SCOTUS and the Mandatory Arbitration Revolution: Part 6/7 (Strong Suggestions for Improvement)

The FAA, Judicial Activism, and their Implications for Access Justice

But for all of this discussion about the empirical data concerning the utility and fairness of mandatory arbitration, a more serious and two-pronged, objection can be raised, one which combines the well-known concept of ‘judicial activism’ with the relatively new methodology to legal studies known as ‘access justice.’ In what follows, I will describe the Supreme Court’s judicial activism within the context of the FAA as well as its implication for access justice, ultimately arguing that the Supreme Court is causally responsible for mandatory arbitration increasingly becoming a hybrid institutional/financial barrier to an individual’s proper access to justice.

Judicial activism occurs, most broadly, whenever a judge rules for or against a particular decision based predominantly, if not solely, on their own political perspectives and experiences. For instance, instead of ruling impartially in a court case involving a relatively straightforward case of business fraud and negligence, this hypothetical judge may, instead, rule in favor of the business because he owns stock in it or they offered him a bribe or he just believes that businesses should inherently have more governmental protection than consumers.

The important part to note here is that, ultimately, judicial activism, if allowed to become the operating norm, could destabilize law and order within the United States. If judges were allowed to participate in the legal process, not as judges, but as legislators, then a number of other abuses could happen. And this is not even mentioning the fact that such a norm would be a violation of the U.S. Constitution and the ‘Separation of Powers’ structure contained within. Thus, ‘judicial activism’ is something which must be regularly monitored and prevented whenever possible.

Unfortunately, ‘judicial activism’ has become a mild epithet hurled at various judges following the outcome of a controversial or emotionally-charged court case. As such, it is often used more rhetorically than literally and may not always serve an analytic or instructive purpose. That is not the case here though. When critics, such as myself, claim that the Supreme Court’s broad interpretation of the FAA is a clear-cut instance of ‘judicial activism,’ we mean it factually, not rhetorically.

The FAA, as enacted by the 68th session of the United States Congress, explicitly states that it applies only to “Maritime transactions,” which are “charter parties, bills of lading of water carriers, agreements relating to wharfage, supplies furnished vessels or repairs to vessels, collisions, or any other matters in foreign commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction.” As for “commerce,” Congress meant “commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation.” Finally, as an explicit disclaimer and limitation of the statute, they declared 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).”1 Here, I draw attention to the fact that the Supreme Court has ignored the obvious limitations to the FAA by extending its jurisdiction to include employment contracts and, most recently, franchise contracts as well. Thus, the Supreme Court’s broad interpretation of §1 of the FAA is one aspect of their judicial activism.

Another example comes from the Supreme Court’s interpretation and application of §2 of the FAA within the context of Moses H. Cone Memorial Hospital v. Mercury Construction Corporation (460 U.S. 1 (1983)). Let us recall that §2 of the FAA states that “A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

In the Supreme Court’s ruling in Moses H. Cone Memorial Hospital v. Mercury Construction Corporation, a case that served as the first to establish a new legal precedent that was to be further enshrined by the Court over the years, §2 apparently called for a “liberal federal policy favoring arbitration.”2 But by reading §2 of the FAA above, it is difficult to understand where this interpretation comes from. Indeed, §2 is actually narrowing down the law’s, and by extension mandatory arbitration’s, applicability, not expanding its potential scope. For one, it refers to written provisions as opposed to verbal agreements or the like. This may seem like a commonsensical point, but acknowledging this fact is part of the cumulative case for proper interpretation of the FAA.

Next, §2 stipulates that the context for the law is ‘any maritime transaction or a contract evidencing [such] a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction.’ This means that, at the very least, it does not apply to general employment contracts, thereby reiterating the explicit nature of §1 and further signaling that the FAA was never meant to have the expanded reach that it does now. By allowing employment and franchise contracts to be subject to mandatory arbitration, the Supreme Court has willfully expanded the legislative scope of the FAA, therein bypassing any involvement or deferment to Congress and also, arguably, violating the ‘Separation of Powers’ contained within the U.S. Constitution.

Finally, §2 demonstrates a Congressional understanding that some areas of federal law will have supremacy over the FAA. §2 states that this very specific subset of signed contracts with mandatory arbitration involved “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Here, the importance is on the second part of the sentence which acknowledges exceptions to the FAA can and do exist. Take, for instance, the Securities Act of 1933. The Securities Act was enacted by the U.S. Congress as a response to the stock market crash of 1929 and the ensuing Great Depression that devastated the U.S. economy. Finding such efforts relevant to the Interstate Commerce Clause of the Constitution, Congress stipulated that every offer or sale of securities that uses the “means and instrumentalities” of interstate commerce to be registered with the Security Exchange Commission (SEC), unless an exemption exists under the law.

The legislative use of the phrase “means and instrumentalities” was purposefully broad because it would allow the U.S. government to better regulate certain aspects of the economy, something that it clearly had a vital interest in so that it could reduce the impact of any future economic events like the Great Depression. As a result, it may seem commonsensical that the U.S. government’s interest in regulating certain aspects of the economy so as to prevent widespread financial devastation and panic, as had been the case with the Great Depression, would overrule any competing governmental interest in enforcing mandatory arbitration. Though it is hard to make this point without exaggeration, it seems reasonable to say that the interest in the former is far more important than the interest in the latter.

What is important for our purposes is acknowledging that the Securities Act is but one type of exception to the FAA that Congress had the foresight to abstractly recognize when it enacted the law. Other federal policies that could be included involve civil rights (e.g. Title IX), employee rights (e.g. the Fair Labor Standards Act (FLSA)), anti-trust law (e.g. the Sherman Antitrust Act), the protection of victims of sexual crimes (e.g. Title IX and others), and various whistle-blower rights in the workplace. Therefore, the Court’s interpretation that the FAA favors a “liberal federal policy favoring arbitration” is in need of some important qualifications and limitations the justices want to avoid running amok of other crucial federal legal interests.

Thus, the Supreme Court is guilty of engaging in judicial activism in their broad interpretation of §1 and §2 of the FAA. But these are just two instances in which the Supreme Court majority engaged in judicial activism with regard to the FAA. There are others, to be sure. And insofar as many of their subsequent decisions about the FAA and mandatory arbitration rely on Moses as their guide, this particular legal precedent is based on anything but a literal reading of the relevant law, as we have seen from the textual evidence above.

Access Justice

Given the Supreme Court’s broad interpretation of the FAA in favor of mandatory arbitration, along with the fact that arbitration in its contemporary form suffers from a number of methodological defects which could allow for a significant number of abuses to be systematically committed against consumers and/or employers, insights from access justice are essential to helping us resolve these issues.

Conceptually, access to justice is viewed as a basic principle of the rule of law. In the absence of access to justice (i.e. court systems, police protection, etc.), people are quite likely unable to have their voice heard, to exercise their political rights, to challenge all forms of wrongdoing, and to hold decision-makers in the relevant branch of the government accountable for their actions (or inactions).3

Historically, access justice is a logical extension of the various Civil, Consumer, Women, People with Disabilities, and Homosexual rights movements, respectively, insofar as it seeks to expand access for a particular group to a particular political or social good or service. In this case, the goal is to provide access to the local, state, and federal court systems for those who traditionally may have been kept out (i.e. the marginalized individuals and groups of society)4 by way of enhanced rights, liberties, and legal protections enshrined in legislation and judicial culture.

Politically, access justice often consists of both civilian and governmental efforts to monitor and evaluate of justice-based issues, empower those marginalized individuals and groups within society to seek response and remedies for all kinds of injustice, improve the legal protection, awareness, and aid to those who are marginalized, address the abuses of power such as police brutality and inhumane prison conditions, address the structural/institutional lengthy pre-trial detention periods, and strengthen the relationships between formal and informal organizations devoted to the pursuit, achievement, and maintenance of justice.

But we can and should dig a bit further to understand the FAA/mandatory arbitration’s connection to, as well as the general importance of, access justice. Prominent access justice scholar Deborah L. Rhode points out that the potential reason for lack of access is multifaceted. She presents, minimally, four broad categories of barriers to accessing justice: financial, structural, doctrinal, and political.5 Financial barriers to access justice involve any costs of goods, services, fees, or the like that can prevent individuals, especially those belonging to socially marginalized groups, from achieving justice. Structural barriers focus on “the absence of any coherent system for allocating assistance and matching clients with the most cost-effective service provider.”6 Doctrinal barriers are associated, for instance, with unduly broad “definitions of unauthorized practice of law by non-lawyers” that prevent subsequent modifications to the U.S. legal system.7 Finally, there are political barriers.

With these categories in mind, the current, broad interpretation of the FAA and enforcement of mandatory arbitration, it seems that the former would qualify as at least one category of a barrier to justice. But I believe we can make a stronger case than that. I am going to outline the ways in which the FAA’s current interpretation about mandatory arbitration, as enforced by the Supreme Court, is guilty of committing or creating 3 out of the 4 possible barriers to justice.

For one, in recalling the criticisms about costs of mandatory arbitration, as well as the different payment structures of mandatory arbitration versus litigation, it is apparent that, in at least some arbitration proceedings (such as those governed by NAM or WAMS or otherwise similar arbitration providers), mandatory arbitration is a financial barrier to justice for both consumers and employees. These costs, when they are sufficiently prohibitive, combined with the fact that mandatory arbitration is final (and only capable of being appealed on four increasingly narrow legal grounds according to current Supreme Court precedent), means that some consumers and employees have, quite literally, no way of pursuing justice claims. This is entirely unacceptable in and of itself, but we can still say more.

Next, the Supreme Court’s broad interpretation of the FAA, combined with a lack of any minimum standards or universal regulations in place for arbitration providers, means that not all consumers or employees have access to the same quality or quantity of resources and personnel (such as the American Arbitration Association (AAA)). Remember from earlier that Washington Arbitration and Mediation Services (WAMS) and National Arbitration and Mediation (NAM) both charge more in administrative fees than the AAA, meaning that the consumer/employee is paying more money when they could be getting better assistance for cheaper from the latter. Again, though, this is a choice ultimately made by the business/corporation in question, according to the contents of their own contracts with consumers/employees, a practice which, despite allowing for a gross misallocation of resources, is legitimized by the Supreme Court’s broad interpretation of the FAA and subsequent enforcement of mandatory arbitration. Thus, the Supreme Court’s precedent is also an instance of a structural barrier to justice, at least in some cases.

Then, in referring back to the number of cases that the Court has heard since 1980 (more than 30), it seems fair to say that there is a doctrinal barrier to justice facing those who are compelled into mandatory arbitration. The doctrine in question is pro-arbitration to a fault as it has started to override many other precedents and associated areas of law that it, presumably, should not. Recall, for example, the Court’s ruling in Italian Colors. Though the Sherman Antitrust Act was involved, the FAA apparently took priority. This is not the only case to be found in the Supreme Court’s recent rulings. As a result, the Supreme Court’s precedent is also an instance of a doctrinal barrier to justice, again, at least in some cases.

Finally, while it would be difficult to prove, even in a more limited sense of the term, that the Supreme Court was engaged in any kind of covertly, let alone overtly, underhanded dealings to promote the well-being of businesses at the expense of the consumers/employees, it is reasonable to assume that the members of the Court who have ruled in favor of an expansive interpretation of the FFA were, at least partially, influenced by their political interests and goals (i.e. Chief Justice Warren Berger’s public address). Thus, we can say that the Supreme Court’s precedent, based on their own judicial activism, counts as an instance of three of the four possible types of barriers to justice

Competing Approaches

What, if anything, can be done to eliminate the barriers to justice that the Supreme Court, through their expansive interpretation of the FAA, has created? As is the case with many phenomena that are at the nexus of our economic, political, and social lives and in change of drastic change, there are, at least, two broad approaches to dealing with some of the egregious problems of mandatory arbitration: legal and political. The ‘legal’ approach seeks to utilize court cases, particularly at the Supreme Court’s level of jurisdiction, to overthrow previous precedents, such as those upholding the FAA. The ‘political’ approach, in contrast, focuses more on passing relevant and carefully thought out legislation. It is also more often grassroots in nature; it relies on social mobilization to guide a variety of collective activities towards the achievement of a particular goal through legislative action. Throughout history, both approaches have been used with varying degrees of success and each one has its own strengths and weaknesses.

With this general dichotomy in mind, the ‘legal’ approach seems unviable given how entrenched the FAA has become within our federal and state court systems. Remember that the Supreme Court has heard more cases about the FAA in the past 38 years since 1980 than in the first ~55 years since its passage in 1925.8 Even now, there are more FAA cases on the Supreme Court’s docket.9 It is safe to say that this judicial precedent is entrenched in our legal landscape. Barring some kind of unique and dramatic turn of events, it seems unlikely, at this point in time at least, that such an approach would ever be fruitful for consumers and employees alike. Instead, I will advocate for the use of the slower, but perhaps more effective, ‘political’ approach.

To be clear, I am not against arbitration as a whole. However, mandatory arbitration, of the form that involves the use and promulgation of MACs/CABs and the like, ought to be fundamentally changed. Prior to listing some of the proposed modifications to the FAA, and arbitration in general, it is important to understand what advocates of mandatory arbitration see as ‘non-negotiables.’ This will help us, if nothing else, to better understand the contours of the debate and to develop creative, long-lasting solutions to these problems. Recall the five supposed advantages of arbitration: (1) time/duration, (2) cost, (3) structural flexibility, (4) privacy/confidentiality, (5) finality.

Based on the frequency with which one or more of these features are discussed in the academic literature, in comparison to the other features, mandatory arbitration advocates seem to be most interested in, and defensive of, (1) the time/duration advantage, (2) the cost advantage, and (5) the finality advantage. That is not to say that these other features are not important, however. But it is reasonable to conclude that these are, in fact, a standard set, if not the standard set, of non-negotiables. With that in mind, we can understand why certain proposed modifications are fiercely resisted.

Modifying Mandatory Arbitration (MACs/CABs)

Given the length of time passed and the frequency with which the Federal Arbitration Act (FAA) has been the topic of Supreme Court cases, it is no wonder that there exists a strong plurality of suggested modifications to arbitral structures, processes, and personnel. Some of these are sweeping and encompass the creation and an entirely new system or set of structures and processes; others are more singular in their purpose and address one, perhaps two, of the aforementioned disadvantages created by MACs/CABs. I will not attempt to give an exhaustive treatment of the merits and demerits of each. Rather, I will explore, broadly, some of the more prominent suggestions which include:

  1. Modify the FAA to exclude pre-dispute arbitration clauses (PDACs) from all consumer agreements, franchise agreements, employment contracts, and PDACs which require arbitration for statutory claims from its jurisdiction10
  2. Require businesses to offer some combination of either a pre-dispute opt-out provision, a post-dispute opt-out provision, or both in their contracts
  3. Bifurcate arbitration into binding and non-binding variations; enforcement based on whether the decision is binding or non-binding
  4. Create Congressional regulatory structures or independent monitoring agencies with investigative and quasi-punitive abilities11
  5. Require arbitrators to publish documents and evidence related to arbitration proceedings12
  6. Require businesses to better inform consumers/employees about mandatory arbitration prior to allowing them to sign contracts (e.g., some kind of brief, informal educational program or video or hand-out that actively involves answering questions afterward)13

(A) would address the FAA’s overly broad interpretation and effectively eliminate much of mandatory arbitration. Yet, its drawback is that it doesn’t address class action bans (CABs). If it were to be amended to include a prohibition on CABs as part of mandatory arbitration, it would be a stronger suggestion. (B) and (C) each seem like reasonable starting points, though more work would need to be done. While these two modifications address the finality, and thereby some of the problems associated with it, it does not address, for instance, the “repeat-player” problem.

While (D) may seem like a great idea at first glance, it smacks too much of idealism and fails to consider the concrete experiences of our political system. The creation of these regulatory structures would require significant time, funds, resources, and personnel to establish and then maintain. If the whole point of the FAA is to encourage an informal judicial process (i.e. arbitration) that is quicker, faster, and easier to use, then the establishment of formal state or federal regulatory agencies seems to fly in the face of that. Moreover, if consumers and/or employees are being harmed now by the lack of safeguards included in mandatory arbitration, then there is an urgent need for action now. There is not enough time to wait for the passage of legislation that leads to the creation of new governmental agencies.

(E) would likely have a positive influence on the public deterrence effect like in the situation of General Mills. However, the need to store that data and be able to access it at any time would require technology and staff and upkeep over time.14 Moreover, it would not inherently help consumers and employees to avoid biased arbitrators. They could, in theory, still fall victim to unfair arbitration proceedings even if they used all of the information they had to the best of their abilities.

With these limitations in mind, in order to rectify the access justice problems that are resulting from mandatory arbitration, I would implement a mixed method approach, picking and choosing the best suggestions from various sources to put together a more or less comprehensive plan. In order to access the lack of access to knowledge facing consumers and employees, we would need to have some kind of public database that kept record of all relevant information pertaining to an arbitrator’s decisions. This would include the list of evidence that they took into consideration, why they decided the way they did, and a list of all of their other cases. Moreover, the database would include the names and contact information of all other businesses, consumers, and employees that any arbitrator worked with previously.

To go a bit further, an additional safeguard is that there are ‘what-if’ triggers within the database so that if an arbitrator has previously held an arbitration proceeding involving the same business within the past six months, he/she is not allowed to arbitrate that proceeding. This would allow the consumer/employee to avoid some, but perhaps not all, of the “repeat-player” problems. For instance, an extremely clever business would still be able, presumably, to find a way around this. But it would at least make it more difficult, thereby likely reducing its frequency of occurrence, which would be a step in the right direction.

As far as the ‘questionable consent’ objection goes, I would advocate for the mandatory use of businesses/corporations to explicitly educate their consumers/employees about the benefits and drawbacks to mandatory arbitration (including mentioning the public database about arbitrator’s records, etc.). This could be done prior to purchase or could include a post-purchase 30-day opt out clause, similar to what Dropbox has done with its contracts. Either way, what is important is that the business genuinely engages with the consumer/employee and tries to help them understand what is truly at stake when they sign MACs. Just because contracting has become such a commonplace activity today doesn’t inherently mean that we shouldn’t devote considerable time and attention to understanding its contours, if for nothing else than our own legal well-being.

With regard to the ‘unequal bargaining power’ objection, and related to the ‘questionable consent’ objection, I would advocate for rules similar to the AAA, with a cap on administrative fees that the consumer/employee can be charged, though I would set the cap to $0. I believe that the business should pay all administrative fees except in the cases wherein the consumer/employee is shown to have brought false or bogus claims against the business. But more so than that, I would advocate for many of the AAA’s internal rules to become, for the time being, the bare minimum for all arbitration providers. They seem to be significantly concerned with the well-being of the consumers/employees who often undergo mandatory arbitration and, as such, are worthy of the designation ‘exemplar.’

Finally, I would endorse the AFA but with the important addition of banning CABs from mandatory arbitration as well. It is surprising that the AFA missed such a crucial aspect to access justice since banning CABs would go a long way to holding businesses responsible for their wrongdoings and misdeeds. Removing CABs from mandatory arbitration, within the context of the AFA, could also have a positive impact on public perception of mandatory arbitration and the U.S. court system in general by demonstrating that the government recognizes the necessity of protecting the weak and innocent, the marginalized groups of society.


1 U.S.C. §1.

 

2 Moses H. Cone Memorial Hospital v. Mercury Construction Corporation, (460 U.S. 1 (1983)); “Although our holding in Prima Paint extended only to the specific issue presented, the courts of appeals have since consistently concluded that questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration. We agree. The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.”

 

3 Deborah L. Rhode, “Access to Justice: A Roadmap for Reform,” Fordham Urban Law Journal 41(2014): 1227; “According to the World Justice Project, the United States is tied with Uganda for 67th out of 97 countries in access to the justice system and affordability of legal services.”

 

4 By marginalized, I refer, generally, to socioeconomic, racial, ethnic, religious, political, sexual, and physical/mental capability minorities though there are other groups undoubtedly included.

 

5 Rhode, “Access to Justice,”1227.

 

6 This barrier, then, deals with inefficiency and wasted (or unavailable) resources. It is perhaps most closely related to procedural justice in that regard.

 

7 My own understanding of ‘doctrinal’ barriers is twofold: (1) they often rely implicitly on the Fallacy from Tradition (or Authority) to justify their existence and (2) lawyers or judges who defend such doctrinal barriers are ultimately worried about their own economic/professional well-being and fear that, with the state of technology today, their work (or at least a significant portion of their work) could easily be replaced by a digital machine that performs the same functions but much faster and for a much cheaper cost. We see the same technological pressures being faced by mechanics, accountants, and the like. By no means am I saying that this is a convincing line of reasoning, but I understand the perception of an existential threat to one’s livelihood and wanting to prevent it from occurring.

 

8 Gross, “Justice Scalia’s Hat Trick,” 117-119.

 

9 Kenneth Hall, “Supreme Court Adds Three Cases to 2018 Docket,” Paper Chase (published February 26, 2018, accessed March 19, 2018), http://www.jurist.org/paperchase/2018/02/supreme-court-adds-three-cases-to-2018-docket–dnp.php.

 

10 Igor Brin, “The Arbitration Fairness Act of 2009,” Ohio State Journal on Dispute Resolution, 25, no. 3 (2010): 821-840.

 

11 Miles B. Farmer, “Mandatory and Fair? A Better System of Mandatory Arbitration,” The Yale Law Journal 121:8 (2012): 2346-2394.

 

12 Ibid.

 

13 Senderowicz, “Consumer Arbitration and Freedom of Contract,” 275.

 

14 The goal would be to publish almost everything from arbitration proceedings and make it available to the public. For instance, by publishing the names and contact information of currently practicing arbitrators, their previous, current, and upcoming cases, the nearly exhaustive record of their decisions and supporting argumentation, and the like, consumers/employees would be better informed when they enter into arbitration proceedings.

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