Diffusing Disputes: The Public in the Private of Arbitration, the Private in Courts, and the Erasure of Rights
abstract. Two developments frame this discussion: the demise of negotiated contracts as the predicate to enforcing arbitration obligations under the Federal Arbitration Act and the reorientation of court-based procedures to assimilate judges’ activities to those of other dispute resolution providers. From 1925 until the mid-1980s, obligations to arbitrate rested on consent. Thereafter, the U.S. Supreme Court shifted course and enforced court and class action waivers mandated when consumers purchased goods and employees applied for jobs. To explain the legitimacy of precluding court access for federal and state claims, the Court developed new rationales—that arbitration had procedural advantages over adjudication, and that arbitration was an effective enforcement mechanism to “vindicate” public rights.
The result has been the mass production of arbitration clauses without a mass of arbitrations. Although hundreds of millions of consumers and employees are obliged to use arbitration as their remedy, almost none do so—rendering arbitration not a vindication but an unconstitutional evisceration of statutory and common law rights. The diffusion of disputes to a range of private, unknowable alternative adjudicators also violates the constitutional protections accorded to the public—endowed with the right to observe state-empowered decision makers as they impose binding outcomes on disputants. Closed processes preclude the public from assessing the qualities of what gains the force of law and debating what law ought to require. The cumulative effect of the Supreme Court’s jurisprudence on arbitration has been to produce an unconstitutional system that undermines both the legitimacy of arbitration and the functions of courts.
author. Arthur Liman Professor of Law, Yale Law School. Thanks are due to the Yale Law Journal and to Noah Messing for hosting Arbitration, Transparency, and Privatization: A Seminar, on October 23, 2014; to Dennis Curtis, William Genego, Linda Greenhouse, David Horton, Vicki Jackson, Amalia Kessler, Daniel Markovits, Uriel Procaccia, Margaret Jane Radin, Roberta Romano, Alan Schwartz, Joanne Scott, Reva Siegel, Nan Aron, Michelle Schwartz, Seana Shiffran, Tom Stipanowich, and Markus Wagner; to workshop participants at the University of Miami and Yale Law Schools; to Ryan Boyle of the American Arbitration Association and Donna Stienstra of the Federal Judicial Center; to Michael VanderHeijden for remarkable library support; to former research assistants Kathleen Claussen, James Dawson, Marissa Doran, Ruth Anne French-Hodson, Jason Glick, Adam Grogg, Andrew Sternlight, and Charles Tyler; to current research assistants Jason Bertoldi, Michael Clemente, John Giammatteo, Kate Huddleston, Mark Kelley, Diana Li, Adam Margulies, Marianna Mao, Chris Milione, Devon Porter, Benjamin Woodring, and Jonas Wang; and to Bonnie Posick for expert editorial advice.
Introduction: Dispute Diffusion
“To avoid the expense and delay of having a trial, judges encourage the litigants to try to reach an agreement resolving their dispute.”
—“Understanding the Federal Courts/How Courts Work,” website of the U.S. Courts, 20151
“We may change any terms, conditions, rates, fees, expenses, or charges regarding your Services at any time.”
—Wireless Provider “Customer Agreement,” 20152
Courts are equated with public processes, and arbitration with private consensual agreements. Yet that convention misses the degree to which public law has come to regulate the contours of arbitration, and the ways in which courts have incorporated privatizing practices. While public and private—in various senses of those words—have long co-mingled in courts and in arbitration, the balance has shifted, reconfiguring the field of dispute resolution and diminishing distinctions between the work of courts and of other dispute resolution providers.
One reason to care about the changing mix of the public and the private in both venues is that the political authority and the moral legitimacy of courts and arbitration have depended on distinctions between public and private spheres. In theory, judges are agents of the state, charged with implementing its law through public decision making; arbitrators are creatures of contracts, obliged to effectuate the intent of the parties. The distinction is presumed to be constitutionally respectful and welfare-maximizing, enabling the enforcement of public rights and protecting the autonomy of contractual relationships.
Yet the two practices—adjudication and arbitration—are coming to be styled as fungible options on a “dispute resolution” (DR) spectrum. An increasingly common parlance (crisscrossing the globe) replaces the phrase “alternative dispute resolution” (ADR) with DR, so as to put courts—now deemed “Judicial Dispute Resolution” (JDR) or “Judicial Conflict Resolution” (JCR)3—on a continuum of mechanisms responding to conflicts. This formulation aligns courts with a range of options that clouds courts’ identity as a unique constitutionally obliged mode of decision making.
The reasons for and the goals of this homogenization vary, as the field of DR is capacious. Among its proponents are those seeking to respond to the high demand for adjudicatory services by augmenting “paths to justice” so as to enhance access,4 reformers aspiring to shape more collegial problem-solving processes,5 entrepreneurs looking for business,6 and potential defendants hoping to avoid the publicity and regulation that courts entail.7 The methods include expanding the forms of process, increasing the power of private providers to issue binding judgments, and broadening the repertoire of providers. The shared aim is to produce resolutions enforceable by law.
“Dispute Diffusion” is the term I offer to capture these new commitments to the eclipse of court-based adjudication as the primary paradigm for government-authorized dispute resolution. Implementation in the United States comes through a mix of policymaking through statutes, rules, regulations, and court-made doctrines, which press trial-level judges to become conciliators, to deploy other individuals as “neutrals” to mediate or to arbitrate in courts, and to outsource decision making to the private market. Much of the work seeks to quiet conflict by relying on confidential interactions among disputants and decision makers. The claims filed, the methods used by decision makers, and the results are often outside the public’s purview. An array of provisions—forming what I term “Alternative Civil Procedural Rules” (ACPR)—reflect the developing deregulatory norms. While conferring adjudicatory license on a variety of private processes, the ACPR rarely address the needs of indigent users, the independence of the decision makers, and the rights of the public to participate.
Some aspects of Dispute Diffusion can be attributed to private ordering,8 but the focus in my discussion is not on international sovereign debt or trade arbitrations. Rather, my concerns are about mandates applied to hundreds of millions of consumers and employees, obliged to arbitrate not because of choice but because public laws have constructed requirements to use private decision making in lieu of adjudication. The United States Supreme Court opened the floodgates during the last three decades, as it reinterpreted 1925 congressional legislation, now known as the Federal Arbitration Act (FAA), to require courts to enforce a myriad of arbitration provisions, promulgated by issuers of consumer credit, manufacturers of products, and employers.
The result has been the mass production of arbitration clauses requiring that claimants, alleging violations of federal and state statutory and common law wrongs, proceed single-file to decision makers designated by the clauses’ providers. To assume the result is “mass arbitration” is to misunderstand how the provisions function; few who are cut off from using the courts and required (rather than choosing) to arbitrate do so, thereby erasing as well as diffusing disputes.
Procedural change is synonymous with the history of courts, as transnational exchanges shape and reshape both adjudication and arbitration. The development of new modes for responding to disputes and the proliferation of sites for resolution are not problems, per se. An important example is the growth of administrative adjudication, through which many (but not all) powers of courts are delegated to other kinds of judges who work under rules crafted through public exchanges and subjected to constitutional limitations.9 In doctrinal terms, as long as the Court determines that the “process due” suffices, delegation to an alternative forum is permissible.10
But in the context of mandated arbitration, the Court has not exercised its obligation to analyze the alternatives and assess their quality. Rather, the Court has spun off decision making without imposing structured safeguards. The result is a system that ought to be seen as unconstitutional, in which state-enforced dispute resolution is outsourced to hundreds of unregulated providers whose rules are hard to find, processes generally closed, and outcomes difficult to know.
The burden of my discussion is to understand why and how new dispute resolution institutions are being constructed, to map their contours and values, and to analyze their constitutional and normative implications. The recent Supreme Court FAA case law has garnered a good deal of criticism for cutting off the production of law,11 for undermining the role of Article III courts,12 for limiting associational rights,13 and for constricting access to law by enforcing bans on the collective pursuit of claims.14 The reallocation of disputes through the FAA to non-public service providers should also be understood as a shadow conflict over public subsidies for litigants. Justices who object to reading the federal Constitution as imposing positive obligations to support civil litigants and who are leery of court-based class actions can avoid debates about the scope of such rights by obliging disputants to use single-file arbitration.15 The consequence, as one researcher of arbitration provisions for employees has concluded, is a system that exacerbates inequalities.16
The FAA case law has also troubled contract and arbitration scholars,17 because obligations to arbitrate arise not from negotiation but by signing (or clicking on) documents, some of which stipulate that the drafter of the provisions “may change any terms” unilaterally.18 Deeming an obligation to proceed (almost always on an “individual basis”19) through a designated dispute resolution system to be an enforceable “contract” undervalues private law,20 rightly admired for facilitating cooperative agreements, reflecting the will of the participants able to tailor obligations to their particular needs.
My argument is that the cumulative impact of recent Supreme Court decisions on arbitration also produces an unconstitutional system, providing insufficient oversight of the processes it has mandated as a substitute for adjudication and shifting control over third-party access away from courts and to the organizations conducting arbitrations and the commercial enterprises drafting arbitration clauses. Legal claims are a species of property, and open courts are the venues designated under constitutions to respond to claimed deprivations of those property rights. Limitations on rights—and new procedures for their vindication—are readily permissible but cannot, constitutionally, be imposed arbitrarily or be insulated from tests of fairness and lawfulness.
The Court’s own explanations of its decisions licensing arbitration reflect the concern that procedural innovations should protect the rights at stake. The Court has repeatedly described its rulings as resting on the requirement that arbitration provide opportunities for the “effective vindication” of statutory rights,21 and the Court has regularly drawn the analogy between arbitration mandates and forum selection clauses in which disputants designate one jurisdiction’s court system or another.22
Thus, the Court’s reallocation of adjudicatory authority to arbitration could be constitutional, were several conditions met. First, the Court would have to police the alternatives to assess the adequacy and fairness of the procedures ex ante, to understand how they are used in practice, and to impose oversight on both process and outcomes ex post. When doing so, the Court would need to ensure that the alternatives provide egalitarian dispute resolution mechanisms, responsive to the asymmetries among disputants through fee waivers to the indigent, collective actions, or other means to protect opportunities for voice and participation. Second, the Court would have to require public access to the processes and outcomes, making the alternatives transparent and accountable so as to facilitate debates about both procedures and governing norms.
But the Court has not done so. Rather, the Court’s expansion of the FAA—diffusing disputes through outsourcing to deregulated and variable processes—strips individuals of access to courts to enforce state and federal rights, strips the public of its rights of audience to observe state-empowered decision makers imposing legally binding decisions, and strips the courts of their obligation to respond to alleged injuries.
Evidence of these failures comes from data about the use of arbitration by consumers. Despite the heralding of arbitration as a speedy and effective alternative to courts, the mass production of arbitration clauses has not resulted in “mass arbitrations.”23 Instead, the number of documented consumer arbitrations is startlingly small. Arbitrations involving wireless service providers provide one example, which I have chosen because the Supreme Court addressed the ban on class arbitrations in that context in its 2011 decision involving AT&T Mobility.24According to information from the American Arbitration Association (AAA), designated by AT&T to administer its arbitrations and complying with state reporting mandates, 134 individual claims (about 27 a year) were filed against AT&T between 2009 and 2014.25 During that time period, the estimated number of AT&T wireless customers rose from 85 million a year to 120 million people, and lawsuits filed by the federal government charged the company with a range of legal breaches, including systematic overcharging for extra services and insufficient payments of refunds when customers complained.26
More generally, the AAA, which is the largest non-profit provider of arbitration services in the United States, averages under 1,500 consumer arbitrations annually;27 its full docket includes 150,000 to 200,000 filings a year.28 Thus, were arbitration providers to be in high demand, their capacity to respond would be limited. An estimated 290 million people have cell phones,29 and “99.9% of subscribers” to the eight major wireless services are subject to arbitration clauses.30 For those with credit card debt, about 50% face arbitration,31 as do more than 30 million employees.32 Virtually all of these arbitration clauses bar class actions in courts or in arbitration, and to the extent that use of the court system is permitted, individuals are routed to small claims courts that also do not provide collective procedures.33
By way of contrast, thousands of courts operate in the state and federal systems, where civil filings are estimated to run between 25 and 47 million cases annually, excluding about 50-60 million juvenile and traffic cases.34 Moreover, when a federally chartered agency, the Consumer Financial Protection Bureau (CFPB), looked at federal court filings between 2010 and 2012 in five consumer product markets, the CFPB identified 3,462 individual cases, or on average about 1,100 per year, in addition to 470 federal consumer class action filings.35
As the volume of filings suggests, the market for courts remains robust, including among those who have the capacity to draft their own contracts. Reviews of the contracts of companies with the resources to customize indicate that they do not regularly bind themselves to arbitrate, or that they sometimes seek to obtain the benefits of both arbitration and courts by bargaining for judicial review of arbitrators’ rulings.36 Yet the Supreme Court has also rejected parties’ efforts to permit judicial oversight of arbitrators’ decisions.37
Debate is underway about whether arbitration is cheaper or quicker than courts and whether consumers or employees do better or worse in either venue.38My goal is to turn attention to the underlying fact that almost no consumers or employees “do” arbitration at all. The lack of use reflects the minimal oversight of arbitration’s fairness and lawfulness, the failure to require a comprehensive system of fee waivers, the bans on collective actions requisite to augmenting complainants’ resources, and the limited access accorded third parties to the claims filed, the proceedings, and the results.
My purpose is not to idealize courts as the sole path to or the embodiment of justice.39 Barriers to entry are significant, with lawyer fees ranking high on the list of obstacles.40 Moreover, examples of “junk justice,” in which the judicial process works its own unfairness, are plentiful. Illustrative is one study of 4,400 lawsuits filed by debt buyers in Maryland courts; unrepresented debtors regularly defaulted on amounts owed (averaging about $3,000)—all without trials, lawyers, or much judicial oversight.41 The imposition of court-user fees and fines for those with limited resources imposes yet other harms, including endless debt cycles and the imprisonment of some for the failure to pay.42 The Department of Justice’s 2015 account of the failures of the municipal court in Ferguson, Missouri is another example, making vivid the disjuncture between government-empowered judges and just systems.43 Rather than “administering justice or protecting the rights of the accused,” the local court’s goal was “maximizing revenue,” and it did so through “constitutionally deficient” procedures that had a racially biased impact.44
Yet the ability to uncover the intricacies of how these systems fail comes from legal obligations of courts, which are required to maintain records and to permit public observation—opening paths to correct injustices, if popular will to do so exists.45 Courts offer the potential for egalitarian redistribution of authority, and the possibility of public oversight of legal authority. Without public access, one cannot know whether fair treatment is accorded regardless of status. Without publicity, judges have no means of demonstrating their independence. Without oversight, one cannot ensure that judges, tasked with vindicating public rights, are loyal to those norms. Without independent judges acting in public and treating the disputants in an equal and dignified manner, outcomes lose their claim to legitimacy. And without public accountings of how legal norms are being applied, one cannot debate the need for revisions.
Below, in Part I, I identify the legal and historical frameworks that make courts obligatorily open, constitutionally regulated entitlements. This section offers glimpses of a large body of law, predicated on state and federal constitutions, requiring assessments of the fairness of procedures, imposing obligations to assist subsets of indigent litigants, and mandating that proceedings and documents be publicly accessible. In Part II, I put the Supreme Court’s transformation of the FAA into the context of changing attitudes towards the role of courts. Through doctrinal shifts and revisions of federal procedural rules, adjudication lost its position of superiority, and arbitration gained its valence as a preferred method of dispute resolution. Trials came to be positioned as problematic, outlier failures of court-based procedures that had been redesigned to produce settlements.
Part III provides a genealogy of arbitration by tracing its movement from the private domain to public obligation. This analysis begins with nineteenth-century, trans-Atlantic models of consensual arbitration and moves through waves of U.S. Supreme Court interpretations, enlarging the scope of the 1925 statute and crafting explanations for the propriety of broadening the FAA’s deployment. In the 1980s and thereafter, when mandating arbitration for consumers and employees who could not plausibly negotiate terms, the Court developed new rationales for the legitimacy of arbitration—lauding its informality, speed, and accessibility and attributing to it the capacity to provide “effective vindication” of statutory rights.
Part IV details the genesis of this doctrine of effective vindication and the Court’s reluctance to give it meaning. The Court has neither required administrative, judicial, and public oversight nor ensured egalitarianism through policing fees and facilitating collective arbitrations. By excavating data reported between 2009 and 2014 by arbitration providers, I detail how little evidence exists that arbitration offers a gateway to pursuit of individual claims. To illustrate that such limitations are not intrinsic to arbitration, I explore other models of arbitration, drawn from negotiated contracts relying on judges to review arbitrators’ decisions; from state statutes dispatching judges as arbitrators; from Congress, which, since 1988, has authorized federal courts to offer “court-annexed arbitration” but permitted it only for certain claims and generally if freely chosen;46 from federal regulation of securities arbitrations; and from European oversight of consumer arbitrations.
I close by returning to the constitutional law of courts and specifically to First Amendment rulings on rights of public access to adjudication. Under current doctrine, when third parties challenge closing proceedings, courts use the tradition of open trials as the benchmark by which to measure the utilities of openness and the impact of closure in particular processes. But as trials become a rarity in, rather than the centerpiece of, court-based procedures, reliance on that history provides no sure footing. Constitutional law needs instead to develop norms that state-empowered and state-enforced dispute resolution cannot be legitimate in democracies without open access to enable regular interactions among disputants, adjudicators, and the public. Thus, by way of conclusion, I explore the contingency of courts as public institutions, the risks of losing the political capital garnered by providing services to diverse disputants, and the political will that would be required to re-center courts and their alternatives on egalitarian and public law norms.
I. the public in courts
Public courts seem so much like fixtures, supporting and supported by the ideology of a “day in court,”47 that scant attention is paid to the legal sources and the contingencies producing the current understanding that courts welcome all comers. Given my claim that Dispute Diffusion renders courts vulnerable, a brief review is in order of the thicket of texts specifying roles for judges, witnesses, litigants, jurors, victims, and the public.
State and federal constitutions regulate judicial selection and tenure in office, impose mechanisms for protecting judicial independence, and define the parameters of courts’ jurisdiction. Detailed instructions can also be found in some constitutions, such as directions to Supreme Court Justices to write or publish opinions, to make rulings freely available, to let others publish them, or to explain reasons for dissent.48
The public gains two kinds of access rights to courts. Constitutional text, doctrine, and common law traditions establish the authority of individuals to bring claims to courts and the obligation of courts to welcome third parties to observe their proceedings. State constitutions regularly linked the two forms of access by mandating rights-to-remedies in open courts. The 1776 Delaware Declaration of Rights (echoing the Magna Carta as filtered through natural and common law traditions) provided:
That every Freeman for every Injury done him in his Goods, Lands or Person, by any other Person, ought to have Remedy by the Course of the Law of the Land, and ought to have Justice and Right for the Injury done to him freely without Sale, fully without any Denial, and speedily without Delay, according to the Law of the Land.49
The 1792 Constitution added that “[a]ll courts shall be open.”50 The first constitutions of Maryland (1776) and Massachusetts (1780), and the second of New Hampshire (1784) had similar directions,51 while Pennsylvania’s 1776 version instructed that all “courts shall be open, and justice shall be impartially administered without corruption or unnecessary delay.”52 Early nineteenth-century formulations, such as the 1818 Connecticut Constitution and the 1819 Alabama Constitution, used the locution that such rights were to be accorded to “every person.”53 Those terms are echoed in many state constitutions that describe public rights to observe proceedings and to use courts.54
Criminal defendants garnered special protections with rights to disclosure of charges, representation, confrontation, speedy trials, and to jurors from the vicinage in which the crime took place.55 Jury trial rights in criminal and civil cases put members of the public into courts as decision makers, thereby further anchoring the practice of open proceedings.56 Victims of crimes gained constitutional recognition in the latter part of the twentieth century, when more than thirty state constitutions added provisions recognizing a role for victims in court proceedings.57
The federal Constitution does not specify remedial rights in the terms used frequently in state constitutions.58 The phrase “open Court” appears only in the little-read Treason Clause of Article III,59and the reference to “public trials” comes in relationship to the Sixth Amendment rights of criminal defendants. Yet the idea of federal courts as responding to claims of injury has a long history. In 1803, Chief Justice Marshall famously insisted on two precepts: that the “very essence of civil liberty certainly consists in the right of every individual to claim the protection of the laws, whenever he receives an injury,” and that one “of the first duties of government is to afford that protection.”60 Repeatedly, and relatively unselfconsciously until the current wave of objections to implied causes of action,61 the Supreme Court responded by ruling on the merits of a variety of claims of right, often predicated on statutes that did not specify the availability of private enforcement,62 as well as on common law rights.63
The case law expressly addressing constitutionally obliged access to federal courts (for claims falling within the courts’ jurisdiction) is relatively thin—prompted by instances when Congress limited access for a set of claimants (such as those in detention at Guantánamo Bay),64 specified that particular executive decisions (such as those relating to the deportation of immigrants) were not subject to judicial review,65 or allocated final decision making to non-Article III courts (such as administrative adjudication of longshoremen’s injuries).66
When facing efforts to limit litigants from bringing cases, the Supreme Court has responded at times by avoiding the issue because alternative routes to the federal judiciary existed or by reading provisions as not imposing barriers that their language suggested.67 On rare occasions, the Court has overturned bans on judicial review.68 A variety of constitutional bases undergird assumptions of court access. One source is Article III’s vesting of “the judicial power” in a federal court system comprised of one Supreme Court and such lower courts that Congress chooses to create. Individuals in detention who seek to file claims have the additional resource of Article I’s protections of habeas corpus;69 when coupled with the doctrine that state courts have no power over individuals held by federal officials,70 the argument for access to federal courts becomes robust. Further, constitutional specification of the writ of habeas corpus, of due process, and of petitioning rights supports access to challenge convictions and conditions of confinement.71 The Court has concluded that custodians must not only facilitate communication by delivering prisoners’ legal mail but must also permit inmates to communicate with lawyers and obtain legal materials.72
The First Amendment right “of the people . . . to petition the Government for redress of grievances” also provides a basis for more general access to the federal courts.73 The choice of the word “government” (instead of the term “legislature”),74 coupled with the history of legislative responses to public and private parties’ petitions,75 supports reading the Clause to reference access to courts. The law thickened over the twentieth century76 and, by 2011, Justice Kennedy described litigation as necessary for “informedpublicparticipation” which was, in turn, “acornerstoneofdemocraticsociety.”77That decision—Borough of Duryea v. Guarnieri—illustrates the related point that constraints on litigation are permissible, if grounded in rationality.78
Fifth Amendment guarantees against deprivations of life, liberty, and property without due process, as well as against confiscation without just compensation, can also provide routes to court for determinations of whether the processes provided are those “due”79 and the compensation “just.”80 The doctrine that legal claims themselves are a species of property81 further supports access to courts, state or federal. Even the Court’s interpretation of the Eleventh Amendment to divest federal courts of authority over claims brought against states could be read as an implicit endorsement of judicial power otherwise extending to civil litigants properly before the federal courts.82
Third-party rights to observe court proceedings likewise have various federal constitutional bases. Public rights of attendance (beyond the Treason Clause) start with the Sixth Amendment, which guarantees criminal defendants a “speedy and public trial” before a jury drawn from the vicinage.83 When the press and the public seek access, they rely on First Amendment speech and petition rights, inflected by common law English and American practices.84
Although the U.S. Supreme Court has yet to rule directly on access to civil trials and related proceedings, its holdings on public access to criminal trials, pre-trial suppression hearings,85 and voir dire86 have prompted lower court judges to conclude that parallel rights attach to civil trials, related proceedings, and most of the documents filed in court.87 The formulation for determining whether a particular closure is lawful is often described as a mix of “experience” and “logic”88: that the First Amendment right of public access attaches when “the place and process have historically been open to the press and general public” and when “access plays a significant positive role in the functioning of the particular process in question.”89
Two other facets of the public persona of courts—hospitality towards all persons regardless of color, gender, or age, and concerns for inter-litigant inequalities and asymmetries—are artifacts of social movements of the last two centuries. Although many states promised “every person” rights-to-remedies, that reference did not include vast swaths of the population. Married women, African-Americans, members of Indian tribes, and various other persons faced legal barriers to their direct pursuit of claims. Conflicts—in courts and on battlefields—turned judiciaries into venues obliged to recognize the juridical personhood of all persons and to accord them equal dignity.
The question of subsidies for poor litigants emerged in the mid-twentieth century as part of the domestic struggle over race relations, framed by efforts to distinguish America from “totalitarian regimes.”90 In a series of decisions, the Court concluded that unfairness resulted if some criminal defendants had resources to pay fees for filing, transcripts for appeal, and lawyers, while others did not. The 1963 ruling in Gideon v. Wainwright,91guaranteeing the right to counsel for indigent felony defendants, was foreshadowed by the 1956 decision of Griffin v. Illinois, requiring that states fund transcripts for indigent defendants who would otherwise be unable to appeal.92 Related precepts come from Douglas v. California, insisting that states providing appeals of criminal convictions appoint counsel for indigent defendants,93 and Miranda v. Arizona, mandating that impoverished detainees, held for questioning by the police, be given Gideon-based rights to counsel.94
Constitutional entitlements for civil litigants emerged when a class of “welfare recipients residing in . . . Connecticut” argued that state-imposed fees of sixty dollars for filing and service precluded them from filing for divorce.95 Writing for the Court in 1971, Justice Harlan held that the combination of “the basic position of the marriage relationship in this society’s hierarchy of values and the . . . state monopolization” of lawful dissolution required the state, as a matter of due process, to provide fee waivers for those too poor to pay.96
The potential capaciousness of that precept was made plain by concurring Justices, each of whom would have proceeded under different legal theories. Justice Douglas objected that a Due Process approach was too “subjective” and instead rested the access right on the Equal Protection Clause, which he read to protect against “invidious discrimination . . . based on . . . poverty.”97 (Two years later, the Court rejected poverty as a suspect classification for purposes of equal protection.98) Justice Brennan agreed that the case presented a “classic problem of equal protection” as well as a due process violation; in his view, the state’s legal monopoly meant that support was required for indigent litigants attempting to “vindicate any . . . right arising under federal or state law.”99
The Court retreated in the face of high demand, limited resources, and a slippery slope of claimants.100 The Court carved out the family as a special place in which Due Process doctrine generated substantive procedural entitlements, such as subsidized tests to establish paternity,101 transcripts on appeal for indigents losing their status as parents,102 and an exceedingly narrow right to counsel if facing termination of parental rights.103 In 2011, a five-person majority Court concluded that procedural fairness—but not necessarily the appointment of lawyers—was also required before incarcerating civil contemnors, sued by co-parents for failure to pay child support.104
Struggles about access for “everyone” have also prompted inquiries into whether courts themselves were treating claimants fairly. In the early 1980s, the National Association of Women Judges (NAWJ), working in conjunction with the National Judicial Education Program (NJEP) of the NOW Legal Defense and Education Fund, pressed for inquiries into law’s biases. Building on a history of judicial efforts to improve the administration of justice by studying problems ranging from case management to juvenile offenders,105 the NAWJ and the NJEP sought to bring into focus the treatment of women in courts.
Chief judges in state and federal judiciaries responded by commissioning “task forces,” looking at “gender bias,” “racial and ethnic bias” and, occasionally, the intersection of the two.106 More than sixty reports resulted; topics included interactions in courtrooms, judicial appointments of lawyers to committees and staff assignments, and the structures of various legal regimes governing violence, sentencing, incarceration, immigration, bankruptcy, household dissolution, child support, economic marginality, and discrimination. Thousands of pages documented how experiences varied by gender and race, and these reports prompted new rules and practices aiming to improve the inclusiveness of courts.107
The mix of public adjudication, rulemaking, litigant filings, task forces, accounting for funds, and the need to obtain more resources has turned courts into “a huge information system—an entity that receives, processes, stores, creates, monitors, and disseminates large quantities of documents and information.”108 In the federal system, the Attorney General of the United States began providing statistical tables on filings in 1871.109 That task shifted in 1939 to the Administrative Office of the United States, which works with federal district and appellate courts to describe the demands placed on courts.110
With the advent of PACER (Public Access to Court Electronic Records), computer docketing puts federal court filings—except those sheltered based on concerns for national security and litigant safety—into a public database permitting readers to view pleadings and to track the submissions and dispositions in particular cases.111 Aggregate statistics are compiled by the Administrative Office of the U.S. Courts, which reports yearly on the “business” of the federal courts.112 More efforts are underway; the Chief Justice’s 2014 “state of the judiciary” announced that his Court was “developing its own electronic filing system” to facilitate public access.113
Parallel data entry systems exist in all the states,114 albeit often supported by fewer resources and with all the variations that federalism enables.115 Illinois’s Court Statistics Act, for example, calls for court officials to provide “information, statistical data, and reports bearing on the state of the dockets and business transacted by the courts and other matters pertinent to the efficient operation of the judicial system.”116That state is the exemplar chosen here because it has an unusually large public arbitration program. In 2011, more than 41,000 cases were sent to “mandatory, non-binding, non–court procedure designed to resolve civil disputes by utilizing a neutral third party.”117 That program, created in 1987, was required to evaluate its “effectiveness” and “report the results” to the General Assembly annually118 until 2012, when its separate data-collection obligations were repealed.119
These glimpses into the volume of filings and the infrastructures reflect the investments made in courts, even as judiciaries report themselves to be under-resourced.120 Given diverse streams of income and the mix of public and private funds, estimating the actual dollars flowing into courts is difficult. A few figures from the federal system offer windows into the sums committed. In 1971, the federal judiciary received $145 million; by 2005, that allocation represented an increase from under one-tenth of a percent of the federal budget to two-tenths—for a total of $5.7 billion.121 During the same period, staff positions more than doubled to 32,000,122 providing a workforce responding to annual filings of about 350,000 to 400,000 civil and criminal cases and more than a million bankruptcy petitions.123 And, despite budgetary constraints producing pressures to downsize facilities and staff, the 2015 budget for the federal judiciary was $6.7 billion, a $182 million (2.8%) increase over the 2014 allocation.124
Further, under the leadership of Chief Justice William Rehnquist, the federal judiciary obtained in the 1990s what one newspaper called the “largest public-building construction campaign since the New Deal: a 10-year, $10 billion effort to build more than 50 new Federal courthouses and significantly to alter or add to more than 60 others.”125 The courts tripled their dedicated space and, between 1996 and 2006, doubled it once more.126 One way to summarize the monumentality of the federal court system is by a photograph of the Thomas F. Eagleton Federal Courthouse (Figure 1), which opened in 2000 in St. Louis, Missouri.127
thomas f. eagleton federal courthouse, st. louis, missouri, 2000
Architects: Hellmuth, Obata + Kassabaum, Inc. Photographer: The Honorable David D. Noce, U.S. Magistrate Judge for the Eastern District of Missouri. Photograph courtesy of and reproduced with the permission of the photographer.
Standing 557 feet, this building became the “largest Federal courthouse in the United States,”128 at a cost of almost $200 million dollars to construct the more than one million square-foot structure.129
While courthouses have become iconic representations of government, twenty-first-century graphics require data.130 Figure 2—comparing the volume of filings in federal and state courts in 2010—provides another set of proportions. This figure details the 360,000 civil and criminal federal trial court filings, joined by more than a million bankruptcy claimants. Those numbers are small when contrasted with the volume of state court annual filings, which number more than 47 million, when juvenile and traffic filings are excluded,131and some 100 million when, as in Figure 3, they are included.132
comparing the volume of filings: state and federal trial courts, 2010
disaggregating state trial court filings, 1976-2008
The filings are one measure of judiciaries’ success. Courts are seen as hospitable to a variety of claimants, proceeding under a system not of their users’ personal design but fashioned by bodies of rule-makers committed to procedural neutrality and subjected to public scrutiny. Courts are the rare venue aspiring to treat all comers equally and to respond to litigants’ needs—with new forms to guide the millions of self-represented litigants, specialized clerks, information booths and kiosks, and targeted fee waivers for certain kinds of litigants.133 The doors are open to outsiders, authorized to watch the democratic practices of government officials (judges, lawyers, and staff), as they are obliged to interact with each other and the disputants in a respectful manner.
And of course, these formal obligations are unevenly achieved in practice and at times dishonored. Painful contemporary examples come from some local courts that create streams of revenue by imposing fees and fines on indigent defendants.134 In 2015, additional evidence of such practices surfaced in the wake of the police shooting of Michael Brown, an African-American man—prompting an investigation by the U.S. Justice Department into the police and municipal court in Ferguson, Missouri. The Justice Department’s report detailed the court’s absence of written rules (without “any information about [the court’s] operations on its website”135), its failure to provide notice, the misinformation given, the imposition of needless court appearances, unjust license suspensions, unduly high fines, harsh penalties for missed appearances, retaliation, and biased waivers—all of which disproportionately harmed African Americans.136
Such problems are neither unique to Ferguson nor limited to the criminal justice and civil sanction system. The systemic questions of how to be fair in practice are ever-present. The many task forces commissioned by dozens of judiciaries in the 1980s and 1990s were one response, as courts sought to explore how racial, ethnic, and gender biases affected their practices.137 State-commissioned Access-to-Justice task forces in more recent decades are another.138
Those interventions and attempts are not, however, possible in closed systems. Public practices and recordkeeping are predicates to making plain how much needs to be fixed and to providing platforms for demands to do so. In 2015, the Justice Department’s findings of violation of federal civil rights laws139 prompted the resignations of several of Ferguson’s officials and the decision of the Missouri Supreme Court to appoint an appellate judge to take charge of the municipality’s court system.140 Publicity was at the core of the Justice Department’s remedies—calling for increased “transparency regarding court operations to allow the public to assess whether the court is operating in a fair manner.”141
In sum, nothing is casual about the public’s relationship with courts. Courts are funded by the public fisc and staffed by government employees working in buildings owned or rented by the government and subject to a thicket of government-crafted regulation. Courts are also public in the sense that the members of the public are entitled to file cases, to watch proceedings involving others in courts, and to know the identity of judges and staff, their salaries (set by law), their budgets, and the rationales for their rulings. Controversies about those investments and the quality of processes and outcomes regularly result.
Governments are also the beneficiaries of these exchanges. These multiple meanings of the “public” in courts are in service of the authority of courts. From criminal penalties to the reallocation of rights in commerce and in households, law’s remedies entail coercion. Despite the conventional view that the federal Constitution has no positive entitlements, the judiciary is a counter-example, as a public service largely supported by public funds. The private sector relies on courts to protect economic growth and interpersonal obligations. Yet the dominant user is the government itself,142 enforcing its norms through criminal prosecutions and civil litigation and guarding its contracts and proprietary interests. Moreover, governments benefit from their judges, who gain their legitimacy and protect their independence through the discipline of obligations to make known their procedures and to do much of their work before the public.
II. the creation and erasure of rights
This structure is under siege through Dispute Diffusion, propelled by revised mandates to judges about how to handle cases and by the U.S. Supreme Court’s new approach to arbitration clauses. Looking only at court-based procedural reform or only at the doctrine of the FAA is to miss the interaction between the two as they have been reconceptualized during the past four decades. Both processes are being reconfigured as variations on the dispute resolution theme, and that shift reflects new normative commitments—to diffusion, deregulation, and to the privatization of dispute resolutions that gain the force of law.
Start with arbitration. In 2002, Justice Thomas commented on the degree to which the Court had “expanded the reach and scope”143 of the Federal Arbitration Act.144 Designed in 1925 by merchants and lawyers,145 the Act authorized federal courts to enforce contract clauses that committed the signatories to forgo decision making in courts and to be bound, instead by the decisions of arbitrators they choose. What that statute (reenacted “without any material change” and named the FAA in 1947146) provided were remedies—staying or dismissing pending lawsuits in favor of arbitration and enforcing awards when appropriate.
The scope of that remedy was once understood to be limited. During much of the FAA’s first six decades, congressional power to enact the statute was linked to its authority under Article III to regulate the lower federal courts.147 Because the Arbitration Act was “purely procedural in nature,” it conferred “no new substantive right” and thus did not apply in state courts. The Act provided one site for the development of arbitration; other federal laws on labor-management agreements shaped another. The statutory endorsement of labor arbitration reflected unions’ capacity to garner majoritarian approval of measures enhancing workers’ authority. Thus, commercial and labor arbitrations were celebrated for their responsiveness to specially situated participants, many of whom were enmeshed in long-term commercial relationships.
The distinctions between the contractual rights created by agreement and public rights mandated by statute, between federal and state courts, and between judges and arbitrators were robust some fifty years after the FAA’s enactment. As a consequence, a unanimous Court ruled in Alexander v. Gardner-Denver Company in 1974 that a labor-management agreement requiring arbitration of disputes did not preclude individual employees from pursuing statutory civil rights claims in court.148 A decade later, in 1984, a unanimous Court likewise concluded that because arbitration “could not provide an adequate substitute” for adjudication, an unsuccessful arbitration under a collective bargaining agreement did not prevent an employee from filing a subsequent civil rights case.149
Undergirding these decisions were views about the integrity of adjudication, the functions of federal statutory rights, and the rationales for arbitration. Judges were loyal to the public (embodied by their commitment to “the law of the land”150) and arbitrators to the contract (in the context of labor, “the law of the shop”151). Thus, Justices read statutes protecting consumers and employees to limit the FAA’s scope.152 As Chief Justice Burger explained in 1981, “[l]eaving resolution of discrimination claims to persons unfamiliar with the congressional policies . . . could have undermined enforcement of fundamental rights Congress intended to protect.”153
Further, until the mid-1980s, the FAA case law described litigation as entailing what arbitration lacked. Courts endowed disputants with a disciplined procedural structure, predicated on evidentiary standards, discovery, fact-finding, law application, and appellate review.154 These attributes redistributed power to protect those without the clout to negotiate dispute resolution clauses (or much else) in contracts. Litigation’s procedural neutrality was hence another reason not to enforce arbitration provisions when one side had “unequal bargaining power”155 or “excessive” and “overwhelming economic power”156 in a way that suggested “no genuine bargaining over the terms.”157
Those were the views jettisoned thereafter, as new majorities on the Court concluded that the FAA could require individuals, signing form job applications or purchasing consumer products, to pursue statutory claims exclusively in arbitration. Further, the Court abandoned its reliance on Article III and insisted instead that the FAA was the product of Congress’s Commerce Clause powers.158 Rather than a procedural right applicable only in federal courts, the FAA became a federal substantive right, preempting state laws found by the Court to undermine its own broadening of the “liberal federal policy favoring arbitration.”159
As a consequence, during the last three decades, the Court has ruled that the FAA can be used to bar access to courts when individuals claim breaches of federal securities laws;160 when employees allege discrimination on the basis of age;161 when employees file sex discrimination suits under state law;162 when consumers assert rights under state consumer protection laws;163 when merchants allege violations of the antitrust laws;164 and when family members claim that negligent management of nursing homes resulted in the wrongful deaths of their relatives.165 The bases for such obligations to arbitrate are not bargained-for, and, in many contexts, consumers and employees cannot shop to avoid arbitration mandates. Deeming these obligations “contract” ignores what the opening epigraph from the wireless service provider exemplifies: producers of rights-waivers can unilaterally “change any terms, conditions, rates, fees, expenses or charges regarding your Services at any time . . . .”166
This novel approach to arbitration required new theories of its legitimacy. As consent and volition receded as the bases for enforcing rights-waivers, Justices developed different rationales—that arbitration was a better process than adjudication and did just as well as an enforcement mechanism for public rights. In many decisions, Justices complained that litigation was “costly and time consuming,”167or praised arbitration’s capacity to produce “streamlined proceedings”168 providing prospective litigants with opportunities adequate to “effectively vindicate” their federal rights.169 Yet while regularly articulating that standard, the Court has not—to date—declined to enforce an arbitration mandate for its failure to provide adequate remedies.170
But to focus only on the Supreme Court readings of the FAA is to ignore the social and political movements revising attitudes towards litigation in the federal courts and beyond. Beginning in the 1970s, the flexibility and informality of various forms of ADR (not only arbitration) came to be praised as virtues—juxtaposed against the formal and public obligations of adjudication which were, in turn, gaining the negative valence of imposing undue costs on both disputants and the courts. Congress enacted statutes and agencies promulgated regulations commending arbitration, mediation, and other ADR methods for use by administrative agencies and in the federal courts.171
Moreover, to look only at the United States is to miss the transnational crosscurrents of Dispute Diffusion.172 The modern history of arbitration is marked by the establishment in 1899 of the Permanent Court of Arbitration173 and by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which came into force in 1959174 and which the United States joined in 1970.175 The Convention, an international counterpart to the FAA, requires contracting states to recognize awards made pursuant to private agreements to arbitrate.176
A measure of the transnational arbitration market comes from the American Arbitration Association, which was founded in 1926 to nurture the FAA. This nonprofit corporation calls itself “the world’s leading provider of conflict management and dispute resolution services”177 and describes its roster of thousands of “trained and qualified”178 neutrals who, as noted, deal with more than 150,000 cases yearly, mostly from contracts—public and private—naming the AAA to administer arbitration.179By 2013, the AAA had seventy cooperative agreements in forty-eight countries and its own international division, the International Centre for Dispute Resolution (ICDR).180 These developments are part of larger patterns of globalization and privatization, celebrated by some as expanding the rule of law181 and criticized by others as a neo-liberal privatization of power.182
Just as cross-continental exchanges shaped arbitration in the nineteenth and early twentieth centuries, contemporary interactions across networks of judges, lawyers, and repeat player litigants are transforming court-based procedures as well. During the last four decades, in several countries, programs to revisit the practices of civil litigation have aimed to refocus the work of trial-level judges, encouraging them to become case managers pressing for resolutions without adjudication. In the 1990s, England and Wales embraced pre-filing protocols to promote settlements through adoption of the “Woolf Reforms.”183 Australia and Canada have similar initiatives “remaking” or “privatizing” their courts.184
Returning to the United States, recall that Chief Justice Burger insisted in 1981 that, because courts had a distinctive role to play in enforcing race discrimination law, arbitration was inappropriate for such claims. In contrast, he argued that Fair Labor Standards Act claims could be sent to arbitration, and he criticized his colleagues for being “oblivious to desperately needed changes to keep the federal courts from being inundated with disputes of a kind that can be handled more swiftly and more cheaply by other methods.”185 As the Chief Justice explained, all branches of the federal government were studying how “to remove . . . routine and relatively modest-sized claims . . . from the courts.”186 The Chief Justice was referencing—and championing—the “policy of favoring extrajudicial methods of resolving disputes.”187 The goal was to avoid having the “federal courts flooded by litigation increasing in volume, in length, and in a variety of novel forms.”188
Increasing caseloads were problems to be solved, and interest in protecting the courts from too many or the wrong kind of cases prompted judicial action on and off the bench. In 1995, a special committee of the U.S. Judicial Conference (the federal judiciary’s policymaking arm) provided a “long range plan” that forecast a “nightmarish” scenario of overwhelming demand for courts.189Extrapolating from the second half of the twentieth century, the report projected that, by 2010, 610,800 cases (more than double the number in 1995) would be filed.190 To buffer against this possibility, the Judicial Conference urged Congress to send cases from federal courts to state courts and to administrative agencies, to avoid creating new federal rights whenever possible and, if cases proceeded in federal courts, to rely more on ADR.191
The judiciary’s enthusiasm for stemming court filings resonated with leading members of industry, other members of government, and the legal academy. Through a series of statutes and rule reforms, mediation and arbitration—methods characterized in the 1980s by both Chief Justice Burger and the Federal Rules of Civil Procedure as extrajudicial procedures192—turned in the 1990s into everyday practices inside courts.193 By 1993, judges gained the power to insist that litigants attend settlement conferences or use “neutrals” in efforts to end cases without adjudication.194
Thus, inside the federal courts, procedural revisions pushed significant aspects of court-based dispute resolution out of sight. The Federal Rules were amended to provide that discovery materials were no longer routinely filed in courts unless appended to motions; pre-discovery confidentiality agreements became routine,195 and settlements conditioned on non-disclosure of terms became commonplace.196 By 2014, proponents (including those on the Court) interested in constraining the perceived burdens imposed by federal litigation had put into place new restrictions on pleading and discovery, as well as new limits on the availability of implied causes of action, class actions, damages, and attorneys’ fees.197
The Court is not the only public promoter or potential regulator of ADR. Since the 1970s, Congress has offered arbitration as a forum in which to pursue remedies under various federal statutes. For example, in 1978, Congress amended the Federal Insecticide, Fungicide, and Rodenticide Act of 1947 (FIFRA) to require sharing research costs by those seeking applications authorizing their use of chemicals covered by the act; if disputes arise, resolution is exclusively by arbitration.198 The Amateur Sports Act of 1978 identifies arbitration as the forum for resolving disputes between organizations, members, and a national governing body.199 Two years later, in 1980, Congress amended the Employee Retirement Income Security Act to mandate arbitration for disputes between employers and multi-employer plan sponsors when employers withdraw from a plan.200 In 1988, Congress altered its 1976 Federal Land Policy and Management Act to establish arbitration as the default for disputes over land appraisals.201
More generally, in 1996, Congress enacted the Administrative Dispute Resolution Act (ADRA), exhorting federal agencies to diffuse disputes by using providers other than judges and methods other than adjudication.202 Both before the ADRA and after, administrative regulations commended the use of arbitration in a wide array of contexts, such as housing,203 national parks,204 patents,205 disaster relief,206 and telecommunications.207 In addition, as discussed below, Congress has also shaped a special arbitration process in the federal courts.
On one account, the proliferation of sites of dispute resolution is an ode to adjudication, for which demand outstrips supply. The problem to be solved is insufficient capacity, as judges cannot respond to all in need of their attention. The goal is to equip those seeking redress with more “access to justice” (the term common in the United States for dozens of state-based task forces208) or with “paths to justice” (the phrase used in many other countries).209 In practice, such alternatives need not be either court-exclusive or court-preclusive: non-court options can be pursued in addition to or on the way to filing in court.
Examples of such regulated innovations come from both sides of the Atlantic. In the United States, Congress created a system of “court-annexed arbitration,” to which parties generally may give consent and for which trials de novo are permissible.210 Many state systems have parallels.211 In Europe, the preamble to a 2013 Directive on consumer alternative dispute resolution (CADR)212 explained that “the right to an effective remedy and the right to a fair trial are fundamental rights . . . . Therefore, ADR procedures shall not be designed to replace court procedures and shall not deprive consumers or traders of their rights to seek redress before the courts.”213 When coupled with new mechanisms for collective relief,214 the European Directives aim to rectify what could be termed a market failure in adjudicatory structures by expanding the number of forums in and the modes of process through which consumers can pursue redress for alleged legal harms.215 These mechanisms can function not only to resolve disputes but also as gateways to further pursuit in court.
An alternative account is that litigation is itself the problem to be solved—not only because it is costly and adversarial but also because its public, regulatory effects do harm to entrepreneurship, impose costs on consumers and employees, and fetter government officials’ decision making.216 These views have gained prominence in the United States, as what was once described as the “old judicial hostility” to arbitration217 has been replaced by hesitancy about, if not hostility towards, adjudication. The gestalt is captured by the other opening epigraph, coming from a 2015 page of the federal judiciary’s website, helping visitors to understand how the “Federal Courts work.”218 There, the judiciary set off one text box to advise disputants “to avoid the expense and delay of having a trial” whenever possible.219
In addition to encouraging parties to exit the court system, judges superintend court-based settlement efforts.220 As their procedures incorporate ADR, the practices of judges come to resemble those of neutrals and arbitrators. Together, that cohort and their work constitute a field (in the sociological sense proposed by Pierre Bourdieu),221 in which reflexive exchanges normalize the avoidance of the public regulation entailed in adjudication in favor of diffusing disputes to diverse private sites. Control over access by third parties becomes a matter of largesse, rather than right.222 At the high end of international arbitrations, the overlapping sets of lawyers and arbitrators are developing a community of norms. And for the small-dollar claims of consumers and employees, the repeat player purveyors of arbitration clauses overlap with ADR providers to designate certain organizations as authoritative decision makers. As adjudication becomes repositioned as the product of “unnecessary litigation,” the rationales for public funding of courts weaken. Decisions to cut public investments in courts or to close courthouses become more difficult to contest.223
Earlier, I offered the phrase Dispute Diffusion to capture this developing normative orientation, aligning and conflating adjudication with its alternatives. Implementation comes through a host of statutes and regulations constituting what I termed Alternative Civil Procedure Rules (ACPR). Unlike the tidiness of the 1938 Federal Rules of Civil Procedure (numbered from 1 to 84) and their counterparts in each state (all of which are produced and disseminated by the governments of the issuing jurisdictions), locating ACPR requires much more effort. One needs to piece together sub-constitutional doctrine, statutes, and government-promulgated rules authorizing outsourcing, link such provisions to often hard-to-find manuals and protocols of hundreds of ADR providers, and learn whether specific arbitration clauses proffered when purchasing goods and services or applying for jobs impose modifications.224
The reason to group this array of sources together is to show their common function. Unsurprisingly, the many mini-codes of procedure incorporate some of the methods and values of the Federal Rules. And just as the substantive effects of the 1938 Federal Rules have come to be widely acknowledged,225 so too must the substantive norms imported into the ACPR be brought into view.
At their inception, the 1938 Federal Rules aimed to ease barriers to the federal courts by shaping trans-substantive, uniform, national provisions that expanded opportunities for obligatory information exchange among the parties and that vested discretion in trial judges, who were empowered to render public decisions based on the claim’s merits.226 In the mid-1960s, rule revisions facilitated the filing of class actions—thereby enabling the entry of schoolchildren, prisoners, consumers, employees, and many others into court.227 The way was paved by dozens of new federal statutory rights, the creation in 1974 of the Legal Services Corporation, and fee-shifting provisions for civil rights and employment discrimination plaintiffs.228
The influx of diverse claimants helped to clarify the political and social consequences of adjudication—the inevitable “substance” of rules of “practice and procedure”—that made plain the stakes of different procedural opportunities.229 After heated debates about the processes for drafting rules, federal legislation in 1988 imposed new requirements: proposed changes had to go through a period of public notice and comment prior to their approval or modification by layers of committees, reviewing the rules before sending them to the Supreme Court. Further, the time for congressional override after promulgation by the Court was expanded, to run for 180 days.230 Rule-making hearings became contested exchanges in which self-identified groups affiliated with “plaintiffs” or “defendants” sought to influence decisions on pleadings, discovery, aggregation, and trials.
The Alternative Civil Procedure Rules now emerging come in part from the public sector; new federal rules incorporating ADR go through the processes outlined above, just as rules for state-based arbitration or other forms of ADR go through those jurisdictions’ requirements. Further, state regulations affect some of the rules; for example, California requires arbitration providers to waive fees for indigent claimants using arbitration within that state.231
But alternative rules are also produced by private providers, free to specify procedures without public input. The variability in ACPR renders it normatively deregulatory. To the extent that some providers—such as the AAA—solicit input from outsiders and are concerned about limiting expenses of parties, they do so by choice. Thus, the AAA’s decisions to convene a task force to produce its 1998 “Consumer Due Process Protocol” imposing fee schedules with caps, to create ethical standards,232 and to revise its rules and fee schedules are matters of “internal policy.”233 Likewise, the AAA’s standards of “Ethical Principles,” such as “commitments to diversity” and “information disclosure and dissemination,” are choices,234 and many other ADR providers do not follow these AAA efforts at self-regulation. Further, the manufacturers and services that impose arbitration clauses make a host of choices; according to one review of 188 U.S.-based “social media providers,” about forty percent mandated arbitration, and many did not meet the “due process fairness tests” of the AAA.235 Indeed, identifying terms in arbitration clauses, ADR providers, and learning about their rules and caseloads are research projects in themselves.236
In addition to variability, ACPR do not insulate decision makers’ independence from parties; rather, ACPR shape an insider system with its own political economy, reliant on a web of confidential interactions inhibiting connections to the body politic. One could—if energetic—search the fifty state websites to make a list of the name of every person appointed or elected to be a judge in state and federal courts. Further, one could review thousands of pages of data on court filings and outcomes and look at individual dockets, many of which are now on electronic filing systems.237 And one could walk into the thousands of courthouses around the country to read files and to watch judges, when they are on the bench.
But no central registries account for the hundreds of ADR decision makers, the claims filed before them, their rules, fees, or outcomes. The AAA, for example, does not have a list of all the institutions identifying it as the administrator of their arbitrations,238 and the AAA does not offer a public directory of its own arbitrators.239 Instead, confidentiality is one of the AAA’s Ethical Principles, committing the organization to keeping information about proceedings private.240 Watching the work is also not an option. The major providers advertise confidentiality as a signature of their processes; the hearings are generally closed, and the rules permit arbitrators to bar third parties from attending hearings.241 While many arbitration clauses are “silent on confidentiality,”242 some oblige participants to keep information and outcomes private.243
Aggregate data and individual filings are also not made publicly accessible, except as required under federal or state law. For example, the AAA complies with state mandates requiring posting of data, but takes down that information when the obligation to post (generally for five-year periods) expires.244 Some redacted employment awards are also made available.245 Researchers seeking to capture trends need to obtain special access to ADR providers’ files or archive data before those materials disappear from the Internet.
Complainants and their lawyers have parallel challenges. One consumer cannot know from arbitration dockets whether another won or lost based on identical allegations of overcharges or product defects, just as one employee cannot generally know if another succeeded on discrimination or on other claims of rights. Individual decisions come into the public purview through limited routes, such as when awards are contested; the rulings of arbitrators are generally enforceable in, albeit not directly reviewable by, courts.246 As the AAA explained to the United States Supreme Court, which agreed with the argument against the appellate review called for in an arbitration clause, “finality”—translated as limited court oversight—is intended to produce economy.247 Thus, the Court chose to close off judicial reconsideration even when the parties had sought court review of the lawfulness of the outcome of arbitration.248
III. locating the private and the public in arbitration
Contract, not coercion, was the centerpiece of arbitration in much of the nineteenth and twentieth centuries. The obligations to participate and to comply flowed from shared decisions to eschew the public arena. Negotiating parties could design their own idiosyncratic procedures, select their decision makers, and stipulate remedies to suit their preferences. Arbitrators in turn derived their power from and owed their loyalties to the parties’ intent, rather than governing law. The “ability to tailor processes to fit particular circumstances and needs”249 invited autonomous self-fashioning. Arbitration was seen to promote economic growth250 and, as Michael Helfand discusses in this volume, the welfare and well-being of sub-communities.251
Arbitrations were also private in two other senses of that word. First, during the nineteenth century, parties who decided to arbitrate could not turn to the public system to enforce that obligation.252 Rather, as a matter of “public” (the word chosen) policy, courts jealously guarded their monopoly on enforcing obligations253 and declined to enforce agreements to arbitrate.254 Second, the parties controlled the places in which arbitrations took place and could choose private venues, to which strangers had no right of entry.255
These facets of the private in arbitration have kept arbitration off-screen. While the public function of courts has produced many iconic images denoting the authority of the state, visual representations of accords to arbitrate are hard to come by. An exception is an engraving (Figure 4) by Bernard Picart.256 As the French text explains at the bottom, two kings are depicted “swearing an alliance” confirmed by their handshake. The Renaissance Virtues of Justice and Peace embrace in the background; the eye of Providence looks down from above, and War, Ambition, Discord, Fraud, and Impiety are enchained below.
traitez de paix, bernard picart, 1826
Frontispiece, Jean Dumont, Corps universel diplomatique du droit des gens.Courtesy of Lillian Goldman Law Library, Yale Law School.
original logo of the permanent court of arbitration
© Courtesy of the Permanent Court of Arbitration.
The Picart depiction was the frontispiece to a 1726 compilation of political treaties and commercial alliances (Corps universel diplomatique du droit des gens by Jean Dumont).257 Its special resonance for arbitration comes from its use as the template for the first logo (see Figure 5) of the Permanent Court of Arbitration (PCA),258 whose founding conferences provided “invaluable lessons” for those designing arbitrations in the United States.259 The PCA has been housed since 1913 in the Peace Palace, which itself is an icon of volition because it has sheltered a series of international dispute resolution organizations to which no one can be “bidden.”260 Both the PCA and the International Court of Justice (ICJ), also housed at the Peace Palace and opening its courtroom in 1946 as the successor institution to the Permanent Court of International Justice, depend on parties’ consent to their jurisdiction and lack direct coercive mechanisms to enforce their decisions.261 Voluntarism thus sits at the center of arbitration.
A. The Paradigm of Merchants, Contracts, and Consent
The merchants and lawyers who forged the public law of arbitration in the United States sought federal legislation to enforce consensual agreements. A committee of the American Bar Association (ABA) drafted language for what became the 1925 United States Arbitration Act (USAA).262 Joined by more than 120 organizations under the leadership of the Chamber of Commerce, the ABA pressed for enactment.263
The 1925 statute mandated that a “written provision in any maritime transaction or a contract evidencing a transaction involving commerce” was “valid, irrevocable, and enforceable,” subject to “such grounds as exist at law or in equity for the revocation of any contract.”264 The statute expressly exempted “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”265 Those workers were among the few employees whom Congress could clearly regulate under its Commerce Clause authority, as understood in the 1920s.266 Furthermore, at the time, the federal courts did not have their own civil procedural rules. While the federal judiciary then had the power, under the doctrine of Swift v. Tyson, to shape general federal common law,267 federal judges conformed most of their procedures to the rules of the states in which they sat.
The question of the constitutionality of the Arbitration Act reached the Supreme Court in 1932; the Court upheld the statute on the grounds that Congress had the authority to create such a remedy pursuant to its power under Article III to regulate admiralty jurisdiction.268 Two years later, Congress enacted the Rules Enabling Act, authorizing the federal courts to create national procedural rules, which were promulgated by the Supreme Court in 1938.
As Amalia Kessler details in this volume, once in place, the U.S. Arbitration Act (reenacted and renamed the Federal Arbitration Act (FAA) in 1947) was promoted and nurtured by the American Arbitration Association, itself incorporated in 1926 to support this system of “self-regulation.”269 The mandate of the FAA made the promise to arbitrate a matter of public law, but many other aspects of arbitration remained in the private realm. The system was privately financed by contracting parties270 and, because arbitrators were not to provide “information or publicity” about what transpired (unless parties directed otherwise),271 participants controlled access to knowledge about arbitration’s use and could screen it from public view.
Yet Congress also authorized parties to come to federal courts to enforce or vacate arbitration awards.272 When conflicts about either obligations to arbitrate or the outcomes are filed in court, the public gains access to information. As a consequence, litigated conflicts over the scope of the FAA are a treasure trove of insights (albeit not a random sample) into the changing terms and conditions under which arbitrations take place.
Until the 1980s, the Supreme Court put consent at the fore and read the statute as neither preclusive of other federal regulatory goals nor operative when parties had significantly different bargaining powers. The oft-cited exemplar is the unanimous 1953 decision of Wilko v. Swan, which involved a customer’s allegations that a brokerage firm violated 1933 federal securities laws by making misrepresentations about the valuation of a stock.273 The question was whether terms in an agreement calling for the settlement of controversies by arbitration were enforceable.274
Justice Reed, writing for the Court, did not rule out the FAA’s application to statutes,275 but his opinion raised two problems: the asymmetry in parties’ bargaining capacity and the limits of the arbitration process. Even if some buyers and sellers “deal[t] at arm’s length on equal terms,” Justice Reed wrote, the federal securities laws were “drafted with an eye to the disadvantages under which buyers labor.”276 Moreover, the process of arbitration departed significantly from the rights provided in courts.277Arbitrators’ awards “may be made without explanation of their reasons and without a complete record of their proceedings”—leaving one unable to examine “arbitrators’ conception of the legal meaning of such statutory requirements as ‘burden of proof,’ ‘reasonable care’ or ‘material fact.’”278 In contrast, public decision making by judges, subject to appellate review, ensured compliance with congressional regulations protecting purchasers of stock.279 Thus, if one party objected, the arbitration clause was not to be enforced.280
B. From Waffles to Cheerios: Employees, Consumers, and Obligations To Arbitrate
In the 1980s, the Supreme Court revisited its prior readings of the FAA. Rejecting the Wilko Court’s concern that arbitration was a “method of weakening the protections afforded in the substantive law to would-be complainants,”281 the Court reread congressional statutes to require that persons having signed an “agreement to arbitrate” be required to do so.282 In a series of decisions, the Court concluded that enforcement was required unless objectors could meet their burden of demonstrating that a “contrary congressional command” altered the obligation to arbitrate,283 that an “inherent conflict” existed between the relevant statutory right and arbitration,284 or that the alternative dispute program was inadequate to “vindicate” statutory rights.285
Further, in 1984, in a key decision opening new arenas for the relocation of claims from courts to arbitration, the Supreme Court held—over several objections—that the FAA applied to state courts. The decision in Southland Corp. v. Keating286was written by Chief Justice Burger, who was, as noted, an ardent proponent of ADR but who was also known for supporting state autonomy from federal constitutional mandates.287 Breaking ranks with fellow federalists Justices O’Connor and Rehnquist, Chief Justice Burger held that the FAA preempted California’s Franchise Investment Law, which called for “judicial consideration of claims” brought under its aegis.288 Justice Stevens (who dissented in all the cases expanding the FAA’s reach from contract to statutory rights289) disagreed about the displacement of state authority.290 Justices O’Connor and Rehnquist argued that the FAA was based on Congress’s Article III powers, that the FAA’s text mentioned federal district courts specifically, and that it created a federal procedural remedy that had no application to state courts.291 “Today’s decision is unfaithful to congressional intent, unnecessary, and . . . inexplicable.”292
The expansion of the FAA to consumers and to state courts was followed by the Court’s rulings on employment contracts—confirming the “demise of the non-arbitrability doctrine.”293 In 1991, over the objections of a financial services manager bringing a claim under the Age Discrimination in Employment Act,294 the Court explained that “[m]ere inequality in bargaining power . . . is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context.”295In 2001, the Court dealt squarely with the question of the FAA’s application to employees. Circuit City Stores, Inc. v. Adams held that, aside from seamen and railroad workers (expressly exempted by the statute),employees could—through job application forms or other documents—waive rights to bring state and federal anti-discrimination as well as common law claims in courts.296
The impact of the changing interpretation of the FAA can be seen in Figure 6, the “Application for Employment” that Waffle House (“America’s Place to Work, America’s Place to Eat”) required prospective employees to sign. The document comes from the record in EEOC v. Waffle House, Inc., decided by the U.S. Supreme Court in 2002.297 From the hand-marked portion of the document, we learn that the applicant, Eric Scott Baker, told the company that he could start work in two weeks, that he had a high school diploma, and that he drove a 1985 Buick Skyhawk.
Figure 6. 298
waffle house employment application
The printed terms imposed by Waffle House offered no equivalent personalization. Rather, the form instructed all applicants that Waffle House could “deduct from any monies due [them], an amount to cover any shortages which may occur” and that they had to “indemnify” the company “against any legal liability” for withholding wages.299Moreover, if “money, food, or equipment” to which he had access was alleged to be lost, applicants had “to submit to a polygraph” or other testing.300As to the resolution of disputes:
The parties agree that any dispute or claim concerning Applicant’s employment with Waffle House, Inc., or any subsidiary or Franchisee of Waffle House, Inc., or the terms, conditions or benefits of such employment, including whether such dispute or claim is arbitrable, will be settled by binding arbitration. The arbitration proceedings shall be conducted under the Commercial Arbitration Rules of the American Arbitration Association in effect at the time a demand for arbitration is made. A decision and award of the arbitrator made under the said rules shall be exclusive, final and binding on both parties, their heirs, executors, administrators, successors and assigns. The costs and expenses of the arbitration shall be borne evenly by the parties.301
Eric Baker signed the form on June 23, 1994 at a Waffle House in Columbia, South Carolina; he was offered and declined a job there. Some weeks later, and without filling out another application, Baker was hired at another Waffle House, miles away. Within a few weeks, Baker had a seizure (lasting “approximately thirty seconds”) at work.302 On September 5, 1994, Waffle House terminated Baker’s employment.303 Baker complained to the Equal Employment Opportunity Commission (EEOC) that Waffle House had violated his rights under the Americans with Disabilities Act of 1990 (ADA). After investigating, the EEOC filed an enforcement action against Waffle House in federal district court. Waffle House moved to dismiss and to compel the EEOC to go to arbitration.304
One issue, raised in defense, was the form’s effect on the EEOC. An antecedent question was the form’s relevance to Baker. In 1998, the district court judge held that, because Baker filed the form at one location but was hired at another, “it does not appear that Baker’s acceptance of employment . . . was made pursuant to the written application.”305 Likewise, a member of the Fourth Circuit concluded that under “fundamental principles of contract law,” Mr. Baker had not entered into a written employment agreement.306 But a majority of the Fourth Circuit determined that the “generic, corporation-wide employment application . . . followed Baker to whichever facility of Waffle House hired him.”307 While the EEOC was not a signatory, the “binding arbitration agreement between Baker and Waffle House” precluded the EEOC from seeking remedies for Mr. Baker, though not from requesting injunctive relief against Waffle House for discriminating on the basis of disability.308
In 2002, the Supreme Court disagreed. Writing for the majority, Justice Stevens concluded that the form did not limit the filing by the EEOC, which was authorized by Congress to “vindicate the public interest” as well as to seek victim-specific remedies.309 The “proarbitration policy goals of the FAA do not require the agency to relinquish its statutory authority if it has not agreed to do so.”310 In dissent, Justice Thomas (joined by Chief Justice Rehnquist and Justice Scalia) read the form to preclude the EEOC from pursuing relief that the employee “has agreed not to do for himself.”311
The Waffle House documents illustrate the distance between “fundamental principles of contract law” and the application Eric Baker signed. The oddity of characterizing such “pieces of paper” as contracts was explained in the 1970s by Arthur Leff, who wrote that contracts required “not only a deal but dealing.”312 Negotiations—even with form provisions—reduced “the possibility of monolithic one-sidedness.”313 Leff appreciated that contract theorists had, in the 1940s, shaped concepts such as duress, fraud, and unconscionability as part of the development of the doctrine of “contracts of adhesion;” Leff thought these arguments innovative but the wrong approach (“totally irrelevant”314) to materials that were not themselves contracts.315 Rather, as “products of non-bargaining,” such documents were “unilaterally manufactured commodities.”316 As a “thing,” the law ought to regulate its quality, as it did other products.
But instead of limiting arbitration to negotiated contracts, the Court has licensed expansive use of that product, now described by opponents as “forced arbitration,”317 while others offer terms such as “employer-promulgated plan”318 or “pre-dispute arbitration.”319 Under the Court’s approach, the range of statutes coming under the FAA’s aegis has continued to expand. In 2012, the Court applied the FAA to litigants claiming violations of the Credit Repair Organization Act,320 and in 2013, to a family restaurant, Italian Colors, which argued that the American Express Company had violated the Sherman Antitrust Act.321 Signatures lost some of their relevance in 2009, when the Court required employees who had not signed a collective bargaining agreement to use arbitration instead of pursuing their age discrimination claims in court.322
Judicial and legislative encouragement of arbitration has not been lost on the business community or on ADR providers.One measure of growth is production, and the numbers of clauses mandating arbitration are soaring across many sectors. A 1991 survey found fewer than four percent of firms requiring arbitration in employment; by 2007, another study found that more than forty-five percent of the firms did so.323 In 2008, the estimate was that “a quarter or more of all non-union employees in the US”—thirty million employees—were covered.324
Many more consumers are obliged to use arbitration. The market for cell phones grew between 1990 and 2009 to include an estimated 291 million users in the United States and to produce revenues for the four major providers (AT&T, Verizon, Sprint, and T-Mobile) totaling $180 billion.325 Virtually all providers of wireless services insist on mandatory arbitration, along with the option (discussed in more detail below) of using small claims court for individual actions.326
Financial services are another sector producing arbitration clauses. According to a 2015 study by the Consumer Financial Protection Bureau (CFPB), which was chartered in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act and authorized to regulate arbitration in that segment of the market,327 approximately fifty percent of credit card loans are subject to arbitration,328 and nearly all that were studied “expressly did not allow arbitration to proceed on a class basis.”329 Mandated arbitration is also common in web-based sales. As of the fall of 2014, Amazon imposed mandatory arbitration (with the small claims court alternative),330 and Dropbox offered a 30-day window to opt out of arbitration.331 And, as the case law at the Supreme Court reflects, some nursing homes require mandatory arbitration, including for claims of negligence resulting in wrongful death.332
The appetite to do more was evident in the spring of 2014, when General Mills—the manufacturer of the popular Cheerios cereal—put a notice on its website that through “interacting” by “joining our online community,” “entering a sweepstakes,” downloading coupons, or purchasing products “online or [in] physical stores,” customers agreed that “any dispute . . . based in contract, tort, statute, fraud, misrepresentation, or any other legal theory,” was to be resolved “by informal negotiations or through binding arbitration.”333 A barrage of negative publicity prompted some retraction; General Mills reminded its customers that they had the “opportunity to opt out” by e-mail.334 Thereafter, General Mills retreated further, and by the end of 2014, its website made no mention of arbitration.335
IV. metrics of effective vindication, adequacy, and unconscionability
A. Gateways to Judging Arbitration’s Legitimacy
Once the Supreme Court authorized arbitration for federal statutory and common law rights in the absence of bargaining, the Court needed an alternative account of the legitimacy of its actions. As discussed below, the Court first mentioned the idea of “effective vindication” in 1985 in the context of an antitrust claim arising out of a trilateral contract among transnational commercial parties. When expanding its imposition of arbitration to the mass production of arbitration clauses and applying its rule to consumers and employees, the Court reiterated that the legitimacy of doing so rested on arbitration’s adequacy as a choice of forum in which to vindicate statutory rights.
Before detailing the development and application of this approach, a word is in order about lines of doctrine which, in theory, differentiate between federal statutory rights and state statutory or common law rights and which distribute authority to review arbitration clauses between judges and arbitrators. In the context of federal statutes, the Court reads the FAA as putting arbitration clauses on an “equal footing” with any other contract provision336 and then asks whether another federal statute specifically precludes the use of arbitration or, if not expressly precluded, whether an “inherent conflict” exists between arbitration and that statute. In these analyses, the Court often speaks about arbitration as effectively vindicating the specific statutory right pursued.337 In contrast, when arbitration clauses relate to rights based on state law, the legal question is whether the mode of pursuing those rights must be arbitration as a matter of federal law.338 Although this federal preemption issue might not invite inquiries other than whether the state law conflicts with the federal mandate, the Court sometimes also discusses the “adequacy” or “accessibility” of arbitration in preemption cases.
Thus the doctrinal lines are not crisp. The Court has linked “effective vindication” to discussions of arbitration’s “adequacy”339 and to the potential that arbitration imposes “prohibitively expensive” costs.340 Indeed, the Court relied on its state preemption case (AT&T Mobility LLC v. Concepcion, licensing a ban on class arbitrations) to inform its ruling in a federal statutory rights case (American Express v. Italian Colors)—despite objections by the dissent, seeking to buffer federal statutory claims from the ruling in the AT&T litigation.341
Lower court decisions reflect the overlap in analyses. Some judges apply the test of “effective vindication” only to federal—and not state—statutory rights,342 while others use the terms “effective vindication” and “adequacy” or “accessibility” in their decisions addressing contested arbitration clauses applying to court-based pursuit of federal and/or state rights.343 Other phrases come into play, such as whether the obligation to arbitrate renders “illusory” federal or state statutes and common claims and whether using arbitration is unduly “burdensome.”344 The state-law doctrine of unconscionability also appears in the mix, at times linked to an analysis of effective vindication.345
The other facet of the case law requiring an introductory explanation is what is known as the “gateway” question: whether claims of ineffective or unconscionable provisions are to be decided by courts before parties can be sent to arbitration or decided by arbitrators as part of their interpretation of contracts and of arbitration procedures.346 This arena was once understood to fall within state courts’ domain but is now firmly under federal control. The current approach, shaped in 2010 by the Supreme Court, gives broad authority to arbitrators and “substantially” reduces the “role of courts in applying unconscionability doctrine to assess the enforceability of arbitration clauses.”347
A painful illustration comes from a 2013 Second Circuit decision brought by a New Yorker, Bernardita Duran, challenging a provision requiring her to go to Arizona to contest the obligation to arbitrate.348 Duran argued that it was unconscionable to require her to travel to Maricopa County, Arizona to press claims that a firm had violated federal statutes and New York’s consumer laws by, she alleged, taking “$3,190.64 in fees” from her and causing her “overall debt to increase by over $4,500 in eight months.”349
The Second Circuit’s summary order explained that, had Duran argued that the arbitration agreement was itself “unconscionable due to the forum selection clause,” a judge would have had to decide that issue. But, because Duran’s claim was only that the designation of Arizona (the “forum selection clause”) was unconscionable, the issue was one for the arbitrator.350 What the court called the “logical flaw” in the result was, it believed, dictated by the Supreme Court’s precedent.351 Nonetheless, the court recognized the impact: that by
requiring arbitration over the validity of the forum selection clause to proceed pursuant to the terms of that forum selection clause, we may well be enforcing an invalid—and indeed unconscionable—contract. Even if the arbitrator ultimately decides that the merits of the dispute should not be arbitrated in Arizona, a round of arbitration will already have occurred in Arizona . . . .352
According to the 2015 Consumer Financial Protection Bureau study, Ms. Duran’s travel challenges were not typical of the provisions it researched. Most credit card arbitration clauses (ninety-three percent) and all mobile wireless clauses addressed the place of arbitration; the vast majority located arbitrations convenient to the consumer. Yet Ms. Duran was also not the only consumer subjected to travel obligations. About eight percent of credit card clauses and about fourteen percent of wireless clauses did not require locating arbitrations proximate to the consumer.353 Moreover, an analysis of obligatory arbitration provisions proffered by social media companies found that more than two dozen required that arbitrations be held in the “social media’s home jurisdiction,” rather than that of the consumer.354
In short, the public law of private arbitration is anything but simple, and three points emerge from the density of the doctrine. First, anyone interested in challenging obligations to arbitrate needs lawyers skilled in navigating a large body of doctrinal complexities, and hence, the Court’s jurisprudence has imposed a substantial financial burden on individuals seeking to use courts instead of arbitration. Second, however muddy the legal approaches, federal judges are in control of decisions about when arbitration can be substituted for litigation and about which procedural features are “fundamental” to arbitration.355 The focus of the case law is not on market theories about whether consumers would be willing to sell their process rights in exchange for lower prices.356 Nor do federal judges read the text of the FAA—referencing defenses to arbitrability based on contract law357—to mandate deference to state contract law.
Third, this body of federal law lacks directions on how courts do—and ought to—measure effective vindication, adequacy, accessibility, and burdensomeness. From whose vantage point—claimants, respondents, third parties, decision makers—is the evaluation made? Is the question comparative, with courts as the baseline? Is the analysis predicated on implicit assumptions about what constitutes optimal levels of enforcement of the law? Such questions are part of debates about the roles of private and public enforcement in producing compliance and about how to maximize the utility of interventions in light of the costs of compliance and of the pursuit of violators. And, of course, views on the desirability of individual and collective pursuit of rights—in public—ought to be informed by knowledge about the frequency of legal violations and the degree to which voluntary compliance remedies the breaches that occur.
Getting the requisite information is difficult. Data on court-based filings do not provide a full picture of the injuries that have occurred,358 because individuals often lack the capacity to “name, blame, and claim.”359 Even if one is aware of legal injuries, the costs of pursuit may well make “lumping it” appropriate, absent collective action.360 Court filings are also an imperfect measure because of over-claiming as well as under-claiming.361 Other variables include whether informal remedies provide relief, whether options exist to use different venues (small claims court, arbitration, class actions), whether the various venues have the capacity to deal with the number of claimants seeking their services, and the role played by the government, pursuing relief on its own or on others’ behalf.
How might these assessments be made in practice? One might expect that if arbitration were a “better” process than adjudication and levels of legal claims were constant, the availability of arbitration would produce a rise in filings. Satisfaction rates via user surveys could also be illuminating; a proxy could be whether negotiating parties bargain to stay out of court altogether or seek judicial review. Analyzing outcomes and comparing providers, as the Government Accountability Office (GAO) has done for financial services arbitrations364 and as a variety of researchers seek to do for employees and consumers,365 could offer additional insights, especially if independent measures of the validity of claims are available.
In addition to empirical information, however incomplete, value judgments are required. For example, when describing arbitration as “cheaper,” “more informal,” and “speedier” than adjudication, is the implicit claim that arbitration permits more claimants to bring complaints, that it imposes fewer burdens on potential respondents, or both? What metric should be used to assess the impact of adjudication’s expressive values? Returning to the question of the vantage point for such assessments, is the cost-benefit assessment internal to the disputants or ought third-party access to information about the proceedings be factored into the equation? Choosing goals depends in part on underlying narratives about the degree to which compliance with legal rules exists, the importance of compliance, the role of public exchange, and whether private efforts to enforce rights make a difference.
An example of efforts to increase private enforcement comes from the European Union, committed to protecting the right to an “effective judicial remedy.”366 A recent Directive on Consumer ADR consciously aims to expand the number of private claims pursued through alternative dispute resolution without precluding the use of courts thereafter.367 In contrast to what might be termed this claim-expressive approach, the United States Supreme Court’s use of the FAA to preclude court filings and to permit bans on collective actions is seen as “claim suppressive.”368 That shift, discouraging private enforcement, could be predicated on the view that compliance with legal rules is better achieved through other means369 and thus that court-based procedures are inefficient or unnecessary, or on the view that too many pursue unwarranted claims.
Evaluating the tradeoffs in many arenas can be difficult, but some of the utilities and harms of collective action are obvious. As Justice Breyer in the AT&T case commented, given a “maximum gain to a customer for the hassle of arbitrating a $30.22 dispute is still just $30.22,”370 individuals at risk of paying $125 in administrative fees were unlikely to pursue their claims (“only a lunatic or a fanatic sues for $30”).371 A concern from the prospective defendants’ vantage point was voiced by Justice Scalia, writing for the AT&T majority and asserting that class arbitrations created “in terrorem” effects, pressing companies into inappropriate settlements.372 Thus, all members of the Court agreed that collectivity mattered; they disagreed about what weight to accord competing arguments about whether class actions usefully police misbehavior and provide individual benefits, disserve customers because companies increase the costs of products, or result in trivial remedies for individuals and unduly large fees for their attorneys.
The institutional question is which bodies—courts, legislatures, agencies, individuals and their lawyers—are to make such assessments about the tradeoffs between litigation and arbitration and the utilities of collective action. One can read the many federal statutes giving rise to private causes of action as congressional judgments attributing some value to private enforcement of the law, just as state constitutions, legislation, and common law endow individuals with rights to pursue injuries. Yet the Supreme Court has not given much weight to this court-based rights framework. As the majority in the AT&T litigation explained, it was relying on “our cases”373 to read the FAA (which predated class actions and which makes no mention of arbitration’s form in terms of the numbers of parties or other features) to require enforcement of arbitration obligations that include collective action bans. Further, rather than remand to require fact-finding, the Court has repeatedly stipulated the adequacy of arbitrations and rejected judicial monitoring of the outcomes.
Congress has thus far responded in a piecemeal fashion, episodically insulating a few businesses (such as car dealerships and chicken farms374) from mandatory pre-dispute arbitration. Further, Congress has relied on the Securities and Exchange Commission (SEC) to oversee securities arbitrations and the GAO to report on their use; chartered the Consumer Financial Protection Bureau to consider regulation of mandatory arbitration of disputes about consumer financial products and services;375 and specified the structure and reach of court-annexed arbitration in federal courts. But Congress has yet to impose general requirements addressing the kind of consent required to waive court access rights in light of the absence of bargaining, the quality of the procedural opportunities needed for arbitration, or the information that ought to be disclosed.376 Below, I trace the emergence and application of the Court’s legitimacy tests, and I explore the roles that Congress and federal agencies could play in structuring the proliferating Alternative Civil Procedure Rules and in regulating the diffuse sites in which they operate.
B. Effective Vindication’s Genesis in an “International Commercial Transaction” and Under the Supervision of the Securities and Exchange Commission
The “judge-made” test of adequacy377 was announced in 1985 in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., when the Court first applied the FAA to preclude litigation of a federal statutory right.378 The context, as Justice Blackmun explained for the Court, was a trilateral contract involving an “international commercial transaction” that included an arbitration agreement.379 As the dissent described the claim, the Puerto Rican dealer, Soler Chrysler-Plymouth, alleged that the two other parties (“major automobile companies”) were part of an “international cartel that has restrained competition in the American market . . . [and] allegedly prevented the dealer from transshipping some 966 surplus vehicles from Puerto Rico” to other U.S. dealers.380
Relying on a mix of the FAA and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (which the United States had joined fifteen years earlier), the majority sent the disputants—a Japanese automobile manufacturer, the Chrysler Corporation, and a Puerto Rican dealership—to arbitration.381 The ruling could easily have been cabined: the three parties were businesses (albeit with different resources), and consent to the contract was not in question382—even if, as the dissent argued, there had been “no genuine bargaining over the terms of the submission” to arbitration.383
Further, one reading of the opinion was that it applied only to international cases. The Court cited the Convention that the United States had joined, committing itself to enforcement of international awards. “[E]ven assuming that a contrary result would be forthcoming in a domestic context,”384 the Court emphasized the importance of “international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes.”385 Much of the opinion expressed confidence in arbitrators’ willingness to enforce U.S. antitrust law and their ability to deal with its complexity. Given that the parties’ “intentions” were for the international arbitral body to decide claims “arising from the application of American antitrust law,” the Court expressed its confidence that the arbitrators were “bound to decide [the] dispute in accord with the national law giving rise to the claim.”386 The Court added what might have been an aside but, in retrospect, came to be read as its essential caveat: “so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.”387
The Court’s next steps in the relocation of statutory claims to arbitration could also have been limited ones, dependent on supervision of arbitrations by federal agencies such as the SEC. In 1987, in Shearson/American Express v. McMahon, Justice O’Connor wrote for the Court to enforce a pre-dispute arbitration clause “between brokerage firms and their customers.”388 She explained that unlike the 1950s era of Wilko v. Swan, “the SEC has sufficient statutory authority to ensure that arbitration is adequate to vindicate Exchange Act rights, [such that] enforcement does not effect a waiver of ‘compliance with any provision’ of the Exchange Act.”389The role played by the SEC in ensuring the quality of arbitral processes also counted in Rodriguez de Quijas v. Shearson/American Express, Inc., which overruled Wilko expressly in 1989,390 and in Gilmer v. Interstate/Johnson Lane Corp., which enforced the FAA in a case alleging that a brokerage firm had engaged in age discrimination.391
Thus, these initial cases involved either international commercial transactions or domestic securities litigation that was subject to some administrative oversight. Disputes were diffused but in a limited category of cases and with the prospect of administrative oversight.
C. Judicial Cost-Benefit Analyses and the Question of Collective Actions
“Effective vindication” became the mantra thereafter, but the Court deemed that test to be satisfied without individually negotiated contracts, international transactions, or federal administrative oversight. Its approach has thus failed to develop a federal analogue of the unconscionability doctrines used by state courts to evaluate the structure of proposed arbitrations.392
Illustrative is a 2013 decision by the Supreme Court of Washington, which concluded that a four-sentence arbitration clause proffered by a debt adjustor, LDL Freedom Enterprises, Inc., was unconscionable in three ways.393 First, that state’s consumer law provided a four-year period in which to bring a claim, but the arbitration clause imposed a thirty-day statute of limitations.394 Second, the amount at stake was $3,500 in actual damages, yet by requiring travel to California, the arbitration clause imposed prohibitive costs.395 Third, the “loser pays” provision was one-sided, benefiting only the company.396
In contrast, the U.S. Supreme Court has not produced a single decision finding arbitration inadequate, inaccessible, or ineffective to vindicate rights.397 For example, in 2000, Chief Justice Rehnquist, writing for the Court, rebuffed Larketta Randolph, who had alleged that Green-Tree Financial Corporation-Alabama had violated the Truth in Lending Act and the Equal Credit Opportunity Act.398 Randolph argued that the arbitration clause had failed to address the question of costs, rendering the clause unenforceable.399 Over Justice Ginsburg’s objections for the four dissenters that the burden of detailing costs ought to lie with the “repeat player” and that the question of arbitration’s accessibility required a remand,400 the Court held that the opponent of arbitration had to demonstrate that costs would be “prohibitive.”401
The difficulty of meeting that burden became vivid in the 2013 decision of American Express v. Italian Colors,402 which like Mitsubishi, involved antitrust claims but this time in the “domestic context."403 Justice Scalia, writing for the five-person majority, offered hypotheticals about what would constitute inadequacy. He reiterated the phrasing from Randolph about a “prohibitively expensive” process and added another example—that “a provision in an arbitration agreement forbidding the assertion of certain statutory rights”404 could render arbitration “impracticable.”405
But as Justice Kagan’s dissentpointed out, those examples rang hollow because the case appeared to fit them. Italian Colors, a small business, had argued that American Express had “used its monopoly power to force merchants” to accept what was alleged to be a tying arrangement, unlawful under antitrust law.406 The same contract included an arbitration provision barring class actions; the “variety of procedural bars that would make pursuit of an antitrust claim a fool’s errand” immunized the company from liability.407 The majority did not disagree that the costs of establishing an antitrust violation would be greater than any damages awarded to individual claimants but nonetheless enforced the single-file arbitration requirement.
Justice Scalia’s majority ruling in Italian Colors explained that its outcome was forecast by his 2011 opinion in AT&T Mobility LLC v. Concepcion408 (which “all but resolves this case”409)—thereby anchoring the relationship of the adequacy inquiry that the Court undertook in that preemption case and its doctrine on effective vindication. At issue in AT&T v. Concepcion was, as noted, a bar on class actions in courts or in arbitration that was imposed in the documents accompanying the purchase of a wireless service.
The idea of “class arbitration” had gained currency after 2003, when the Supreme Court ruled in Green-Tree Financial Corp. v. Bazzle410 that the question of whether a contract precluded class arbitration was to be determined initially by an arbitrator rather than a judge.411 The marketplace of providers responded by fashioning a procedure for class arbitrations that incorporated aspects of the federal class action rule, and the AAA database reflected the use of that provision, with more than 280 such actions listed by 2009.412
But another sector of the market—potential defendants drafting arbitration clauses—had a different response. Many businesses wrote clauses prohibiting class arbitrations;413 some offered the symmetry that “YOU WAIVE ANY RIGHT TO PURSUE ON A CLASS BASIS ANY SUCH CONTROVERSY OR CLAIM AGAINST US . . . AND WE WAIVE ANY RIGHT TO PURSUE ON A CLASS BASIS ANY SUCH CONTROVERSY OR CLAIM AGAINST YOU.”414 Such clauses were usually accompanied by an “anti-severability provision,” stipulating that if a court found the clause unenforceable, the obligation to arbitrate would become unavailable and all claims had to be brought to court.415
The AT&T litigation thus became the first in which the Court addressed the lawfulness of preventing individuals from joining together in arbitration. The case had been filed by Vincent and Lisa Concepcion “on behalf of all consumers who entered into a transaction in California wherein they received a cell phone for free or at a discount . . . but were charged sales tax” in excess of that “payable [as] calculated on the actual discounted price.”416 The overcharge was $30.22, and the Concepcions alleged that the providers had violated California’s consumer protection laws against deceptive and false advertising.417 The Concepcions’ theories were that the provider should either have absorbed the costs of the sales tax or not have advertised that the phones were free.418
California had both a statute and a decision (Discover Bank v. Superior Court)419addressing the procedural hurdles that the Concepcions faced. Under California law, when class waivers were in a “consumer contract of adhesion,” predictably small damage disputes could arise between the parties,420 and the “party with the superior bargaining power” was alleged to have “carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money,” a waiver would be unenforceable because it functioned to exempt the party from responsibility for the allegedly willful injury inflicted.421
The 2011 AT&T decision held California’s rule preempted by the FAA because the rule stood as “an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”422 The AT&T Court rested its holding on “our cases,”423 which ascribed two rationales to the FAA: “judicial enforcement of privately made agreements to arbitrate”424 and elimination of the “costliness and delays of litigation.”425 Given that consumers could not negotiate arbitration provisions in cell phone documents (I have tried), the majority understandably focused less on consent and more on what it believed to be the procedural advantages of “bilateral” arbitration.426
The FAA’s text, shaped in the 1920s, provided no descriptions of the form that arbitrations were to have. The Court imputed one through a purposive interpretation, inflected with assessments of the costs and benefits of class actions. The majority extolled the virtues of “bilateral arbitration”—a term introduced into FAA case law in 2010 by Justice Alito when ruling that silence in a contract about the availability of class arbitration could not be taken by arbitrators as the basis for authorizing a class process.427 In the AT&T decision, bilateral arbitration came to embody “the principal advantage of arbitration—its informality.”428 Further, the AT&T majority praised the speed and relatively low cost of bilateral arbitration in contrast with the slow pace of class arbitration.429
As evidence, the Court drew (ironically, given its preemption of California’s law) on another of that state’s statutes, which mandated reporting by arbitration services.430 Based on information provided by the AAA, the majority concluded that “the average consumer arbitration between January and August 2007 resulted in a disposition on the merits in six months, four months if the arbitration was conducted by documents only.”431 In contrast, of the 283 class arbitrations “opened” by the AAA, the “median time from filing to settlement, withdrawal, or dismissal—not judgment on the merits—was 583 days, and the mean was 630 days.”432
The majority decided that class arbitrations were “more likely to generate procedural morass than final judgment.”433 In addition, confidentiality and protection of absentees became “more difficult.”434 Data aside, the majority opined that class arbitrations gave plaintiffs too much power, creating the risk of “in terrorem” settlements; defendants had to “bet the company” because class arbitration provided “no effective means of review.”435 (In 2007, as discussed below, it was the Court that read the FAA narrowly and refused to permit “effective means of review.”436)
The distance between the statute’s text and the Court’s analysis can be seen from its holdingthat providers can prohibit aggregation but that the FAA itself does not preclude parties from agreeing to use class arbitrations.437 Nor have courts concluded that the importation of various other procedures from the litigation system is impermissible. Summary judgment motions have become a feature of some employment arbitrations,438 as has discovery. Parties can also shape appellate tiers within arbitration and choose time frames for decision making—rendering arbitration neither “speedy” nor “inexpensive.”439 Indeed, as illustrated by an AAA handbook, the category “arbitration” entails a host of procedural variations, depending on the submarket in which it is used.440
The 1925 statute’s silence as to form reflects its historical context, authorizing enforcement when the practice was nascent and leaving ample room for arbitration’s evolution, in use today for a range of disputes from high stakes, heavily lawyered, expensive commercial conflicts to family dissolutions. Not only was there a lack of evidence that the Act commanded or preferred bilateralism441 but, as Justice Breyer argued in dissent, the FAA was shaped for commercial arbitration between disputants of “roughly equivalent bargaining power.”442 For the dissent, aggregate arbitrations were therefore consistent with what Congress had in mind for its statute’s users.443 Thus, rather than contrasting class and individual arbitrations, the dissent compared class arbitrations to class actions in court. Based on another California study, Justice Breyer noted that “class arbitrations can take considerably less time than in-court proceedings in which class certification is sought.”444 Moreover, a single class action was “surely more efficient than thousands of separate proceedings for identical claims.”445
D. “Mass” Arbitration Clauses Without a Mass of Claims
The image of “thousands of separate proceedings” seems like the logical consequence of the massive production of arbitration clauses. To know definitely the numbers of filings would require a database of providers required to make public their systems and usage rates. The federal system imposes no such general requirements,446 but a few states have mandated disclosures from their resident ADR providers of consumer arbitrations, and researchers (including those deployed by the federally created Consumer Financial Protection Bureau) have made forays into submarkets to try to find filings.
I offer details about how to research arbitration filings and the results of those inquiries in service of three points. First, Dispute Diffusion uncoupled from obligations of public access closes off systematic information about the volume and nature of the complaints. But for state regulation requiring data or the largesse of providers, we would know even less about arbitration in practice than we do. Second, the information available demonstrates the non-use of arbitration. Because so few individuals, as contrasted with those eligible to bring claims, do so in the newly mandated system, arbitration works to erase rather than to enhance the capacity to pursue rights. Third, exploration of the individualized system demonstrates the importance of collectivity to the pursuit of small-value claims. The Court’s enforcement of class action bans has been the key to losing the remedial role played by private enforcement of law.
In researching the use of arbitration, I chose filings involving AT&T because of its place in the case law and because its designated arbitration service, AAA, complies with mandates to disclose information. Two sets of data about consumer AT&T arbitrations exist. The AT&T litigation record included information on arbitration for five years between 2003 and 2007; during that interval, 170 individuals—averaging 34 a year—were in arbitration with the company.447 More recent statistics come through research on five years from 2009 to 2014. By culling the AAA’s web-based information, we identified 134 individual consumers—or about 27 per year—who filed claims through the AAA against AT&T.448 Given the estimate that the number of AT&T subscribers rose over the course of this ten-year period from 46 to 120 million customers each year, the available data reveal that virtually none use arbitrations.
1. Public Access to, and Confidentiality in, Arbitration
An account of the route to the data is in order because, asFrances Kellor recounted in her 1948 book on the AAA, arbitration is a private process. The businesses that shaped it preferred to have their disputes off screen, and they obliged arbitrators to keep confidential what they learned and did.449
Decades later, that aura of privacy persists, even as the rule structure about confidentiality has become more complex. By authorizing disputants to go to court to confirm or vacate awards,450 the FAA itself “appears to presume that arbitration materials could become public.”451 Lawsuits filed about arbitration are, however, a small fraction of the claims arbitrated. Thus, public access relies primarily on the rules of ADR providers, the text of arbitration clauses, custom, and some federal and state regulations.
As noted, the major providers describe arbitration as a private process and authorize arbitrators to limit third-party access to hearings.452 In addition, specific arbitration clauses may require confidentiality. Illustrative is one imposed in 2002 and since withdrawn by AT&T, instructing that: “Neither you nor [the company] may disclose the existence, content or results of any arbitration or award, except as may be required by law [or] to confirm and enforce an award.”453
The legality of such rules is a subject of debate. In 2003, the Ninth Circuit held this provision unconscionable under California law,454 but other circuits (the Second, Third, and Fifth) have not objected to such provisions.455 Instead, those courts approached “confidentiality clauses [as] so common in the arbitration context”456 that limited confidentiality would undermine the “character of arbitration itself.”457 Moreover, although the Supreme Court’s case law does not much discuss confidentiality, the few references assume its existence and importance. For example, in 2010, Justice Alito quoted the AAA class arbitration rule, that “the presumption of privacy and confidentiality” did not apply to class actions as an example of the “fundamental changes” distinguishing bilateral and class-action arbitrations.458 Likewise, Justice Scalia commented in AT&T v. Concepcion that confidentiality “becomes more difficult” with class action arbitrations.459
In practice, however, mandates to keep consumer information confidential are infrequent. The 2015 study by the CFPB concluded that in consumer debt, confidentiality was required in seven percent of the credit card clauses reviewed and in none of the arbitration obligations imposed by the wireless service providers.460
Yet, unlike courts, obliged by statutes and constitutions to account for their work, ADR providers are subject to fewer regulations, and First Amendment and Due Process rights of access have not thus far been read to apply directly to them. ADR providers do not routinely create public venues for observation of their proceedings, and many providers decline to make public the number and kinds of claims with which they deal, or do so only by way of a special arrangement with selected researchers.461 Arbitrators continue to be bound by obligations of non-disclosure; companies do not routinely post decisions and disposition data, and individuals can only learn about filings and outcomes through networks linking similarly situated individuals and lawyers.
Important exceptions—from transnational conventions, federal regulations, and state law—permit windows into a few segments of the arbitration market. In 2013, UNCITRAL issued rules to govern transparency in treaty-based investor-state arbitration.462 Domestically, federal regulation of public companies and rules of the Financial Industry Regulatory Authority (FINRA)463 require some disclosures. Further, as noted, a few states call for ADR providers to publish data on consumer arbitrations in “a computer-searchable format” (to use the terms of California’s 2002 statute) on the web.464
California’s 2002 mandate has become a key source of data. Arbitration providers are asked to furnish, for “each consumer arbitration,” the name of the “nonconsumer party” (if “a corporation or other business entity”); the “type of dispute” (and for employees, details about their wage brackets); whether an attorney represented the consumer; the time from the demand made to disposition; the mode of disposition (“withdrawal, abandonment, settlement, award after hearing, award without hearing, default, or dismissal without hearing”); the prevailing party; the amount sought; the amount awarded and other relief provided; and the arbitrator’s name, fee, and the fee’s allocation among the parties.465
Yet information remains spotty. A 2013 study, Reporting Consumer Arbitration Data in California, concluded that most providers were not in compliance with the state law;466 only eleven of the twenty-six entities identified as arbitration providers filed any of the required information.467 Not surprisingly, the AAA is a leader in compliance. As it describes on its webpage, Consumer Arbitration Statistics, the information is “made available pursuant to state statutes” and “updated on a quarterly basis, as required by law.”468
The web-based materials are a revolving set; when a new quarter is posted, the older quarter is taken down, such that only five years of data are online. To understand the use of arbitration, we evaluated a lengthy chronicle of claims from across the country that were filed and closed from July 2009 to June 2014.469 That list totaled 17,368 individual claims (sometimes related to the same case470), of which 7,303 (or forty-two percent) fell in the consumer category, excluding real estate and construction.471 The spreadsheets delineate seven categories: three kinds of consumer arbitrations (consumer, consumer construction, and consumer real estate), “employer promulgated employment,” “other industry,” residential construction, and residential real estate.472
Reading the entries, one generally learns the names of the business entity473 and of arbitrators and lawyers (if appearing),474 as well as whether the claim closed by settlement or award, the amounts sought, the fees,475 and fee allocations between the disputants.476 Of the 5,224 claims “terminated by an award,” about half included a dollar figure.477 The information on prevailing parties comes with the caveat that arbitrators are the source; the AAA has not “reviewed, investigated, or evaluated the accuracy or completeness” of such information.478
2. Accounting for Individual Consumer and Employee Arbitrations
Below, I detail some of the results of parsing these data as well as materials gathered by other researchers. My focus is on the use of arbitration, the rules and fee structures of the AAA, the provisions made for indigent claimants, and compliance with awards. The density of this account aims both to provide information not otherwise available and to make plain the challenges entailed in doing so.
By way of a preview, seven conclusions emerge from this brief survey of available data. First, obtaining the information is labor-intensive, and the results are partial at best. Second, public records indicate that almost no individual consumers use arbitration. Third, navigating the sea of arbitration clauses and governing rules requires sophistication. Assistance—such as easily accessible forms on fee waivers and consumer-friendly user guides—is hard to find. Fourth, no comprehensive provisions enable indigent consumers to obtain waivers of filing fees. Fifth, the major ADR providers have little current capacity to administer a large number of arbitrations. Sixth, deciding on the optimal numbers of arbitrations requested or completed is difficult. But, and seventh, if the justification for applying the FAA to consumers is that it opens doors to dispute resolution that were otherwise closed, little evidence comes from the number of claimants using arbitration individually in the years since the Supreme Court expanded the aegis of the FAA and closed off collective action.
a. Finding the Filings
To create a manageable, focused inquiry, we reviewed the five-year span of AAA data to identify consumer arbitrations involving AT&T. Within the set of 7,303 consumer claims unrelated to commercial real estate or residential construction, the AAA 2009-2014 spreadsheet listed 1,283 brought against AT&T in any of its corporate forms.479 Because one law firm confirmed that it filed 1,149 individual claims against AT&T Mobility,480 a question emerged about whether those claims represented individual use of the system.481 After learning from the firm that it had filed hundreds of arbitration claims (some related to “phantom” data charging and others to oppose a proposed AT&T merger with T-Mobile) in an effort to create two de facto class actions, we excluded that firm’s filings from our count.482
Holding those filings aside, consumers brought 134 claims against AT&T, or an average of 27 per year.483 (AT&T did not initiate any claims against consumers during the five-year period studied but did file a counterclaim in one of the consumer-initiated claims.484) That rate of consumer filings fits the picture provided in the record in Concepcions’ litigation. Then, AT&T had almost seventy million customers by 2007 and, in the five years between 2003 and 2007, some 170 consumers—or about 34 a year—arbitrated under the AAA procedures with AT&T Mobility, AT&T Wireless, or Cingular Wireless.485 (How many used the available pre-arbitration processes was not clear.)
During much of the period between 2003 and 2014, AT&T and its predecessor companies also noted that customers could use small claims court.486 We sought to learn about those filings for a five-year period running from 2010 to 2014 in two jurisdictions, California and Illinois. Those states were chosen because of California’s role in regulating arbitration, Illinois’s large court-annexed arbitration program, the size of each state, and the capacity to access online some of the small claims court filings in counties in each state. In California, where accessible databases came from twenty-five of its fifty-eight counties (this set includes less than thirty percent of the state’s population), we identified 66 cases in fifteen counties in the five years between 2010 and 2014 in which AT&T was a defendant and three in which it was a plaintiff.487 Counties in Illinois had more web-accessible data, and during the same five-year period, we located 140 cases in fourteen counties that involved breach of contract or fraud.488
Given uneven access to data on small claims, these very preliminary numbers raise the possibility that more consumers (as well as AT&T itself) may be choosing the option of pursuing claims in court rather than in arbitration. The Consumer Financial Protection Bureau also sought to understand the role played by small claims courts. The CFPB found that, in 2012, fewer than 870 consumers filed against credit issuers in small claims court in a set of jurisdictions totaling about 85 million people; the CFPB identified credit card issuers turning to courts repeatedly—eighty percent of 41,000 claims—for debt collection.489 Further, when looking at federal court filings, during three years from 2010 to 2012, in five consumer product markets, the CFPB identified 3,462 individual cases or more than 1,100 per year, in addition to 470 consumer class action filings.490
The variables that could make courts more accessible than arbitration include fees that are sometimes lower (for example, counties in California charge from $30 to $75 per small claims court filing; in Illinois, the fees ranged from $35-$50 to $119-$337 per filing491), knowledge about how to use the system, and the ease of sharing information among claimants—in that all of these courts are open to the public.492 Yet overall, relatively few individuals pursue claims anywhere. The CFPB’s survey offered the explanation that the people surveyed rarely thought they would themselves bring cases.493 What its data coupled with my research make plain is that the private enforcement of small-value claims depends on collective, rather than individual, action.
More information about the volume of filings in arbitration comes from the AAA 2009-2014 data, which reported that it conducts about 1,500 consumer arbitrations (as defined by the AAA) a year.494 Paralleling those figures is research identifying 4,857 AAA consumer-filed arbitrations between 2009 and 2013.495 The definition used by the AAA is somewhat narrower than what California counts as a consumer arbitration,496 putting the figure at about 3,500 per year.497 Another way to assess available information is to include the AAA data with those of other providers reporting consumer arbitrations under state mandates. On that count, filings averaged about 5,000 to 6,000 a year during the period from 2009 to 2014.498
Above, I discussed the Consumer Financial Protection Bureau’s inquiries into court filings. CFPB data on arbitrations go beyond my focus on claims involving AT&T; the CFPB looked at six credit-related markets for which, again, the AAA is the predominant provider of arbitration services.499 The CFPB’s 2013 Preliminary Results reported millions of consumers subject to arbitration and found an average of 415 individual AAA filings per year from 2010 to 2012 in four consumer product markets—credit card, checking account, payday loans, and prepaid cards.500 In its 2015 report, the CFPB added two products, private student loans and auto loans,501 to its analysis—bringing the three years’ annual average up to 616.502 About two-thirds were filed by consumers, while the remaining included disputes brought by both parties as well as those filed by companies.503 A summary of the information we excavated and of that detailed by the CFPB is provided in Figure 7.504
Turning to employment, a 2008 study suggested that, across the country, at least thirty million employees were obliged to use arbitration.505 The AAA was (again) the “largest provider” of employment-related arbitration; researchers estimated that about 1 in 10,000 employees used its system.506Between 2010 and 2013, the AAA reported 1,349 to 1,599 filings nationwide under employer-promulgated arbitration obligations.507
consumer filings with the aaa
* Consumers filed all 134 of the consumer claims involving AT&T.
** Consumers filed approximately two thirds, and companies about one third, of the 616 claims per year.
The question is what to make of the small numbers of claims filed. The low filing rates for consumer arbitrations could reflect a lack of need to do so. Public enforcement may suffice, or manufacturers and service providers could generally be in compliance with legal obligations and voluntarily remedy the breaches that do occur. For example, in terms of informal resolutions, AT&T reported that it paid $1.3 billion in 2007 in “manual credits to resolve customer concerns and complaints.”508 Further, AT&T’s current promise to provide extra payments to consumers who succeed in arbitration creates an incentive for the company to settle claims. Yet AT&T does not publish data on its settlements or on when it pays premium awards after arbitration. Thus, one is left to speculate on whether AT&T’s responsiveness explains the few claims filed or whether the accommodations made are but a small fraction of consumer complaints that could have been brought.
Support for a thesis of under-claiming comes from a series of federal agencies’ complaints asserting that the major wireless service providers imposed illegal overcharges through a practice known as “cramming.” In October of 2014, the Federal Trade Commission (FTC) filed a federal lawsuit alleging that AT&T had billed consumers $9.99 per month for unauthorized third-party subscriptions that were not clearly identified in its billing.509 According to the complaint, when customers noticed the charges and did complain, they received either inadequate refunds or none at all.510 The FTC alleged that AT&T kept between 35-40% of the unauthorized charges and that, as a result, in 2013 AT&T gained more than $160 million in revenue.511
Four days after the filing, the FTC and AT&T announced a settlement, joined by the Federal Communications Commission (FCC) and several states, to return $80 million to consumers, to provide $20 million to the participating states, and to give $5 million to the U.S. Treasury.512 In December of 2014, the CFPB filed a similar lawsuit against Sprint and alleged “millions of dollars” of unauthorized third-party charges; that complaint estimated $2 billion were, annually, overcharged to consumers.513 Later that month, T-Mobile settled an FTC complaint lodged against it for cramming and agreed to refund $90 million in unwanted charges, to pay an $18 million fine to state attorneys general, and to pay $4.5 million to the FTC.514
These government filings could be interpreted as providing all the legal remedies needed. Such efforts surely provide a buffer against the dearth of individual claims. Yet research by the Consumer Financial Protection Bureau describes how much the government itself relies on private enforcement as one way to ferret out illegal action. The CFPB concluded that when government entities pursued particular claims that were also the subject of class actions, the government filed its complaints in about two-thirds of the cases after those filed by private parties.515 That pattern highlights the inter-dependencies between public and private enforcement, as well as the importance of the capacity to pursue claims collectively.
If one argument for private enforcement comes from a policy analysis of the role it plays in enforcing obligations, another comes from law. State and federal legislation has authorized private rights of action, empowering individuals to bring claims. Such provisions reflect both majoritarian distrust of centralizing too much power in government and commitments to the entrepreneurialism of private enforcement.516 This mix of law and policy makes the absence of claims a source of concern.
b. Locating the Rules and Fee Structures
Two other factors—ease of knowing how to file claims and the costs of doing so—affect the likelihood of pursuing claims. In addition to the challenges of learning about other claimants, Dispute Diffusion makes it difficult to locate the governing rules and the fees involved in arbitration. Atop the rules of specific providers (like the AAA), arbitration clauses may be a source of procedures, as can be individual arbitrators, imposing their own specifications. Thus, just as the case law contesting arbitration clauses requires lawyer expertise if one is considering contesting any of the obligations imposed, using the arbitration system itself entails sophistication to learn which rules and fees apply.517
A few details on the layers of rules that have governed arbitration within the AAA system illustrate the subtleties of deciding—from reading documents—which rules govern. For decades, the AAA has had Commercial Arbitration Rules; the AAA added what it now calls its Consumer-Related Disputes: Supplementary Procedures518 in 1999 to response to the concerns prompting the 1998 AAA-sponsored Consumer Due Process Protocol.519 The Consumer Supplement imposed no administrative fees on consumers seeking $75,000 or less and permitted consumers to pay no more than 50 percent of arbitrators’ fees, which were capped at $125 for claims not exceeding $10,000.520 In 2013, the AAA revised its fee rules for consumer claims.521 The AAA instituted its own $200 administrative filing fee, to be paid by consumers (unless arbitration clauses specify that businesses absorb that fee).522 In addition, the AAA required businesses to pay all the arbitrators’ fees523 and applied parallel provisions for its employer-promulgated rules.524
In 2014, the Consumer Supplemental Protocol was replaced by a freestanding set of Consumer Arbitration Rules,525 not tied to an amount in controversy and to be used even when a consumer agreement specifies other rules.526 Although conversations with AAA staff clarified that the 2014 Consumer Rules displace others, AAA documents make reference to the possibility of substituting other rules, “such as the Real Estate or Wireless Industry Arbitration Rules, for the Commercial Dispute Resolution Procedures in some cases,”527 as well as the Wireless Rules, which are now superseded by the Consumer Rules.528 In short, the various procedures and specific arbitration clauses offer more of a maze than a roadmap to which rules apply and how much discretion individual arbitrators have in a system that is unbounded by precedent.
The question of costs is one that the AAA describes as a matter left largely to its own judgment, exercised in reference to what courts and other dispute providers do and to the Consumer Due Process Protocol’s commitment to costs being “reasonable.”529 As noted, in 2013, the AAA instituted a filing fee for consumers, pegged it at $200, and continued applying that fee in the 2014 revisions.530
But not all consumers have to pay that fee because, in 2002, as part of its packet of arbitration regulations, California required fee waivers for “indigent consumers,” defined as those with incomes of less than “300 percent of the federal poverty guidelines.”531 California instructed providers to give consumers notice of this option and to create forms for sworn declarations that a particular consumer qualified; providers were not to ask for additional information.532
In compliance, the AAA has a form labeled “Waiver of Fees Notice for Use by California Consumers Only”533 and another document (not available on the web) for the rest of the country, entitled an “Affidavit in support of Reduction or Deferral of Filing and Administrative Fees.”534 That affidavit form requires consumers outside of California to make detailed disclosures of assets, income, and liabilities and does not indicate the availability of full waivers. The AAA reports that it has given waivers when requests are made535 but that it does not track the numbers or kinds of waivers, deductions, or deferrals given.536 Thus, aside from California, robust and publicly accessible analogues to court-based “in forma pauperis” proceedings are not available in arbitration.537
c. Concerns about Compliance
If the problems of rules and costs ex ante impose barriers to filing, uneven implementation of the awards made ex post may also discourage filing. Compliance analyses are hard to come by, and here I turn to information resulting from SEC regulation of the financial securities arbitrations, including under FINRA, and by way of reports from the Government Accountability Office (GAO). In the wake of the Supreme Court’s rulings in the 1980s permitting enforcement of arbitration clauses related to securities transactions, concerns emerged about industry-based arbitrations administered by the National Association of Securities Dealers, the New York Stock Exchange, the American Stock Exchange, the Chicago Board Options Exchange, and the Municipal Securities Rulemaking Board.538
Responding to requests by members of Congress to study securities arbitrations,539 the Government Accountability Office (GAO) issued six reports between 1992 and 2003.540 A 2000 GAO study, sampling 247 claims out of 11,290 arbitrated by industry providers, found that an estimated $129 million of the $161 million (or about eighty percent) of awards to investors went “unpaid.”541 A 2003 follow-up review concluded that in 2001, about $55 million of the $100.2 million in arbitration awards had gone unpaid—an improvement over the 1998 results, even as about half the successful investors did not receive funds.542
E. Contracting for Judges in a Market for Courts
Another window into arbitration’s relationship to legal rights comes from those with the capacity to shop for services. Some negotiated contracts build courts into their customized agreements. A 2008 study of high-value companies concluded that the firms left open the option of using courts when negotiating contracts with each other; fewer than one in ten contracts bound themselves to use arbitration exclusively.543 Yet three-quarters mandated arbitration for their consumers.544 Other customized agreements call for judicial oversight of arbitrations to ensure compliance with the contracts’ directions. The legality of doing so reached the Supreme Court in 2008 in Hall Street Associates v. Mattel, Inc.545—providing another illustration of the role of public law in structuring the parameters of “private” arbitration.
The case was atypical in that the particular contract was forged as a settlement of a federal lawsuit relating to the termination and indemnification obligations of a tenant (Mattel) to its landlord (Hall Street). After Mattel won a bench trial on the termination question, the parties agreed that arbitrators would decide indemnification—with the caveat that a court “shall vacate, modify or correct any award: (i) where the arbitrator’s findings of fact are not supported by the substantial evidence, or (ii) where the arbitrator’s conclusions of law are erroneous.”546 Hall Street, which lost the arbitration, argued that the arbitrator erred as a matter of law by not including an Oregon Water Quality Act provision as a measure of environmental contamination.547
The question of the enforceability of that provision was litigated under the FAA, which authorizes judges to void arbitration awards “procured by corruption, fraud, or undue means”; when evidence exists of “partiality or corruption in the arbitrators”; when arbitrators are “guilty of misconduct” in conducting the hearing or otherwise prejudicing a party; or “where the arbitrators exceeded their powers, or so imperfectly executed [their powers] . . . .”548 Not mentioned directly are errors of law, perhaps because in the 1920s, arbitrators were “supposed to apply the contract” and not necessarily “apply the law.”549
Given that the contract at issue in Hall Street stipulated review for errors of law, the Court could have upheld judicial review under the FAA’s excess-of-powers provision. Doing so could have had a wider impact, permitting judicial oversight of arbitrations predicated on the effective vindication/adequacy rationale. Alternatively, the Court could have read the FAA as celebrating the authority of parties to negotiate provisions, including contracting for courts’ jurisdiction.550 Or the Court could—as the New Zealand Supreme Court has since concluded—have held that the agreement for judicial review was integral to the contract and that its invalidation undid the decision to arbitrate.551
Instead, Justice Souter, writing for the Court, read the FAA’s direction that courts “must grant” confirmation of arbitration orders as preventing the Court from interpreting the FAA’s excess-of-powers provision to authorize judicial oversight; further, the Court read the FAA grounds as exclusive, precluding parties from adding additional bases on which to review awards.552That narrowness made “sense” because it maintained “arbitration’s essential virtue of resolving disputes straightaway.”553 The Court fashioned the procedural rule by substituting its preferences—for speed in this instance—over the parties’ preferences for oversight by judges.
Yet the majority added the caveat that parties could provide for “enforcement under state statutory or common law, . . . where judicial review of different scope is arguable.”554 As a consequence, a few state courts have read Hall Street to permit them to accord review more expansive than under the FAA—as a matter of state “procedure” rather than arbitration’s “substance”—and therefore as not preempted by the FAA.555 The result is a dialogue among judges in different jurisdictions about the values and priorities of the public law of private arbitration. Some state courts have endorsed judicial review and explained their rulings as respecting freedom of contract and as enhancing arbitration’s appeal (pun intended).556
Illustrative is a decision by the Texas Supreme Court, which reviewed a contract specifying that an arbitrator did “not have authority (i) to render a decision which contains a reversible error of state or federal law, or (ii) to apply a cause of action or remedy not expressly provided for under existing state or federal law.”557 Given that arbitration’s “essential virtue” was agreement and that parties could choose arbitration for a variety of reasons (“speed and cost, . . . flexibility, privacy, and in some instances, expertise”), the Texas Court permitted judicial review.558 Moreover, the court rejected what it called “haste” as either a primary or a good goal for arbitration.559 Rather, parties ought to be allowed “an alternative to litigation” without needing to be “willing to risk an unreviewable decision.”560 Under this approach, the parties’ arbitrators become—if an appeal is filed—de facto lower court judges, working under higher courts’ supervision.
The desirability of decisions by judges is also evident in a 2009 enactment by the Delaware legislature, seeking to maintain the state’s “preeminence” in corporate dispute resolution by redesigning procedures to make its courts competitive with private sector dispute resolution providers.561 The legislature offered an arbitration program run by the Chancery Court’s judges and held in their courthouses.562 To be eligible, at least one of the disputants had to be incorporated in Delaware, at least a million dollars had to be at stake, and disputants had to pay $12,000 in filing fees and $6,000 daily to the state thereafter.563 Filings were not to be on the public docketing system, and the public was not permitted to attend hearings.564 The decisions were to be enforceable as judgments, subject to review by the Delaware Supreme Court, which had not, as of 2013, provided rules about whether appeals would also be confidential.565
As a federal district judge would later describe it, litigants could purchase what was “essentially a civil trial” conducted by Delaware’s Chancery judges.566 That decision finding the procedure unconstitutional came in response to a challenge by the “Delaware Coalition for Open Government,” arguing that Delaware’s legislation violated the public’s First Amendment’s right to observe court proceedings.567 Delaware’s Chancery Court judges appealed and lost again in a split decision in which the Third Circuit concluded that “Delaware’s government-sponsored arbitration” could not constitutionally be held in a courthouse yet be closed to the public.568
The relevance of the Delaware legislation to the meaning of “effective vindication” comes from its provision that litigants with resources could be provided state-employed judges, authorized to resolve their conflicts—in private. As one amicus supporting a petition for certiorari to overturn the Third Circuit explained, businesses were “weary of private arbitration” and sought “predictability” by turning to the Chancery judges.569 These individuals were “first-rate adjudicator[s],” schooled in its law, well-known for their “efficient case management” and for their rules requiring hearings within three months of filing.570 Moreover, when going to court, parties had “to comport themselves civilly, to assess their positions soberly, and to present their cases in a way that respects the other demands on the judge’s time.”571
F. Regulated Arbitrations: Court-Annexed Arbitration in Federal Courts, Agency Supervision, and European Directives
Outsourcing dispute resolution depends on law, which currently imposes a form of regulation—licensing variability, permitting privacy, prohibiting much by way of court oversight, and according a great deal of authority to private providers to preclude collective redress.572 The “public” is thus pervasive in the “private” of arbitration. But other forms of regulation are possible, and such rules could impose obligations of egalitarian access and public accountability on arbitration.
To make plain that the current norms of the Alternative Civil Procedural Rules are not inevitable and that its deregulatory diffusion could be replaced with transparent systems, I provide a few examples of yet other “alternatives” that do create mechanisms for oversight of decision makers, that aim to protect disputants’ volition, and that authorize public access and court review. Each of the processes has its critics, yet each illustrates methods for organizing publicly endorsed arbitration. Thus, were the Supreme Court seeking ways to implement its tests of effective vindication and adequacy, it has models upon which to draw. Federalism is one font of innovation, and above I discussed state-based innovations such as California’s fee waiver rules and reporting mandates and Illinois’s court-arbitration program. A second resource is Congress, which has created a different form of arbitration for cases filed in the federal courts. Agency oversight is a third model, and a fourth comes from regulatory efforts in Europe.
In the 1980s, Congress encouraged federal courts to offer an array of court-based ADR and created special procedures for “court-annexed arbitration.” Congress authorized federal judges to appoint lawyers to conduct trial-like hearings and to enjoy judge-like powers to issue subpoenas, convene hearings, and enter awards.573 But the provisions imposed constraints very different from those the Court has licensed through its reading of the FAA.
Specifically, in the 1988 “Judicial Improvements and Access to Justice Act,”574 Congress selected ten district courts that could mandate court-annexed arbitration, but not in all cases. Instead, this option was available only when cases involved monetary damages under $100,000; for cases involving civil rights and constitutional claims, the statute permitted judges to refer cases to arbitration only if the parties consented and if the issues were not “novel.”575
A decade later, Congress revisited the parameters in the “Alternative Dispute Resolution Act of 1998,”576 which required all federal district courts to “authorize, by local rule . . . , the use of alternative dispute resolution processes in all civil actions,” including the “use of arbitration.”577 The criteria for eligible cases shifted a bit. Congress prohibited arbitrations when actions were “based on an alleged violation of a right secured” by the Federal Constitution and when the relief sought exceeded $150,000.578 Congress also directed district courts to establish standards for those appointed as arbitrators, who were subject to rules of disqualification applicable to federal judges and protected for their “quasi-judicial functions” with “the immunities and protections that the law accords to persons serving in such capacity.”579
In addition, under the heading “Safeguards in Consent Cases,” Congress required federal courts to ensure that consent to arbitration was given “freely and knowingly” and that “no party or attorney” was to be “prejudiced for refusing to participate in arbitration”; the ten districts originally authorized in 1988 to provide arbitration continued, however, to have the option of mandating its use for eligible cases.580Congress also provided for trial de novo in which the action was to be “treated . . . as if it had not been referred to arbitration.”581 Thus, unlike other forms of ADR for which federal judges have the power to require attendance,582 the general mandate from Congress was to make arbitration voluntary. Moreover, unlike the obligations enforced by the Supreme Court under the FAA,583 federal court-annexed arbitrations do not preclude parties who want to proceed to trial from doing so.
Another distinction between FAA and court-annexed arbitration is the potential for the public to attend proceedings.The 1988 provisions did not discuss confidentiality but did require that awards could not be “made known” to judges assigned to the cases.584 Further, neither information adduced during arbitration nor awards made, if any, were admissible evidence in any trials subsequent to the arbitration.585 In the 1998 amendments, Congress required district courts to protect the “confidentiality of the alternative dispute resolution processes” through prohibitions on “disclosure of confidential dispute resolution communications.”586
The statute could be read to suggest that arbitration proceedings fell within the parameters of “confidential dispute resolution communications.” But the statute does not speak directly to this issue, and little reported case law addresses it.587Through review of some local rules and discussions with court staff, we learned that, as of 2014, court-annexed arbitrations were open to the public in the two federal court districts reporting hundreds of court-annexed arbitrations yearly,588 that litigants were encouraged to use open courtrooms in a third,589 and that arbitrations were private (if held) in six federal court districts.590 An example of open arbitrations in the states comes from Illinois, which is both a high-volume jurisdiction and one that provides public access to arbitration.591
Two other parallels between court-annexed arbitration and FAA-based arbitration merit discussion: costs and use. In 1999, the Judicial Conference of the United States concluded that federal courts’ local rules should address the compensation of “neutrals” and clarify whether they would serve “pro bono or for a fee.”592 The related commentary called for participants “unable to afford the cost of ADR . . . [to be] excused from paying.”593 Pursuant to this mandate, for example, the Eastern District of Pennsylvania specified in 2014 that the hourly fees were to be paid by funds from the federal judiciary.594
As for the frequency of use, four of the ten districts originally licensed in 1988 to create court-annexed arbitration programs continued, as of 2014, to provide court-annexed arbitration.595 After the 1998 amendments, six additional districts established programs, and the volume of cases varied widely, from districts in which hundreds of cases went through its program yearly to those in which no court-annexed arbitrations had been held in a year or more.596 These numbers indicate that some sets of disputants volunteer to arbitrate when the option is provided; to understand which groups select to do so requires more than courts records can provide.597
As noted above, administrative agencies can also be a source of rules—illustrated here by the public-private system put into place for securities-regulation arbitrations in the wake of the Court’s rulings enforcing arbitration mandates. In the late 1990s, the American Stock Exchange and the Municipal Securities Rulemaking Board closed their arbitration systems,598 leaving the National Association of Securities Dealers and the New York Stock Exchange to administer arbitrations. In 2007, they formed FINRA,599 overseen by the SEC,600which became “the sole U.S. private-sector provider of member firm regulation for securities firms that do business with the public.”601 FINRA’s work includes “rule writing, firm examination, enforcement, and arbitration and mediation functions.”602
The Government Accountability Office has issued a series of reports critical of the industry’s arbitrations.603 FINRA’s rules respond to some of those concerns, even as the rules continue to prompt critical commentary and litigation about FINRA’s procedures for controlling the selection of arbitrators and its failure to require open hearings.604 FINRA has methods for entities to register605 and for individuals, required to have five years of professional experience and training, to do so as well.606 FINRA delineates between “public” and “non-public” arbitrators based on whether they have affiliations with the security industry.607 In light of complaints about the arbitral forum’s control over arbitrator panel selection,608 a computer generates randomized lists from which parties choose arbitrators.609
FINRA rules leave open the possibility of collective action in courts by precluding enforcement of provisions requiring waivers of class actions, while requiring that arbitrations under its aegis are individual and not collective actions.610 FINRA’s Rules and its Codes of Arbitration Procedure for Consumer and Industry Disputes had, before the Court’s class action arbitration decisions, barred enforcement of a pre-dispute arbitration agreement in a putative class action unless class certification was denied, a class was decertified, or a court found that a consumer was not part of the class.611 Responding to a challenge to these provisionsin light of AT&T v. Concepcion and Italian Colors, FINRA’s Board of Governors held in the spring of 2014 that these rules remained “valid and enforceable”612 and accorded with the Exchange Act’s “core” purpose of the “protection of investors.”613
Aggregate data about FINRA arbitration filings are also made available: between 2007 and 2013, the numbers ranged from about 3,200 to 7,100 a year.614 Prior to the issuance of an award, all information is private.615 Once an award is made, it can be found on FINRA’s website, which includes the names of the parties and their counsel, as well as the relief requested and awarded, if any.616 The caveat is that, as in courts and other arbitration systems, many cases do not end in an award.617 Moreover, FINRA does not provide data on unpaid awards, although it can suspend members who fail to pay.618
A brief consideration of Europe—once serving as the arbitration model for the U.S.—is in order. Under the directive on consumer ADR (CADR) that I mentioned in Part I, European rules require providers to register619 and to create means to ensure “independence,” “transparency,” the “adversarial principle,” “effectiveness,” and “fairness.”620 The Consumer ADR Directive regulates fees, ADR providers’ independence and impartiality, the transparency of procedures and obligations to create web-based data about complaints, the time to disposition, and compliance with awards.621
In addition to specifying that pre-dispute agreements against consumers are not enforceable,622 the regulations call for information about how CADR affects compliance with legal obligations and whether the procedures enhance consumer access to remedies.623 ADR entities are to comply “with the requirements” on “confidentiality and privacy,” and Member States are to “ensure that ADR entities make publicly available any systematic or significant problems.”624 Researchers on CADR have suggested that it could be “constitutionally dangerous for a CADR system to decide the rights and wrongs of a dispute other than on the basis of the law,” and that assessments (“key performance indicators”) had to rely on lawfulness as a metric.625
An EU Regulation details how providers are to establish a platform for On-line Dispute Resolution (ODR), how to submit complaints, and how to create a database of complaints so that the “Commission shall have access . . . for . . . monitoring the use and functioning” while protecting personal data and confidentiality.626 In addition, EU countries permit monitoring through a public “Union-wide data base of consumer complaints” and a “Consumer Markets Scoreboard” evaluating access to and use of ADR.627 A European Commission Recommendation to expand methods of collective redress describes ADR as an “efficient way of obtaining redress in mass harm situations,” and states that such procedures should “always be available alongside, or as a voluntary element of, judicial collective redress.”628
Policing can also come from courts, such as a 2010 ruling, Alassini v. Italian Telecom, in which the European Court of Justice concluded that the company’s online ADR program was not an impermissible and disproportionate burden on rights to a fair hearing, but with several caveats that created a framework for national courts to assess ADR programs. Thus, ADR efforts could not impose a “substantial delay” in bringing legal proceedings and, when needed, time-bars were to be tolled; forms of judicial “interim measures” were to remain available, and for those unable to use electronic ADR procedures, accommodations had to be made.629
Conclusion: “nightmarish” Scenarios And The Constitution Of Courts
A return to the United States and to the federal courts—the font of contemporary arbitration law—provides my conclusion. Recall that in 1995, the U.S. Judicial Conference’s long-range planners projected that federal court filings would soar to 610,000 by 2010,630 producing the “nightmarish” scenario of overwhelming numbers.631 The Long Range Plan raised the specter that “civil litigants who can afford it will opt out of the court system entirely for private dispute resolution providers.”632 Further, “the future may make the jury trial—and perhaps the civil bench trial as well—a creature of the past.”633 The projected denouement was that the “federal district courts, rather than being forums where the weak and the few have recognized rights that the strong and the many must regard, could become an arena for second-class justice.”634
With these assumptions, the federal courts would largely “become criminal courts and forums for those who cannot afford private justice.”635 Therefore, as Chief Justice William Rehnquist explained in his foreword to the 1995 Long Range Plan, a “conservation” effort was needed to preserve the “core values of the rule of law,” “equal justice, judicial independence, national courts of limited jurisdiction, excellence, and accountability”—values that were challenged by the “limited financial resources of the federal government.”636
With the advantage of hindsight, we can know that rather than the 610,000 filings anticipated in 1995 for 2010, some 360,000 cases were begun that year.637 As of 2014, filing data were reported as holding “steady”; in 2014, total “filings for civil cases and criminal defendants” numbered about 376,000.638 Moreover, a review of filings during the past 110 years—graphed in Figure 8—suggests that if the current trend line remains stable, both the rate of filings and the number of civil and criminal cases may decline.
growth rate and fluctuation of total district court filings, 1905-2013639
But the aspirations of the federal judiciary’s Long Range Plan—that civil trials not be “a creature of the past” and that the federal courts be preserved as “forums where the weak and the few have recognized rights that the strong and the many must regard”640—are dimming. The moniker of the “vanishing trial” makes that point.641 In the 1960s, trials took place in about ten percent of the civil cases brought to federal courts.642 By 2010, trials began in about one case out of 100 civil cases filed.643
Of course, judges do adjudicatory work other than trials, and hence another metric is relevant: “bench presence.” After reviewing statistics gathered by the Administrative Office of the U.S. Courts, researchers reported a “steady year-over-year decline in total courtroom hours” from 2008 to 2012 that continued into 2013.644 Federal judges spent less than two hours a day on average in the courtroom, or about “423 hours of open court proceedings per active district judge.”645
In contrast, the market for alternative judges is booming. The AAA’s significant expansion during the last decades can be tracked through its Supreme Court amici filings that, when pieced together, detail the growth. The AAA’s docket grew from 1,750 arbitrations in 1950646 to 13,000 in 1966, of which sixty-four percent were proceedings against uninsured motorists.647 Within fifteen years, the number of annual proceedings had increased to more than 40,000, of which, the AAA noted, “a number of them were international.”648 By 2000, the AAA was offering long-term tallies. Between 1926 (when it began) and 1999, the AAA had dealt with about 1.7 million cases, “most of [which were] arbitrations.”649 In 2007, the total was over two million cases,650 and in 2012, the figure was close to 3.7 million.651 By then, the AAA had entered into cooperative agreements with sixty-six organizations in forty-six countries.652 In terms of its annual docket, filings are up from 150,000 a year in 2007 to about 200,000 per year.653
As public judges move to the periphery of dispute resolution and shift their own procedures to privatize much of their interaction with disputants, another effect of Dispute Diffusion and its Alternative Civil Procedure Rules emerges: the impact on the public’s right to observe court processes. Above I argued that, insofar as can be known in light of a host of closed proceedings and limited quantitative data, this diffusion of disputes has resulted in a good deal of erasure of private enforcement of federal and state litigation rights. Thus, the cumulative effect of the Court’s FAA expansion works an unconstitutional deprivation of litigants’ property and court access rights. I close by expanding the analysis of how this outsourcing, coupled with the privatization of judicial processes in courts, puts at risk the other kind of access-to-court right, that of the public’s authority to observe and, with it, the rationales for robust public support of court services.
To do so, I return to the constitutional challenge to Delaware’s “arbitration” program, which I used as an example of resourced parties seeking to rely on publicly appointed judges to resolve their disputes, albeit in private. When ruling that Delaware could not constitutionally hold closed arbitrations in its courthouses, the Third Circuit drew on Supreme Court decisions in criminal cases, described as applying a test of “experience” and “logic.”654 The Court has held that the First Amendment protects public access to criminal proceedings, if they were traditionally accessible (the “experience” prong), as long as access “plays a significant positive role in the functioning of the particular process in question” (the “logic” in the test).655 The Third Circuit’s majority explained that “Delaware proceedings are conducted by Chancery Court judges in Chancery Court during ordinary court hours, and yield judgments that are enforceable in the same way as judgments resulting from ordinary Chancery Court proceedings. Delaware’s proceedings derive a great deal of legitimacy and authority from the state.”656 As the concurring opinion by Judge Fuentes put it, “the air of [an] official State-run proceeding” made the limit on public access unconstitutional.657
But as I have detailed, experiences in courts are changing and, with them, the logic supporting open processes. Dispute Diffusion values speed, finality, deregulated variability, and confidentiality. As these values come to dominate in and out of courts, the “positive significance” of openness diminishes, reflexively (again in Bourdieu’s sociological terms). As judges turn themselves into just another set of actors in the dispute resolution market providing conciliation services, rationales for constitutionally obligatory openness erode, as do arguments for substantial public support and structural independence.
The debate between the majority and dissent in the Delaware litigation illustrates this conflict of values. The majority underscored the benefits to the public of knowing how “Delaware resolves major business disputes”658 and discounted arguments about the harms that public access would cause.659 In the end, public “faith in the Delaware judicial system” was the more weighty consideration when finding a “First Amendment right of access to Delaware’s government-sponsored arbitrations.”660
In contrast, the dissent in Strine focused on the centrality of privacy, the importance of insulating both the process and the outcomes of arbitrations from public scrutiny, the needs of the state to stay competitive, and the role of parties’ consent.661 In this account, offering confidentiality (“one of the primary reasons why litigants choose arbitration”662) facilitated resolution by assuring parties that sensitive information would not be made public.663 Further, Delaware sponsored this form of arbitration “as a part of its efforts to preserve its position as the leading state for incorporations in the U.S.”664 Given that parties volunteered for the program, the dissent argued that the exercise of judicial power derived from their authority, rather than that of the state.665 Thus, a mix of empirical claims about what prospective users would do (“go elsewhere” if Delaware’s proceedings were not closed) and normative views about the importance of state-based procedures successfully competing in the marketplace of dispute resolution rendered openness the lesser value.666
This disagreement among the appellate judges illuminates the doctrinal weakness of the current First Amendment test of access rights. The logic prong lacks a normative compass, putting it at risk of collapsing into the “judgment of experience”as new procedures come to the fore. Alternatively, the experience prong is irrelevant because openness may have value regardless of past practices. Indeed, in searching for footings, judges engage with what Jeremy Bentham termed “publicity,” and they proffer, albeit often without citation, variations on his themes667—that openness forwards informed discussions of government, fosters perceptions of fairness, checks corruption, enhances performance, discourages fraud, and permits communities to vent emotions in cases involving crimes.668
As the Delaware litigation also illustrates, the case law on public access focuses on whether proceedings in court are trial-like or predicates to trials. What the doctrine has yet to take into account is that being “trial-like”—in the absence of trials and “bench presence”—ought not to be the only measure of constitutional obligations of openness for dispute resolution. When judges take on the role of “neutrals” or authorize others to do so with “quasi-judicial” status, and when judges outsource their authority to the private sector, these “quasi-judicial” acts need to be subjected to public scrutiny. Information is needed because the difficulties of producing fair and binding outcomes for the millions of individuals who are now rights-holders are enormous. Public debates need to explore what kinds of injuries ought to be redressable and, if so, how.
In a 1976 article analyzing an earlier wave of Supreme Court constitutional analyses of the parameters of legitimate adjudication, Jerry Mashaw insisted that the “search” for “value” in due process law did not necessarily end in trial-like proceedings akin to those then associated with courts.669 What was required were public mechanisms to evaluate the quality of decision making to ensure accuracy, to respect the dignity of disputants, and to accord them equal treatment.670 The measures he proposed—administrative oversight, transparency, accounting, and judicial review671—could all come into play to implement what the Supreme Court has come to call the “effective vindication” of rights. The complement to all of his methods is the concept of publicity, making exchanges between disputants and the state accessible in various ways so as to enable outsiders to evaluate the shape of the procedures developed and their outcomes
In sum, the Supreme Court was right to invoke the idea of “effective vindication of rights,” but wrong not to require oversight to accomplish that aim. The constitutional predicates of legitimate coercion are at stake, as are the property and political rights of citizens. Whether conducted by state-paid or by privately financed entities, dispute resolution charged by the state with vindicating legal obligations has to be regulated to ensure equality of access through mandating fee waivers for indigence and overseeing the quality of decision makers. The alternatives must be publicly available and accountable so as to permit analyses of whether their processes and results constitute law, justice, or both. In courts and their alternatives, constitutional democracies require public engagement with the substantive and procedural rules that are the predicates for the power to render enforceable judgments.