If you (re)build it, they will come: contracts to remake the rules of litigation in arbitration's image.

AuthorNoyes, Henry S.

INTRODUCTION I. THE ARBITRATION PROBLEM A. Arbitration Is Not (Necessarily) Faster than Litigation B. Arbitration Is Not Cheaper than Litigation C. Arbitration Is More Confidential than Litigation D. Arbitration Is Riskier and Less Predictable than Litigation E. Courts Are Refusing to Enforce Arbitration Agreements F. Contractually-Modified Litigation Offers a Superior Alternative to Arbitration II. THE "NEW" FREEDOM OF CONTRACT: EX ANTE CONTRACTS TO MODIFY THE RULES OF LITIGATION ARE PRESUMPTIVELY ENFORCEABLE III. COURTS HAVE ENFORCED EX ANTE CONTRACTS THAT MODIFY A BROAD ARRAY OF LITIGATION RIGHTS AND RULES A. Constitutional "Due Process" Rights B. Seventh Amendment Right to Trial by Jury C. Rules of Evidence D. Rules of Civil Procedure E. Other Public Dispute Resolution Rights F. Lessons from Arbitration IV. THE RELATIONSHIP BETWEEN THE LITIGATION PROCESS AND THE POWER TO MODIFY IT A. Litigation Rules Are Commodities that Are Subject to Negotiation and Exchange Like Other Contractual Provisions B. The Parties Own Their Dispute, and the "Rules" of Litigation Are Default Rules V. LIMITS ON THE POWER TO MODIFY THE RULES OF LITIGATION A. Overriding Procedural Considerations B. Courts' Inherent Power to Control the Litigation Process C. The Parties May Waive Only Their Own Litigation Rights D. Waiver of Constitutional Rights May Be Subject to Stricter Scrutiny: The "Knowing, Voluntary, and Intelligent Waiver" Standard E. Conclusions VI. MODIFIED LITIGATION UNDER THE NEW FREEDOM OF CONTRACT A. Maximizing the Chances for Specific Enforcement B. What Might Modified Litigation Look Like? CONCLUSION INTRODUCTION

The Seventh Amendment to the U.S. Constitution provides that "[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved...." (1) Rule 38 of the Federal Rules of Civil Procedure provides that "[t]he right of trial by jury as declared by the Seventh Amendment to the Constitution or as given by a statute of the United States shall be preserved to the parties inviolate." (2) The Supreme Court has described the right to trial by jury in a civil action as a "basic and fundamental" right that is "sacred to the citizen" and therefore "should be jealously guarded by the court." (3) But parties to a contract may agree that, in the event a dispute arises, they waive their right to a jury. If this dispute resolution right--which is fundamental, constitutional, and set forth in the Federal Rules of Civil Procedure--may be used as a bargaining chip, are there any limits on parties' ability to modify the rules of public dispute resolution in their ex ante contract?

In this Article, I examine the limits on parties' ability to design and implement through contractual agreements their own set of public dispute resolution rules. I do not, however, focus on the usual method--opting-out of the public courts in favor of private arbitration. Instead, I consider parties' ability to "opt-in" and choose the public courts as the forum for dispute resolution, yet waive, modify, and displace the "normal" litigation rules. (4)

Others have written about the general concept of agreements that modify certain litigation rules. These commentators criticize the growing body of law that recognizes the ability of private parties to modify the rules of public dispute resolution. For example, Professor David Taylor and Sara Cliffe argue that courts have improperly elevated ex ante contracts to "a status of 'super contract,' a status that transcends traditional rules of contract law and results in near-automatic enforcement by means of specific performance." (5) Professor Jean Sternlight argues that waiver of litigation rights, both constitutional and other rights, should require voluntary and knowing consent to such waiver. (6) Professor Linda Mullenix argues that "[t]he central problem is that substantial litigation rights are sacrificed to enhance purely prudential considerations. Contract principles now effectively usurp long-standing jurisdictional and conflict-of-laws rules." (7)

These commentators argue that the judiciary should rein in the use of ex ante contracts to modify litigation rules founded primarily on the Constitution. The commentators do not, however, explore the outer boundaries of private parties" ability to modify litigation rules by contracts made before disputes arise. (8) In this Article, I seek to identify and examine those limits. To anchor this inquiry in something more than academic interest, I compare the limits and benefits of modified litigation with the limits and benefits of arbitration--generally considered a reasonable and often better alternative to litigation. (9)

I conclude that there is a presumption that litigation rules may be modified by an ex ante contract and that such a contract is subject to specific performance. The contract will not be enforceable, however, in the following circumstances: (A) where it gives a court subject matter jurisdiction (either expressly or impliedly) that the court would not otherwise have; (B) where the agreement is not enforceable under the traditional standards of contract law (that is, if the contract itself is not enforceable); (C) where the contract waives certain constitutional rights, it may be unenforceable if it was not made knowingly, voluntarily, and intelligently; (D) where Congress has acted to affirmatively prohibit modification of a specific litigation rule; (E) where the agreement seeks to waive litigation rights of a person who is not a party to the contract, including the public's litigation rights; and (F) where there is an overriding procedural consideration that prevents enforcement of the contract because it would irreparably discredit the courts.

If the contract was entered into by two sophisticated, commercial entities that are both represented by lawyers, we can eliminate most concern with limits (B) and (C). If the litigation right that is modified by ex ante contract is a right that courts have held can be waived during litigation, then we can eliminate most concern with limits (A), (E), and (F). Likewise, if the parties can waive the litigation right by agreeing to arbitration, they should be able to waive the same right in modified litigation without encroaching upon limits (A), (E), and (F). Thus, if Congress has not expressly precluded contractual modification of a litigation rule, parties may modify any litigation rule that they may waive either during litigation or by electing arbitration. If such a contract satisfies standard contract law requirements and, if required, was made knowingly, voluntarily, and intelligently, the contract to modify litigation rules will be subject to specific enforcement.

Given these conclusions, it follows that there is tremendous opportunity for parties to use the free and available public dispute resolution system to better accomplish the aims of arbitration. With one exception, modified litigation has all of the benefits of arbitration: it will be significantly faster than standard litigation; it will be significantly cheaper than standard litigation; and it will allow the parties to define and control the dispute resolution rules. Additionally, modified litigation has significant advantages over arbitration: it is cheaper than arbitration; it includes a meaningful right to appellate review; it guarantees the appointment of a neutral, independent decision-maker; and it avoids problems with handling certain types of disputes, like consumer class actions, that may not be easily amenable to arbitration. Even the one notable exception--that arbitration is beneficial because it is more confidential than litigation--is counterbalanced by the benefits of public dispute resolution. Public dispute resolution produces precedent that helps parties value their disputes and plan to avoid disputes in the future. Modified litigation retains this same advantage. The largest "consumers" of litigation--businesses that frequently resort to a dispute resolution system--therefore stand to benefit the most from this transparency and public development of law. Of course, they also stand to benefit the most from modified litigation rules that provide a disincentive to litigate, such as a more demanding burden of proof, and that also provide "protection" against the risks inherent in a jury trial.


    With the enactment of the U.S. Arbitration Act of 1925, (10) now known as the Federal Arbitration Act (FAA), (11) Congress provided an approved alternative to litigation. The parties define the scope of the dispute, define the dispute resolution procedures, and determine the legal standards to be applied. (12) It is generally assumed that arbitration is faster, cheaper, and more private than litigation. (13)

    Although arbitration has become commonplace (some would say ubiquitous), it has been met with great criticism. Critics charge that the Supreme Court, in its zeal to support arbitration, has gone beyond Congress's original intent in enacting the FAA. The Court is so enamored with the siren song of "cost-savings" and "efficiency," as well as the indisputable savings in court time, that its decisions in this area are no longer anchored in the Act itself. (14)

    1. Arbitration Is Not (Necessarily) Faster than Litigation

      Is arbitration faster than litigation? Not necessarily. (15) According to one recent study, the average time to resolve an arbitration--the time from the date of filing the demand to the date of the award--is 16.5 months. (16) The median time from filing to disposition of a case filed in a federal district court in 2005 was 9.5 months. (17) The median time to get to trial in a case filed in a federal district court in 2005 was 22.5 months. (18)

      Even where arbitration is faster than litigation, however, this efficiency is likely the result of the system that the parties have designed. Arbitration is faster because...

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