The Court's Implicit Roadmap: Charting the Prudent Course at the Juncture of Mandatory Arbitration Agreements and Class Action Lawsuits

By Lipshutz, Joshua S. | Stanford Law Review, April 2005 | Go to article overview

The Court's Implicit Roadmap: Charting the Prudent Course at the Juncture of Mandatory Arbitration Agreements and Class Action Lawsuits


Lipshutz, Joshua S., Stanford Law Review


INTRODUCTION
I. THE TAXONOMY OF GATEWAYS
   A. Who Decides Who Decides?
   B. Availability of Class Arbitration as a "Gateway" Issue
      1. Class arbitration explicitly permitted
      2. Class arbitration explicitly prohibited
      3. Arbitration agreement is silent on class arbitration
      4. Arbitration agreement is ambiguous about class arbitration
II. WHERE THE COURT'S IMPLICIT ROADMAP LEADS
III. THE ROADMAP IN PRACTICE
   A. Allowing Class Arbitration to Proceed Where the Agreement Is
      Silent
      1. Treating arbitration agreements like any other contract
      2. Ambiguities in contracts are construed against the drafter
      3. Arbitral organizations have adopted class arbitration
         procedures
   B. Enforcing Class Action Waiver Clauses in Arbitration Agreements
      1. Class arbitration is costly, eliminating many benefits of
         arbitration
      2. Arbitration agreements are bilateral contracts, even when
         "adhesive"
      3. Arbitration is not court: other procedural tools are given up,
         too
      4. Due process concerns make class arbitration undesirable
      5. Congress needs to confront these issues
CONCLUSION

INTRODUCTION

In the 1980s, the U.S. Supreme Court changed its outlook on arbitration agreements, ushering in a new era in which arbitration agreements between companies and consumers would be not only allowed but "favored." (1) Prior to this reversal of course, arbitration proceedings had been primarily limited to transactions between two or more companies, and there had been a presumptive public policy disfavoring alternative dispute resolution mechanisms for certain types of cases, especially predispute agreements signed between companies and individuals mandating arbitration should a dispute arise. (2)

Today, mandatory arbitration agreements between companies and their consumers are commonplace (3) and enforceable. (4) Consumers are routinely faced with the prospect that disputes they have with their credit card companies, mobile telephone service providers, and health care professionals will be settled in arbitration rather than in court. (5) Predispute arbitration agreements are enforceable bilateral contracts binding the parties as any other contract would, and the Federal Arbitration Act (FAA) ensures that courts will treat such contracts on an equal footing with all other contracts. (6) In other words, no state can claim to have a public policy exception to its ordinary body of contract law that singles out arbitration agreements for disfavored treatment or presumes the invalidity or oppressive nature of agreements to arbitrate. Indeed, even when such contracts are deemed "adhesive" by courts, meaning that the consumer was essentially forced to either accept the contract along with the product or service he was purchasing or reject both together, mandatory arbitration agreements have been deemed to be enforceable. (7)

In response to critics who argue that mandatory arbitration agreements are inherently unfair, (8) the Court has responded that a decision to arbitrate merely reflects the type of procedure that companies and consumers have chosen to invoke should they need a dispute resolved, rather than reflecting any decision regarding the substantive law to be applied or the substantive remedies to be available. (9) Under this theory, consumers who have submitted to arbitration have no cause for grievance because they have given up no substantive rights or remedies. Since nothing has been lost, complaints about mandatory arbitration agreements being unfair or oppressive really boil down to a distrust of arbitration itself, a position which is preempted by the FAA. (10) In fact, although empirical research cuts both ways, some studies have shown that consumers fare equally well, if not better, in arbitration than they do in judicial proceedings. (11)

It is generally settled law that mandatory predispute arbitration agreements will be enforced by courts despite being contained in contracts of adhesion, (12) subject only to being voided on traditional contract grounds. …

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