Mandatory Arbitration Clauses Research Articles

"Hugo Will Pull My Hair Out": Justice Black and Mandatory Arbitration on the Warren Court

"Hugo Will Pull My Hair Out":Justice Black and Mandatory Arbitration on the Warren Court Theodore Salem-Mackall (bio) Call arbitration what you want, but do not call it uncontroversial. Early common-law courts refused to enforce contractual agreements to arbitrate claims, holding that parties' could not "oust" courts of their jurisdiction.1 Early American courts adopted this "ouster doctrine," and treated arbitration agreements as "revocable at will."2 Their skepticism, along with a dollop of private sector lobbying, lead to the 1925 passage of the Federal Arbitration Act. The FAA made agreements to arbitrate "as enforceable as other contracts" in federal court.3At the time of the FAA's passage, concerns existed that large corporate interests would use mandatory arbitration clauses contained in form contracts to frustrate worthy claims. The FAA's congressional advocates intended for the bill to have a narrow scope in order to forestall this.4 Yet a few progressive members of Congress were not relieved by such promises. Among them was a young Alabama senator who, though he would not actually join Congress until a year after the FAA's passage, opposed expanding the scope of mandatory arbitration throughout his life: Hugo Lafayette Black. Justice Black, who served on the Court from 1937–1971, is best known for his monumental decisions on school desegregation, freedom of the press, and procedural protections for criminal defendants.5 What he is less known for is his status as one of the Supreme Court's foremost critics of mandatory arbitration. From 1961–67, Black dissented in six cases enforcing a mandatory arbitration clause contained in a contract or collective bargaining agreement.6 His dissents often argued that strict enforcement of arbitration clauses came at the expense of a party's constitutional right to their "day in court."7 The early Warren Court shared Black's concerns. In 1953, the Court held in Wilko v. Swan that the right to bring Securities Act claims in [End Page 54] federal court could not be waived through a form contract containing an arbitration agreement.8 Yet this hostility did not last. In 1967, a very different Warren Court decided Prima Paint v. Flood & Conklin.9 Prima established that the Federal Arbitration Act made arbitration agreements "valid, irrevocable and enforceable" in federal court,10 and superseded any contrary state arbitration rules in diversity cases.11 The decision implicitly overruled a 1956 Supreme Court holding that the Federal Arbitration Act was a procedural statute that could "affect the rule of decision," and could violate Erie R. Co. v. Tompkins if applied to override contrary state law. Prima Paint also made arbitration clauses "severable" from the rest of contracts, allowing arbitrators to review "fraud in inducement" defenses to breach claims rather than courts.12 Prima marked the first in a long line of Supreme Court cases that gradually established modern "liberal enforcement" of arbitration clauses.13 Justice Black opposed every aspect of the case. In a dissent longer than the opinion, he described it as a "statutory mutilation."14 Hugo Black and the Federal Arbitration Act Black's skepticism of arbitration stemmed from his wariness of corporate power and deep belief in each person's right to a fair "day in court." Throughout his life, Black displayed a deep respect for the right to fair trials decided by impartial courts. He began his career as a Birmingham trial lawyer. This experience left him with a "devout belief" in the jury system, and in his eventual political career he pushed for stronger procedural safeguards in trial courts. To Black, only procedures which ensured fundamental fairness could allow the judiciary to achieve just outcomes and maintain its legitimacy.15 Black's political career was shaped by the Great Depression. The traumatic experience of watching Alabama residents beg for food pushed him to support the New Deal's efforts to regulate capitalism. As a Senator from 1927 to 1937, this support brought him into conflict with a range of "high-powered, deceptive, telegram-fixing, letter-framing, Washingtonvisiting [lobbyists]."16 Black sparred with special interests over his attempts to provide municipal power to impoverished Alabama towns.17 He watched them push for exemptions to his Black-Connery bill...

Mandatory Arbitration and Prison Services Contracts: How Private Companies Exploit the Incarcerated and Consumers to Reject Meaningful Accountability

This Comment considers a previously unexamined, and particularly vile, consequence of the movement towards consumer arbitration clauses: their impact on incarcerated people and their families. Incarceration is physically, emotionally, and financially ruinous for both the incarcerated and for families who are routinely forced to subsidize their loved one’s incarceration through paying for things like phone calls and basic needs that prisons fail to meet. The burden on families has only increased as governments have contracted various aspects of correctional systems out to private companies that charge exorbitant prices for basic services, knowing full well that consumers have no choice but to comply if they want to provide for and stay connected to incarcerated loved ones. This system would be inhumane enough without the added element of forced arbitration. This Comment hopes to shine a light on how mandatory arbitration clauses make an already exploitative situation all the worse. Not only are families of the incarcerated charged outrageous and illegal prices to communicate with and protect their loved ones, but mandatory arbitration ensures that they have no real ability to hold responsible companies accountable.

Back in My Day, We Had Rights: The Med-Arb Solution to Mandatory Arbitration Clauses in Indiana Nursing Home Admissions Contracts

Back in My Day, We Had Rights: The Med-Arb Solution to Mandatory Arbitration Clauses in Indiana Nursing Home Admissions Contracts

Mobile-Based Transportation Companies, Mandatory Arbitration, and the Americans with ‎Disabilities Act ‎

Uber, Lyft, DoorDash and similar mobile-based transportation network companies (TNCs) have ‎been involved in numerous legal battles in multiple jurisdictions. One contested issue concerns ‎TNCs’ use of mandatory (pre-dispute) arbitration clauses in their standard form service ‎agreements with both drivers and passengers. These arbitration clauses purport to obligate such ‎future plaintiffs to resolve any dispute with the defendant TNC outside of court and, typically, ‎on an individual rather than a class basis. In particular, TNCs have been increasingly litigating ‎disability-based discrimination claims brought against them and/or their drivers pursuant to the ‎Americans with Disabilities Act (ADA). These claims have largely arisen in two situations, ‎examined in this article. ‎ The first situation is where the plaintiffs have not downloaded or used the defendant TNC’s ‎mobile application due to the absence of accessible vehicles. These “potential passengers” have ‎brought discrimination claims against the defendant TNC in court for its failure to provide ‎accessible vehicles that they could use. TNCs in such cases have raised two main lines of ‎arguments: an ADA-based argument and an arbitration-based argument. The TNCs’ ADA-based ‎argument posits that the plaintiffs do not have standing to bring the discrimination claims under ‎the ADA since they had not in fact used the TNC’s mobile application and therefore have not ‎suffered the required “injury” to have standing under the Act. Where the plaintiff potential ‎passengers have been found to have such standing nonetheless, the TNCs have put forward an ‎alternative arbitration-based argument — that the plaintiffs should be bound by the arbitration ‎clause contained in the service agreement, which they did not sign, and that their claims should ‎therefore be referred to arbitration. ‎ The second situation in which disability-based discrimination claims under the ADA have been ‎brought against TNCs is where the plaintiffs downloaded the mobile application, agreed to the ‎terms of service, and used the ride-share services. These plaintiff passengers are then typically ‎obligated to argue their discrimination claims in arbitration in light of the arbitration clause ‎contained in the TNCs service agreement. Indeed, TNCs seem to prefer arbitration to litigation ‎in court, a preference that some have criticized as a strategy designed to prevent plaintiffs from ‎vindicating their legal rights. However, a recent arbitration decision rendered against Uber in an ‎ADA discrimination case discussed in this article illustrates that arbitration is able to provide ‎the same legal protection to plaintiffs’ rights as a court. ‎

Mobile-Based Transportation Companies, Mandatory Arbitration, and the Americans with Disabilities Act

Uber, Lyft, DoorDash and similar mobile-based transportation network companies (TNCs) have been involved in numerous legal battles in multiple jurisdictions. One contested issue concerns whether TNC drivers are employees or independent contractors. Uber recently lost this battle to some extent in the UK, but won it in California. Another issue concerns the TNCs’ use of mandatory (pre-dispute) arbitration clauses in their standard form service agreements with both drivers and passengers. These arbitration clauses purport to obligate such future plaintiffs to resolve any dispute with the defendant TNC outside of court and, typically, on an individual rather than a class basis. TNCs have had mixed success enforcing arbitration clauses contained in service agreements with their drivers under the Federal Arbitration Act (FAA). As for passengers, TNCs have been increasingly litigating disability-based discrimination claims brought against them and/or their drivers pursuant to the Americans with Disabilities Act (ADA). These claims have largely arisen in two situations.

Mandatory and hybrid arbitration clauses in the practice of international financial institutions

This article analyzes the process of application of the hybrid and mandatory arbitration clauses in the practice of international financial institutions. Same as the international commercial arbitration, the domestic arbitration is the most acceptable form of resolution of financial disputes. Contracts with consumers of financial services more often utilize the mandatory arbitration clauses, being the reason why arbitration became de-facto a mandatory means of resolution of disputes with consumers in the sphere of financial services. At the same time, arbitration procedure of dispute resolution is not without its flaws, currently demonstrating trends of increased costs of arbitration, as well is increased term of review of arbitration cases. This gave rise to a new form of arbitration clauses – hybrid dispute resolution clauses, which gives the parties to a dispute an opportunity to seek resolution in state courts, as well as arbitration as an alternative. The novelty of this research consists in the fact that in the conditions of growing “complication” of the arbitration process, there is a high likelihood of application of the hybrid dispute resolution clauses among the international financial institutions. There is also the fact that that arbitration, conducted in accordance with the US financial regulator FINRA, is also mandatory, and in majority of cases yields no results in resolution of disputes of consumers, but its “mandate” is underlines by other causes, than the initiative of large international corporations providing the service.

Making Firms Liable for Consumers’ Mistaken Beliefs: Applications to the U.S. Mortgage and Credit Card Markets

In theory, an introduction of a liability on firms, related to the difference between consumers’ beliefs and the effective terms of purchase/contract, can improve both social welfare and consumer surplus, depending on the relative magnitudes of: (1) decrease in the gap between the beliefs and the effective terms of the contract due to the introduction of the liability, (2) output decrease or price increase, and (3) efficiency of administering the liability (and the amount transferred). I do not find statistically significant evidence of (2) in two examples of instituting a similar liability: when several large U.S. credit card issuers dropped mandatory arbitration clauses (that effectively precluded class action lawsuits) and when U.S. residential mortgage creditors became liable for failing to consider a borrower's future ability to repay the mortgage, suggesting that these events improved consumer surplus and might have improved social welfare.

How Do Organizational Environments and Mandatory Arbitration Shape Employment Attorney Case Selection? Evidence from an Experimental Vignette

Using a novel experimental vignette design, this study shows how firm adoption of equal employment opportunity (EEO) policies, internal dispute resolution procedures, occupational segregation, and use of mandatory arbitration agreements affect employment attorney perceptions of employment discrimination claims. Findings reveal the organizational environment of a claim can signal compliance with antidiscrimination law and the use of mandatory arbitration reduces the expected value of a claim and willingness to accept it for representation. These findings contribute to the understanding of antidiscrimination law as a social system by showing organizational environments and mandatory arbitration clauses predict attorney case assessment.

Class action: a common form of representative litigation in the United States of America Special reference to the validity of class action waivers and class actions regulation under Spanish law

This paper is an introduction to the U.S. class action lawsuits under the Rule 23 of the Federal Rules of Civil Procedure. Class actions lawsuits have been an integral part of the U.S. judicial system for many decades. This paper outlines both the benefits of this remedy and the main criticisms of it. It pays special attention to pre-default, contractual mandatory arbitration clauses and the validity of class action waivers. All this is viewed from a practical perspective based on real cases that illustrate the actual trends of the American Courts of Justice. Finally, it includes a brief analysis of the Spanish class actions to provide the reader with a general overview of this procedural device both under US and EU law perspective.

Investors´ protection in the U.S.: the issue of mandatory arbitration clauses in contracts between investors and brokerage/advisory firms

Abstract This paper proposes a review of the American literature, as well as the main rulings of Supreme Court of United States, aiming to map the pros and cons of inserting a mandatory pre-dispute arbitration clause in contracts between investors and brokerage/advisory firms that trade on the securities market. The study discusses some proposals to banish this sort of clause and some ideas to reach a middle ground solution.

The Impact of Mandatory Arbitration on the Common Law Regulation of Standard Terms in Consumer Contracts

The focus of this paper is the regulation of standard terms in consumer contracts at common law, i.e., judges deciding cases in published opinions. In particular, I focus on the two most important common law doctrines in this area — unconscionability and good faith — and to a lesser extent on court decisions that interpret consumer statutes. They have all played a central role in regulating standard terms in consumer contracts over the years, yet their continuing role is being threatened by the proliferation of mandatory arbitration provisions in consumer contracts. If this trend continues, the ability of courts to further develop contract doctrine in consumer transactions may be severely limited. I begin with a discussion of the role that common law plays in regulating consumer transactions. I then discuss how the unconscionability and good faith doctrines have evolved as limitations on standard terms in consumer contracts. Next I discuss the increasing use of mandatory arbitration clauses in consumer contracts and the likely effects of this trend on consumer contract litigation. Toward the end of the paper, I explore what this might mean going forward if the common law of unconscionability and good faith in consumer contracts are essentially frozen in time, and if mandatory arbitration results in fewer published decisions interpreting and applying consumer statutes.

ADR in Japan's Financial Markets & the Rule of Law

One practitioner recently described the number of cases resolved in private alternative dispute resolution in Japan simply as “unsatisfactory”. That statement aptly describes efforts to mediate disputes arising between financial service providers and their customers up to 2008. But in 2008 things changed: Japan amended each of the statutes regulating its principal financial industries, including the banking, insurance, and securities industries. In doing so, it established Japan’s Financial ADR System. Claimants have used this system in large numbers: in some industries, they are mediating more claims than they are filing in the courts. And they do so voluntarily. There are no mandatory mediation or arbitration clauses that require a customer to arbitrate or mediate instead of litigate. The system is far from perfect: practitioners and scholars find much to dislike. But there is also evidence to suggest that there are meaningful benefits: it offers speedy and inexpensive resolution of claims that are unlikely to be litigated. And the resolution is, on average, reasonable when measured against litigated outcomes. It reaches this result not by limiting the role of legal professionals and access to the courts, as found in previous statutorily-imposed alternative dispute resolution schemes. Instead, it does so by relying on legal professionals and judicially established norms. The numbers suggest Japan’s Financial ADR System warrants a closer look, which is what this article does.

Nursing Homes and Mandatory Arbitration Clauses

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Another Perspective on Testamentary Arbitration

The American law of succession is remarkable both for its expansive concept of testamentary freedom and for its antiquated and cumbersome probate system. In principle, a testator enjoys virtually unlimited freedom to dispose by will of property owned at death, but enforcement of the testator’s directions generally requires a proceeding in a probate court to prove the will and appoint an executor to administer the estate. To avoid the expense and delay of court proceedings, transferors routinely use revocable trusts and other devices that replicate the effects of a will but operate outside the probate system. Moreover, some transferors seek to prevent their wills and trusts from becoming embroiled in litigation by requiring that disputes be resolved by private arbitration. The twin phenomena of probate avoidance and mandatory arbitration clauses stem from a common desire on the part of transferors to control the process as well as the substantive terms governing the disposition of their accumulated wealth. While transferors are generally free to dispose of property during life or at death without unnecessary court involvement, mandatory arbitration clauses raise controversial questions of enforceability and procedural fairness.

Antitrust Arbitration and Merger Approval

INTRODUCTIONIn a string of recent opinions, the Supreme Court has made it harder for consumers to avoid arbitration clauses, even when businesses strategically insert provisions in them that effectively prevent consumers from being able to bring any claim in any forum. For example, when firms engage in illegal conduct that extracts small amounts of ill-gotten gains from millions of consumers, individual litigation (or arbitration) may cost more than the maximum possible recovery. In these scenarios, class action litigation or class-wide arbitration may be the only viable mechanisms for consumers to seek recovery. Yet, in AT&T Mobility LLC v. Concepcion,1 the Supreme Court held that the Federal Arbitration Act preempted state laws that rendered class arbitration waivers in arbitration clauses unconscionable and, thus, unenforceable. In American Express Co. v. Italian Colors Restaurant,2 an antitrust case, the Court held that class action waivers embedded in mandatory arbitration clauses were enforceable even when they had the effect of making it economically irrational for the victims of antitrust violations to pursue their claims.3Part I of this Article examines how courts initially treated antitrust claims as nonarbitrable. For decades, courts considered antitrust claims to be too complex and too important to trust to private arbitrators. By the 1980s, the Supreme Court permitted federal statutory rights, including antitrust claims, to be arbitrated so long as the plaintiffs could effectively vindicate their rights in the alternative forum (the so-called Effective Vindication Doctrine). In 2013, the Supreme Court in Italian Colors fundamentally weakened the Effective Vindication Doctrine when it held that arbitration clauses that precluded class actions and class-wide arbitration were enforceable even when they effectively prevented any victim from actually bringing an individual case.Part II details the problems of mandatory arbitration of antitrust claims. Arbitration differs from litigation in ways that harm the interests of consumer-plaintiffs. For example, arbitration limits discovery and has no meaningful appeals process. Furthermore, defendants draft arbitration clauses to prevent class actions and to undercut the pro-plaintiff features of antitrust law, including mandatory treble damages, meaningful injunctive relief, recovery of attorneys' fees, and a lengthy statute of limitations. With the Court's undermining of the Effective Vindication Doctrine in Italian Colors, defendants' efforts to dismantle these pro-plaintiff components of antitrust law may prove more successful in the future.Part III shows how the problems associated with antitrust arbitration are magnified in concentrated markets. Supporters of enforcing arbitration clauses assume that these contractual provisions are the result of an informed, voluntary bargain. But when a market is dominated by a single supplier or a small group of firms, consumers often find it impossible to purchase a necessary product while retaining the right to sue, especially since arbitration clauses are generally embedded in contracts of adhesion. This means that in the markets most likely to be affected by antitrust violations, consumers are least likely to be able to avoid mandatory arbitration clauses. Furthermore, when mergers result in concentrated markets, they can increase the problems explored in Part II.Finally, Part IV explains how antitrust authorities can address the problem of proliferating arbitration clauses. When evaluating mergers, officials at the Federal Trade Commission and the Antitrust Division of the Department of Justice can threaten to challenge the merger unless the merging parties agree to specified conditions, such as the divestiture of certain assets. Because those mergers that pose the greatest risk of anticompetitive effects also magnify the problems associated with mandatory arbitration clauses, antitrust officials would be wise to condition merger approval on the merging parties' agreement to not require arbitration of antitrust claims. …

Making Firms Liable for Consumers' Mistaken Beliefs: Theoretical Model and Empirical Applications to the U.S. Mortgage and Credit Card Markets

I show that an introduction of a liability on firms proportional to the difference between consumers' beliefs and the effective terms of purchase/contract can improve both social welfare and consumer surplus, depending on the relative magnitude of: 1) decrease in the gap between the beliefs and the effective terms of the contract due to the introduction of the liability, 2) decrease in output or increase in price, and 3) efficiency of administering the liability. I do not find a statistically significant output decrease (price increase) when several large U.S. credit card issuers dropped mandatory arbitration clauses (that effectively precluded class action lawsuits) or when U.S. residential mortgage creditors became liable for failing to consider a borrower's future ability to repay the mortgage, suggesting that these events improved consumer surplus and might have improved social welfare.

What's Left to Remedy Wage Theft? How Arbitration Mandates that Bar Class Actions Impact Low-Wage Workers

For low-wage workers who suffer “wage theft” – employers illegally withholding portions of their wages – the dollars missing from their paychecks violate existing law and significantly impact the well-being of individuals, families, and communities. Despite this dire societal problem, the Supreme Court continues “closing the courtroom doors” in two ways: allowing employers to force workers out of court and into private arbitration; and prohibiting aggregate claims. Such trends, in combination, silence wage theft, leaving many claims unheard while unscrupulous employers gain direct advantage.This Article explains how various procedural rulings have combined to prevent meaningful redress for wage theft. Because of high transaction costs and relatively low potential damages, low-wage workers are likely to recover their lost wages only if they band together with similarly-situated workers in an aggregate lawsuit. However, collective action is under attack: AT&T Mobility v. Concepcion, the latest Supreme Court case to approve of mandatory arbitration clauses, allowed a corporation to impose “agreements” mandating individual arbitration and barring class actions.This Article brings new insights into the widening blind spot the Supreme Court has for the impact procedural rules have on the substantive rights of low-wage workers. Moreover, it touches upon a greater trend in American jurisprudence of courts shutting out plaintiffs, especially those unlikely to afford legal representation. By drawing attention to the unjust effects of facially neutral rules on low-wage workers, this Article contributes to the national conversation on how Supreme Court precedent limiting judicial access affects society’s most vulnerable.

Enforceability of Mandatory Arbitration Clauses for Shareholder-Corporation Disputes

Investor litigation is an increasingly vexatious field of law. Nearly every time a significant change of control or corporate ownership occurs, plaintiffs’ attorneys file standardized complaints to set in motion class action suits. Ultimately, the settlements shareholders receive fail to achieve the practical effects that parties on both sides desire. Shareholders may receive pennies on the dollar of what they allege was lost by corporate wrongdoing, and, in some cases, shareholders may not receive monetary recovery as the settlement requires only that the corporation to make changes to its governing documents. These suits distract directors and management from the core operational aspects of their business. Corporations will pay enormous fees to attorneys and experts to defend against the suits. Often times, as a result of director and officer liability insurance, neither corporations nor directors pay damages out of pocket, making it unlikely that the suits serve a deterrent function, one of the principal policy goals behind allowing for such suits.

Substantive Unfairness of Pre-Dispute Arbitration Clauses in Consumer Contracts: The Argument for the Unconscionability Doctrine

Development of the doctrine of unconscionability in Canadian common law provinces would serve as an effective mechanism to render pre-dispute arbitration clauses unenforceable in the context of consumer contracts. While laws which facilitate the commercial arbitration process are generally seen as a favourable development, the negative backlash to arbitration occurs because it is often used a means to gain an advantage against unsuspecting consumers. The author asserts that the law should facilitate the use of arbitration in the commercial context between parties of roughly equal bargaining power, while simultaneously curbing enforceability of mandatory pre-dispute arbitration clauses in consumer contracts. In the past three decades, provincial legislators have devised statutes in order to facilitate the process of commercial arbitration. During the same time period, legislators have also created numerous mechanisms to protect the substantive rights of consumers, with notable examples being the development of laws enabling class action proceedings as well as consumer protection laws. When these policy objectives appear to conflict, it is up to the courts to strike the appropriate balance in order to ensure the intent of the legislature is carried out. The current balance struck by the Supreme Court of Canada patently places too much emphasis on the promotion of arbitration while ignoring the genuine desire of legislators to protect the interests of consumers. The purpose of this paper is to explore and critique the law in Canadian common law provinces regarding unconscionability in the context of pre-dispute arbitration clauses in consumer contracts. The author reviews the theoretical and practical underpinnings as to why mandatory pre-dispute arbitration clauses unfairly disadvantage consumers, while at the same time offering a doctrinal analysis of how a claim of unconscionability could be successfully argued. As unconscionability is a more developed doctrine in the United States, a brief comparative analysis is undertaken in order to highlight the potential lessons for Canadian jurists. In addition, as this area of law is not currently settled in Canada, the author aims to make policy-based arguments as to why a reassessment of the current jurisprudence is necessary in order to influence future developments in the common law.

Boilerplate: A Threat to the Rule of Law?

In today’s US, transactions between firms and consumers (including businesses in the position of consumers) routinely contain fine-print terms deleting rights to legal remedies against the firm, such as exculpatory clauses, waivers of consequential damages, and mandatory pre-dispute arbitration clauses. This chapter argues that such remedial rights should not be treated as mere default rules routinely waivable by recipients of fine-print contracts (‘boilerplate’), because such rights deletions threaten the rule of law by undermining rights structures that are central to the state’s obligations toward the public. When remedial rights are subject to easy waiver by boilerplate, they place recipients into a situation that might be called quasi-anarchy; that is, a one-sided situation resembling the anarchy that the state is supposed to supplant. Moreover, they underwrite a scheme of privatization that amounts to exercise of arbitrary power over recipients; and they transgress the principle of equality before the law by separating people that retain legal rights from people that do not. Such rights should remain situated in the public realm, and subject to a species of market-inalienability. This chapter thus argues for a modified version of the public/private distinction, related to maintaining the rule of law.