ADR and the Cost of Compulsion
Landsman, Stephan, Stanford Law Review
INTRODUCTION I. AN ARBITRATION CASE STUDY II. ADR's EMBRACE OF COMPULSION III. THE COSTS OF COMPULSION A. Compelled Arbitration 1. Substantive manipulations 2. Procedural manipulations 3. Attempts to thwart claims 4. Adhesion contracts and ADR providers B. Court-Compelled ADR 1. Variability of proceedings 2. Procedural failings 3. Pressure to settle C. The Reaction of Those Facing Compulsion D. Compulsory Informal Processes and Bias IV. WHAT SHOULD BE DONE ABOUT COMPULSION?
This Article will explore alternative dispute resolution's (ADR's) rush to embrace compulsion both in the private contract setting and with respect to court-compelled ADR programs. It will consider the risks posed when ADR is required rather than freely chosen. In the private contract context, these risks include the likelihood that adhesion contract drafters will use arbitration clauses and related requirements to short-circuit existing legislation with newly drafted provisions protective of their special interests, that contract drafters will, in some cases, go even further and use their drafting power to squelch all claims, and that ADR providers will be sorely tempted to cast their lot with adhesion contract drafters in order to win and retain valuable business. Next, the risks of compulsion in court-annexed programs will be canvassed. These include exposing litigants to wildly varying ADR experiences unrelated to the merits of their claims, as well as a range of procedural problems and heightened pressure to settle without a trial. This Article will then examine compulsion-created risks that are likely to arise in both the private and public contexts. Two of these will be the main focus: first, that compulsory ADR processes may fail to satisfy deep-seated psychological needs associated with a sense of justice; and second, that mandating ADR is likely to increase the prospect that biases favoring the strong over the weak will be introduced into the decisionmaking process.
In light of all these risks, the Article will conclude by arguing that compulsion should be abandoned. The likelihood that this will happen anytime soon is small, so the Article goes on to consider intermediate steps to help improve ADR processes and move them in a direction that will encourage greater trust and greater voluntary participation. Among the steps proposed are enhanced diversity among ADR providers and increased transparency in ADR proceedings. Finally, the Article will suggest that ADR needs to learn greater humility and respect for the rule of law or risk discrediting and politicizing itself.
I. AN ARBITRATION CASE STUDY
America's securities industry has aspired to regulate itself since its earliest days. (1) Congress has, in large measure, ratified the industry's power to oversee its own affairs by classifying national securities exchanges, including the New York Stock Exchange (NYSE), and registered securities associations, including the National Association of Securities Dealers (NASD), as "self-regulatory organization[s]." (2) Among the strategies these bodies have used to achieve the end of self-regulation is the championing of private arbitration of disputes in lieu of public adjudication by courts of law. (3) Securities industry arbitration keeps issues in the hands of industry-trained and -based decisionmakers rather than publicly selected judges. As part of their ongoing effort to maintain control, the NYSE and NASD, by the early 1970s, had mandated that their members arbitrate disputes at the request of an aggrieved customer. (4) Within less than a decade, this initial step toward compulsion was followed by the imposition on virtually all customers, and securities industry employees as well, of an involuntary predispute (i.e., contractual) requirement that all substantial disagreements be arbitrated rather than brought before a court. …