SCOTUS and the Mandatory Arbitration Revolution: Part 1/7 (Intro)

Though we may not be entirely aware of it, a tremendous amount of our economic and financial transactions as consumers and/or employees, especially with regard to any disputes about those goods/services/employment, cannot be litigated in a court of law if we have willingly signed their contracts and agreed to the terms/conditions.1 This legal inability has been created by the passage and continued enforcement of the Federal Arbitration Act (FAA) of 1925. Since its inception, many potential disputes involving those aforementioned transactions and relationships have been governed by mandatory arbitration.2

So just how widespread is mandatory arbitration? Legal scholar Jeremy Senderowicz remarks that mandatory arbitration clauses (MACs) and class action bans (CABs), along with their variations, are now standardly included in “banking, insurance, health care, and communication service contracts, as well as arrangements for the sale or lease of consumer goods.”3 Another scholar adds to that same list contracts involving “housing, national parks, patents, disaster relief, and telecommunications.”4 Yet MACs/CABs are not only applicable to consumers. Once we involve the number of businesses who use MACs/CABs to regulate relationships with their own employees, that nearly ubiquitous reach grows much more. For instance, one published academic study from 2008 asserts that during the year “a quarter or more of all non-union employees in the US,” more than 30 million employees, had agreed to mandatory arbitration in some form or another.5 Given that the use of mandatory arbitration has been increasing steadily over time, it is safe to say that this number of employees directly affected by MACs/CABs in 2018 is even higher.6

Yet, this ubiquity is not the only reason that the prevalence of MACs/CABs is remarkable. What’s more is that most of the fundamental changes that have occurred within the realm of arbitration and its relationship with the Federal Arbitration Act (FAA)7 have taken place only over the past 30 or so years. From about 1980 until 2015, there were 25 Supreme Court cases that involved arbitration, all of which expanded the scope and degree of the FAA’s jurisdiction and which have, collectively, enforced the use of MACs/CABs in various circumstances.

In what follows, I will present a brief history of arbitration within the United States, ranging from the 1920s to contemporary times, in which I highlight arbitration’s original purpose as well as how judicial opinion has changed that purpose over time. Next, I will explore the Supreme Court’s broad interpretation of the FAA’s jurisdiction through three of the most recent, and arguably most important, decisions on mandatory arbitration cases. Following that, I will recall some of the strongest and most frequent claims made in favor of arbitration contra litigation and raise some philosophical and empirical objections to each. Finally, I will argue that the current interpretation of the FAA amounts to (1) an instance of judicial activism and (2) an institutional/financial barrier to justice. In doing so, I will close briefly describe some of the proposed modifications to arbitration and recommend a mixed methods approach that I believe will alleviate some, but not all, of the problematic aspects of MACs/CABs.


Notes

1 My focus here is on the dualistic perspective of consumers and employees for three key reasons: (1) because they make up an expansive, more or less total, group of all individuals in the United States, (2) because of these social roles’ political and social significance within our own lives, and (3) because they were two groups that were originally excluded, explicitly, from the stipulations of the Federal Arbitration Act (FAA) of 1925. 9 U.S.C. §1, for instance, clearly states that “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” (emphasis added). See the Appendix at the end of the work for the original text of the FAA in its entirety along with subsequent amendments and clarifications. To be clear, this is not to say that mandatory arbitration negatively affecting franchises isn’t important, merely that it is beyond the scope of my paper here. But, presumably, many of the criticisms that apply to mandatory arbitration for consumers and employees also apply to mandatory arbitration for franchises.
2 For the sake of clarity, I will use the term ‘mandatory arbitration’ to mean and include mandatory arbitration clauses (MACs), class action bans (CABs), pre-dispute arbitration clauses (PDACs), and “loser pay” clauses (LPCs), among others, which can commonly be found within various mandatory arbitration agreements (MAAs) of all kinds.
3 Jeremy Senderowicz, “Consumer Arbitration and Freedom of Contract: A Proposal to Facilitate Consumers’ Informed Consent to Arbitration Clauses in Form Contracts,” Columbia Journal of Law and Social Problems 32:3 (1999), 275.
4 Judith Resnik, “Diffusing Disputes: The Public in the Private of Arbitration, the Private in Courts, and the Erasure of Rights,” Yale Law Journal 124:8 (2015), 2846.
5 Katherine V.W. Stone, and Alexander J.S. Colvin, “The Arbitration Epidemic: Mandatory Arbitration Deprives Workers and Consumers of Their Rights,” Briefing Papers of the Economic Policy Institute, (published 2015, accessed February 19, 2018), http://www.epi.org/publication/the-arbitration-epidemic/, 1-3.
6 The Economist, “When You Cannot Sue Your Employer,” (published January 25, 2018, accessed February 20, 2018), https://www.economist.com/news/business/21735601-over-half-non-unionised-employees-are-now-covered-mandatory-arbitration-when-you-cannot.
7 Though the official name of this piece of legislation is the United States Arbitration Act (USAA), many formal and informal individuals and organizations refer to it as the Federal Arbitration Act (FAA), if for no other reason than historical custom. As such, I will refer to it throughout this article as the FAA though I mean the USAA.

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