A Brief History of (American) Arbitration
European Roots and Colonial Growth
Legal scholar Lauren G. Barnes points out that arbitration initially developed among members of the merchant class during the medieval period in Europe. Arbitration then took place almost solely among members of the merchant class. Considering that merchants were often traveling between fairs, in different towns and regions no less, in order to conduct business affairs with one another, they needed an efficient way to resolve disputes that arose from their recurring economic transactions. This dispute resolution process needed to do its job quickly and “in accordance with customary norms that merchants respected.”1 As a result, an adversarial court system in which the business relationship between the two parties could be severely, even permanently, damaged would not suffice for this purpose. Rather, a non-legal, yet still judiciously warranted system would be preferable.
A few hundred years later, during the colonial period of the United States of America, arbitration retained much of the same role, expectations, and functions. Arbitration was most frequently utilized by craftspeople and merchants to resolve profession-based disputes. Ultimately, they found that it was easier, faster, and simpler to utilize arbitration than to submit their dispute to a legal system which was, in its infancy, already overwhelmed beyond belief.2 Arbitration thus provided them with a workable alternative that they used for many years to come.
Yet the times, and the attitudes, changed. Arbitration did not, historically, enjoy the privileged legal, social, political, and economic status in the United States that it did during the colonial period or that it does in contemporary times. Rather, up until the beginning of the 1920s the only law governing arbitration proceedings in the United States came directly from court rulings, some of which dated back to the 17th and 18th centuries and many of which were condemnatory of arbitration. One such example was Lord Coke’s judgment in the famous ‘Vynior’s Case,’ decided in 1609, that formed the general basis for the common law doctrine that discriminated against mandatory arbitration for nearly two centuries.
Lord Coke’s common law doctrine about arbitration held that “1) either party to an arbitration might withdraw at any time before an actual award; and 2) that an agreement to arbitrate a future dispute was against public policy and not enforceable.”3 From this decision, it was extrapolated that the parties to a dispute “may not oust the court of its jurisdiction,” meaning that courts may not be deprived of their jurisdiction even by private agreement.4 Moreover, early courts were hesitant to force parties to participate in arbitration when the justices could not be certain that the arbitration process itself was “fair and equitable.”5 The precedent established in Vynior’s Case was the controlling decision in most of American contract law regarding arbitration until around the early 1920s.
Shifting Public Opinion
Despite its contentious reputation, not everyone harbored ill-will or resentment towards arbitration. Numerous state and national organizations of varying backgrounds strongly felt it, particularly its enforcement, was necessary for judicial and economic progress within the United States. In order to highlight the viability of arbitration, the New York Chamber of Commerce (NYCC henceforth), along with the American Bar Association’s Committee on Commerce, Trade, and Commercial Law (ABA-CCTC henceforth), designed a multifaceted political campaign to overturn the existing laws and regulations that disfavored arbitration to litigation. The NYCC and ABA-CCTC successfully enacted the New York Arbitration Act of 1920 and, following that success, lobbied Congress to pass similar legislation on a national level.
During the battle to pass the Federal Arbitration Act (FAA), the NYCC and ABA-CCTC’s main ally was then Secretary of Commerce, Herbert Hoover, who believed that arbitration would ultimately lead to the noble goal of business self-regulation.6 In facilitating that goal, the FAA would make arbitration agreements as “valid, irremovable, and enforceable” as other contracts under federal laws. The NYCC and its supporters made clear the practical benefits of arbitration in numerous letters, phone calls, and amicus curiae briefs submitted to the appropriate governmental officials. With 120+ state and national organizations backing them, the NYCC and ABA-CCTC successfully lobbied for the passage of Federal Arbitration Act, one of the most important events in the United States’ history of arbitration.7
Passage of the Federal Arbitration Act (FAA)
The FAA was justified on the grounds of a Congressional concern about the state and federal court systems becoming congested which would mean, among other things, increasingly expensive costs for litigation. Yet almost all court cases, presumably, would take longer by association. This structural congestion is not to mention the professional, psychological, and physical toll that such increased caseloads would have on judges, lawyers, and other court officials. In order to prevent these, and other, unwanted consequences from occurring, the FAA provided the legal framework by which arbitration was recognized as an alternative method to dispute resolution.8
As a general overview of its structure/contents, the FAA declares that either party may ask the court to stay the litigation and/or compel the other party to resolve their dispute through the appropriate channels of arbitration.9 In addition, the FAA lists the ways in which it empowers arbitrators to guide the process such as by compelling witnesses to appear at the arbitration proceeding.10 Finally, the FAA describes the procedures by which the winning party may seek to enforce their arbitral award11, the procedures by which the non-winning party may seek to vacate the winning party’s arbitral award12, and the limited grounds on which a court may base its decision to modify a winning party’s arbitral award.13 More of this legislation will addressed in some of the following sections of this work.
Enforcing the FAA Over Time
Some of the early Supreme Court decisions immediately following the passage of the FAA remained resistant to endorsing pro-arbitration attitudes. Supreme Court justices during this time had trouble accepting the legitimacy of arbitration as an alternative means to litigation. Some felt that since it lacked trial by jury, it was inadequate for judicial (albeit non-legal) use. Others believed that the lack of publishing records and rulings, along with other relevant documentation, opened it up for numerous misdeeds that would be concealed. Other still claimed that the lack of, or at least the reduced scope of, judicial review rendered it unacceptable.14 This was the general legal atmosphere surrounding the FAA for several decades, ranging from the 1940s until about the 1970s.
During the mid-1960s, an important legal development was that the Federal Rules of Civil Procedure were significantly amended. One set of these rule revisions involved the process for filing class-action lawsuits, effectively making it simpler and easier. The result was that many legal classes, such as schoolchildren, prisoners, consumers, and employees, could now have their day in court. While such rule revisions are important because they paved the way for new federal statutory rights and federal agencies, they are relevant to the FAA because it meant that there was an increase in the type and amounts of litigation seen in state and federal courts.
Not surprisingly, then, in 1976, Chief Justice Warren publicly called for a ‘reappraisal of the values of the arbitration process’ as a result of the increased strain placed upon the federal and state justice systems. He asserted that ‘[t]here is nothing incompatible between efficiency and justice” and recommended that the United State judicial system make more use of the ‘well-developed forms’ of arbitration to settle disputes.”15 In the years following Chief Justice Warren’s address, the FAA’s scope and degree of jurisdiction expanded rapidly at the hands of the Supreme Court justices to prevent the “federal courts [being] flooded by litigation increasing in volume, in length, and in a variety of novel forms.”16
Starting in the early 1980s, nearly 60 years after the FAA’s initial passage, the Supreme Court’s began to strongly favor arbitration when deciding arbitration-related cases, laying the foundation for the Court’s latest instance of judicial activism. In Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (1983), for instance, the Supreme Court ruled that when determining whether a particular dispute comes within an arbitration clause, the general rule should be to resolve all disputes in favor of arbitration. A year later, in Southland corp. v. Keating, 465 U.S. 1 (1984), the Supreme Court rejected the view that the FAA only applied to cases tried in the federal court system. Instead, the Court held that the FAA’s jurisdiction included disputes over contracts brought into state courts, insofar as the contract and its dispute involved interstate commerce in some directly relevant way. Several other cases, such as Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985), Shearson/American Express v. McMahon 482 U.S. 220 (1987), and Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), further enshrined the Supreme Court’s broad interpretation of the FAA.
Then, in 1995, a special committee of the U.S. Judicial Conference (essentially, the federal judiciary’s policymaking entity) generated a “long term plan” that predicted a “nightmarish” scenario in which there would be an overwhelming amount of demand for courts.17 Part of its predictions included the figure that, by the year 2010, there would be 610,800 court cases filed. This was to be more than double the number of filing in 1995 and the court systems were over-bloated as is. These conclusions were then used to inform elected representatives who helped to reform federal procedure and continue to enforce arbitration and defend its viability contra litigation. These legal and political matters have continued to change since then.18
1 Lauren G. Barnes, “How Mandatory Arbitration Agreements and Class Action Waivers Undermine Consumer Rights and Why We Need Congress to Act,” Harvard Law & Policy Review 9:2 (2015), 334.
2 Steven A. Certilman, “A Brief History of Arbitration in the United States,” New York Dispute Resolution Lawyer 3:1 (Spring 2010), 10.
3 Niall Mackay Roberts, “Definitional Avoidance: Arbitration’s Common-Law Meaning and the Federal Arbitration Act,” U.C. Davis Law Review 49 (2016), 1568.
4 Klaus Peter Berger, “Vynior’s Case, 8 Co. Rep. 81 b. et seq. (1609),” Translex (published March 01, 2016 and accessed February 18, 2018), https://www.trans-lex.org/801200/_/vyniors-case-8-co-rep-81-b-et-seq-/.
5 Jill I. Gross, “Justice Scalia’s Hat Trick and the Supreme Court’s Flawed Understanding of Twenty-First Century Arbitration,” Brooklyn Law Review 81 (2015): 117.
6 Stone and Colvin, “The Arbitration Epidemic,” 7.
7 Resnik, “Diffusing Disputes,” 2860.
8 9 U.S.C. §2.
9 9 U.S.C. §3,4.
10 9 U.S.C. §7.
11 9 U.S.C. §9.
12 9 U.S.C. §10(a)(1-4).
13 9 U.S.C. §11(a)-(c)).
14 Bernhardt v. Polygraphic Co. of Am., 350 U.S. 198 (1956), 203; “Arbitration carries no right to trial by jury…[a]rbitrators do not have the benefit of judicial instruction of the law [and] need not give their reasons for their results…and judicial review of an award is more limited than judicial review of a trial.”
15 Warren Burger, “Agenda for 2000 A.D.: A Need for Systematic Anticipation,” Vital Speeches of the Day 42:15 (1976), 450-457; This event makes sense of several resulting phenomena, especially when considered against the legal background of the FAA, and justifies the claim that the Court is ultimately guilty of ‘judicial activism.’ This point will be made more sharply by the criticisms raised from the access justice perspective.
16 Barrentine v. Ark.-Best Freight Sys., Inc., 450 U.S. 728 (1981), 746.
17 Long Range Plan for the Federal Courts, JUD. CONF. U.S. 18 (Dec. 1995), http://www.uscourts.gov/uscourts/FederalCourts/Publications/FederalCourtsLongRangePlan.pdf.
18 Barnes, “How Mandatory Arbitration Agreements and Class Action Waivers Undermine Consumer Rights,” 336-337.