Rethinking Anti-Aggregation Doctrine

By Noll, David L. | Notre Dame Law Review, December 2012 | Go to article overview

Rethinking Anti-Aggregation Doctrine


Noll, David L., Notre Dame Law Review


This Article proposes a new approach to "anti-aggregation agreements "--contractual provisions that purport to prohibit parties from participating in class actions and other aggregate proceedings. Anti-aggregation agreements are permitted by Supreme Court doctrine under the Federal Arbitration Act but eliminate financial incentives for attorneys to seek out and prosecute wrongdoing. Where private litigation performs an important deterrent function, anti-aggregation agreements raise the prospect that protected companies will be permitted to violate the law with impunity.

Taking the Supreme Court's arbitration doctrine as a given, the Article argues that an anti-aggregation agreement's enforceability should be tied to its effect on actual regulatory compliance. Consistent with the Court's preference for privately-designed dispute-resolution procedure, this test allows an anti-aggregation agreement to be enforced by default. But if a party shows that the agreement permits significant, unremedied wrongdoing, the agreement is not enforced.

In contrast to the leading approach in the doctrine and scholarship, this test allows enforcement of anti-aggregation agreements that eliminate claiming against a protected company. At the same time, the test invalidates agreements that result in substantial wrongdoing, regardless of their effect on claiming. In doing so, the test ties the decision not to enforce an anti-aggregation agreement to a fact of normative and legal significance. Where it is shown that enforcement of an agreement permits significant unremedied wrongdoing, there can be little doubt that eliminating incentives for private attorneys to enforce the law creates an impermissible gap in the regulatory enforcement framework.

The disagreements and circuit splits that have followed the Supreme Court's decision in AT&T v. Concepcion (1) provide a much-needed opportunity to reconsider doctrine governing the enforceability of anti-aggregation agreements--contractual provisions that purport to prohibit either side to a contract from asserting claims in connection with others. (2) A basic justification for rules that authorize aggregate claiming is to overcome the problem of process costs overwhelming the stakes in individual proceedings. By permitting similarly-situated claimants to share the costs of claiming, aggregation enables claiming that otherwise would be a money-losing proposition. (3) Together with rules that permit an attorney to recover reasonable fees from the "common fund" created by a successful lawsuit, (4) this creates a powerful incentive for private attorneys to seek out and prosecute violations of the law. (5)

Anti-aggregation agreements pose a direct challenge to this mechanism of law enforcement. Formally justified as an effort to simplify and streamline dispute resolution, their most important practical effect is to eliminate the cost-spreading made possible by aggregation. In doing that, anti-aggregation agreements eliminate incentives for attorneys to seek out and prosecute violations of the law.

The challenge for courts, underscored by Concepcion, is that private agreements governing dispute resolution procedure are sheltered by the Federal Arbitration Act (FAA). (6) Although the FAA allows an anti-aggregation agreement to be invalidated "upon such grounds as exist at law or in equity for the revocation of any contract," (7) the Supreme Court has read the Act to express a "liberal federal policy favoring arbitration," (8) which ordinarily demands enforcement of arbitration agreements "according to their terms." (9) In the absence of wholesale revision of the Court's FAA jurisprudence, the question is what, if anything, overrides the FAA's default policy of enforcing private dispute resolution contracts according to their terms.

This Article proposes that the enforceability of an anti-aggregation agreement should turn on its effect on actual regulatory compliance. …

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