Arbitral Faith

The 1925 Federal Arbitration Act (FAA) requires that any contract to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”[1] Between 2005 and 2013, the Roberts Court decided fifteen cases concerning the scope and enforceability of arbitration agreements.[2] The Court has reinforced the need for arbitrators to consider challenges to the contract as a whole;[3] made clear that arbitration agreements overrule state claims of exclusive administrative jurisdiction;[4] and allowed federal courts to look through a petition to compel arbitration to determine whether it has jurisdiction over the petition.[5] Class actions have received particular attention. Class-action arbitrations are only permitted, said the Court, if the agreement expressly permits class actions; finding an implied agreement in an otherwise silent contract was held to be a manifest disregard of the law.[6] And state law cannot render a class-action waiver in arbitration unenforceable.[7]

In the employment law context, the Rehnquist Court’s transformational arbitration case was Gilmer v. Interstate/Johnson Lane Corp.76 Prior to Gilmer, it was unclear whether employees were bound to arbitrate statutory employment-related claims if they had signed a predispute arbitration agreement. Gilmer altered the landscape by providing that employees could waive their rights to a judicial forum through a predispute arbitration agreement. Critical to the Court’s holding was that the agreement to arbitrate was not a waiver of substantive rights. Employees remained free to challenge arbitration agreements based on “well-supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds ‘for the revocation of any contract.’ ”[8] [9] But the FAA overrode any notion that arbitration was inappropriate per se in the resolution of statutory employment claims.

The decision in Gilmer transformed workplace dispute resolution by enabling employers and employees to privatize the adjudication of statutory claims, and the use of arbitration for employment disputes appears to have increased accordingly.[10] State and federal courts have been left to manage this process, with the Supreme Court intervening at limited but crucial points. In its short existence, the Roberts Court has expanded the availability of arbitration in the union context,[11] as well as providing arbitrators with greater authority to hear challenges to the arbitration agreement.[12] To some extent, this can be simply characterized as a docket-clearing mechanism, or even hostility to litigation.[13] [14] However, the Court appears to have greater trust in the good faith of these institutional actors, and thus is more willing to cede authority to them.

14 Penn Plaza LLC v. Pyett82 is a good example. The plaintiffs in Pyett were employees in commercial office building who were reassigned from positions as night watchmen to less desirable positions as night porters and light duty cleaners. The employees were unionized, and their employment was covered by the collective bargaining agreement with the Realty Advisory Board, a multiemployer bargaining unit of hundreds of New York City building owners and managers.[15] The employees initially brought a grievance against their transfer, and the union took the claims to arbitration. In the midst of the arbitration, the employees also brought suit against their employer and building owners under the ADEA and local antidiscrimination statutes, alleging they had been reassigned because of their age. The employer sought to compel arbitration, based on the clause in the collective bargaining agreement that required all discrimination claims to “be subject to the grievance and arbitration procedures ... as the sole and exclusive remedy for violations"[16]

The Court held that the agreement clearly and unmistakably required union members to arbitrate ADEA claims, and that this provision was enforceable under the FAA. The employees argued that the collective bargaining agreement operated as a “substantive waiver of their ADEA rights”[17] because the agreement allowed the union to block arbitration of their claims. The Court punted, saying that the issue “was not fully briefed” and was “not fairly encompassed within the question presented.”[18] But the Court seemed to indicate that if the agreement allowed the union to block an arbitration, then it would not meet the Gilmer standard for the protection of substantive rights.[19] As Justice Souter’s dissent notes: “[T]he majority’s opinion may have little effect, for it explicitly reserves the question whether a CBA’s (collective bargaining agreement’s) waiver of a judicial forum is enforceable when the union controls access to and presentation of employees’ claims in arbitration, which is usually the case.”[20]

The fact that both the Service Employees International Union and the Right to Work Foundation submitted briefs opposing the result in Pyett gives some sense of the political complexity of the case. Although the outcome divided along traditional conservative-liberal fault lines, the result is perhaps best explained by the majority’s commitment to arbitration—and more specifically, arbitrators.[21] Pyett gave the Court the opportunity to hearken back to the Steelworkers trilogy, a hoary set of bedrock decisions now largely uncontroversial.[22] By linking up arbitration of statutory claims with the union grievance-arbitration machinery, the Court returned employment arbitration to its roots. Unions may even use their newfound contractual freedom to pursue employee discrimination claims that would not otherwise have been brought.[23] Rather than simply a “probusiness” opinion, it makes more sense to see Pyett as a proarbitration decision, with the ultimate meaning of “proarbitration” left somewhat up in the air.[24]

The Roberts Court’s faith in the arbitration process—and in arbitrators— reached its apex in Rent-A-Center, West, Inc., v. Jackson.[25] In that case, the plaintiff sued his former employer under 42 U.S.C. § 1981 alleging race discrimination and retaliation. The employer moved to dismiss and to compel arbitration pursuant to an arbitration agreement that the plaintiff had signed. The arbitration agreement provided for arbitration of all “past, present, or future” disputes, and provided that “[t] he Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.”[26] The plaintiff argued that the agreement was unconscionable, based on its allegedly one-sided coverage and discovery provisions as well as a provision specifying that the arbitrator’s fee was to be equally shared by the parties.[27] The district court granted the motion to compel arbitration, but the US Court of Appeals for the Ninth Circuit reversed.[28]

As the Court has long acknowledged, contracts to arbitrate can be invalidated by “generally applicable contract defenses, such as fraud, duress, or unconscio- nability.”[29] This is the grand bargain erected by the FAA and reinforced by the

Court in Gilmer. As the FAA acknowledges, however, arbitration agreements are to be treated like other contracts, and thus they are “enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract"[30] Courts could not treat arbitration agreements differently than other contracts—neither worse nor better. The allocation of powers had been made; the rules of the game had been set.

Rent-A-Center changed those rules. Arbitrators, rather than courts, must now hear challenges to the validity of the underlying arbitration agreement, as long as the agreement delegated such authority to them. According to Prima Paint Corp. v. Flood & Conklin Mfg. Co.,[31] a claim of fraud in the inducement as to the underlying contract for services was appropriate for arbitral review, as it was separable from the validity of the contract’s arbitration provisions. A court was entitled to review “only issues relating to the making and performance of the agreement to arbitrate"[32] In Rent-A-Center, the Court further subdivided the contract between the parties. Now, there is not only the agreement to arbitrate, separable from the underlying substantive contract, but there is also the “delegation provision” within the agreement to arbitrate. The dissent persuasively compares this subdivision of the arbitration agreement to a series of Russian nesting dolls.[33] It is one thing to separate the agreement to arbitrate from the underlying substantive agreement, as the entire purpose of the arbitration agreement is to manage the process of resolving disputes as to the underlying substantive agreement. But here, the Court claims that the arbitration agreement consists of two parts: an actual agreement to arbitrate and an agreement to arbitrate questions of arbitrability. The underlying substantive agreement fades from view, and the arbitrator gets to decide whether the arbitration process meets the requirements of state contract law.

Slicing the bologna this thin has big consequences. As long as the agreement delegates questions of arbitrability to the arbitrator—and what arbitration contract now wouldn’t include this brief proviso?—the court cannot address challenges to the fairness of the arbitration until after the arbitrator has ruled, and then it must give the arbitrator’s ruling significant deference.[34] What if the arbitration agreement requires the arbitration to take place in Antarctica, or what if it prohibits the employee-claimant from calling any witnesses? Although some have argued that challenges to the who, where, or when of the arbitration can be brought to a court,103 it is unclear why these would not be subject to the arbitrator’s discretion as well. The Court maintains that a challenge to the validity of the delegation provision, as opposed to the arbitration agreement in its entirety, would appropriately be before the court, but there is little to explicate what such a challenge might look like.104

Beyond this, however, there is the practical concern about an arbitrator deciding whether she can continue forward or not. Yes, it is possible that arbitrators will vigorously enforce common-law unconscionability doctrine by making wholesale changes to arbitration agreements. But it seems strange to think that an arbitrator chosen as part of an unconscionable process would have the temerity and self-awareness to obliterate that process that created her authority in the first place. It reflects an almost unbelievable trust in human decency and impartiality to expect that arbitrators—again, when chosen through an unconscionable agreement—will turn and bite the agreements that feed them. Such is the trust that the Court places in these arbitrators.

The Roberts Court’s trust in arbitration extends beyond the employment context, as the recent cases of ATT Mobility LLC v. Concepcion105 and American Express Co. v. Italian Colors Restaurant106 illustrate. In both of these cases, the Court held that rights to bring class-action suits could be waived by individual parties, even if that meant there was little likelihood of individually secured relief. These cases show not only faith in arbitration, but also hostility to the very notion of classwide approaches to dispute resolution. They only further cement the notion that the Roberts Court seeks to shift the enforcement of public norms further into private hands.

  • [1] 9 U.S.C. § 2 (2006).
  • [2] Wachovia Bank v. Schmidt, 546 U.S. 303 (2006); Buckeye Check Cashing, Inc. v. Cardegna,546 U.S. 440 (2006); Preston v. Ferrer, 552 U.S. 346 (2008); Vaden v. Discover Bank, 556 U.S. 49(2009); 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009); Ministry of Defense and Support for theArmed Forces of the Islamic Republic of Iran v. Elah, 556 U.S. 366 (2009); Arthur Andersen LLPv. Carlisle, 556 U.S. 624 (2009); Stolt-Nielsen S.A. v. Animal Feeds International Corp., 559 U.S.662 (2010); Granite Rock Co. v. International Broth. of Teamsters, 561 U.S. 287 (2010); Rent-A-Center, West, Inc., v. Jackson, 561 U.S. 63 (2010); AT&T Mobility LLC v. Concepcion, 563 U.S. 333(2011); CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012); Marmet Health Care Center, Inc.v. Brown, 132 S. Ct. 1201 (2012); Oxford Health Plans v. Sutter, 133 S. Ct. 2064 (2013); AmericanExpress, Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013).
  • [3] Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006).
  • [4] Preston v. Ferrer, 552 U.S. 346 (2008).
  • [5] Vaden v. Discover Bank, 556 U.S. 49 (2009).
  • [6] Stolt-Nielsen, 559 U.S. at 685 (“An implicit agreement to authorize class-action arbitration,however, is not a term that the arbitrator may infer solely from the fact of the parties’ agreement toarbitrate”).
  • [7] AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 352 (2011).
  • [8] 500 U.S. 20 (1991).
  • [9] Id. at 33 (quoting 9 U.S.C. § 2 (2006)).
  • [10] The data is private, and so difficult to verify, but there is evidence of such an increase. See,e.g., Elizabeth Hill, Due Process at Low Cost: An Empirical Study of Employment Arbitration under theAuspices of the American Arbitration Association, 18 Ohio St. J. on Disp. Resol. 777, 779-80 (2003).
  • [11] 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009).
  • [12] Rent-A-Center, West, Inc., v. Jackson, 561 U.S. 63 (2010).
  • [13] For a discussion of the public costs that employment-related legal claims place on courts andsociety, see Matthew T. Bodie, Questions about the Efficiency of Employment Arbitration Agreements, 39Ga. L. Rev. 1, 69-74 (2003).
  • [14] 556 U.S. 247 (2009).
  • [15] Id. at 251.
  • [16] Id. at 252.
  • [17] Id. at 273.
  • [18] Id.
  • [19] Id. at 273-74 (“[A]lthough a substantive waiver of federally protected civil rights will not beupheld, we are not positioned to resolve in the first instance whether the CBA allows the Union toprevent respondents from effectively vindicating their federal statutory rights in an arbitral forum.”).
  • [20] Id. at 285 (Souter, J., dissenting).
  • [21] See, e.g., Pyett, 556 U.S. at 269 (“An arbitrator’s capacity to resolve complex questions of factand law extends with equal force to discrimination claims brought under the ADEA.”).
  • [22] Id. at 256 (citing Steelworkers v. Warrior & Gulf Navigating Co., 363 U.S. 574 (i960)). TheSteelworkers trilogy also includes United Steelworkers v. American Mfg. Co., 363 U.S. 564 (i960);and United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593 (i960).
  • [23] For a discussion of the possibilities for greater enforcement through union arbitration, see SarahRudolph Cole, Let the Grand Experiment Begin: Pyett Authorizes Arbitration of Unionized Employees'Statutory Discrimination Claims, 14 Lewis & Clark L. Rev. 861 (2010). For a broader defense of arbitration of employment claims, see Samuel Estreicher, Saturns for Rickshaws: The Stakes in the Debateover Predispute Employment Arbitration Agreements, 16 Ohio St. J. on Disp. Res. 559, 563 (2001).
  • [24] As to the politics of arbitration, Granite Rock Co. v. International Broth. of Teamsters, 561 U.S.267 (2010), is instructive. In that case, the Court held that arbitration of a dispute between unionand employer was not appropriate, as the collective bargaining agreement (containing an arbitration agreement) had not been executed at the time of events giving rise to the employer’s suit. IsGranite Rock antiarbitration? The result would seem to hinder efforts to arbitrate under a collectivebargaining agreement. But the opinion—involving an unusual factual occurrence—does not covera large and growing field of unsigned collective bargaining agreements. The majority is likely concerned with highlighting the need for consent in order to send the parties to arbitration.
  • [25] 561 U.S. 63 (2010).
  • [26] Id. at 66.
  • [27] Jackson v. Rent-A-Ctr. W., Inc., 581 F.3d 912, 914 (9 th Cir. 2009) cert. granted, 130 S. Ct. 1133(U.S. 2010) and rev'd sub nom. Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (U.S. 2010).
  • [28] Id. at 917.
  • [29] Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68 (2010) (quoting Doctor’s Associates, Inc. v.Casarotto, 517 U.S. 681, 687 (1996)).
  • [30] 9 U.S.C. § 2 (2012).
  • [31] 388 U.S. 395 (1967).
  • [32] Id. at 404.
  • [33] Rent-a-Center, 56 U.S. at 85 (Stevens, J., dissenting).
  • [34] Wilko v. Swan, 346 U.S. 427, 436-37 (1953) (discussing the “manifest disregard” doctrine),overruled on other grounds by Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477(1989).
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