TABLE OF CONTENTS INTRODUCTION I. AN OVERVIEW OF CONTRACT PROCEDURE A. Contract Procedure and Commercial Practice B. Contract Procedure and Judicial Review II. CONTRACT PROCEDURE AS A PRIVATE CONCERN A. Efficiency B. Substantive Fairness C. Litigant Autonomy D. Fair Process III. THE PUBLIC DIMENSION OF CONTRACT PROCEDURE A. Contract Procedure and Outsourcing 1. Dispute Resolution as an Inherently Governmental Function 2. Outsourcing Can Be a Planned or De Facto Regulatory Practice 3. Contract Procedure as De Facto Outsourcing B. Contract Procedure and Negative System Effects 1. Information About the Dispute 2. Information About the Adjudicative Process C. Contract Procedure and Democratic Decision Making D. Summary IV. CHALLENGES IN DEFINING THE LIMITS OF CONTRACT PROCEDURE A. Securing Transparency Through Information Disclosure B. Encouraging Procedural Accountability Through Rulemaking Oversight C. Promoting Legitimacy Through Choice-of-Law Inspired Judicial Review CONCLUSION: A CONSTITUTIONAL TRANSFORMATION TOO FAR? APPENDIX INTRODUCTION
The last generation has seen a subtle but discernable shift in the relation between private mechanisms for dispute resolution and the public courts. (1) As the literature well documents, increasing numbers of civil disputes, particularly those involving consumer and employment contracts, are now decided by private decision makers such as arbitrators, mediators, and judges hired for the occasion. (2) Depending on the perspective, these private processes allow the parties to exit--or exile the parties--from the public system of adjudication, effectively "carving out spheres of 'private government"' with their own tribunals, procedures, and rules of decision. (3) On a parallel track, private process has migrated in surprising ways into the public courts: despite public rules of procedure, judicial decisions increasingly are based on private rules of procedure drafted by the parties before a dispute has arisen. (4) These procedures include the forum in which proceedings will be conducted, (5) whether a jury will be involved in adjudicating the dispute, (6) the scope of rights of discovery, (7) and rules of evidence. (8)
The practice of "contract procedure"--by which we mean the practice of setting out procedures in contracts to govern disputes that have not yet arisen, but that will be adjudicated in the public courts when they do arise--has only recently begun to attract scholarly attention. (9) We believe greater attention is warranted. First, contract procedure appears to be an important phenomenon in its own right. Second, without considering the implications of contract procedure it is difficult to gauge the ramifications of other forms of private involvement in dispute resolution, including arbitration and post-dispute procedural stipulations. Indeed, without knowing how "public" the public courts will be, one cannot meaningfully assess allowing litigants to opt out of the public courts in favor of private processes. Even for its fiercest critics, arbitration may be the lesser of two evils in comparison to courts that private actors are free to reconfigure through contract procedure. Others may conclude that contract procedure represents the best way for the public courts to respond to the issues raised by arbitration and other private processes. (10)
Assessment of the practice of contract procedure is hampered by both the absence of a satisfactory framework for analysis and a lack of empirical data. Contract procedure is often seen as a form of private ordering. As such, we might expect the practice to promote self-governance, encourage innovation, and secure efficiency. (11) We believe, however, that the public effects of contract procedure also must be directly considered. In our view, these procedures effectively limit the decision making of courts, and their use in the public courts raises special concerns that go beyond the interests of the immediate parties. The existing literature does not fully appreciate these concerns, and, in the absence of data it is difficult to determine their significance.
We argue in this Article that contract procedure functions as a form of privatization--the outsourcing of government functions--and that it implicates the structure and design of public institutions. (12) Like other forms of outsourcing, contract procedure can be expected to affect public confidence in the government institutions that endorse its use; its persistence and growth demand assessment not simply of its impact on the individual case but of its structural effect on the civil justice system as a whole. Yet unlike other forms of outsourcing used by government, contract procedure is subject to virtually no meaningful oversight by Congress, by agencies, or by the courts.
Our argument builds on two insights. The first is economic: private transactions presumptively are efficient only if there are no negative externalities, that is to say, no adverse effects on third parties. (13) That the conduct of a civil proceeding might affect the interests of people beyond the immediate parties to the dispute--much less the subset of those parties who happen to be in a contractual relationship prior to the dispute--is not a novel idea. (14) Moreover, it is commonplace in law-and-economics literature to characterize adjudication as a source of public goods, meaning goods the benefits from which can be consumed by many actors without reducing the benefits to any one actor. (15) Among the most important of those public goods, although not the only, are various kinds of information that help policymakers and members of the general public identify and respond to social problems. (16) The practice of contracting for procedure can be conceptualized, therefore, as contracting over the production of public goods that play a critical role in shaping public policy, encouraging social trust, and supporting democratic values. Whether to tolerate the practice differs conceptually from debates about whether to permit private actors freedom to contract over the production or exchange of other goods and services; its effect goes well beyond the impact of the transaction upon the individual parties to the contract. (17)
The second insight is political: democratic institutions, including courts, ought to be preferred sites for effecting changes in law and public policy. This is not to ignore the lessons of "new governance" theory (18) or popular constitutionalism, (19) both of which credit private actors with an important lawmaking function. However, when power to make or to change policy is in the hands of private individuals, care must be taken to ensure transparency, participation, and the possibility for informed disagreement. (20) The practice of contract procedure lacks these qualities. By effect, it permits unelected and unaccountable contract drafters to reshape a function that reasonably is regarded as a core governmental function, (21) and it does so, we argue, in ways that can be expected to suppress popular input and to inhibit alternative points of view.
Part I of this Article frames the discussion that follows. It briefly describes the scope of ex ante contract procedure and examines judicial treatment of the practice. Part II summarizes and assesses concerns about the effects of contract procedure on the immediate parties to the disputes it governs. Although contract procedure in theory affords flexibility, generates efficiency, and provides choice, (22) ex ante agreements are not always mutually beneficial to the parties and in some cases inappropriately extinguish constitutional and statutory rights. (23) These concerns are the focus of much of the current literature. Part III reframes the discussion by characterizing contract procedure as a form of outsourcing that implicates the design of the public system of dispute resolution--a function that in contemporary parlance is inherently governmental. In our view, the outsourcing of this aspect of the civil justice system interferes with the production of a key byproduct of public adjudication--information. The resulting information deficit and biases impede and distort collective efforts to identify problems, to forge solutions, and to promote public values. Consequently, we argue, contract procedure has effects that spill over from the private world of the contracting parties and into a world in which more public modes of deliberation and decision making have traditionally prevailed. Our argument that these spillovers may well be negative draws from well-developed theoretical concerns about the potential inefficiency of private production of public goods, the potential threats to political competition posed by allowing economic actors to influence the exercise of public power, and Michael Walzer's account of the appropriate boundaries of the "spheres of justice." (24) Part IV suggests a package of reforms aimed at the system effects we have identified. (25) Our goal is to capture the benefits that are identified with outsourcing, while ensuring the transparency, public-regarding values, and information production that are essential to sound judicial administration. A conclusion briefly considers the potential "state-breaking function" of contract procedure, which, if left unchecked, we believe could produce a constitutional transformation that inappropriately reshapes the relation of citizen to government and of government to market. (26)
AN OVERVIEW OF CONTRACT PROCEDURE
This Part describes the practice of contract procedure in the United States. To preview the discussion, those who wish to study the practice are inhibited by a lack of information: we know surprisingly little about the scope of the practice, the nature of the agreements, and the impact of particular contract terms on judicial resolution. Contracts that contain procedural terms generally are not collected in a public database; unlike consent...