The corporation's new lethal weapon: mandatory binding arbitration clauses.

• Author: Sergeant, Ashley M.

Mandatory binding arbitration clauses require that all disputes be submitted to binding arbitration, rather than being settled within the traditional court system. Such clauses are often found within consumer and employment contracts. Over the years, these clauses have become extremely controversial across America. Those opposed to these clauses believe that they trample on an individual's right to go to court. However, those in favor of these clauses argue that binding arbitration is more efficient and affordable. In 2010, Congress enacted the Department of Defense Appropriations Act, which prohibited defense contractors from requiring their employees to submit to binding arbitration in pursuing claims such as rape, assault, wrongful imprisonment, harassment, and discrimination. Because this Act was limited to employees of defense contractors, select members of Congress introduced the Arbitration Fairness Act of 2011 to ban all binding arbitration clauses in the context of employee, consumer, and civil rights disputes. This comment supports the enactment of the Arbitration Fairness Act of 2011 to ensure American citizens' constitutional rights are protected.

1. INTRODUCTION

   Arbitration is a method of dispute resolution (1) that has been utilized for hundreds of years. (2) Over the years, the use of arbitration has drastically changed. (3) Since 1998, the United States Supreme Court has issued opinions that have greatly expanded corporations' use of mandatory binding arbitration clauses. (4) These clauses are commonly placed in contracts by corporations as a condition of employment or a condition of purchasing a product or service. (5)

   In 2009, America took notice when Jamie Leigh Jones came forward to describe her experience with a corporation's mandatory binding arbitration clause. (6) After four years of struggle between Jones and her former employer, KBR, the Southern District of Texas allowed Jones to bypass the mandatory binding arbitration clause and litigate several of her claims. (7) During this litigation, Senator A1 Franken proposed a provision in the Department of Defense Appropriations Act, (8) which has become known as the Jamie Leigh Jones Amendment. (9) Upon the passing of this amendment, defense contractors can no longer impose mandatory binding arbitration in cases of rape, assault, wrongful imprisonment, harassment, and discrimination, (10)

   Subsequently, on May 12, 2011, Senators AI Franken and Richard Blumenthal, and U.S. Representative Hank Johnson introduced the Arbitration Fairness Act of 2011. (11) The passage of this Act would ban any predispute arbitration clauses that are in employment, consumer, or civil rights contracts. (12) In order to ensure that American citizens' rights are not infringed upon, Congress must pass this Act. (13)

   This comment begins by explaining the history and development of arbitration. (14) It then goes on to provide background information on the Federal Arbitration Act as well as five significant United States Supreme Court cases, which have greatly expanded the use of binding arbitration in employment and consumer contracts. (15) Further, this comment provides discussion about Jamie Leigh Jones's fight against mandatory binding arbitration clauses. (16) It then provides an overview of the Arbitration Fairness Act of 2011, including the Act's main purpose. (17) This comment then compares and contrasts the advantages and disadvantages of mandatory binding arbitration clauses. (18) Finally, this comment calls for the enactment of the Arbitration Fairness Act to ensure the protection of all American citizens against large, powerful corporations. (19)

2. BACKGROUND

   A. THE HISTORY AND DEVELOPMENT OF ARBITRATION

   Alternative dispute resolution provides individuals with various opportunities and procedures to resolve disputes without the utilization of the public courts, (20) Arbitration is a "method of dispute resolution in which the parties submit a dispute to an impartial [person or] persons who have been selected by the parties for a final and binding decision." (21) Arbitration is a very unique system of industrial jurisprudence as it is virtually created and limited by the participants themselves. (22)

   Arbitration has been used for centuries, beginning before the establishment of English common law. (23) The U.S. Department of Labor has summarized common law arbitration as arbitration which "rests upon the voluntary agreement of the parties to submit their dispute to an outsider." (24) These agreements may be created orally or in writing. (25) One important aspect of common law arbitration was that all arbitrators were required to be free from bias and from interest in the subject matter of the arbitration. (26) In addition, arbitrators had no power to subpoena witnesses or records, witnesses were not required to be sworn under oath, and arbitrators did not have to conform to any legal rules of hearing procedures, except for allowing all parties the opportunity to present competent evidence. (27)

   At common law, arbitration clauses were enforceable only when (1) both parties agreed to submit their disputes to arbitration or (2) when an arbitrator had granted an award to a particular party. (28) Therefore, historically, an arbitration agreement was revocable at will by either party until the time the award was signed by the arbitrators and served on each individual party. (29) In U.S. Asphalt Ref. Co. v. Trinidad Lake Petroleum Co., (30) the court listed five main reasons for refusing to enforce arbitration agreements:

   (1) the contract is in its nature revocable; (31) (2) such contracts are against public policy; (3) the covenant (agreement) to refer is but collateral to the main contract, and may be disregarded, leaving the contract keeper to his action for damages for breach of such collateral covenant; (4) any contract tending to wholly oust the courts of jurisdiction violates the spirit of the laws creating the courts, in that it is not competent for private persons either to increase or diminish the statutory judicial power; and (5) arbitration may be a condition precedent to suit, and as such valid, if it does not prevent legal action, or seek to determine out of court the general question of liability. (32)

   Courts have held several other forms of common law arbitration agreements to be unenforceable. (33) Executory agreements were often revocable even when they contained an express covenant that neither party to the agreement could revoke because the "parties could not make irrevocable agreements which were legally revocable." (34) Common law courts often held that these agreements could not constitute a bar to court action. (35) In addition, common law arbitration awards were often invalidated if they exceeded the scope of the agreement or failed to resolve all issues submitted for resolution. (36)

   Today, although common law arbitration still exists, most states have altered the common law rules by implementing various arbitration statutes. (37) When an arbitration agreement, however, does not follow the statutory requirements, courts have found it to be enforceable under the common law. (38) Additionally, "if an arbitration statute is limited to the submission of existing controversies, agreements to arbitrate future disputes are governed by the common law." (39)

   B. THE FEDERAL ARBITRATION ACT

   One of the most well known statutes to change the common law arbitration rules was the Federal Arbitration Act ("FAA"), which was enacted in 1925. (40) The FAA was created for two main purposes. The first purpose of the FAA was to "reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts." (42) The FAA's second purpose was "to place arbitration agreements upon the same footing as other contracts." (43)

   The FAA allowed written arbitration agreements to be enforced in federal courts so long as the agreements were connected with a "maritime transaction or evidence[d] a transaction involving foreign or interstate commerce." (44) In 1984, the United States Supreme Court held that the FAA preempted all state law, making the FAA applicable in both state and federal courts. (45) The FAA also provided for a stay in federal court proceedings when an issue required arbitration. (46) Over the years, courts across America have begun viewing arbitration agreements in a favorable light. (47) Therefore, the language of a contract controls and defines the scope of disputes subject to arbitration. (48)

   Since the creation of arbitration, many courts in the United States deemed the scope of judicial review on arbitration awards to be extremely limited. (49) Under the FAA, a reviewing court is only permitted to vacate an award under five limited circumstances. (50) The first of these circumstances arises when the "award [is] procured by corruption, fraud, or undue means." (51) Courts do not require parties to make a showing of prejudice when they are seeking vacatur due to "corruption" by the arbitrator. (52) However, when seeking to vacate an arbitration award, courts require the objecting party to show by clear and convincing evidence that the party had been prejudiced by the arbitrator's misconduct. (53) The second means to vacate an award under the FAA exists when there is an "evident partiality or corruption in the arbitrators, or either of them." (54) It is presumed that partiality arises when a "neutral arbitrator fails to disclose 'a known, direct, and material interest in the outcome, or a known, existing, and substantial relationship with a party."' (55) After this presumption has been established by the objecting party, the burden of rebutting that presumption shifts to the nonobjecting party, which must then show an absence of taint in the award or a lack of prejudice. (56) Nevertheless, courts have held the party seeking vacatur to an extremely high burden. (57) The...