A Pair of Arbitration Papers

Richard Frankel of Drexel has written Concepcion and Mis-Concepcion: Why Unconscionability Survives the Supreme Court's Arbitration Jurisprudence, 17 Journal of Dispute Resolution. Here is the abstract:

States have long relied on the doctrines of unconscionability and public policy to protect individuals against unfair terms in mandatory arbitration provisions. The Supreme Court recently struck a blow to such efforts in AT&T Mobility LLC v. Concepcion and American Express Co. v. Italian Colors Restaurant. In those two cases, the Court established that a challenge to the enforceability of unfairly one-sided arbitration clauses is preempted if it would interfere with “fundamental attributes of arbitration.” Several commentators have argued that these decisions will dramatically alter the arbitration landscape, by wiping away virtually any contract defense to the validity of an arbitration agreement and giving corporations carte blanche to impose whatever terms they want into an arbitration clause. Many practitioners are aggressively pushing courts to take a similarly broad reading of Concepcion and Italian Colors.

This article takes a contrary view. First, this article argues that the cases will have very little impact outside of the context of class action waivers, the subject matter of both Concepcion and Italian Colors. Applying state law to strike down arbitration provisions that are so one-sided as to be unconscionable ordinarily will not interfere with “fundamental attributes of arbitration” and should not be preempted.

Second, the Court’s newfound focus on “fundamental attributes of arbitration” reveals why Concepcion should actually narrow the scope of Federal Arbitration Act (FAA) preemption rather than expand it. A careful examination of arbitration clauses shows that, if anything, the “fundamental” aspect of arbitration is choice, that is, the ability of parties to freely negotiate the terms of their arbitration agreements in an arms-length fashion. If choice is fundamental to arbitration, then what is inconsistent with arbitration is a lack of choice, namely adhesion. As a result, states have much greater power than previously thought to ensure fairness in standard-form, non-negotiable adhesion contracts, in which most arbitration agreements are contained, without violating the FAA.

And Stephen J. Ware of Kansas has authored The Politics of Arbitration Law and Centrist Proposals for Reform.  Its abstract is as follows:

Arbitration law in the United States is far more controversial when applied to individuals than to businesses. While enforcement of arbitration agreements between businesses sometimes raise legal issues that divide courts, those issues tend to interest only scholars, lawyers, and other specialists in the field of arbitration. In contrast, enforcement of arbitration agreements between a business and an individual (such as a consumer or employee) raises legal issues that interest many members of Congress and various interest groups — all of whom have taken positions on significant proposals for law reform. The Consumer Financial Protection Bureau has extensively researched and reported on consumer arbitration agreements and is expected to issue a rule regulating, or even prohibiting, such agreements.

This Article both explains how issues surrounding consumer and other adhesive arbitration agreements became divisive along predictable political lines and introduces a framework to understand and compare various positions on them. This new framework arrays on a continuum five positions on the level of consent the law should require before enforcing an arbitration agreement against an individual. Progressives generally would require higher levels of consent than arbitration law currently requires, while conservatives generally defend current arbitration law’s low standards of consent.

This Article proposes an intermediate (or centrist) position. It joins progressives in rejecting conservative-supported anomalies that enforce adhesive arbitration agreements more broadly than other adhesion contracts on the three important topics: contract-law defenses, correcting legally-erroneous decisions, and class actions. Once these anomalies are fixed though, adhesive arbitration agreements should — contrary to progressives — be as generally enforceable as other adhesion contracts. In other words, this Article joins conservatives in defending general enforcement of adhesive arbitration agreements under contract law’s standards of consent. The Article briefly concludes with the language of a rule the CFPB could adopt to enact into law the reforms advocated in this Article.

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