotal evidence increasingly suggests that those courts may have started taking the offensive, by distorting easily manipulable rules such as the unconscionability doctrine in

order to accomplish the very same regulation of arbitration agreements that the FAA appears to have declared off-limits to state legislatures. (20) Because the prevailing view is that established rules of contract do not offend the FAA as long as they "arose to govern issues concerning the validity, revocability, and enforceability of contracts generally," (21) such judicial maneuvering has largely managed to fly under the radar. Ironically, this leaves existing FAA preemption jurisprudence prone to the opposite charge of underpreemption.

In this Article, I seek to inject a fresh perspective on these problems. Rather than a "broad principle of enforceability" (22) for arbitration clauses, I argue that the Court's FAA preemption jurisprudence reflects a core principle of nondiscrimination in enforcement. On this view, the central purpose of FAA preemption is to reverse what is perceived to be the law's longstanding yet irrational hostility toward arbitration. That hostility manifested itself--and, according to the Court, continues to manifest itself--in legal rules that deny arbitration agreements the equal opportunity of enforcement enjoyed by other contracts. (23) Countless lower courts and commentators have likewise grasped the anti-discrimination logic of FAA preemption. (24) But none has ventured beyond the occasional, one-line reference to the FAA as an "anti-discrimination statute" (25) or as a "a sort of 'equal protection' clause for arbitration provisions" (26) in order to explain the meaning behind that logic.

This is the first of two articles in which I attempt to fill this void. (27) To be clear, the anti-discrimination theory of FAA preemption that I seek to defend is grounded primarily in the Court's jurisprudence rather than in the FAA itself. Although anti-discrimination themes are certainly evident in the text and history of the statute, the language of the FAA is simply too indeterminate, and the congressional record leading to its enactment too sparse, to draw any firm conclusions about its original meaning. There is also considerable doubt as to whether Congress ever intended the FAA to preempt state substantive law (rather than simply to provide rules for the streamlined enforcement of arbitration agreements in federal court). (28) What is undeniable, however, is that courts routinely deploy the rhetoric of anti-discrimination when justifying the FAA's displacement of state law. My approach is therefore to interrogate those justifications and to question whether they necessitate the outcomes the Court tells us they do.

Unlike the dominant view, an anti-discrimination approach would not require the preemption of all state legislation restricting the use of arbitration agreements. From an anti-discrimination perspective, even laws that facially discriminate against certain historically oppressed groups are not always problematic. This is captured by the well-known concept of a "suspect" or "quasi-suspect" classification in equal protection law. Such classifications are suspicious because we have good reason to fear the persistence of hostility and prejudice. But the fact that they are "suspect" rather than "forbidden" means that those classifications may sometimes be tolerated where necessary to serve overriding public interests. Similarly, an anti-discrimination-inspired model of FAA preemption would displace state law only if the law could be said to discriminate improperly against arbitration--that is, if it betrayed the same anti-arbitration bias or "mistrust" of the arbitral process that the FAA was designed to abolish. (29)

But anti-discrimination law also understands that discrimination operates in subtle ways; just because a law is general on its face does not mean it cannot do harm as applied. Anti-discrimination law has accordingly developed a number of evidentiary frameworks to distinguish between the legitimate and pretextual applications of facially neutral laws. I argue that similar frameworks, when adapted to the FAA context, may help address the concerns of those who fear the advent of a "new judicial hostility" (30) in the way that some courts seem to use the unconscionability defense against arbitration agreements.

Disillusionment with the Court's strong pro-arbitration leanings has understandably led some to elide the anti-discrimination underpinnings of FAA preemption. But it leads me rather to highlight those underpinnings for two reasons. First, as a descriptive matter, anti-discrimination is the organizing principle that best explains the Court's FAA preemption jurisprudence over the past twenty-five years. We are stuck with this jurisprudence; instead of fighting it or wishing it away, advocates on both ends of the political spectrum would do better to lay bare its true meaning. Second, even if the assumptions behind the principle are no longer appropriate, the Court and lower courts continue to rely on a norm of anti-discrimination to legitimize the FAA's preemptive compass. I argue that a more sophisticated engagement with that norm offers a way to lend integrity to the law of FAA preemption, by holding courts to the full implications of their own pronouncements.

This Article proceeds as follows: In Part I, I offer an account of certain basic features of the Court's FAA preemption...