Tag Archives: Arbitration
Once upon a time, litigators faced a clear choice among competing dispute resolution procedures. You could litigate. You could arbitrate. Or you could mediate. Early generations of dispute resolution scholars imagined these processes as being wholly distinct. Frank Sander, during the famed 1976 Pound Conference, envisioned a “multi-door courthouse” where disputes could be neatly grouped—with the ease of a Harry Potter-esque sorting hat—into the most appropriate resolution mechanism.
Over the past couple decades, these once-discrete processes have become more muddled. This is particularly true for complex commercial and international disputes. Processes converge and exist parallel to one another across jurisdictions. Parties may litigate the scope of an arbitration clause or the enforceability of an award. They may mediate one branch of a dispute while arbitrating another. They may also mix and match aspects of each procedure with blended processes like “med-arb” or “arb-med.”
Domestic and international court systems have both responded to, and shaped, this complicated reality. Pamela Bookman is among the clearest analysts of these trends in judicial innovation. Her new piece, Arbitral Courts, analyzes exactly what its title suggests: public courts that adopt many of the features of private arbitration. Oxymoron? Maybe. New reality? Definitely.
Bookman begins by observing that arbitration is traditionally considered to be a private dispute resolution mechanism meant to replace courts for disputing parties. The conventional wisdom has been that “courts and arbitration stay in their lanes.” But that thinking has shifted. Specialized domestic and international courts have begun to adopt qualities of private arbitration, responding to parties’ desire for confidentiality, speed, procedural flexibility, and subject matter expertise. Arbitral courts “shift and blur traditional boundaries between public and private adjudication [and] reveal the power of procedural innovation and forum shopping as forces of institutional change[.]”
Bookman offers numerous examples of these arbitral courts, ranging from Delaware, to Singapore, to Dubai. Consider the Cayman Islands Financial Services Division of the Grand Court (“FSD”), created in 2009, which has jurisdiction for business-related disputes where the amount in controversy exceeds $1.2 million. The FSD’s judges include four full-time judges with some specific background in business law, and three part-time judges, including attorneys for international law firms. Its procedural rules are designed by “an elite group of lawyers” who understand the needs of the transnational companies that choose to incorporate in the Cayman Islands. The FSD also has a fairly liberal policy on sealing its dockets (generally between one-third and half of all cases), meaning that disputes can be largely adjudicated in private.
Or consider the Netherlands Commercial Court, which opened its doors in January 2019. That court hears “trials” in panels of three judges (plus a law clerk) using procedural rules substantially similar to the International Bar Association Rules on the Taking of Evidence in International Arbitration. These Rules permit party-driven customization of evidence and process, as well as confidentiality—features associated with private arbitration rather than public adjudication. Moreover, the Netherlands Commercial Court charges significant fees compared to a normal litigation (€ 15,000), essentially creating a specialized court for clients able to pay top-dollar.
Or finally, consider an attempt at innovation in Delaware. Delaware’s Court of Chancery is the most significant court in the United States for corporate disputes. The Court’s judges, known as chancellors, are widely considered to be the leading experts in this area of law. In 2009, Delaware’s legislature enacted a program whereby parties could pay heightened fees to arbitrate, rather than litigate, their disputes before a chancellor. The proceeding and award would be confidential, even though the arbitrator was a sitting judicial officer. (While it’s common for retired judges to serve as arbitrators for-hire, such conduct is typically prohibited of sitting judges under ethics rules). The Delaware scheme was challenged by an open government group, and in 2013, the U.S. Court of Appeals for the Third Circuit held that it violated the right of qualified public access guaranteed by the First Amendment. But nevertheless, the program attracted the attention of court systems designers around the country.
What do these various examples share? A mixing and matching of attributes associated with public litigation and private arbitration. Publicly-funded judicial officers, rendering decisions in confidential proceedings, using rules designed by corporate attorneys, with procedures that can be tailored to individual cases based on the parties’ consent.
Bookman goes beyond describing these various courts, offering potential opportunities and areas for concern. One of the article’s central observations—and warnings—is the complicated nature of arbitral courts’ legitimacy. Normally, courts get their legitimacy from the state, while arbitrators get their legitimacy from the parties’ bilateral contract. Arbitral courts are a hybrid; their legitimacy comes from both the parties’ consent to their jurisdiction, and the state’s establishment of their structure. Bookman warns that this duality carries an inherent tension. Parties’ desire for arbitration-like confidentiality, for example, hampers the ability of these courts to develop public and predictable precedent. Over time, such secrecy could lessen the arbitral courts’ legitimacy in the eyes of litigants and taxpayers.
Arbitral Courts fits nicely into a sub-genre of procedure scholarship that examines not just the workings of discrete dispute resolution mechanisms, but their confluence. For example, it pairs nicely with Hiro Aragaki’s The Metaphysics of Arbitration, Thomas Stipanowich’s Arbitration: The ‘New Litigation’, or Jackie Nolan-Haley’s Mediation: The ‘New Arbitration.’ These scholars recognize that ADR procedures are becoming harder to differentiate from “regular” civil procedure, especially for transnational disputes.
“Alternative” dispute resolution is often relegated to the elective corners of law school curricula. But the reality on the ground, from the perspective of international litigators, is that ADR is inextricably interwoven into civil procedure. From the moment a client’s dispute arises—or even earlier, when a contract is drafted—lawyers must understand the potential mechanisms for resolution. For several years, Bookman’s scholarship has explored how court systems, far from remaining static, have responded to competition from private ADR. In this way, she is an intellectual heir to Frank Sander himself, albeit with a more international flair. Undoubtedly, court systems at home and abroad will continue to mix, match, and muddle dispute resolution processes in the years ahead. This article will provide these innovators with ideas and models—as well as some nagging notes of caution.
Andrew B. Mamo, Three Ways of Looking at Dispute Resolution
, 54 Wake Forest L. Rev. 1399
(2019), available at SSRN
Advocates of alternative dispute resolution (ADR) often talk about the “ADR Movement” as if it were…well…an actual movement. We know what the phrase means, or at least we think we do. Since the 1970s, the popularity of extra-judicial mechanisms for conflict resolution–arbitration, mediation, negotiation, and restorative justice–has risen sharply. Over the same period, these procedures have become highly professionalized areas of study and practice. But is there a coherent “ADR Movement,” with a capital “M,” based upon a unified legal philosophy?
Not so much. In his comprehensive article, Three Ways of Looking at Dispute Resolution, Andrew Mamo carefully unravels the divergent philosophical strains that have supported the expansion of ADR over the past half-century. He explains the history of ADR against the broader backdrop of American legal and political history.
One of the reasons that this article is such a helpful contribution to the history of American civil procedure is the increasing centrality of ADR. Whether there is an “ADR Movement” or not, ADR’s constituent parts have become vastly more important in recent years. The general academic consensus has long been that trials are no longer the central means of conflict resolution in the United States. Some scholarly analysis suggests that well over 95% of all civil lawsuits end in settlement before trial. There are many possible explanations for this trend. Some point to judges taking a highly managerial approach to encourage settlement; others point to the increased professionalization of mediation services; and others point to the substantive benefits of arbitration over litigation for many types of commercial disputes. While criminal disputes present different sets of problems, scholars have observed both the increase in criminal plea bargaining (a form of negotiation), as well as the potential benefits of restorative justice mechanisms over traditional jury trials.
One might expect to find some sort of common denominator among these various trends. But as the title of his article suggests, Professor Mamo traces modern “ADR” to three distinct political philosophies.
First, he identifies a “liberal, state-centric, rights-based approach.” This approach looks at the relationship of ADR processes to traditional litigation, particularly in the context of court-annexed mediation and arbitration programs that primarily aim to lighten overcrowded court. Mamo traces this branch to the 1976 “National Conference on the Causes of Popular Dissatisfaction with the Administration of Justice” convened by Chief Justice Warren Burger where Professor Frank Sander famously introduced the concept of a multidoor courthouse–the idea that courts should “sort” disputes almost like a Harry Potter-esque sorting hat. Some disputes would go to the mediation room, others to the arbitration room, and others to courtrooms for trial. In this conception, ADR serves primarily to support and alleviate traditional legal processes; it exists parallel to litigation.
Second, he identifies a “neoliberal, individualistic, interest-based approach.” This branch originates from the economic theories of the 1980s that emphasized free market capitalism and private bargaining in the absence of governmental or judicial oversight. Mamo ties the “win-win” negotiation strategies promulgated by Professor Roger Fisher (co-author of the celebrated book Getting to Yes) to broader beliefs in value maximization and economic efficiency that dominated the era. In this conception, ADR serves primarily to benefit the individual disputing parties; it exists outside of the legal system.
And third, he identifies an “anti-liberal, communitarian, relationship-based approach.” This branch originates from the belief that community-centered solutions to conflict–in the form of neighborhood justice centers, restorative practices, and victim-centered strategies–can create normatively better outcomes than either law-centered solutions or private-party centered solutions. Mamo traces this view even further back in American history, to early utopian and religious communities in New England, which favored systems of community norms over legal rules. In this conception, ADR serves as a more wholistic, socially conscious alternative to litigation; it exists not to benefit the government or the disputing parties, but the community.
Mamo shows how, today, ADR tries to rely on all three of these three divergent justifications: existing to help the court system, the parties, and society at large. In some ways, the “ADR Movement” rejects legal norms and procedure, preferring party autonomy and individual interests. Parties choose their own , agree to their own set of rules, and essentially determine the manner in which their conflict will be resolved. In other ways, ADR embraces court-centered or community-centered values. If a dispute goes to arbitration, that’s one fewer case for the public courts to handle on the taxpayers’ dime. If a dispute is sent to some sort of restorative practice, that theoretically benefits the broader community.
This article shows the ideological diversity within the so-called “ADR Movement.” If you attend an ADR conference, you’re likely to see Professor Mamo’s article come to life in different corners of the meeting room. You’ll find corporate lawyers drafting mandatory arbitration clauses. You’ll find self-described “peacemakers” and “conflict healers.” You’ll find in-house lawyers designing employee mediation programs to keep disputes private. You’ll find community leaders who privately resolve neighbor disputes. Big Law arbitration partners. Administrators of court-annexed arbitration programs. Hostage negotiators. Divorce mediators. Ombudsmen. All these folks can somehow fit under the “ADR” umbrella, albeit through divergent philosophical justifications.
In some ways, Professor Mamo is perfectly situated to tell this complicated story. First, he’s a trained historian, which allows him to place ADR in its full context. And second, he’s a Clinical Instructor in the Negotiation & Mediation Clinical Program at Harvard Law School, an institution that has had a disproportionate impact on the development of ADR dating back to scholars like Fisher and Sander. (He will join the faculty of Northern Illinois University College of Law next year). Harvard is one of a handful of law schools–including places like Cardozo, Missouri, Ohio State, Oregon, and Pepperdine–that invested heavily in the teaching and study of private dispute resolution in the 1980s and 90s. Sometimes labeled as “alternative” dispute resolution and relegated to “skills” courses in some corners of legal academia, ADR has become absolutely central to the ways in which American law is experienced. Indeed, these institutions were far ahead of the curve in gauging its importance to the curriculum.
ADR’s rise over the past five decades has been remarkable. But Professor Mamo elegantly reminds us that the field’s rise is best understood not necessarily as a unified “movement” and rather as a confluence of aligned interests or even historical accident. ADR contains multitudes.
Moderation isn’t always sexy. The spotlight usually favors powerful progressives and committed conservatives. Politically aligned scholarship makes for pithier titles, punchier abstracts, and perhaps wider readership from likeminded academics and policymakers. Voices from the center are easily drowned out by the rattling din on the ideological edges.
Stephen Ware’s The Centrist Case for Enforcing Adhesive Arbitration Agreements is a welcome exception. This readable exposition of the politics of arbitration law makes the case that the best cure for arbitration’s ailments is found at the political center. This article is Ware’s third in a three-part series on this topic. Jurisprudence on both the left and the right, he argues, leaves doctrinally incoherent or incomplete solutions.
Many areas of law have well-trodden ideological battlegrounds with obvious liberal and conservative ‘sides.’ Arbitration isn’t so simple. Red and blue states alike have attempted to regulate arbitration, passing legislation to make certain categories of disputes non-arbitrable (e.g., insurance contracts) and requiring procedural safeguards (e.g., arbitrator conflict disclosures). Such statutes are frequently challenged as violating the Federal Arbitration Act of 1925 (“FAA”), which makes agreements to arbitrate “valid, irrevocable, and enforceable[.]” One might expect the conservative majority of the Supreme Court to resoundingly favor states’ rights over the federal statute’s intrusion. Not so. With the notable exception of Justice Clarence Thomas, whose position is arguably the most ideologically consistent, both conservative and liberal justices uphold the FAA’s supremacy, allowing it to preempt state regulatory laws. Since the 1980s, and particularly over the past decade, the Court has offered a dramatically enhanced interpretation of the FAA’s strength – one that enforces agreements to arbitrate even when they are contained in contracts of adhesion, even when they conflict with state law, and even when they effectively allow businesses to use arbitration clauses as a shield against class action liability.
To make ideological sense of the situation, Ware spends time “mapping” various policy positions onto the traditional “left-right” axis. The farthest left position, dubbed the Very Progressive Position, “would require the highest level of consent” for an arbitration agreement to be enforceable. Advocates of this position contend that only post-dispute consent to arbitrate should be valid; both parties must reaffirm their desire to arbitrate rather than litigate after the emergence of the dispute, allowing time for the parties to consult with counsel. The Very Progressive Position acknowledges a reality that courts generally do not: “Most individuals manifesting assent to pre-dispute arbitration agreements likely do not read the document’s arbitration clause, let alone understand it and reflect on it, and they are extremely unlikely to have discussed it with counsel or negotiated it with the other party.”
A so-called Moderately Progressive Position “would enforce pre-dispute arbitration agreements when those agreements are not adhesive.” For example, if two businesses freely negotiate a contract with a pre-dispute arbitration clause, that should be enforceable. But if a consumer buys a widget with an arbitration clause contained in the terms and conditions, the clause should be voidable.
On the right side of the spectrum, a Moderately Conservative Position would prevent courts from hearing defenses to enforcement of an arbitration agreement, “but would subject arbitration agreements to otherwise-applicable legal limits relating to appealing legally-erroneous decisions and to class actions.” Under this paradigm, arbitration agreements and awards would be somewhat easier to escape or vacate.
The Very Conservative Position – which Ware argues is reflected by current law – “effectively converts some adhesive arbitration agreements into exculpatory clauses and enforces them in circumstances in which comparable non-arbitration agreements would be unenforceable.” Arbitration agreements in contracts of adhesion are enforceable, including those that waive individuals’ class action remedies. Vacating an award, even for clear error of law, is extremely difficult.
This leaves us with Ware’s Centrist Position. The basic principle underlying his vision is conformity – the notion that “arbitration law should largely conform to non-arbitration law.” Adhesive arbitration agreements should be just as enforceable as any other adhesion contract. Ware would maintain the relatively low level of consent required by current law for most contracts of adhesion, where those pesky terms and conditions really do articulate the parties’ deal.
Yet the Centrist Position would not allow arbitration agreements to be more enforceable than other types of adhesion contracts. Current law, Ware argues, does just that. For example, current law largely prevents courts from hearing defenses to arbitration agreements through the so-called separability doctrine, which permits arbitrators themselves to rule on their jurisdiction. Current law also exempts arbitration agreements from most class action regulation, to the great dismay of many scholars and consumer advocates. And current law also enforces awards that are legally erroneous. Ware argues that the currently-in-vogue Very Conservative Position thus “violates the principle that adhesive arbitration agreements should be as enforceable as other adhesion contracts, not more or less so.”
Ware’s Centrist Position advocates fairly radical departures from current law. He would repeal the separability doctrine, allowing courts to hear arguments against the enforceability of arbitration agreements. He would also treat arbitral class waivers like non-arbitral class waivers, returning to the days when courts wouldn’t enforce adhesion contracts that eliminate the right to participate in a class action. Finally, Ware would allow courts to vacate arbitrators’ legally-erroneous decisions on certain claims. Through these shifts, the Centrist Position would blend contractual freedom with oversight, permitting arbitration to “differ from litigation on discovery, evidence, and identity of the adjudicator, but not differ in such a harsh way as to be unconscionable.”
Like any good centrist, Ware goes too far and not far enough. Progressives won’t like that he explicitly rejects the oft-made argument that individuals “fare worse in arbitration [against corporations] than they do in litigation,” citing ample data to argue that this claim is unfounded. He similarly rejects the notion that contracts of adhesion are inherently unfair, finding that they are rightly embedded into traditional common law and our modern economy. Meanwhile, conservatives won’t like that Ware would allow courts to hear defenses to arbitrability. Nor will they like that he would eliminate class arbitration waivers, despite the Supreme Court’s repeated assurances in recent years that these waivers are valid. Finally, politics aside, members of the judiciary may not like that Ware’s proposals could invite significant waves of motion practice. The Centrist Position would undoubtedly open arbitration to greater judicial review (oversight to some, meddling to others).
Still, there’s something comforting about a moderate proposal that leaves everyone unsatisfied. As in many areas of policy, the extremes look less appealing on closer inspection. Surely contracts of adhesion will remain enforceable under traditional common law contractual principles. And surely arbitration cannot be a Wild West, largely immune from judicial and statutory oversight. But we can’t find a sensible center until we understand what is ‘left’ and what is ‘right.’ Our policy conversations need orientation. Thankfully, Professor Ware has now installed some helpful political signage.
Cite as: Brian Farkas, Arbitration in Moderation
(May 3, 2018) (reviewing Stephen J. Ware, The Centrist Case for Enforcing Adhesive Arbitration Agreements
, 23 Harv. Neg. L. Rev.
29 (2018)), https://lex.jotwell.com/arbitration-in-moderation/