Delegating the Administration of Justice: The Need to Update the Federal Arbitration Act.

• Author: Cataldo, Craig E.

"I think everybody [today] feels strongly that the right offreedom of contract, which the Constitution guarantees to men, includes the right to dispose of any controversy which may arise out of the contract in their own fashion." (1)

1. INTRODUCTION

   In 1925, the 68th Congress passed the Federal Arbitration Act (FAA), solidifying arbitration as a valid form of alternative dispute resolution. (2) The need for efficient dispute resolution manifested into the FAA's statutory framework, which favors enforcing arbitration clauses and limits judicial review of arbitration awards. (3) Since the FAA's enactment, arbitration has expanded, and modern arbitration clauses are often buried in the fine print of contracts relating to cell phones, cable television, and employment. (4) The Supreme Court responded by liberally interpreting the FAA, maintaining a policy favoring arbitration despite significant social and economic differences between society in 1925 and society today. (5) As a result, the arbitration clauses present in myriad contracts have produced a supplemental judiciary guided by private agreements. (6) While privatizing dispute resolution can be beneficial, arbitration rarely resembles the judicial proceedings citizens expect when a dispute arises. (7) Consequently, arbitration has faced increased scrutiny with pundits arguing for the abolishment of mandatory arbitration clauses and/or a regulatory framework by which arbiters must abide. (8) This disdain culminated in the legislature reintroducing the Arbitration Fairness Act (AFA) that, if passed, will make predispute arbitration agreements relating to employment, civil rights, consumer, and antitrust disputes unenforceable. (9) Although several politicians and scholars support the AFA, it is not a viable solution. (10) Rather than diluting the FAA by banning pre-dispute arbitration agreements, Congress should take the least restrictive approach and amend the FAA to provide a clear, predictable standard under which arbitration awards can be analyzed. (11)

   The judicial process is considered fair because a neutral party detached from the dispute is administering a final decision without regard to persons. (12) The legislature should recognize that arbitration is grounded in similar principles and, despite its imperfections, can be a viable means to resolve a dispute. (13)

   This Note outlines two major dispute resolution methods: litigation and arbitration. (14) Next, this Note analyzes the FAA's formation, emphasizing the drafters' influential testimonies before the 68th Congress. (15) Then, this Note addresses the constitutional and contractual principles the Supreme Court has utilized in applying the FAA. (16) Next, this Note considers the Supreme Court's liberal application of the FAA and the criticism the Court has faced for its role in facilitating private dispute resolution. (17) This Note then argues existing solutions fail to adequately preserve the FAA and that they will eliminate the benefits arbitration offers. (18) Finally, this Note proposes an amendment to the FAA that implements a standard for limited, predictable review, arguing such an amendment is supported by the FAA's legislative history. (19)

2. HISTORY

   1. The Courts

      Arbitration is a form of alternative dispute resolution; to understand its utility, one must first look at what it is an alternative to. (20) The court system is the traditional forum for resolving disputes, and within that forum there are constitutional and procedural safeguards in place to ensure a fair and just outcome is reached and that the parties rights are preserved. (21) In general terms, the Seventh Amendment to the United States Constitution bestows an inalienable right on the people to have their disputes settled by a jury. (22) A jury's main function is deciding what occurred between the parties--the facts of the case-with the given law dictating which party is entitled to a verdict in their favor. (23) This right limits judicial amendment, revocation, or influence of what a jury finds to be fact, intrinsically protecting litigants from an overpowering judiciary by allowing their fellow citizens to determine what facts apply to the law. (24)

      Despite the Seventh Amendment codifying the right to a jury trial, the Federal Rules of Civil Procedure presume that a bench trial will be used to settle disputes, so parties must invoke their right to a jury trial if they desire one. (25) In addition, not all cases are eligible for a jury trial, but the courts have broad discretion in submitting a case to a jury. (26) Although judges and juries seek the same outcome--a final resolution grounded in justice--the two are invariably distinct from one another; thus, litigants are forced to consider which entity will best serve their interests with the facts of the case, cause of action, and societal views typically playing a role in that decision. (27) Whether before a judge or jury, litigating a dispute in the court system requires parties to comport with a specific set of rules, deal with logistical challenges, open their dispute to public scrutiny, subject themselves to the applicable law, and potentially deal with an appeal. (28)

      The run-of-the-mill civil action begins with pleadings, which encompass the initial allegations. (29) From there, lawsuits must survive responsive pleadings and motion practice, which can derail cases for issues such as procedural defects or lack of merit. (30) Common issues arise with jurisdiction, service, and the statute of limitations. (31) In addition to motion practice, settlements can end a lawsuit as settlement opportunities can arise at every stage and litigants are constantly weighing the cost of further pursuing the action against the potential of recovery at trial. (32)

      If the suit is still pending after pleadings, responsive pleadings, and early motion practice, each party is entitled to discovery that exposes a multitude of materials and enables litigants to depose each other and their respective witnesses. (33) The discovery rules initially favored a broad scope of discoverable materials, but have since been amended to reflect proportionality, which generally requires that the burden of production is worth the potential value of the materials. (34) Even with the proportionality requirement, discovery is an arduous process that requires meticulous review of each item sent to an opposing party because of a potential "smoking gun" lurking in any document, witness testimony, or the like. (35)

      If there is no issue of material fact after discovery, a party will likely move for summary judgment claiming there is no need for a jury because, based on the established facts, he or she is entitled to a judgment as a matter of law (JMOL). (36) If this fails, and the case is still pending, eventually the trial ensues: the parties make their opening statements; evidence is introduced, subject to the Federal Rules of Evidence; and closing arguments are made. (37) Furthermore, at the conclusion of the opponent's evidence, a litigant can move for a JMOL. (38) The court can grant the motion, holding the law requires an outcome in the movant's favor, or deny the motion, leaving the movant free to renew it if the jury returns a verdict against him or her. (39)

      At the conclusion of all the evidence, the case is deliberated upon by a judge or jury who will choose the theoretical "winner." (40) Contrary to expectation, the verdict or judgment is rarely the case's end; the aggrieved party may seek a new trial or pursue an appeal, and even if the aggrieved party accepts defeat, collecting damages may result in further proceedings. (41) In summary, if a case survives motion practice and is not dismissed or settled, the dispute is resolved for all intents and purposes when a judgment is entered and appeals are exhausted. (42)

      In 2016, the Federal Judiciary reported that 291,851 civil actions were filed in the district courts, equating to 431 filings per judgeship. (43) The Judiciary also reported a completion of 2,814 nonjury trials, and 1,758 jury trials, with an average time--from filing to disposition--of roughly nine months. (44) Moreover, there were a reported 271,649 case terminations in 2016; in general terms, this is the number of cases filed but resolved before an argument on the merits, often because of settlement or dismissal. (45) In addition, litigation costs can be unpredictable in the current system because unexpected motions typically require responses; attorneys conduct discovery subject to their hourly rates; and--although potential damages are enticing--there are no guarantees at trial, so litigation costs are a risky expenditure. (46) While many citizens flock to the courts to pursue justice, it is easy to see why alternatives exist--not the least of which is arbitration. (47)

   2. Arbitration

      Arbitration is a "process in which the disputing parties choose one or more neutral third parties to make a final and binding decision resolving the[ir] dispute." (48) As an alternative to formal litigation, arbitration derives its utility from privacy, expedience, and flexibility. (49) In arbitration, the parties are free to craft procedures that resolve their dispute on their own terms, in a timely manner, without the formalities and traditions of litigation. (50) Furthermore, the parties get to choose their arbiters, a process that usually involves each party choosing one arbiter and a third being chosen by the two elected arbiters to form a panel. (51) Arbitration's simplicity has led to a high demand for competent arbitration, with organizations such as the American Arbitration Association (AAA) emerging to facilitate the process. (52)

      Although arbitration may be perceived as a twenty-first century business practice, it is not a modern concept; in a 1908 speech, William Howard Taft recognized arbitration as a viable alternative to the courts' "elaborate" framework. (53) He opined that...