Teaching the Business Law and Ethics of Arbitration After Concepcion

• Published date: 01 January 2017
• DOI: http://doi.org/10.1111/jlse.12057
• Date: 01 January 2017

Journal of Legal Studies Education

Volume 34, Issue 1, 63–88, Winter 2017

Teaching the Business Law and Ethics

of Arbitration After Concepcion

Dale B. Thompson∗

This Arbitration Policy is the full and complete policy and agreement between the parties

relating to the formal resolution of Covered Disputes.. .. The submission of an applica-

tion for employment, acceptance of employment or continuation of employment with the

Company by an Employee is deemed the Employee’s acceptance of this Arbitration Policy.

No signature by an Employee is required for this Arbitration Policy to apply to Covered

Disputes.1

I. INTRODUCTION

Would a court enforce an arbitration policy with this clause? Even if it were

legal, should a business use a clause like this in its arbitration policy?

For a long time, courts have considered whether to enforce one-sided

arbitration clauses on the grounds of unconscionability.2Unconscionability

∗Associate Professor of Ethics & Business Law, and Faculty Director of the Undergraduate

Business Program, Opus College of Business, University of St. Thomas; J.D. Stanford Law School,

Ph.D. Stanford University (Economics), B.A. Williams College (Economics). The author would

like to thank Michael Garrison and Dawn Elm, whose class led me into this research, and also

the anonymous referees and editors whose suggestions have greatly improved this article. The

author also thanks participants at the 2015 Midwest Academy of Legal Studies in Business Annual

Research Conference, at which a presentation based on this research won the 2015 MALSB

Master Teacher Award. This research is also supported by a grant from the Opus College of

Business, University of St. Thomas.

1This paragraph is from Ralphs Grocery’s arbitration policy. The legality of the provision was

considered in Chavarria v. Ralphs Grocery Co., 733 F.3d 916 (9th Cir. 2013). The full paragraph

and others from that policy are available in Appendix A, and will be discussed further in Part

IV.D.

2The classic case on unconscionability is Williams v. Walker-Thomas Furniture Co., 350 F.2d 445

(D.C. Cir. 1965) (concerning a contract for purchasing furniture with overly complex terms).

See Part II.C for cases using unconscionability in an arbitration context. See also Aaron-Andrew P.

Bruhl, The Unconscionability Game: Strategic Judging and the Development of Federal Arbitration Law,

C2017 The Author

Journal of Legal Studies Education C2017 Academy of Legal Studies in Business

63

64 Vol. 34 / The Jour nal of Legal Studies Education

is a legal ground for refusing to enforce a contract that seems to be too one-

sided, or one that is the result of unfair bargaining. Recent Supreme Court

cases in 2011 and 2013—AT&T Mobility v. Concepcion,3and American Express

v. Italian Colors Restaurant4—however, present challenges to the applicability

of unconscionability in the context of arbitration. In both cases, the Court

held that the Federal Arbitration Act5(FAA) preempted state laws that would

have rendered the provisions unconscionable. Nevertheless, courts may still

use unconscionability as a reason not to enforce an arbitration clause. In

fact, the court presented with the arbitration clause cited above found that it

was, in fact, unconscionable and not preempted by the FAA.6Nonetheless,

after the Supreme Court’s decisions in Concepcion and Italian Colors,which

emphasized the objectives of the FAA, courts may feel constrained to enforce

an arbitration clause according to its terms.

So what do the Supreme Court’s recent decisions mean for those teach-

ing arbitration in legal environment of business courses? Previously, when

teaching arbitration, legal environment instructors, like myself, frequently

used foundational legal principles, such as unconscionability, the “need for

inherent fairness,” and “public policy” reasons, to set limits on arbitration

rules and procedures. However, in its 2011 decision in Concepcion,theU.S.

Supreme Court held that the California state common law contract defense

of unconscionability was preempted by the FAA. Similarly, in Italian Colors,

the Supreme Court held that “courts must ‘rigorously enforce’ arbitration

agreements according to their terms.”7ThelanguageoftheSupremeCourt

in these cases could change the manner in which we teach unconscionability

in contract law.

As a result of the recent Supreme Court decisions addressing arbitra-

tion, legal environment instructors may need to revise their approach to

teaching arbitration and other alternative dispute resolution methods. With

83 N.Y.U. L. REV. 1420 (2008); Jeffrey W. Stempel, Arbitration, Unconscionability, and Equilibrium:

The Return of Unconscionability Analysis as a Counterweight to Arbitration Formalism,19O

HIO ST.J.

ON DISP.RESOL. 757(2004).

3AT&T Mobility v. Concepcion, 563 U.S. 333 (2011).

4Am. Express v. Italian Colors Rest., 133 S. Ct. 2304 (2013).

59 U.S.C. § 2 (2011).

6See discussion of Chavarria,infra Part IV.D.

7Am. Express v. Italian Colors Rest., 133 S. Ct. 2304, 2309 (2013).