The Third Arbitration Trilogy: Stolt-Nielsen, Rent-A-Center, Concepcion and the Future of American Arbitration
Pepperdine University School of Law
August 30, 2011
American Review of International Arbitration, 2012
Pepperdine University Legal Studies Research Paper No. 2012/10
For the third time in the modern era, a triad of key Supreme Court decisions represents a milestone in American arbitration. In this highly controversial “Third Arbitration Trilogy,” the U.S. Supreme Court aggressively expands the “revealed” penumbra of substantive arbitration law under the Federal Arbitration Act and shores up the bulwarks of private, binding dispute resolution under standardized contracts of adhesion binding employees and consumers.
In Stolt-Nielsen S.A. v. AnimalFeeds International, 130 S. Ct. 1758 (2010), the Court, against the backdrop of an international commercial contract scheme and a unique procedural scenario, draws upon the wellspring of divined “federal substantive law” under the FAA to pronounce limits on the ability of arbitrators - or courts - to promote public policies supporting class actions. Many understood Stolt-Nielsen, correctly, as a portent of the Court’s eventual curtailment of state-law-based policies against enforcement of contractual waivers of the ability to participate in a class action when coupled with an agreement to arbitrate.
In Rent-A-Center, West v. Jackson, 130 S. Ct. 2772 (2010), the Court declares that public policies promoting enforcement of arbitration agreements effectively trump the authority of courts to deny or limit the enforcement of arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract” - or, more precisely, to police arbitration agreements for unconscionability. Once again, the Court majority “discerns” new Federal substantive law surrounding the FAA. It employs a unique variation on the principle that arbitration agreements are separable from the contracts of which they are a part, aggressively interprets Court precedents transferring from courts to arbitrators authority to resolve enforceability issues, and segregates the determination a contract has been “made” in a formalistic sense from consideration of defenses to its enforceability and validity.
In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Court once again addresses the interface between pro-arbitration policies under the FAA and the countervailing, limiting force of unconscionability doctrine. Yet again, a majority finds pro-arbitration federal policy circumscribes judicial authority to police arbitration agreements under state law. In this case, the result is to enforce a term in the arbitration agreement waiving the consumer’s right to bring a contractual claim as part of a class action.
Its staunchest adherents may insist that the Court’s actions are necessary to effectively promote pro-arbitration policies under the FAA (announced and repeatedly reinforced by the Court since the mid-1980s) while ensuring that lower courts be measured and precise in the handling of countervailing defenses. In its zeal to further its evolving vision of the FAA, however, the Court has eliminated key safeguards aimed at ensuring fundamental fairness to consumers and employees in arbitration. The Court’s most recent decisions have placed dramatic new limits on judicial oversight of arbitration agreements, making the U.S. a relative “outlier” among global sovereigns.
The Court’s extreme and inflexible posture adds momentum to Congressional efforts to dramatically restrict the use of predispute arbitration agreements. Unfortunately, these legislative responses, like the Court’s decisions, lack a solid empirical foundation. As with the Court’s jurisprudence, there is no guarantee that they will produce the best possible solution for employees and consumers.
Good decisions about the public or private resolution of employment and consumer disputes depend upon a commitment to obtain and act upon better information about the operation of specific forms of arbitration in specific transactional settings, along with comparative data respecting court processes. Recent empirical scholarship has moved us closer to this goal, but much remains to be done.
In assessing process options, policy-makers should consider the potential future role of statutory due process standards for arbitration, regulated arbitration, and arbitration that gives individuals the option of proceeding to court. To the extent public tribunals are necessary, it should not be assumed that the court system as presently structured is the most effective way of addressing consumer or employment disputes. It may be appropriate to develop public consumer tribunals or administrative employment tribunals such as those that exist in some other countries.
In assaying public and private process choices, special attention should be given to the opportunities afforded by online dispute resolution (ODR). Finally, effective policy-making in these arenas cannot ignore the primary hot-button issue, the role of class or collective action.
Number of Pages in PDF File: 113
Keywords: arbitration, arbitration trilogy, Stolt-Nielsen, Rent-A-Center, AT&T v. Concepcion, pre-dispute arbitration agreements, arbitration clauses, class action waiver, Federal Arbitration Act (FAA), adhesion contracts, consumer contracts, employment contracts, delegation, separability, unconscionability
JEL Classification: K12, K41Accepted Paper Series
Date posted: September 2, 2011 ; Last revised: April 13, 2012
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