Trusting Courts with Arbitration Provisions.

AuthorFriedman, Stephen E.


The Supreme Court does not trust courts when it comes to arbitration provisions. The Court has constructed a jurisprudence that almost entirely eliminates judicial discretion in deciding whether to enforce an arbitration provision and makes enforcement nearly automatic. Employers and larger companies have taken advantage of the situation by routinely inserting class-arbitration waivers and other restrictions on collective action in their arbitration provisions. Because plaintiffs are not able to join together to pursue their rights, their claims effectively go unresolved and individuals are left with claims but no meaningful ability to remedy them. Arbitration provisions function more like exculpatory clauses than as reasonable efforts to fairly resolve disputes.

This Article argues that the Court has misconstrued the Federal Arbitration Act and that the Act was never intended to limit judicial discretion in this way. Courts should be able to consider the impact of enforcement of an arbitration provision on the ability of a party to pursue other important contractual, common-law, and statutory claims. This proposition might seem unremarkable but it is largely foreclosed by the Court's current jurisprudence. This Article endeavors to dismantle the faulty underpinnings of the current jurisprudence and reestablish meaningful judicial control over the enforcement of arbitration provisions.

CONTENTS INTRODUCTION I. HISTORY, PURPOSE, AND STRUCTURE OF THE FAA II. THE IMPACT-DISREGARDING JURISPRUDENCE OF THE SUPREME COURT A. "Straightforward" Cases and the "Saving Clause" B. Culmination of the Court's Approach to Arbitration 1. AT&T Mobility LLC v. Concepcion 2. American Express Co. v. Italian Colors Restaurant III. DISMANTLING THE PREMISES OF THE COURT'S JURISPRUDENCE A. The FAA's Heritage on Meaningful Remedies B. FAA as Court-Empowering, Not Court-Limiting, Legislation C. The Court's Misreading and Misinterpretation of the FAA's Text 1. "Shall" and "Must" in the FAA 2. Enforcement "According to Its Terms" D. The Court's Unduly Narrow Reading of the Saving Clause E. The Court's Flawed Preemption Analysis IV. TRUST THE COURTS CONCLUSION INTRODUCTION

The Supreme Court has severely diminished judges' discretion in deciding whether to enforce pre-dispute arbitration provisions. These provisions, in which parties agree that they will arbitrate disputes that later arise between them, are ubiquitous. (1) In recent years, the Court has given these provisions something close to blanket approval, even in cases when they function like exculpatory clauses that prevent consumers and small businesses from being able to meaningfully pursue their rights. The Court has reduced state and federal courts to the mere muscle of the operation--the mindless enforcers of arbitration provisions. But courts have more than just brawn. They also have brains and a heart. In passing the United States Arbitration Act, (2) now known as the Federal Arbitration Act ("FAA"), in 1925, Congress intended courts to use all three.

It is particularly important that courts use their brains and their hearts when it comes to arbitration provisions that permit only individual arbitration by requiring waiver of a party's ability to join with other plaintiffs in a collective proceeding, such as class-wide arbitration. If such waivers were imposed outside of an arbitration provision they would almost certainly be struck down, but when they are included in an arbitration provision courts routinely enforce them. When such arbitration provisions are enforced, they serve not as paths to an alternative and efficient form of dispute resolution, but instead as dead ends for millions of consumers and small businesses.

The Supreme Court has brushed aside concerns about the impact that enforcing these arbitration provisions has on the more vulnerable party in a transaction. In one case, the Court enforced an arbitration provision that barred class-wide arbitration even though the consumer claims were worth only about $30 per consumer. (3) The Court was cavalier about the possibility that the bar on class-wide relief would result in small-dollar claims slipping through the cracks of the legal system. (4) In another case, the Court enforced a class-arbitration waiver in an antitrust claim. (5) The Court did so even though the plaintiffs, restaurant owners suing American Express, had established that the cost of the expert report needed to maintain the case exceeded the likely recovery any individual plaintiff would receive from a successful verdict. (6) The fact that the claim could not realistically or practically be brought on an individual basis did not move the Court, which was satisfied by the fact that a plaintiff could still technically make its claim, despite it not being rational for any individual plaintiff to do so. (7)

Not surprisingly, the consequence of these decisions has been an increase in the use of arbitration provisions that limit or totally eliminate the right of the plaintiffs to maintain a class-wide or other collective proceeding. As Justice Ginsburg recently wrote in a dissenting opinion, it "has become routine, in large part due to this Court's decisions, for powerful economic enterprises to write into their form contracts with consumers and employees no-class-action arbitration clauses." (8) And in its 2015 report to Congress on arbitration provisions in the consumer financial product and services industries, the Consumer Financial Protection Bureau ("CFPB") found that "[a]lmost all of the arbitration clauses studied contained terms limiting the availability of class proceedings in arbitration." (9)

Of course, a legislative fix is possible. On July 10, 2017, the CFPB announced a new rule that would have limited the impact of arbitration provisions on class actions involving consumer financial products and services. (10) The rule would have prohibited a provider of such products and services from relying on pre-dispute arbitration provisions for the dismissal or stay of a class action concerning financial products or services. (11) However, President Donald Trump recently signed a measure repealing this rule. (12) Repeal of this rule makes the judicial fix proposed in this Article all the more crucial. And even if the rule had survived, it would have been a blunt and suboptimal approach. It should be open to parties to craft or utilize rules that provide for collective action and protect the rights of the parties even if the procedures crafted fall short of class-wide arbitration. The CFPB rule would have squelched innovation. In contrast, an approach that gives meaningful--but not unlimited--discretion to courts to assess arbitration provisions by empowering courts to consider the impact of enforcement would provide flexibility, foster arbitration, and protect the rights of the parties. This Article argues for such an approach.

The key to establishing the propriety and desirability of such an approach is to first dismantle the underpinnings of the Court's current jurisprudence. To begin with, there is a great deal of irony in the Court so completely disregarding the impact enforcement of an arbitration provision will have on the effectiveness of remedies for other claims. One key driving force behind the FAA was the need to ensure the availability of a meaningful remedy--not merely a technical one--for breaches of arbitration agreements. (13) Congress presumably did not intend to ensure a meaningful remedy for breaches of arbitration provisions at the expense of meaningful remedies for other claims. This important component of the FAA's heritage has become buried in the Court's current jurisprudence. This Article seeks to recover and honor that heritage. The Court's current jurisprudence, involving a single-minded focus on enforcing arbitration provisions regardless of the impact on other rights brings to mind President Lincoln's defense of the suspension of the writ of habeas corpus at the outset of the Civil War. He asked: "[A]re all the laws, but one, to go unexecuted, and the government itself go to pieces, lest that one be violated?" (14) We might ask in the context of this Article whether all the statutory, common law, and contractual rights should go without vindication lest an arbitration provision go unenforced.

The current jurisprudence is built on a number of misunderstandings of the purpose and history of the FAA as well as of its language. This Article seeks to expose those misunderstandings and to argue for a more appropriate approach to the judicial role in enforcing arbitration provisions. The Supreme Court should place more faith in the ability of courts to decide whether and how to enforce arbitration provisions. Specifically, courts should be permitted to consider the impact that enforcement of an arbitration provision would have on a party's ability to obtain relief for other claims. Permitting courts to weigh this consideration is fully consistent with the FAA but is, perhaps surprisingly, largely foreclosed by the Court's current arbitration-protecting jurisprudence.

This Article proceeds as follows: Part I sets forth some background on the FAA, including its history, purpose and structure. Part II describes the Court's current outcome-ignoring jurisprudence. Part III is the heart of the Article. It explains the many false premises and errors that undergird the Court's jurisprudence on arbitration provisions. With incorrect premises set aside and proper ones substituted in their place, this Article explains a more appropriate approach to the role of the courts in enforcing arbitration provisions. That approach, an application of the generally applicable rules for granting specific performance for breach of contract, is set forth in Part IV.


    The law before the passage of the FAA and the other modern arbitration statutes placed pre-dispute arbitration...

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