Reconciling Contractualized Procedure in Litigation and Arbitration: a Textual and Policy-based Approach

• Citation: Vol. 65 No. 4
• Publication year: 2016

Reconciling Contractualized Procedure in Litigation and Arbitration: A Textual and Policy-Based Approach

RECONCILING CONTRACTUALIZED PROCEDURE IN LITIGATION AND ARBITRATION: A TEXTUAL AND POLICY-BASED APPROACH

Abstract

This Comment examines the prospect of procedural contracts by comparing the text and policies of the Federal Arbitration Act (FAA) and the Federal Rules of Civil Procedure (Federal Rules). As the existing body of literature addressing the normative desirability and plausibility of contractualized procedure grows, this Comment seeks to add textual and policy-based reasons against uncritically redesigning litigation in arbitration's image. Private contracts already govern in the private dispute-resolution arena, particularly in arbitration. Should parties be equally capable of dictating the rules that govern litigation?

This Comment views freedom of contract along a spectrum, where on one end there are non-negotiable mandates set forth for the public to follow, and freely negotiable terms, such as arbitration agreements under the FAA, toward the other end. This Comment comports with existing scholarship in that it views procedure as negotiable to some extent. However, based on its analyses of the text and policies behind the FAA and the Federal Rules, this Comment ultimately concludes that parties should have less procedural modification freedom in litigation than in arbitration.

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Introduction

The Federal Rules of Civil Procedure (Federal Rules) do not explicitly grant parties any freedom to contractually modify procedures in litigation.¹ However, the existing body of literature on the subject suggests that at least some of the Federal Rules either already are, or should be, negotiable.² Envisioning the rules as bargained-for commodities, some scholars suggest that a set of promulgated, one-size-fits-all rules, such as the Federal Rules, should be relegated to mere default status that would fulfill more of a gap-filling function.³

Granted, contractualizing dispute-governing procedure is hardly a new phenomenon. Disputants have been able to choose the rules under which they resolve their disputes, privately, for ages.⁴ Today, the Federal Arbitration Act⁵ (FAA) allows parties the contractual freedom to tailor their procedural rules as they see fit in private arbitration.⁶ However, a fundamental dissimilarity

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separates arbitration from litigation: arbitration is a private means of dispute resolution, whereas our litigation system is public by design.⁷

This Comment addresses an open question emerging from the vast literature addressing procedural contracts: Should parties be allowed to modify the procedural rules of litigation with the same amount of freedom as in arbitration? This Comment answers this question by arguing that parties should be allowed to contractually modify procedure in litigation, but to a lesser extent than in arbitration agreements. It views freedom of contract along a spectrum, where on one end there are non-negotiable mandates set forth for the public to follow, and on the other end, freely negotiable terms, such as arbitration agreements under the FAA. Although other scholars have reached comparable conclusions,⁸ this Comment seeks to add to existing scholarship by providing a novel textual and policy-based rationale.

First, Part I of this Comment provides a background on the relatively new concept of commoditized procedure. It explores existing literature and provides broad conceptual background for procedural contracts. Part I also examines the expansion of the FAA, vis-a-vis the freedom of contract principles the Supreme Court relied upon in authoring this expansion. Second, Part II of this Comment uses textual and policy-based reasoning to argue that parties should be able to contractually modify procedure in litigation, but only to a lesser extent than in arbitration. Finally, Part III of this Comment first discusses the implications that follow the judiciary's adaptation of either a broad, narrow, or mixed procedural freedom regime, and then applies textual and policy-based reasoning to determine the extent to which parties should be able to modify procedural terms common to arbitration in litigation.

I. Procedural Contracts and the Federal Arbitration Act

This Part serves primarily to provide background on the relatively new concept of commoditized procedure. Section A introduces procedural contracts. Section B then addresses the FAA: it explores the Supreme Court's

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expansion of the FAA, and the principles upon which the Court relied in doing so.

A. Understanding Procedural Contracts

The U.S. litigation system, while central to American democracy, has been rendered "slow, costly, and relatively inflexible" in part because of its coat of procedural protections.⁹ In the 1960s, the notion of civil litigation changed; responding to civil unrest and general discontent, legislatures created new statutory causes of action, and, as a result, "[c]onflicts that in the past might have been resolved by deference, avoidance, or resignation were directed to the courts."¹⁰ Furthermore, caseloads increased, and resources were not proportionately allotted to the courts.¹¹ With courts struggling to manage their dockets, both judges and parties were in need of alternatives; judges assumed a more managerial role and began facilitating settlements, whereas parties began turning to private alternatives such as arbitration.¹² In fact, the percentage of federal cases that reached trial fell from 11.5% in 1962 to 1.8% by 2002.¹³ And while this does not mean disputes have been going unresolved,¹⁴ the fact is, "[t]he public spectacle of civil litigation gives life to the 'rule of law,'" and this spectacle seems to be vanishing.¹⁵

Furthermore, over time, arbitration (in many contexts) has begun to look more and more like litigation, increasing in complexity and—concomitantly—in the demand for at least minimal due process guarantees.¹⁶ In light of arbitration's evolution, it is conceivable, and arguably normatively optimal, to reconfigure the familiar judicial system to represent the best of both worlds: a forum that allows parties efficient, inexpensive, just resolution that can be governed by rules chosen by the parties themselves.

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Procedural contracts are the new frontier.¹⁷ Indeed, procedural contracts may enable the public court system to more proficiently accomplish the same two goals for which the Supreme Court has already specifically endorsed arbitration: efficiency and freedom of contract.¹⁸ However, the question is whether, and to what extent, a court of law should allow parties to tailor the litigation process to their liking. And, if parties should try to modify procedure, should judges look to FAA jurisprudence for guidance where the Supreme Court has prescribed clear and potentially applicable principles for achieving efficient, party-driven resolution? This section addresses the current scholarly understanding of procedural contracts, including their enforceability and potential advantages and concerns associated therewith. Part II will then address whether the judiciary should look to FAA jurisprudence for guidance—and concludes that it should not because parties should have less procedural-modification freedom in litigation than in arbitration based on the text and policies underlying the FAA and the Federal Rules.

This section is divided into five sub-sections.¹⁹ First, it explains what a procedural contract is and examines previous scholarship on the subject for background information. Second, this section describes the advantages of contractually modifying litigation procedure. Third, it offers an explanation as to why parties might choose court over an arbitral forum if they could modify litigation procedure. Fourth, beginning with forum-selection clauses, this section briefly surveys several types of procedural terms that parties may choose to modify in a pre-dispute contract. Finally, this section sets forth some predictable concerns that could arise if parties are allotted too much freedom to tailor the procedures that govern their dispute before any such dispute arises.

1. What Is a Procedural Contract?

Procedural contracts, unsurprisingly, are contracts in which parties modify the procedures that govern any potential disputes between them.²⁰ An arbitration agreement is one such example of a procedural contract.²¹ Other

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common examples of procedural contracts include forum-selection clauses and jury-trial waivers.²² Although contracts for such terms might not obviously affect litigants' substantive rights, several scholars believe that procedural contracts could be used to alter litigation procedures once thought to be untouchable, transforming civil procedure rules into mere default rules.²³ For example, some scholars, such as Professors Kapeliuk, Klement, and Hoffman, have suggested the theoretical potential for parties to contractually revert to a pre-Twombly pleading regime.²⁴

Undoubtedly, reasonable procedural contracts could be advantageous in certain contexts.²⁵ However, lines must be drawn to maintain a balance between favoring party autonomy and giving parties unlimited power to control the rules that govern judges and the judicial process overall. One important question that arises in this context is to whom a dispute belongs. This question is addressed in Part II.C.2.

As a preliminary point, it should be explicated that this Part's background information sets up a tantalizing comparison between arbitration and contractualized procedure in litigation. Nevertheless, understanding the historical posture on commoditized procedure is the natural starting point. Bargaining for procedure is a relatively new concept. In 1972, the Supreme Court opened the door to the commoditization of procedure with its landmark decision in The Bremen v. Zapata Off-Shore Co., where the Court enforced a forum-selection clause...