32 Pages Posted: 5 Apr 2006
This article considers the intersection of freedom of contract and the trials that have not vanished. Could contracting parties effectively agree in advance of a dispute that any litigation of the case will comply with certain rules? Would such an agreement be enforced even in a contract of adhesion? If so, parties with sufficient bargaining leverage could design away many of the characteristics of litigation that they find unappealing, without the need to resort to private processes. The result: a designer trial with the procedural deck stacked in favor of the party with the greatest pre-dispute bargaining power.
Such a clause could appear in a contract with an employer, a bank, a cell phone company, an internet service provider, a credit card company, a stock broker, a landlord, a doctor, a hospital, a school, a gym, a travel company or even an exterminator. With this clause, a potential institutional litigant has obtained many of the features that normally motivate businesses to require arbitration, but without the expense of arbitration fees, and without the necessity to litigate the validity of the arbitration clause or to sue to enforce an arbitrator's decision.
The contracting party who is a repeat player can tailor the litigation contract to suit its probable position in litigation. If the institutional party predicts that it would likely appear in court as a defendant, it can make choices that decrease the out-of-pocket cost of litigation, eliminate the threat of class actions, avoid a jury trial, and limit the bad publicity and proliferation of litigation made possible by public disputes. In addition, the contracting future defendant can include provisions likely to make it harder for the party with the burden of proof to prevail, such as limiting discovery and the presentation of evidence. If the institutional party predicts that it would likely appear in court as a plaintiff but is likely to be in a position in which it has pre-suit access to information, it will still want to limit discovery, speed the dispute resolution process, avoid publicity, and eliminate the jury. In either case, it can choose a favorable forum and the most attractive available law. Would courts enforce such a contract? If they follow precedent established in arbitration and jury waiver cases, they might easily do so.
In the context of arbitration clauses, courts have enthusiastically endorsed freedom of contract, particularly when those contracts result in a perceived efficiency gain for the courts themselves. They have dismissed the differences between court procedures and arbitration procedures as insignificant unless the chosen arbitration procedures effectively deny a remedy or are unconscionable under state contract law. Yet restricting procedural choice within the public court system has implications beyond those of opting out of the system entirely. Ultimately, contractual modifications to court processes raise the issue of the extent and importance of the public purposes of the judicial system.
Keywords: arbitration, jury waiver, dispute resolution, litigation, civil procedure, due process, class action
JEL Classification: K40, K41
Suggested Citation: Suggested Citation