Disappearing claims and the erosion of substantive law.

Author:Glover, J. Maria
 
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FEATURE CONTENTS INTRODUCTION I. DISAPPEARING CLAIMS: THE SUPREME COURT'S NEW ARBITRATION REVOLUTION A. The Rise of Arbitration Agreements To Facilitate the Resolution of Disputes in Private Fora B. The Rise of Arbitration Agreements that Frustrate or Eliminate the Resolution of Claims in Any Forum 1. The Shift from Arbitration as a Form of Streamlined Proceedings for Dispute Resolution to Solely a Matter of Contract 3068 2. The Supreme Court's Rejection of the "Effective Vindication" of Rights Principle II. THE SUPREME COURT'S ARBITRATION REVOLUTION AND THE EROSION OF THE SUBSTANTIVE LAW A. Flow the Court's Recent Arbitration Revolution Threatens Substantive Law B. Why the Supreme Court's Recent Arbitration Revolution and the Erosion of Substantive Law Are Likely Here To Stay CONCLUSION INTRODUCTION

The Supreme Court's recent arbitration jurisprudence represents the culmination of a three-decade-long expansion of the use of private arbitration as an alternative to court adjudication in the resolution of disputes of virtually every type of justiciable claim. As a result of this jurisprudence, cases that would otherwise proceed in the public realm--the courts--have been moved to a purely private realm, which is largely shielded from judicial and public scrutiny. Many observers have noted that this decades-long privatization of dispute resolution and attendant adjudicative mechanisms has led to both a loss of confidence in public adjudication and a loss of public adjudication itself--an erosion of the public realm. However, the Court's arbitration jurisprudence from the last five years--and particularly its 2013 decision in American Express Co. v. Italian Colors Restaurant (1)--does far more: it undermines the substantive law itself. Indeed, the Court's most recent arbitration jurisprudence has conferred upon private entities a more fundamental power, antecedent to the authority to adjust the mechanisms of adjudication used to enforce substantive law. This power is more akin to lawmaking. A private entity, through contractual arbitration provisions, can now significantly reduce or even remove its substantive legal obligations by eliminating claiming. That private contract drafter can, in effect, wield quasi-lawmaking power by rendering substantive law inapplicable to a great deal of its primary conduct. Given the central role of private enforcement to the achievement of legislative directives, (2) private entities can therefore use contractual arbitration provisions effectively to erode substantive law from the books, with the consequent erosion of both the private compensatory goals and public deterrent objectives of that law.

As an initial matter, one can situate the trend toward privatizing dispute resolution within a broader narrative about the erosion of the public realm in the world of litigation writ large. For years, scholars have traced, and alternatively lamented and lauded, the near-total disappearance of the trial, the most public feature of our civil litigation system. (3) There are myriad explanations for the decline in trial rates, (4) but an undoubted descriptive consequence of the vanishing trial--and the corresponding rise of settlement as the dominant endgame in litigation--has been a decline in the transparency of case outcomes and often of the judicial and litigation processes behind those outcomes. Normatively, scholars have argued that the large-scale shift from trial to settlement has resulted in significant losses to the values of democratic participation, (5) legitimacy, (6) deterrence, (7) accuracy, (8) judicial independence, (9) egalitarianism, (10) transparency, (11) and peacekeeping. (12) Moreover, the confidentiality of private settlements frustrates public access and deprives future litigants of the benefits of precedential decision-making. (13) As I have discussed in prior work, the rise of settlement, unaccompanied by procedural change that would provide for robust pre-trial judicial assessment of the merits of claims, has resulted in fewer judicial pronouncements of law and judicial applications of law to facts. (14) Moreover, some have argued that this state of affairs diminishes public confidence in public institutions and leads to stagnation in public law. (15)

Similar arguments have been raised about the values lost when public proceedings and transparency are traded for the arguable convenience and efficiency of private dispute resolution through arbitration. First, privatizing disputes that would otherwise be public may well erode public confidence in public institutions and the judicial process by removing disputes from the public realm. Litigation proceedings in court enable public discussion of governmental and other public affairs; they provide checks against both unfairness to some litigants that may flourish behind closed doors (16) and potentially corrupt practices by attorneys, judicial officers, and litigants. (17) Second, and relatedly, privatizing dispute resolution may undermine the functioning of judicial institutions themselves by decreasing public and private investment in the courts. (18) Third, privatization threatens to impede public awareness of the substantive law, inasmuch as private proceedings frustrate the public's ability to understand the state of the law, how particular laws are interpreted, and how claims are pursued. (19)

There is, however, an additional consequence of the Supreme Court's recent arbitration jurisprudence: it threatens to diminish not just the public realm, but also the public law itself. Whereas the shift from dispute resolution in courts, the public realm, to dispute resolution in arbitration, the private realm, initially undermined the transparency and mechanisms of adjudication, the shift from public lawsuits to private arbitration now also threatens both the transparency and mechanisms of lawmaking. These newer threats to the lawmaking function were cemented in the Supreme Court's decision in American Express Co. v. Italian Colors Restaurant. (20) In that case, the Court subtly, but definitively, made a fundamental theoretical shift in its conception of arbitration as a contract for procedures to achieve the efficient resolution of disputes to one of a contract for any set of procedures, no matter how onerous to the arbitration of claims. It thereby authorized private parties to use mandatory private arbitration clauses to construct procedural rules that have the foreseeable, indeed possibly intended, consequence of preventing certain claims from being asserted at all, (21) rendering those claims mere nullities. And the disappearance of claims will not be limited to individual would-be litigants, inasmuch as many of the legal claims that arise out of these contractual relationships inure not to a single individual, but to many or all of the various individual signers of the agreements. In other words, this jurisprudence does not merely affect the private disputes of two contracting parties; it diminishes the impact of substantive law on the conduct of contract drafters across wide swaths of the legal landscape. The Court's recent arbitration jurisprudence--one might say its recent arbitration revolution--thus threatens the values of public dispute resolution in a fundamentally new and more dramatic way. Through the procedural device of private arbitration, private parties have the quasi-lawmaking power to write substantive law largely off the books by precluding or severely impeding the assertion of various civil claims. And they can do so almost entirely outside of public view, through commercial (and sometimes confidential) contracts subject to virtually no public scrutiny or regulatory oversight.

This paper unfolds in three parts. Part I explains how the Supreme Court's recent arbitration jurisprudence constitutes a fundamental theoretical shift. In contrast to the Court's long-held vision of arbitration as a mechanism for achieving a cost-effective means of claim resolution outside of judicial fora, the Court has recast arbitration as a purely contractual mechanism through which private parties may craft provisions that provide them with effective immunity from substantive legal obligations. Indeed, given our regulatory system's heavy reliance upon private enforcement of substantive law, (22) arbitration agreements can be used to render substantive law virtually inapplicable to the primary conduct of the drafter of that arbitration agreement. Part II analyzes the ways in which the Court's recent jurisprudence threatens conceptions of both the lawmaking function and the substantive law itself, raising fundamental questions about what private parties may do, and what publicly accountable bodies alone should do. Part II also explains how this method of legal reform is largely hidden from public view and, partly because of that lack of transparency, why the effects of the Court's recent arbitration jurisprudence are unlikely to be undone. Part III concludes that, currently, the power of private parties to control substantive legal obligations stands largely unchecked, leaving little to stop the erosion of substantive law.

  1. DISAPPEARING CLAIMS: THE SUPREME COURT'S NEW ARBITRATION REVOLUTION

    The Court's early arbitration jurisprudence ushered in a sea change in dispute resolution, moving vast swaths of cases from the public realm--the courts--to a private one--arbitration. Part I.A briefly traces this early rise of binding arbitration agreements, as sanctioned by the Supreme Court beginning in the 1980s. The vast expansion of privatized dispute resolution that came in the wake of this jurisprudence was revolutionary, particularly insofar as it led to a significant erosion of the public realm at the behest of private arbitration contracts. This change, however, was justified by two related and critical premises: first, that freedom of contract facilitated arbitration proceedings, and second, that arbitration...

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