AN EXAMINATION OF THE ARBITRATION FAIRNESS ACT OF

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					                            Association for Conflict Resolution




                               AN EXAMINATION
                                        OF THE
                ARBITRATION FAIRNESS ACT OF 2009




Task Force Members:

Richard D. Fincher
Timothy Germany
Marcia Greenbaum
David Lipsky
Sharon Press, Vice Chair
James Rosenstein
Joseph B. Stulberg, Chair
                                        TABLE OF CONTENTS
Part I          Role of the Association for Conflict Resolution ............................................4

Part II          Statement of Task Force Conclusions ...........................................................6

           A.   Summary ........................................................................................................6
           B.   Findings..........................................................................................................7
           C.   Principles........................................................................................................9
           D.   Recommendations..........................................................................................13

Part III        Analysis ..........................................................................................................16

           A.    Arbitration Fairness Act of 2009 ...................................................................16

                   1. Proposed Statutory Amendments to Resolve
                      Social Justice Problems.........................................................................16
                   2. The Justice Problems Addressed by the AFA.......................................17
                   3. Resolving the Justice Problems via AFA..............................................36

           B.   Arbitration Policy and Practice in the United States:
                A Historical Perspective ................................................................................40

                   1. Clashing Visions of Arbitration and Its Practices.................................40
                   2. General Background .............................................................................41
                   3. Substantive Contexts of Use .................................................................41
                       i. Labor-management Relations ........................................................42
                      ii. Commercial Arbitration.................................................................44
                  4. Why People Choose Arbitration ............................................................49
                  5. Role of ADR Provider Organizations ....................................................50

           C.   Arbitration and the Courts...............................................................................54

                  1. Scope of Judicial Review.......................................................................54
                  2. Arbitrability............................................................................................57
                  3. Range of Substantive Issues An Arbitrator Can Decide........................58
                  4. Contracts of Adhesion: Their Relationship to
                     Arbitration Policy & Practice.................................................................62
                  5. Class Actions .........................................................................................64
                  6. Regulate or Prohibit? .............................................................................65

           D.   The Data Debate: What We Know and Do Not Know about Commercial
                Arbitration Practice and the Impact of the AFA.............................................68


                                                                                                                                        2
               1. Commercial Arbitration Cases...............................................................68
               2. Alternative Forum..................................................................................68
               3. ADR Providers.......................................................................................71


    E.      Revisiting the AFA: Its Impact on Arbitration Policy and Practice................72

               1. Changes to FAA.....................................................................................72
               2. Projected Impact of Proposed Changes .................................................72


    F.     Principles for Evaluating Public Policy Governing Arbitration of
           Cases Under the FAA, including Employee, Consumer, Franchise and
           Civil Rights Disputes. ......................................................................................75
 
    G.       Task Force Conclusions..................................................................................80

              1. Findings...................................................................................................80
              2. Principles.................................................................................................81

    H.      Task Force Recommendations ........................................................................85

     I.     Bibliography ...................................................................................................88

     J.     Task Force Member Biographies ...................................................................94




                                                                                                                                 3
                                                               PART I


                             Role of The Association For Conflict Resolution


The Association for Conflict Resolution (ACR) is a professional organization dedicated to
enhancing the practice and public understanding of conflict resolution. ACR represents and
serves a diverse national and international audience that includes more than 3,000 mediators,
arbitrators, facilitators, educators, and others involved in the field of conflict resolution.

The Legislative and Public Policy Committee (LPPC) of ACR maintains awareness of policy
initiatives at all levels of government that potentially impact the field of conflict resolution. Its
mandate is to develop for review and approval by the ACR Board of Directors appropriate
analyses and proposed public positions on legislative developments that impact practice areas,
with the goal that such analyses assist in educating public officials regarding such initiatives.

In February 2009, the ACR Board of Directors endorsed the LPPC’s recommendation to create a
Task Force to study the proposed Arbitration Fairness Act (H.R. 1020) introduced on February
12, 2009 to the 111th Congress U.S. House of Representatives (hereafter referred to as “AFA”1).

The Board charged the Task Force with examining the proposed legislation and assessing its
potential national impact on policy and practice in arbitration. If the Task Force concluded from
its initial assessment that the potential impact reflected a significant shift in policy or practice, it
was authorized to proceed to develop a policy paper for LPPC and, through it, the ACR Board of
Directors, that would: highlight the strengths or drawbacks of those anticipated shifts; identify
principles that could thoughtfully guide decision-making by Congressional members; and

                                                            
1
  A companion bill, S. 931, was introduced in the U.S. Senate on April 29, 2009. Although differing in important
ways, to be examined below, both bills are referred to as AFA. Additional Congressional initiatives to limit the use
of pre-dispute arbitration practices are reflected in the “Fairness in Nursing Home Arbitration Act” (S.512 and H.R.
1237). While the Task Force report and analysis focus exclusively on the AFA, its principles also extend to the
Nursing Home Arbitration Act.

 


                                                                 4 
suggest, where appropriate, additional or alternative initiatives that could help resolve the
concerns to be addressed by the AFA.

The Task Force was formally constituted in March 2009 and conducted its first meeting by
telephone in April 2009. In that meeting, its members unanimously affirmed the significance
and controversial nature of the arbitral policies and practices addressed by AFA; acknowledged
that the proposed AFA would importantly impact and alter selected legislative policies, judicial
doctrines, and arbitral procedures that currently govern domestic (and possibly international)
arbitration practice; and concluded that ACR, as a leading national organization of dispute
resolution professionals, should strive to develop a policy paper that contributes responsibly and
thoughtfully to the public conversation about this proposed legislation.

The Task Force created a work plan that called for study, discussion and analysis during the
May-July 2009 period, with the goal of developing a penultimate draft at an in-person meeting
held in Ithaca, New York in August 2009. Following discussions and debate at its August
meeting, the Task Force prepared and unanimously adopted a working draft. That draft was then
circulated to ACR stakeholders and others in the professional community and posted to the
homepage of the ACR (www.acrnet.org) for analysis and critique; public comments, via the
ACR website, were invited through October 16, 2009. During the October 17-27, 2009 period,
the Task Force reviewed and discussed all public comments it had received and, in light of those
discussions, made revisions to its September 2009 draft report. The Task Force unanimously
adopted its final report on October 28, 2009 and transmitted it to the LPP Committee for further
organizational action. The LPP worked with the Task Force on a few additional minor revisions
and on November 13, 2009 recommended to the Executive Committee of the ACR Board that
the Report be adopted. On December 1, 2009, the ACR Board unanimously approved the
Report.




                                                5 
                                                               PART II

                                           Statement of Task Force Conclusions


A.            Summary
The U.S. Congress proposes to amend the Federal Arbitration Act through H.R. 1020/S. 931 -
collectively known as the Arbitration Fairness Act of 2009 (hereinafter AFA) - in a way that
renders void and unenforceable any pre-dispute agreement to arbitrate a future dispute involving
a “consumer,” “employment,” “franchise,” or “civil rights” dispute as defined by the proposed
bills.

These “pre-dispute arbitration agreements” are routinely required or imposed by one party on
another as a condition of providing a service or extending an employment opportunity.
Arbitration conducted pursuant to such agreements is often referred to as “mandatory
arbitration.”

The AFA further provides that a court should be the exclusive adjudicator of any dispute
challenging an arbitrator’s jurisdiction to arbitrate the controversy.

The proposed AFA represents an evolution of growing concern about the use of pre-dispute
arbitration arrangements to resolve a particular range of controversies and the role of the courts.
These concerns have been identified by multiple stakeholders, including consumer groups and
plaintiff lawyers, and analyzed by many academicians and policy makers.2

The Task Force has carefully examined the AFA. It has studied the problems that the Act is
designed to remedy and has analyzed its projected impact on current practices, policies, and
judicial doctrines governing arbitration.

The Task Force respectfully submits the following Findings, Principles, and Recommendations
for Congressional action with respect to “mandatory arbitration” of consumer, employment,
franchise, and civil rights disputes.3 It provides the detailed analysis of the relevant proposals
and doctrines supporting these Findings, Principles and Recommendations in Part III.

                                                            
2
 See Reporter’s Notes for the Revised Uniform Arbitration Act adopted by the National Conference of
Commissioners on Uniform State Law discussing these concerns and potential remedies.  
3
  The Task Force emphasizes that all references to arbitration in its Findings, Principles and Recommendations are
intended to target only arbitration practice as it relates to “pre-dispute arbitration agreements” – or what the
literature often refers to as “mandatory arbitration” – of consumer, employment, franchise, or civil rights cases.

                                                                  6 
B.            Findings
       1. The proposed AFA identifies important goals and practices that an arbitration process
          should respect, including the protection of legal rights and the provision of fairness,
          justice and due process. These goals include:

                     a. Access to the procedure.

                     b. Integrity, including the impartiality of the arbitrator, process timeliness,
                        reasonable cost to the parties, transparency, a reliable process for gaining
                        meaningful information, consolidating claims where appropriate, and consistency
                        with statutory rights and constitutional principles.

       2. The AFA identifies significant problems in the design and administration of some pre-
          dispute arbitration agreements and practices that require immediate attention and warrant
          change. The AFA’s remedy of completely prohibiting all such agreements, however, is
          not required in order to correct the problems underlying these agreements.

       3. Pre-dispute mandatory arbitration has the potential for developing a fast, efficient, fair,
          low-cost dispute resolution process to which all citizens could gain access and whose
          procedures and practices are fair and transparent.

                     a. By broadly making void and unenforceable pre-dispute agreements to arbitrate a
                        future consumer, employment, franchise, or civil rights controversy, the proposed
                        AFA eliminates this potential.

                     b. In the absence of valid pre-dispute arbitration agreements, consumers, employees
                        and others affected by the AFA are disenfranchised from accessing an affordable,
                        viable, fair dispute resolution process to resolve their disputes in a timely manner,
                        for in the absence of a post dispute agreement to arbitrate, the AFA requires that
                        all controversies be adjudicated in an appropriate court. However, there is no
                        reasonable evidence that such a court forum is accessible to all parties, that parties
                        could secure adequate representation from lawyers or other representatives to
                        assist them in presenting cases, that the court systems could readily administer the
                        projected case-load increase in a timely manner, and that the controversies the
                        Court would recognize and remedies it would dispense would be sufficiently
                        timely and broad to address the needs of the parties.



                                                                                                                                                                                               
                                                                                                                                                                                               
 


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           c. By making void and unenforceable pre-dispute agreements to arbitrate a future
              consumer, employment, franchise, or civil rights controversy, the proposed AFA
              could create uncertainty regarding the application of arbitration doctrines and
              practices to international business transactions, including international
              employment contracts.

    4. Congressional support of public policies that have encouraged the use of and deferral to
       ADR processes for more than thirty years has been broad-based and sustained, and the
       AFA would significantly reverse that bi-partisan, national consensus.

    5. There have been meaningful efforts by professional organizations, dispute resolution
       providers, and individual practitioners to revise, amend and prohibit arbitration
       procedures and practices that have been found to fail to comport with fundamental
       principles of fairness and efficiency.




                                               8 
C.            Principles
       1. The procedures governing the operation of the arbitration process must be consistent with
          due process requirements and include:

                      a. Access to relevant, threshold information for the preparation and presentation of
                         one’s case.

                      b. Access to appropriate representation, including group representation.

                      c. Principles that prohibit reducing statutory procedural protections or available
                         remedies.

                      d. Written decision with reasons for all cases based on a statutory claim.

       2. The integrity and impartiality of the arbitrator must be beyond reproach.

                      a. The arbitrator must be impartial in both fact and perception for that case.

                      b. The arbitrator must be competent to adjudicate the controversy both in terms of
                         process and subject matter.

                      c. The arbitrator must have an appropriate arms-length relationship to both the
                         provider and its users.

                      d. The roster of arbitrators should be sufficiently diverse to reflect the racial, gender,
                         and cultural diversity of those being served.

       3. The costs of participating in the process should bear some reasonable relationship to the
          size of the claim, including costs for case preparation, travel to the hearing site, arbitrator
          fees and expenses, and administrative services. Where the process is effectively required,
          the costs to the individual participant4 should be minimal or at least no more than the
          costs that would be incurred in filing the case in a court of law.

       4. The operation of the arbitration process should be transparent to all its users.

                      a. Every party to a contract to arbitrate disputes, including those covered by an
                         employee handbook, must have access to relevant information written in plain
                         prose that describes the operation of the process, including administrative rules
                         and practices that would guide its use.

                                                            
4
  As used throughout this Report, the term, “individual participant,” when used in this context, could refer to an
individual person or a business entity covered by the proposed AFA. The distinguishing characteristic is that the
individual or business required to participate in the arbitration is a person or entity on whose behalf the pre-dispute
arbitration clause was not drafted, but subsequently required or imposed. 


                                                               9 
                    i. ADR providers should make available on its website a description of rules
                       and practices governing case administration.

                   ii. ADR providers should have available descriptions of how the arbitration
                       process works that are readily accessible to potential users.

           b. The arbitrator’s decision for statutory claims or cases over a certain dollar
              threshold should be reflected in a written decision with reasons.

           c. All arbitrator decisions involving a “repeat participant” must be available upon
              request to all participants in a subsequent arbitration involving the repeat
              participant, but that information must be disclosed in such a manner that protects
              the privacy rights of the non-repeat participants in the prior arbitration.

    5. There should be an opt-out provision included in the contract for pre-dispute arbitration
       agreements pursuant to which an individual participant could, within a reasonable time
       period from the initial contract date, elect not to be bound by the pre-arbitration
       agreement and retain the right to prosecute a future dispute through an appropriate court
       setting or other alternative process. The opt-out provision must be accompanied by the
       principle that there can be no retaliation or penalty against the person electing that option.

    6. Arbitrator Selection Process

           a. ADR Provider Organizations. When administering cases pursuant to a pre-
           dispute mandatory arbitration agreement, the independent ADR provider organization
           should have:

                     i. Procedures and practices that enable parties to have access to relevant
                        information about potential arbitrators, including, where appropriate,
                        their decisions and awards.

                     ii A roster of arbitrators whose professional competency and personal
                        integrity is above reproach.

                     iii. Procedures and practices that insure continuing training and education of
                          its arbitrators.

                     iv. Procedures that enable an arbitration participant to file a complaint about
                         arbitrator performance and methods for investigating and resolving each
                         complaint, including, where appropriate, removing an arbitrator from its
                         roster.

           b. Organizations with Self-Administered Arbitration Processes. When the
              administering organization is itself a party to an arbitration case arising from a


                                                   
                                                 10
              mandatory pre-dispute agreement and that case is being administered pursuant to
              procedures that party has unilaterally developed, the organization should:

                  i. Use procedures and practices to establish its panel of arbitrators that insure
                     the individual independence, competency, and impartiality of each
                     member both in fact and in appearance.

                  ii. Develop procedures that enable an arbitration participant to file a
                      complaint about arbitrator performance and establish methods for
                      investigating and resolving each complaint, including, where appropriate,
                      removing an arbitrator from its roster.

    7. Role of ADR Provider Organizations and Professional Dispute Resolution Organizations

           a. ADR provider organizations and other professionals have a continuing
              professional responsibility to promote and develop well-designed dispute
              resolution systems and arbitration practices through such activities as:

                  i. Developing and revising protocols that govern the arbitration of
                     employment and consumer disputes.

                  ii. Developing and conducting public education programs about the
                      arbitration process.

                 iii. Participating in appropriate research initiatives that examine the use,
                      efficiency and fairness of arbitration procedures.

           b. ADR provider organizations should develop practices, to the extent possible, that
              make arbitration procedures and practices transparent to users, including:

                  i. Refusing to administer privately-designed arbitration procedures that do
                     not comport with principles set forth in the relevant professional protocols.

                  ii. Supporting best practices in arbitration that include an arbitrator rendering
                      a written award with reasons for each case s/he arbitrates.

                 iii. Supporting best practices of ADR providers and arbitrators that make an
                      arbitrator’s written award available for review by potential parties to an
                      arbitration in which that individual might serve as arbitrator, with
                      appropriate protocols operating to protect the privacy rights of the
                      individual participants in those prior cases.




                                                 
                                               11
    8. Relationship of the Courts to the Arbitration Process

           a. Judicial doctrines that uphold the validity and enforceability of agreements to
              arbitrate future disputes reflect sound public policies and should be sustained, for
              they support party choice to use less formal but efficient, fair, and prompt
              procedures to resolve disputes.

           b. Judicial doctrines that support the enforceability of pre-dispute arbitration
              agreements must display increased sensitivity to arbitration processes and
              practices that appear neutral on their face, but in fact mask severe inequities and
              should develop material procedural and substantive standards that justify
              declaring such processes and practices unlawful.




                                                 
                                               12
D.        Recommendations
     1.     Congress should amend the Federal Arbitration Act to insure access to, transparency
            in, and fairness in the administration and conduct of the mandatory arbitration
            process.

     2.     Congress should not amend the Federal Arbitration Act in a manner that broadly
            prohibits the use of pre-dispute arbitration agreements involving consumers,
            employees, franchisees, and individuals involved in civil rights disputes, or, more
            broadly, quality of work disputes. Accordingly, H.R. 1020 and S.931 should not be
            passed in their present form.

     3.     Congress should amend the Federal Arbitration Act in ways that insure and advance
            the integrity of the pre-dispute arbitration process, from the inception of the
            agreement through the enforcement of the arbitration award, including:

            a. Due Process Requirements:

                   i. All parties to the arbitration must have access to a minimum yet effective
                      level of relevant information for the preparation and presentation of their
                      respective cases.

                   ii. All parties must have access to prior arbitration decisions and awards that
                       addressed the issue(s) being submitted for decision and that involved one
                       or more of the parties.

                  iii. All parties to the arbitration must have access to appropriate representation
                       during the preparation and presentation of their respective case.

                  iv. Any arbitration procedural rule that reduces statutory procedural
                      protections or reduces access to full available remedies must be
                      unenforceable.

                   v. Any arbitration procedural rule that waives class actions must be
                      unenforceable.

                  vi. An arbitrator must be impartial.

                 vii. An arbitrator must provide all parties with a written decision with reasons
                      for all cases based on a statutory claim or for any case involving a claim
                      for more than Seventy-five Thousand ($75,000) Dollars.

            b. Arbitration procedures:

                                                  
                                                13
           i. All parties to the pre-dispute arbitration contract, prior to signing, should
              have access to a meaningful written description and explanation of the
              process and procedures that would be used.

           ii. Every agreement to arbitrate a future dispute governing a “consumer,”
               “employment,” “franchise” or “civil rights” dispute as defined in H.R.
               1020/S. 931 must contain a provision in the contract that enables any
               individual participant to withdraw from the proposed contractual provision
               within a meaningful time period from the initial contract date and it shall
               be illegal to retaliate against that individual or impose a penalty on the
               person who elects that option.

          iii. Every agreement to arbitrate a future dispute governing a “consumer,”
               “employment,” “franchise” or “civil rights” dispute as defined in H.R.
               1020/S. 931 must contain a provision that enables any such individual
               participant to withdraw from the proposed contractual provision within a
               reasonable period from the initial contract date and to have the right to
               pursue any claim in a court of appropriate jurisdiction.

          iv. The financial cost of participating in an arbitration process conducted
              pursuant to a pre-dispute arbitration agreement must bear a reasonable
              relationship to the size of the claim, and the financial cost of the process
              must be reasonably apportioned among the participants. No claimant
              should be required to participate in an arbitration hearing conducted at a
              venue further from where the case would normally be adjudicated in a
              court proceeding.

           v. The administration of the arbitration process required by a pre-dispute
              arbitration agreement must be conducted in an efficient, timely manner.

          vi. The ADR provider administering an arbitration process pursuant to a pre-
              dispute arbitration agreement must have procedures that enable an
              arbitration participant to file a complaint about arbitrator performance and
              establish methods for investigating and resolving each complaint,
              including, where appropriate, removing an arbitrator from its roster.

         vii. The arbitrator participating in a single organization self-administered
              arbitration program must be selected through procedures and processes
              that insure that arbitrator’s independence, competency and impartiality.

    c. Arbitrator Selection Process




                                          
                                        14
                 i. The roster of eligible arbitrators used in a self-designed and self-
                    administered arbitration program that is established pursuant to a pre-
                    dispute arbitration agreement must consist exclusively of individuals
                    whose impartiality and competency to arbitrate such cases are established
                    through procedures or certification processes and where appropriate that
                    are independent of the administering organization.

    4.   Congress should not amend the Federal Arbitration Act in a way that alters current
         judicial doctrines and practices regarding arbitrability.

    5.   Congress should not amend the Federal Arbitration Act in a way that alters current
         arbitration practices or judicial doctrines that govern the design and use of arbitration
         procedures to resolve future disputes among parties conducting international business
         transactions with one another.

    6.   Congress should not amend the Federal Arbitration Act in a way that alters current
         arbitration practices or judicial doctrines that govern the design and use of arbitration
         to resolve disputes arising in the collective bargaining context between an employer
         and a labor organization or between labor organizations.

    7.   Congress should support the continuing efforts of professional dispute resolution
         organizations and ADR providers and other stakeholders to develop innovative uses
         of arbitration and other ADR procedures to meet the evolving dynamics of a global
         economy and to engage in self-correcting and self-regulating policies to insure a
         minimum of process abuse.




                                                
                                              15
                                                               PART III

                                  Analysis of Task Force Summary, Findings,
                                                Principles, and Recommendations


A.            Arbitration Fairness Act of 2009

       1. Proposed Statutory Amendments To Resolve Social Justice Problems
The AFA consists of a set of amendments to the Federal Arbitration Act (FAA).                                 The Act’s
distinctive features include amendments that:
                      a. Create four newly-defined categories of disputes — “employment dispute,”
                         “consumer dispute,” “franchise dispute”,5 and “civil rights dispute,”6 thereby
                         distinguishing these disputes from ‘maritime’ disputes and disputes ‘involving
                         commerce’ as referenced in Section 2 of the FAA.

                      b. Make any “pre-dispute arbitration agreement” covering an employment,
                         consumer, franchise, or civil rights dispute invalid and unenforceable. Pre-
                         arbitration agreements for all other cases remain valid, enforceable contracts.

                      c. Stipulate that a court, not an arbitrator, decides any dispute regarding the
                         applicability of the FAA as amended (i.e., the AFA) to an arbitration agreement.

                      d. Provide that the AFA applies to certain disputes submitted to arbitration arising
                         after the effective enactment date of the AFA.


We explore below the Congressional predicates for these proposals.




                                                            
5
     HR 1020 
6
     S. 931 defines “civil rights” dispute as a distinctive case-type; this language does not appear in HR 1020. 


                                                                    
                                                                  16
         2.       The Justice Problems Addressed by the AFA
The FAA, originally passed in 1925, serves as the legal framework governing the practice of
commercial arbitration in the United States. The AFA provisions are designed to cure concerns
regarding how the FAA is interpreted and applied to a targeted range of disputes. AFA sponsors
describe those problems in the language of their Congressional findings,7 which are reproduced
below:


Section 2. FINDINGS

The Congress finds the following:

       (1)      The Federal Arbitration Act (now enacted as chapter 1 of title 9 of the United
                States Code) was intended to apply to disputes between commercial entities of
                generally similar sophistication and bargaining power. 
       (2)      A series of United States Supreme Court decisions have changed the meaning of
                the Act so that it now extends to dispute between parties of greatly disparate
                economic power, such as consumer disputes and employment disputes. As a result,
                a large and rapidly growing number of corporations are requiring millions of
                consumers and employees to give up their right to have disputes resolved by a
                judge or jury, and instead submit their claims to binding arbitration. 
       (3)      Most consumer and employees have little or no meaningful option whether to
                submit their claims to arbitration. Few people realize or understand the importance
                of the deliberately fine print that strips them of rights; and because entire industries
                are adopting these clauses, people increasingly have no choice but to accept them.
                They must often give up their rights as a condition of having a job, getting
                necessary medical care, buying a car, opening a bank account, getting a credit card,
                and the like. Often times, they are not even aware that they have given up their
                rights. 
       (4)      Private arbitration companies are sometimes under great pressure to devise systems
                that favor the corporate repeat players who decide whether those companies will
                receive their lucrative business. 
       (5)      Mandatory arbitration undermines the development of public law for civil rights
                and consumer rights, because there is no meaningful judicial review of arbitrators’
                decisions. With the knowledge that their rulings will not be seriously examined by
                a court applying current law, arbitrators enjoy near complete freedom to ignore the
                law and even their own rules. 
       (6)      Mandatory arbitration is a poor system for protecting civil rights and consumer
                rights because it is not transparent. While the American civil justice system

                                                            
7
  Unless otherwise noted, the proposed statutory language in H.R. 1020 and S. 931 is identical. 

 


                                                           
                                                         17
                          features publicly accountable decision makers who generally issue written
                          decisions that are widely available to the public, arbitration offers none of these
                          features. 
           (7)            Many corporations add to their arbitration clauses unfair provisions that
                          deliberately tilt the systems against individuals, including provisions that strip
                          individuals of substantive statutory rights, ban class actions, and force people to
                          arbitrate their claims hundreds of miles from their homes. While some courts have
                          been protective of individuals, too many courts have upheld even egregiously
                          unfair mandatory arbitration clauses in deference to a supposed Federal policy
                          favoring arbitration over the constitutional rights of individuals.


Public documents are not organized in a way that makes clear what empirical data, policy
principles, or public values support the conclusions asserted in each of the seven (7) “Findings.”
That failure, however, does not minimize the significant policy and practice problems the AFA
addresses, for the existence of at least some of these concerns have consistently been
acknowledged by other reform efforts.8

Therefore, in an effort to understand each problem as envisioned by the AFA sponsors, the Task
Force has attempted to gather and reconstruct information that could support each Congressional
“Finding.” To do this, it has gathered relevant case law, considered comprehensive law review
articles, examined published studies on arbitration practices, and compiled data regarding
consumer, business and employment practices. We set out below our understandings for each
Congressional finding.

       a. The Federal Arbitration Act (now enacted as chapter 1 of title 9 of the United States
          Code) was intended to apply to disputes between commercial entities of generally similar
          sophistication and bargaining power.


Background: The FAA, enacted in 1925, promoted several goals: (a) at a time when individual
states treated contractual agreements to arbitrate as voidable, the FAA secured the status of
agreements to arbitrate by affirming that a written contractual agreement to arbitrate a current or
future dispute was valid, irrevocable, and enforceable;9 (b) it stabilized the use of the arbitration


                                                            
8
     See footnote 2 above and the discussion in the Reporter’s Notes discussing the challenges of unconscionability. 
9
     Section 2 


                                                                 
                                                               18
process to resolve disputes involving “maritime” and “commercial” transactions;10 and (c) it
crystallized the use of arbitration among commercial entities of comparable power and
sophistication, thereby distinguishing it sharply from the use of arbitration among employers and
their recognized labor-union groups in the private sector.11

Problem Addressed by AFA: The use of commercial arbitration12 has expanded substantially
since 1925, and particularly so during the past 40 years. It is no longer a process used primarily
by commercial enterprises doing business with one another. Its use has expanded into two
distinct case categories: “consumer” cases and “employment” cases.

“Consumer cases” capture those disputes involving an individual consumer and a business (e.g.,
a home owner and service provider; auto purchaser and manufacturer [‘Lemon Law’
arbitration]); between individual litigants [e.g. persons involved in landlord-tenant controversies
or medical malpractice law suits]; and between individuals and larger institutions [e.g. health
care corporation and insured, or auto insurance companies and insured]. Allied-Bruce Terminix
v. Dobson is an example of such a case. In that matter, a homeowner secured the services of
Allied-Bruce Terminix, a franchise operation, in order to protect his home from termite
infestation. A controversy arose between the new homeowner and Allied-Bruce regarding the

                                                            
10
      Section 1 
11
       In Circuit City Store, Inc. v. Adams, 532 U.S. 105, Justice Stevens, in dissent, noted that “legislative history
indicates that the potential disparity in bargaining power between individual employees and large employers was the
source of organized labor’s opposition to the (FAA), which it feared with require courts to enforce unfair
employment contracts.” 
12
   In both scholarship and practice, there is an important distinction drawn between ‘grievance arbitration’ and
‘commercial arbitration,’ at least as practiced in the United States. ‘Grievance arbitration’ traditionally refers to
union-management entities that are parties to a collective bargaining agreement (CBA); that CBA typically contains
a provision that in the last step of a negotiated grievance procedure, if one party remains dissatisfied with the
proposed resolution, it has the option of submitting the case to arbitration. The arbitrator, in that context, is charged
with examining the alleged violation of the CBA – i.e. the “grievance” – and rendering a decision based on the
governing language of the CBA. ‘Commercial arbitration’ refers to the use of arbitration by contractual parties –
either in a contract to submit all future disputes to arbitration or by choosing to use arbitration on an ad hoc basis –
to resolve matters arising from their contractual relationship. The parties are individual or corporate entities; the
standards defining their relationship are embedded in governing contractual documents and industry practices and
norms. The AFA is designed to address problems in commercial arbitration, believing that its proposed remedies do
not alter the policy or practice of grievance arbitration. But see Report in Part III below for extended discussion of
these contexts. 


                                                                 
                                                               19
effectiveness of the services provided. The service contract proposed by Terminix and signed by
the original homeowner contained an arbitration provision requiring all controversies to be
resolved in an arbitration forum; although a state statute rendered such pre-dispute arbitration
provisions invalid, the U.S. Supreme Court sustained its validity.13

“Employment cases” involve situations in which an employer or employee alleges that some
aspect of the employment relationship governed by public law, individual contract, a handbook,
or employer practice – not a collective bargaining agreement covering a group of employees- has
been violated. Examples of such cases range from an alleged violation of a non-compete clause
to allegations of being terminated in retaliation for one’s having “blown the whistle” on potential
discrimination activity in the workplace.14

Finding 1 posits that the problem with the emerging use of arbitration to resolve consumer and
employment disputes is that the participants in these arbitrations, unlike business people engaged
in a commercial relationship, are not persons of comparable skill, insight, power, and
sophistication. The result is that the more sophisticated, powerful party – either the business or
the employer – is in a position to design, implement and manipulate an arbitration procedure in
its favor. Stated differently, the parties in some consumer and employment disputes operate with
a power imbalance that precludes the consumer or employee from negotiating the design of a fair
arbitration procedure or from participating in it effectively.

Some studies15 do indicate that individual consumers or employees, who participate in
arbitration, experience less favorable outcomes than they might expect to achieve in a court. To
the extent that such outcomes might be explained by a lack of parity in bargaining power – both



                                                            
13
      Allied-Bruce Terminix v. Dobson, 513 U.S. 265 (1995)  
14
      Cole v. Burns Int’l Sec. Serv., 105 F. 3d 1465 (D.C. Cir 1997). 
15
  The Arbitration Trap: How Credit Card Companies Ensnare Consumers.
www.citizemn.org/publications/release/cfm?ID=7574 (Sept. 2007); The Arbitration Debate Trap: How Opponents
of Corporate Accountability Distort the Debate on Arbitration.
www.citizen.org/publications/release.cfm?ID=7589&secIC=1052&catID=126 (July 2008); Deborah Hensler, Our
Courts, Ourselves: How the Alternative Dispute Resolution Movement Is Re-Shaping Our Legal System, 108 Penn
St. L. Rev. 1 (2003). 


                                                                 
                                                               20
in the design of, and participation in, the mandatory arbitration procedure - Finding (1) identifies
important concerns of fairness, justice and due process.

     (b) A series of United States Supreme Court decisions have changed the meaning of the Act
         so that it now extends to disputes between parties of greatly disparate economic power,
         such as consumer disputes and employment disputes. As a result, a large and rapidly
         growing number of corporations are requiring millions of consumers and employees to
         give up their right to have disputes resolved by a judge or jury, and instead submit their
         claims to binding arbitration.

Background. This Finding addresses three distinct elements.

         (i) Judicial decisions have resulted in an expanded use of arbitration and the role of the
             arbitrator
Beginning in the 1970s, there was increased interest in using ADR processes to resolve court-
annexed cases. Chief Justice Berger signaled his desire to streamline court processes and expand
access to justice for citizens;16 there was growing support in our political culture to “privatize
services,” including dispute resolution processes,17 as a way to streamline costs and improve
efficiencies; and Congress promulgated statutes directing Federal Courts to develop ADR
policies and programs. These cumulative initiatives all communicated support for expanding the
available dispute resolution fora for citizens.

The U.S. Supreme Court gave impetus to these growing movements by rendering significant
decisions involving the interpretation and application of the FAA. Some decisions expanded the
use of arbitration by confirming the authority of the arbitrator to decide certain federal statutory
             18
questions;        others extended the FAA’s reach into state jurisdictions, giving support to its
                                                            
16
    Hon. Warren E. Burger, Agenda for 2000 A.D. – Need for Systemic Anticipation, Addresses Delivered at the
National Conference on the Causes of Popular Dissatisfaction with the Administration of Justice (April 7–9, 1976),
70 F.R.D. 79. 
17
  For a general discussion of privatizing services, see E.S. SAVAS, PRIVATIZING THE PUBLIC SECTOR: HOW TO
SHRINK GOVERNMENT (1982). 
18
  E.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), holding that arbitrator has
authority to adjudicate federal statutory claims, even though the parties’ contract does not specify statutes (thereby
anticipating the reversal of Wilko v. Swan, 346 U.S. 427 (1953), which effectively prohibited an arbitrator from
having authority to arbitrate a conflict based on arbitrator’s interpretation and application of federal law, by
Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989). holding that arbitrator has authority
to adjudicate federal statutory claims, even though the parties’ contract does not specify governing statute.  


                                                            
                                                          21
increased use in consumer arbitration;19 some confirmed the right of an arbitrator to adjudicate
matters that required the interpretation and application of federal statutory language;20and still
others confirmed its application to the arbitration of private sector, non-union employment
claims.21

Problems addressed by the AFA: This aspect of Finding (2) targets the jurisprudential concern
that a statute originally designed to address an identifiable range of social challenges has been
interpreted more recently to govern a different and expanded range of concerns. Such
adjudicatory practices either undermine the integrity of the Act’s original vision and application
or, more likely, mismatch the original statutory goals and machinery to a new set of problems,
thereby creating unintended adverse consequences. In this instance, judicial interpretation of the
FAA that license its extension to situations involving parties of “greatly disparate economic
power” creates the erroneous illusion that parties voluntarily choose to use arbitration, an
essential element to support any binding contract.

              (ii)        Growing numbers of corporations require using arbitration by consumers or
              employees to resolve future disputes as a condition of providing a service or securing
              employment

Corporations that require consumers or employees to use arbitration to resolve any future dispute
are in a powerful bargaining position to demand compliance. The arbitration requirement is
developed differently according to the setting.

In the consumer arbitration context, the agreement to arbitrate is typically contained in
“boilerplate” contract language. In what is often referenced as “contracts of adhesion,” the
arbitration provision, like other terms and conditions, are communicated from the corporation to
the prospective user on a “take-it-or-leave-it” basis. There is little room, practically, for parties
to engage in arms-length bargaining to develop mutually acceptable contract terms, including its

                                                            
19
     Southland v. Keating, 465 U.S. 1 (1984). 
20
  Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. at n. 7; Gilmer v. Interstate Johnson/Lane Corp., 500
U.S. 20 (1991). 
21
     Circuit City v. Adams, 532 U.S. 105 (2001). 


                                                                 
                                                               22
dispute resolution provision. When the purchaser agrees to use the service (either by signing
documents to secure the service, such as a credit card agreement, or by simply using the service),
s/he “accepts” the proposed contract term stipulating arbitration.

These adhesive clauses stipulating arbitration of future disputes currently appear in multiple
settings such as: the purchase of personal computer equipment;22 telecommunications;23
provision of professional and personal services; and, most widely cited, credit cards. While there
are little data that identify the number of credit card disputes that are actually submitted to and
resolved in arbitration, the “image” of its potential use in this setting is significant. In 2008,
there were reportedly more than 713 million credit cards in circulation in the United States24 with
provisions for binding arbitration of disputes.

In contrast to the adhesion contract provision for the arbitration of consumer disputes, the
agreement to arbitrate future disputes between a private sector employer and its employee(s)
arise in three distinct ways. First, the arbitration provision can be a proposed clause in a
negotiated contract; the provisions covering the design of the arbitration process and its scope of
application, joined with the threshold question of whether the clause as designed will be
incorporated into the employment agreement at all, can and is often negotiated on an individual
basis between an employer and prospective employee.25

A second approach for incorporating an arbitration provision into an employment relationship is
for an employer or industry to set forth an arbitration provision as a “common” and “prescribed”
element of an employment contract for each person working in a particular position for a
particular type of employer; employment contracts governing securities brokers are of this
nature.


                                                            
22
      Brower v. Gateway 2000 Inc., 676 N.Y.S. 2d 569 (App. Div. 1998). 
23
     Ting v. AT&T, 319 F. 3d 1126 (9th Cir. 2003). 
24
  339 million Visa credit cards, 263 million MasterCards, 54 million American Express cards, and 57.1 million
Discover credit cards.  
25
  See Lisa Bingham, An Overview of Employment Arbitration In The United States: Law, Public Policy and Data,
23 New Zealand J. of Indus. Rel. 2 (1998). 


                                                                 
                                                               23
Finally, the requirement to submit future employment disputes to arbitration can arise for an “at-
will” employee (i.e., non-union employee) by an employer inserting such a provision into its
employee handbook. By definition, an “at-will” employee is someone who works for an
employer on terms and conditions that have no defined time-period; accordingly, an employer
may lawfully change any term or condition at any time. Provisions in an employee handbook, if
lawful, constitute binding employment conditions. It is estimated that more than 90% of persons
working in the private sector in the U.S. are “at-will” employees. Handbook provisions requiring
the arbitration of disputes arising from the employment relationship in that domain are believed
to be pervasive.

Problem addressed by the AFA: This aspect of finding (2) highlights the concern that the
arbitration option is an imposed, not negotiated, contractual term.

The Finding acknowledges the documented evidence of the significant expansion – both actual
and potential - of the use of arbitration. Each of the Act’s newly-defined disputes – consumer,
employment, franchise, and civil rights – involves conventional legal claims, often between
parties who do not have an on-going relationship. Without a mandated arbitration option, these
claims would be standard claims capable of being adjudicated in a state or federal court. To the
extent that these statutory or common-law claims are being submitted to arbitration because of
the unilateral (but effective) insistence by one party that it happen, rather than by the
arrangement being developed as the result of an “arms-length” agreement, justice is undermined.

       (iii) The result of the increased use of arbitration for consumer and employment disputes
       is that individual citizens are relinquishing their right to have disputes resolved by a
       judge or jury

Background: This aspect of Finding (2) is true by definition: choosing to arbitrate is to opt to use
a non-judicial forum to resolve a controversy. As such, parties elect not to have a public judge or
jury decide their case.

Problem Addressed by the AFA: The concern that this aspect of Finding (2) addresses is more
complex than the fact that an arbitrator of consumer or employment cases displaces a judge
and/or jury. It targets and derives from the multiple concerns previously identified: arbitration is
not voluntarily selected but rather is imposed by one party; parties in these arbitrations are not

                                                  
                                                24
equitably skilled to participate effectively; and arbitrators are required, when deciding these
cases, to weigh conflicting testimony, to interpret and apply statutory language, apply precedent,
and engage in other judicial-type behavior even though they are not persons who were appointed
in standard, transparent ways to adjudicate public claims.       The projected result of such an
approach to problem-solving – or, at least a possibility – is that parties to an arbitration hearing
do not get to prosecute their legal claims in a justice forum that other citizens enjoy as members
of a democratic society governed by the rule of law.

    c. Most consumer and employees have little or no meaningful option whether to submit their
       claims to arbitration. Few people realize or understand the importance of the deliberately
       fine print that strips them of rights; and because entire industries are adopting these
       clauses, people increasingly have no choice but to accept them. They must often give up
       their rights as a condition of having a job, getting necessary medical care, buying a car,
       opening a bank account, getting a credit card, and the like. Often times, they are not even
       aware that they have given up their rights. 

Background: This finding addresses three elements.

       (i)     Voluntary nature of the agreement to arbitrate
The perceived reality is that many employees and consumers operating in contemporary U.S.
markets have little or no bargaining leverage to negotiate contractual terms in an “arms-length”
negotiation. As noted above, most consumer contracts that include an arbitration provision are
adhesion contracts; the consumer, if s/he wants the service, must accept all provisions on a ‘take-
it-or-leave-it” basis. For private sector employees, except for that small range of employees,
typically situated at the higher end of the organizational structure who actively negotiate various
elements of their contractual relationship including the arbitration provision, most working
persons are governed by an arbitration provision that is unilaterally imposed on them.


Problem Addressed by the AFA. This aspect of Finding (3) posits a deep skepticism that it is
possible for an individual consumer or employee to enjoy a meaningful ability to say “no” to a
proposed contractual arrangement that includes a pre-dispute arbitration provision and thereafter
continue to negotiate with the business or employer to establish terms of a contractual
relationship. In reality, it is presumed that the business or employer can insist on such a




                                                  
                                                25
provision as a “non-negotiable” (or “deal-breaking”) element. To believe that it is a voluntary
assent is to operate in a fictitious world.

AFA advocates and critics alike acknowledge that a consumer could, for example, operate in the
marketplace without a credit card, so that it is certainly accurate to state that no one is “forcing
the consumer” to agree to a credit agreement that contains a pre-dispute arbitration clause.26 But
that, AFA advocates say, is a hollow truth. The reality is that many consumers expect and rely
on credit cards to manage their finances, and make routine personal and commercial transactions,
from grocery shopping or home-entertainment purchases to airline tickets, car rentals, hotel
reservations and concert tickets, with plastic. Young people entering the workforce are
encouraged to develop a “credit history” through the judicious use of credit card purchases and
payments. To operate without a credit card in our contemporary society risks being marginalized
in significant ways.

Similar claims of “it just is not realistic to think that one would object to a pre-dispute arbitration
clause” are made about consumers who purchase homes (“you don’t need to buy one”) or
participate in the stock market. “Yes you can” reject arbitration by refusing to buy a home or
play the market rings hollow.

In other situations, the question about the integrity of choosing the arbitration option relates to
the timing of when the consumer is informed and required to decide about accepting the ‘non-
negotiable’ arbitration provision. The less time there is between the two events, the more
concerns there are. Poignant examples highlight the problem: a young, unmarried pregnant
woman traveled from Iowa to Arizona with her mother to explore family planning services,
including an abortion. The pregnant woman was a high school graduate, earning less than
$100/week at her job and was without medical insurance. Her mother wanted her to give birth to
the child, but the father urged an abortion. She arrived at the clinic; she was ushered into a room
where she was asked to read and sign three documents before proceeding with treatment. One
document was an agreement to arbitrate all future disputes, with the stipulation that the
arbitrator, to be appointed pursuant to rules of the American Arbitration Association, be a

                                                            
26
  Stephen J. Ware, Consumer Arbitration as Exceptional Consumer Law (With a Contractualist Reply to
Carrington & Haagen), 2 McGeorge L. Rev. 195 (1998). 


                                                                 
                                                               26
licensed medical doctor specializing in obstetrics and gynecology.                       No one explained the
documents to her.          It took less than five minutes to read and execute all the documents. An
abortion procedure was scheduled for the next day. The procedure tragically became problematic
for the mother, resulting in a punctured uterus. Two years later, when she sought to sue the
agency, the agency invoked the arbitration clause. The Court, while invalidating the agreement
on grounds that arbitrating such a claim was beyond the reasonable expectation of a party,
expressed obvious concern regarding the environment of the plaintiff’s emotional turmoil, the
lack of explanation, and the short time that elapsed between the reading and signing of the
documents and the performance of the contracted service. 27

The dynamics surrounding parties signing employment agreements containing pre-dispute
arbitration clauses is more impressionistic. There are multiple relevant strata to consider.

Some employees present themselves as persons of considerable skill, education, and savvy who
are eminently capable of effectively bargaining employment conditions on their own behalf.28
For persons in this situation, Courts believe that all terms – including pre-dispute arbitration
provisions – are negotiable. AFA advocates are skeptical of this judicial claim. 29

But even if judicial decisions for this domain are accurate, AFA advocates note that the vast
percentage of private sector employees are “at-will” workers who enjoy few realistic options,
even in a positive economy, for alternative employment. As was true for some aspects of the
situation involving consumers, they assert that the notion that a potential employee would reject
a job offer because s/he refuses to agree to an employer’s “take-it-or-leave-it” arbitration clause
is unrealistic. Data confirming the pervasiveness of this employer practice is difficult to identify,
let alone organize.


                                                            
27
    Broemmer v. Abortion Services of Phoenix, Ltd., 840 P.2d 1013 (Ariz. 1992).  
28
     Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). See also Bingham, supra at 25.  
29
  The Arbitration Trap: How Credit Card Companies Ensnare Consumers,
www.citizen.org/publications/release/cfm?ID=7574 (Sept 2007) though the report focuses exclusively on arbitration
agreements between consumers and credit card companies. The Report’s conclusion – on its own terms and in its
potential for extension to broader arenas – is challenged by Sarah R. Cole & K. Brinkley, Empirical Research on
Consumer Arbitration: What the Data Reveals, 113 Penn. St. L. Rev. 1051 (2009). 


                                                           
                                                         27
A more reliable approach for understanding the extent to which individual employees are
covered by pre-dispute arbitration provisions could be derived by examining Employer
handbooks in which descriptions of dispute resolution processes governing workplace
controversies might appear. Handbooks are both unilaterally developed and amended by the
employer. We are not aware of a source that documents how many organizations have employee
handbooks with dispute resolution provisions. It seems plausible to speculate, however, that any
business organization – profit or not-for-profit – with a sizeable staff would develop written
guidelines governing employment practices; even if only a small percentage of those handbooks
contained arbitration provisions, the total number of employees subject to such provisions would
probably be significant.

       (ii) Knowing waiver

AFA findings express concern that even if parties to pre-dispute arbitration provisions were
comparable in bargaining power, few people understand what is actually involved in agreeing to
arbitrate,, i.e., their choice to use arbitration and that by default, their waiver of their right to a
judge or jury trial, is not an informed, knowing one.

Problem Addressed by the AFA. The Finding notes that such provisions often appear in “fine
print” paragraphs that are merged with other, multiple clauses in the proposed contract
documents. In essence, these arbitration clauses are “hidden” in the proposed contract, making it
difficult for the intelligent consumer or employee to “spot” them and to ask questions about their
implications. The justice requirement should be that people knowingly agree to contractual
terms, especially those that involve waiving statutory rights.

    d. Private arbitration companies are sometimes under great pressure to devise systems that
       favor the corporate repeat players who decide whether those companies will receive their
       lucrative business.

Background: Many, though certainly not all, commercial arbitration cases are administered by
organizations whose business is to develop, promote and provide administrative services for
implementing dispute resolution procedures, including arbitration. In many ways, these “ADR
providers” are the private sector counterpart (not-for-profit and for-profit combined) to the state
or federal courts’ offices of court administration.      Examples of well-known ADR providers


                                                    
                                                  28
operating in the commercial arbitration arena include, in alphabetical order, the American
Arbitration Association (AAA), Judicial Arbitration and Mediation Services (JAMS), the
International Institute for Conflict Prevention & Resolution (CPR), and the National Arbitration
Forum (NAF); AAA and CPR are not-for-profit organizations, while JAMS and NAF are for-
profit organizations.

While the tasks and services of various ADR providers vary, their central – and comparable –
functions include: a) developing rules of procedure for arbitration cases that they administer; b)
developing a roster of qualified individuals who could serve as arbitrators; c) providing
continuing education and training to its panel of arbitrators; d) educating and informing the
public about its services; and e) recruiting and training staff to administer arbitration cases in an
efficient, prompt, user-friendly manner.

The business model of an ADR provider organization is predicated on contracting parties
agreeing to resolve disputes – present and future – through arbitration, and then designating a
particular ADR provider to administer those cases. By way of example, lawyers and their clients
in the construction industry might provide that any dispute arising during the construction of a
new high-rise office building would be resolved through arbitration, and that the parties agree to
have all such demands for arbitration handled by the American Arbitration Association pursuant
to its Construction Arbitration Rules. With this “pre-dispute arbitration clause,” any aggrieved
party could, at the appropriate time, submit its demand for arbitration to the relevant AAA office;
AAA personnel would then take charge of organizing the arbitration hearing, ranging from fixing
its locale, arranging for document exchange, and developing candidate lists from which parties
select their arbitrators, to providing conference rooms for the arbitration hearings, and, at the
hearing’s conclusion, handling the filing of briefs and billing matters.     For these services, the
ADR provider charges an administrative fee.

Problem Addressed by the AFA. The Congressional finding expresses concern that the business
model for the ADR provider gives it incentive to develop arbitration rules, practices and
procedures that favor the “repeat user” of arbitration. For instance, presume that an insurance
company used an ADR provider to handle controversies arising under all of its home-owner
insurance policies; the Congressional finding underscores the incentive that an ADR provider has



                                                   
                                                 29
to develop and administer its arbitration program in a manner that does not offend the insurance
company lest that company take its “business” to another ADR provider.

The justice concern is the following: without it being apparent to the consumer, employee or
other individual arbitration complainant who might be only a “one-time player” in arbitration,
the ADR provider might ‘tilt’ the arbitration process in subtle ways that systematically benefit
the repeat player (and, hence, retain that repeat player as a paying customer). It could do that –
deliberately or innocently – in such ways as fixing the hearing locale at a plausible, yet
inconvenient location for the complainant; developing a hearing schedule that, while deliberate,
is not prompt; or providing arbitrator candidates whose overall arbitration decisions have aligned
them more often with the company than the individual insured (perhaps done by “weeding out”
from its arbitrator roster those arbitrators who had previously decided against the company).

These are not idle concerns. In Brower v. Gateway 2000, Inc., the plaintiff, a purchaser of
computer equipment who resided in New York, was required under the adhesion-contract
provision to fly to Chicago, Illinois for his arbitration hearing. In California, pursuant to a self-
administered arbitration system in the health care industry, 144 days elapsed between the date of
the filing of the demand for arbitration and the actual scheduling of that hearing. And a
prominent Harvard Law School professor was politely advised by NAF that her name would no
longer be included in lists to parties of potential arbitrators following a decision she had rendered
that was adverse to the industry party.30

                                                            
30
   Elizabeth Bartholet, Hearing Before the United States Committee On the Judiciary: “Courting Big Business: The
Supreme Court’s Recent Decision on Corporate Misconduct and Law Regulating Corporations, “ (July 23, 2008).
http://judiciary.senate.gov/hearings/testimony.cfm?id=3458&wit_id=7313 (testifying that the National Arbitration
Forum process was systematically biased in favor of credit card companies. After being removed from cases to
which Bartholet had already been assigned involving a credit card company that she had previously ruled against,
Bartholet resigned from her position as a part-time arbitrator for NAF.)    

In July, 2009, the Minnesota Attorney General filed charges against NAF, alleging that in its design, implementation
and administration of its consumer arbitration program, NAF engaged in deceptive practices in violation of its
consumer fraud act by developing a structured relationship with credit card companies for whom it administered
mandatory consumer arbitration cases but failing to disclose it; violating its deceptive trade practices act by
developing a web of relationships with the creditors, but advertising itself as an independent, neutral agency, and by
providing advocacy information to the creditors when they prepared cases for arbitration; and violating its
Advertising Act . The parties reached a settlement on July 17, 2009 in which NAF agreed to suspend administration
of all consumer arbitration cases (defined as any arbitration involving a dispute relating to goods, services, or
property or payment of such goods, services or property between a business entity and a private individual.

                                                                 
                                                               30
By implication, the Findings suggest that these factors that put one party at a structured
procedural advantage or disadvantage – thereby undermining the public image of an impartial
process - do not operate in a public justice system.

       e. Mandatory arbitration undermines the development of public law for civil rights and
          consumer rights, because there is no meaningful judicial review of arbitrators’ decisions.
          With the knowledge that their rulings will not be seriously examined by a court applying
          current law, arbitrators enjoy near complete freedom to ignore the law and even their own
          rules.

Background:                   Arbitration is a contractually developed “private” dispute resolution process.
Judicial treatment of arbitral awards is a significant dimension of public policy.

The FAA embodies what has been labeled the modern or contemporary view regarding
arbitration: a court, if confident that the agreement to arbitrate meets conventional requirements
for a binding contract under state or federal law, will “hold the parties to their contract” and
require them to resolve their dispute in arbitration, even if the arbitrator ultimately issues a
decision that differs from what a court might have rendered.

That judicial posture towards arbitration promotes several goals: first, it supports the capacity of
the parties to participate in an arbitration hearing promptly after the dispute emerges, thereby
avoiding the concern that “justice delayed is justice denied.” Second, since parties choose
arbitrators whom them believe are knowledgeable about the matters in controversy, restricting
judicial review of the arbitrator’s decision – “second-guessing the decision-maker” – to only
egregious deviations from the law31supports party autonomy in choosing to be bound by a
decision-maker of their own selection.




                                                                                                                                                                                               
                                                                                                                                                                                               
Arbitration of internet domain name disputes, personal injury disputes, shipping or storage disputes, or NAF
arbitrations supervised by government entities are distinguished from consumer arbitrations and hence not covered
by this agreement. A description of the relationships among NAF and its various business units appears in Wall
Street Journal, October 14, 2009 at p. 1.

 
31
      “Manifest disregard of the law” is the operative language of judicial opinions. 


                                                                                              
                                                                                            31
To allow traditional appellate review of the parties’ arbitration process or award would
                                                                                                                    32
undermine these significant arbitral values of speed, efficiency, and decision-maker expertise.
Modern arbitration statutes, including the FAA, therefore sharply limit the grounds for reviewing
the arbitral process or overruling the arbitrator’s decision. Most bases for setting aside an award
are grounded in alleged procedural irregularities involving arbitrator misconduct, including an
award being procured by corruption or fraud, the arbitrator being obviously biased in his/her
conduct or decision, or the arbitrator conducting the hearing in a manner that prejudices the
rights of a party.33

Problem Addressed by the AFA. Given limited judicial review of the arbitration process and
arbitral decisions, the Congressional “Finding” postulates its justice concern as being that a
commercial arbitrator, unlike a civil court judge, could conduct a hearing in ways that “push the
limits” of procedural or substantive justice and yet remain unaccountable for it. The “Finding”
suggests that an arbitrator could ignore – or deliberately refuse to consider – the relevance and
application of public laws that would and should govern the adjudication of a stated controversy,
and given that the decision would be subject only to limited review, the development of public
law for civil rights and consumer rights could be undermined.

Further, if arbitrators operate in a milieu in which they are subject to discernible financial
incentives to please “repeat” players so that they will be selected by them to serve as an
arbitrator in future cases, they might be inclined to interpret statutory or contractual provisions in
a manner systematically favorable to the “repeat” player. If that were the case, then the absence
of judicial review of arbitrator conduct – the lack of accountability – opens a door for the
arbitrator to render substantive decisions that promote inequitable treatment among disputants. It
opens the door for injustices to occur.

       f. Mandatory arbitration is a poor system for protecting civil rights and consumer rights
          because it is not transparent. While the American civil justice system features publicly


                                                            
32
  See Court’s language endorsing the expertise of labor arbitrators in United Steelworkers of America v. American
Manufacturing Co., 363 U.S. 564 (1960), United Steelworkers of America v. Enterprise Wheel & Car Corp., 363
U.S. 593 (1960), and United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960). 
33
     See FAA, Section 10(1). 


                                                                 
                                                               32
         accountable decision makers who generally issue written decisions that are widely
         available to the public, arbitration offers none of these features.

Background: Arbitration is a private process. Unlike most public court hearings, conventional
arbitration rules license the arbitrator to preclude from the hearing any person who is not a party
to the arbitration. There are no TV cameras in an arbitration hearing (except in states where the
sunshine law applies); most procedural rules bar newspaper reporters, court bloggers, and
interested public citizens from observing. While the parties could waive such provisions, most
parties choose arbitration in part because of its privacy, sometimes not wanting to air dirty
laundry in public.

In many commercial arbitration cases, the standard practice is for arbitrators to issue a decision
but not to provide a written analysis that sets forth the basis of their judgment, unless the parties
request such an opinion. By contrast, the standard practice for an arbitrator hearing “grievance
arbitration cases” in a unionized setting is to prepare a written “award” that consists both of the
decision (supporting or denying the grievance) and a written opinion setting forth the reasoning
that supports the decision. These awards, similar to written opinions of appellate courts in state
and federal court, are often published through standard reporter systems. Parties can read these
awards, both to discern the reasoning of the particular arbitrator as well as to glean the principles
supporting the decision that may or may not influence union/management practices in future
cases.

Problem Addressed by the AFA. This Finding raises the justice concern that an arbitrator could
jettison an individual’s statutory rights, but the public, barred from observing the process or
reading about its outcome, would never be aware of that fact. When this concern is blended with
those previously cited regarding the limited role of judicial review of arbitral conduct, AFA
advocates posit that there is no practical constraint on an arbitrator’s discretion to decide in
whatever manner s/he wishes. The rule of law is thus undermined.

    g. Many corporations add to their arbitration clauses unfair provisions that deliberately tilt
       the systems against individuals, including provisions that strip individuals of substantive
       statutory rights, ban class actions, and force people to arbitrate their claims hundreds of
       miles from their homes. While some courts have been protective of individuals, too
       many courts have upheld even egregiously unfair mandatory arbitration clauses in


                                                   
                                                 33
              deference to a supposed Federal policy favoring arbitration over the constitutional rights
              of individuals.

Background:                    Parties can design arbitration rules and practices to meet their needs.                In
conventional practice, parties typically try to “tailor the arbitration process” to fit their needs in
such ways as stipulating timelines for proceeding, shaping document exchanges, deciding the
number of arbitrators to be used and the method of arbitral selection, and the time frames for
conducting the process from its inception to its conclusion.34

Problem Addressed by the AFA. This Finding expresses the concern that when one party
unilaterally develops the arbitration process, and that same party has both a significant stake in
the outcome of each arbitration decision as well as the power effectively to impose the
arbitration process on the other participant, then the designing party has no incentive to develop
fair, balanced procedures. Hence, justice concerns arise.

Reported cases over the past twenty years illustrate these concerns. In Brower v. Gateway 2000,
Inc.,35Gateway’s form contract accompanying each sale of its personal computer equipment
stipulated that, following the completion of a 30-day period from the date of purchase during
which time a consumer could opt-out of the arbitration program, the parties would resolve any
controversy through arbitration, with the designated agency administering the arbitration being
the International Chamber of Commerce (ICC). The ICC offices were located in Paris, France.
Any inquiries that a consumer had regarding the arbitration process were to be communicated to
personnel at the Paris office. The ICC rules required a $4,000 deposit accompanying the demand
for arbitration, $2,000 of which was non-refundable. Further, all arbitration hearings were to be
conducted in Chicago, Illinois. The appellate court, in setting aside the arbitration provision as
unconscionable, noted that a crucially repellant feature of the design procedure was that the cost
of processing the claim might well exceed the value of the claim itself. Expressing comparable
concerns about the cost of the arbitration process to its consumer users, the court in Patterson v.
ITT Consumer Financial Corp. noted that a consumer having to pay approximately $850 in
                                                            
34
  Parties often adopt the operative rules of a provider organization – e.g. the American Arbitration Association or
JAMS – that contain provisions governing such matters. Another example of such a source is CPR Model ADR
Procedures and Practices (www.cpradr.org/Portals/0/1995%20CPR%20%Arb%20Rules.pdf. 
35
      Brower v. Gateway 2000 Inc., 676 N.Y.S. 2d 569 (App. Div. 1998). 


                                                                 
                                                               34
administrative hearing fees for a participatory arbitration hearing (as contrasted with a “paper-
filing only” hearing) involving a claim of $2,000 was unfairly burdensome.

In Ting v. AT&T,36 the federal court expressed concern that AT&T, in designing its arbitration
process as part of its implementing strategy for complying with the transformative changes
mandated by the Telecommunications Act of 1996, banned customers from filing class actions in
arbitration. Noting that this provision (and others) lacked a meaningful sense of “bilaterality”
(i.e. AT&T, unlike its individual customers, would have no occasion to consider a class action
against its users), the court found the program unconscionable.

Other cases exhibit the capacity of the designing party, acting unilaterally, to develop rules that
are so one-sided that one can only conclude that their purpose is to undermine, not sustain,
neutrality. In Hooters of America v. Phillips, 37 the arbitration program was self-administered by
Hooters of America. A number of its rules lacked bilaterality, e.g., the Plaintiff was required to
specify the acts or omissions forming the basis of the claim and was restricted from later
introducing new issues for arbitral review, while the Defendant neither had to file responsive
pleadings nor was limited from raising any new matter, whether related to the case or not. The
Plaintiff was required to provide the Company with a list of all its fact witnesses and a brief
summary of the facts known to each, while the Company had no reciprocal responsibility. The
Company could record the arbitration hearing, but the Plaintiff could not.          And while the
arbitrator selection process appeared neutral on its face, with each side selecting one arbitrator
and those two would choose the “neutral” arbitrator, only the Company had a role in developing
the list of persons who formed the arbitrator pool, thereby raising the specter that arbitrator pool
members bore an allegiance to the Company. The combined program prompted many leading
figures and organizations in the arbitration community to testify or submit amicae briefs
criticizing the Company’s practices.

Finally, the “Finding” hints at one other dimension of the capacity of the dominant party to tilt
the arbitration system against the individual, and that is the situation in which the party that
designs and mandates the arbitration process also acts as the administrator of the program. This
                                                            
36
     Ting v. AT&T, 319 F. 2d 1126 (9th Cir. 2003). 
37
      Hooters of America v. Phillips, 173 F. 3d 933 (4th Cir. 1999). 


                                                                 
                                                               35
situation was illustrated in Engalla v. Permanenante Medical Group38 where Mr. Engalla was
dying from cancer. He filed his arbitration claim, alleging malpractice in the treatment he had
received in prior years when his situation had not been accurately diagnosed. His attorney
requested that the matter be promptly scheduled and heard so that Mr. Engalla could participate
effectively in the process. Permanante administered the arbitration process. Its rules called for
the party-selected arbitrators to be chosen within thirty days of the filing of the arbitration; those
arbitrators, in turn, would then mutually select the neutral arbitrator within thirty days. By its
own rules, the arbitrator selection process was to be completed within sixty days, and the hearing
scheduled thereafter to take place within a reasonable time. Despite urgent pleas from the
Plaintiff’s attorney, it took the parties 144 days from the date of the filing for arbitration for the
parties to choose the arbitration panel. On the 145th day, Mr. Engalla passed away. According to
the Court’s account, it was clearly the defendant’s representatives who failed to heed pleas to
move ahead expeditiously. Since the administrator of the arbitration program was itself the
defendant, and its outside counsel was charged with monitoring its administration, the overall
picture was one of a powerful party in a position to engage in tactics that would arguably operate
to its benefit, thereby undermining the public’s confidence in the impartiality of the arbitration
process.

Courts have limited the operation of some of the most egregious instances of these one-sided
“systems,” usually on the contract doctrine that the arrangement is unconscionable. However,
since that doctrine emerges as a judicially-developed principle on a state-by-state basis, it is not
clear how many unbalanced systems remain operating outside this doctrine.




       3. Resolving the Justice Problems via the AFA


a.            The AFA Findings raise the following questions regarding how current arbitration
practices comport with fairness principles – i.e., “rule of law” concerns.




                                                            
38
     Engalla v. Permanante Medical Group, 938 P.2d 903 (Cal 1977). 


                                                                 
                                                               36
Commercial arbitration is predicated on the assumption that private parties contractually agree to
use it. Yet, for certain types of cases – viz. those involving consumer, employment, franchise, or
civil rights disputes – the following conditions appear to be operative:

       i.      The contracting parties lack adequate equality of bargaining power and
               sophistication.

       ii.     Since businesses have the power to effectively ‘force’ individual parties in the
               designated cases to agree to use arbitration, the individual parties do not have a
               meaningful opportunity to analyze, evaluate and then affirmatively choose to use
               arbitration because they believe it would be the most desirable and effective
               forum for addressing their concerns.

       iii.    The individuals do not make a knowing waiver of their legal rights; stated
               alternatively, when agreeing to arbitration, they are not making that decision in an
               informed manner.

       iv.     ADR providers who administer many of these cases skew their rules of procedure
               and administrative practices to favor the business/repeat player – or at least have
               great incentive to do so.

       v.      The absence of effective judicial review of arbitral decisions undermines public
               knowledge of the way in which public law is applied to resolve these disputes. It
               also undermines judicial capacity to insure consistency of statutory interpretation
               in comparable cases. Stated differently, this practice erodes public confidence
               that analogous cases are being treated similarly and that the arbitral outcomes are
               consistent with the application of the governing public laws.

       vi.     Arbitration does not protect consumer and employee rights when the decision-
               making process of arbitrators is not transparent. The privacy of the hearing
               process may be compounded by the absence of any written justification for a
               decision rendered.

       vii.    A judicial approach to curb unfair arbitral procedures under the doctrine of
               “unconscionability” is not effective. This is because state courts both interpret the

                                                  
                                                37
                             standard in importantly different ways (thereby undermining consistency) and
                             approve inequitable arbitration arrangements in the belief that doing so is required
                             by a federal policy supporting a robust conception of freedom of contract and the
                             use of arbitration.

b. The AFA addresses these justice/fairness concerns in the following way:


            i.               For the targeted cases of consumer, employment, franchise, and civil rights
                              disputes, it renders all “pre-dispute arbitration agreements” invalid and
                              unenforceable; in principle, all these disputes would, subject to (iii) below, be
                              adjudicated (if initiated) in a traditional court forum. This removes all fairness
                              problems related to unequal bargaining power, informed decision-making,
                              skewed procedures provided by ADR providers, and lack of transparency.


          ii.                Any individual and business or employer who chose to arbitrate an existing
                              consumer, employment, franchise, or civil rights dispute is free to contract to do
                              so. Given that parties have the default option of securing court review of their
                              dispute, fairness concerns germane to the negotiation of the shape and practice of
                              arbitration evaporate. Since parties have the option to refuse the proposed
                              arbitration process, no one is compelled to agree to a process that s/he does not
                              understand or believes unfair. By implication, persons who agree to arbitrate
                              their current dispute can be deemed to have done so in an informed, non-coerced
                              manner and should be held to its terms.


         iii.                All decisions regarding the validity or enforceability of an agreement to arbitrate a
                              controversy39will be made in the first instance by a court, not an arbitrator. This
                              eliminates what might be an arbitrator’s bias to enforce most agreements to
                              arbitrate, even those resulting from arrangements between parties of unequal



                                                            
39
   In H. 1020, this provision would apply to any case submitted to arbitration. In S. 931, this provision would apply
to any case submitted to arbitration that would involve a consumer, employment, franchise, or civil rights claim.  


                                                                 
                                                               38
               bargaining power, information, or meaningful roles in designing the arbitral
               procedures. 
 
In order to assess the impact and effectiveness of the proposed AFA, it is important to gain an
understanding of arbitration from both its historical context in the United States and the salient
doctrines governing its practice.




                                                 
                                               39
B.      Arbitration Policy and Practice in the United States: A Historical
        Perspective
     1. Clashing Visions of Arbitration and Its Practices 
The arbitration process portrayed by the Congressional Findings of AFA Section (2) clash
sharply with the image of arbitration that many of its practitioners prize. It appears that both
arbitration advocates and AFA supporters endorse the following considerations regarding dispute
resolution:

              a. For all legal disputes resolved by the decision of a third-party, the pre-eminent
                 value that supports party confidence in the integrity and justice of the dispute
                 resolution process is that the third-party is committed to acting in an impartial
                 way in evaluation of clashing factual presentations and proposed interpretations of
                 relevant rules, principles, and contract clauses.
              b. For some controversies, there is an important value served by having a dispute
                 resolution procedure that operates fairly, promptly, efficiently, and ensures a
                 finality of result.
              c. For some disputes, there is an important value in shaping the complexity of the
                 process to match or dovetail with the complexity of the dispute – the less complex
                 it is, the less complex (more informal, etc.) can the dispute resolution process be.
                 To speak metaphorically, just as every illness does not require surgery, not every
                 controversy requires a court trial process to resolve the matter.
              d. For some controversies, there is an important value served by having the parties
                 participate in the design and implementation of the system they will use to resolve
                 their dispute.
              e. For some controversies, there is an important valued served by having parties
                 select the decision-maker by whose judgment they will be bound, for in doing so,
                 they have the opportunity to choose individuals based on their reputation for
                 integrity of judgment and knowledge about the area of dispute.


Given these general considerations, arbitration advocates comfortably share and support the
social justice concerns identified in Section (2) findings. Those concerns include:


                                                     
                                                   40
            a. Participating in an arbitration process that systematically violates the
                principle of impartial administration of justice in such ways as using a
                pool of arbitrators who are biased or by administering the process in a way
                that favors one party;

            b. Requiring someone to sign an agreement to arbitrate without having the
                ability to obtain a description of how such a process would operate; and

            c. Gaining access to the procedure requires one party to expend a substantial
                percentage of the potential recovery just to participate in the hearing
                process, making any favorable outcome a pyrrhic victory.

Given that these elements possibly constitute shared principles and convictions among AFA
advocates and persons who support the use of pre-dispute arbitration agreements, what explains
their different picture of, and sympathy for, the arbitration process?

To explore this clash, one must examine the history of arbitration’s use in the United States.

    2. General Background

Arbitration is a procedure for resolving disputes.          Disputing parties develop or agree to
procedures for adjudicating a controversy, including such matters as the timing or locale of the
hearing and the method of arbitrator selection. Most significantly, disputing parties choose their
arbitrator and contractually agree to be bound by the decision.

Most disputes that are arbitrated are controversies that present some form of a recognizable
“legal cause of action”, whether at the state or federal level. The parties’ decision to submit their
controversy to an arbitrator is a decision not to have a court (jury or judge) decide the case. It is
in that sense that arbitration is often referred to as a “private justice” system.

    3. Substantive Contexts of Use

In the United States, the use of arbitration historically has been divided into two distinct
substantive areas:    “labor-management relations” (collective bargaining) and “commercial”
arbitration. The interplay between the two, however, has been far more robust than might



                                                     
                                                   41
otherwise be apparent; and understanding their historical development streams positions one to
see those areas of mutual reinforcement.

       (i) Labor-management Relations

The legal relationship between an employer and employee in the United States is sharply
distinguished between those employees who are represented collectively through their chosen
union and those persons whose employment relationship with their employers is established on
an “individual” at-will basis.     The accepted terminology describing these two importantly
different relationships is: “labor-management relations” and “employment relations”
respectively.

There are two ways in which arbitration has been used in labor-management relations.
Grievance arbitration has a long, distinguished history.     Its use became formally supported in
federal law with the Congressional adoption of the Labor Management Relations Act of 1947
(Taft/Hartley), itself an amendment to the National Labor Relations Act (Wagner Act) of 1935
that established the still-current structure governing labor and management bargaining.
Taft/Hartley supported parties developing internal dispute resolution processes, including
arbitration, to resolve controversies arising over the interpretation or application of the terms of a
collective bargaining agreement. It is reported that more than 95% of all collective bargaining
agreements today contain a provision prescribing arbitration as a final step in a grievance
procedure.

Disputes in this context come to an arbitrator because either union or management has initiated a
“grievance,” i.e., an allegation that the conduct of one party has violated a right held by the other
party to the collective bargaining agreement. Typically, the grievance procedure prescribes a
process in which various representatives of both union and management meet to discuss and
attempt to resolve the ‘grievance.’ If they succeed, the matter ends. If they do not reach a
mutually acceptable resolution, one party demands arbitration. While some parties establish
their own arbitration procedures and practices, many union-management negotiators have
utilized the services of various ADR-provider organizations – the American Arbitration
Association or the Federal Mediation and Conciliation Service – or a state agency to administer
these arbitration cases.


                                                   
                                                 42
Arbitration in this context is labeled “grievance arbitration.” Typical questions submitted to the
arbitrator for decision include such matters as: a) Under the terms of the collective bargaining
agreement governing promotions and layoffs, was Employee A improperly “passed over” for a
job promotion in favor of Employee B? b) Was Employee A terminated “for just cause” for
taking a computer flash drive from her employer without paying for it (“theft of company
property”)? For writing a letter to the editor of the local newspaper critical of her company’s
investment practices? c) Was Employee A properly compensated for work performed on an
overtime base? d) When the Employer closed its operations in City A, did it follow the
prescribed procedures for dovetailing seniority lists at plant operation in City B to which some
employees from City A were entitled to relocate?

Persons who are selected by union and management representatives to arbitrate such cases reflect
multiple professional and work backgrounds, including former management or union labor-
relations officials, academicians (particularly professors trained in economics, industrial
relations, business administration, and psychology), and, more recently, lawyers. While a small
number of persons are so highly regarded that they are chosen regularly so that they enjoy a full-
time career as an arbitrator, most grievance arbitrators blend their services of serving as an
arbitrator with other employment endeavors. The National Academy of Arbitrators, perhaps the
most distinguished national organization of arbitrators, was formed in 1947; at its founding, its
membership consisted exclusively of individuals who arbitrated labor-management cases in the
private sector.40

Grievance arbitrators issue “awards”. These awards combine the arbitrator’s decision resolving
each grievance with a written analysis that, normally, reviews the testimony of the various
witnesses and documentary evidence, cites relevant contract language, principles and practices in
employment relations, and presents the rationale for the decision. These written awards are
typically 15-25 pages in length. Some of these awards are published in reporter systems (BNA’s
Labor Arbitration Reports).


                                                            
40
    More recently, many NAA members also arbitrate employment cases in the non-union sector.

 


                                                        
                                                      43
“Grievance arbitration,” in both the private and public sectors, has been widely adopted.
Although the presence of unionized workplaces has notably diminished during the past thirty
years, there are more than 50,000 grievance arbitration hearings conducted annually in the
United States.

By contrast, interest arbitration has been used only selectively in labor-management relations.
Interest arbitration focuses not on resolving controversies over the interpretation or application
of a provision of a collective bargaining agreement but rather on establishing what a particular
substantive provision in a collective bargaining agreement will be. For example, if union and
management representatives reach impasse during collective bargaining over proposed wages,
the parties could agree to submit that issue to an arbitrator for a decision. Historically, parties
have preferred to deploy their economic and political strength to convince the other party to
agree to their proposal – by engaging in strikes, lockouts and the like – rather than submit the
unresolved issue to an arbitrator. Recently, in the public sector, statutory provisions prescribing
the use of interest arbitration in modified forms have been used to resolve contractual impasses
involving police officers or firefighters with their employer.41 In the private sector, baseball
salary arbitration remains the most prominent example of interest arbitration known to the
public – typically handling, at most, 120 cases per year (though often highly publicized).42

              (ii) Commercial Arbitration

Despite sharply different historical trajectories, commercial arbitration, at least in the United
States, today refers to the use of arbitration to resolve every type of dispute other than those
arising in the “labor-management” arena. Falling into this category, then, are such controversies
as those surrounding the dissolution of a business partnership, contests over provisions in a will,
boundary disputes among property owners, copyright infringement claims, tenant-landlord
issues, or disputes about professional service fees.


                                                            
41
   Example statutes requiring interest arbitration in the public sector include: N.J. Stat. Sec. 34:13A-16 (2000)
(mandatory binding interest arbitration for firefighters and police officers when initiated by one of the negotiating
parties and approved by the labor commission); Minn. Stat. 179A.16 (2008) (essential employees can petition for
binding interest arbitration). 
42
     http://baseball.suite101.com/article.cfm/how_baseball_arbitration_works 


                                                                 
                                                               44
Any dispute submitted by the parties for resolution through a commercial arbitration process is
presumptively a legal cause of action; absent an agreement to arbitrate, parties to every such
controversy have their respective civil justice system available as a forum for adjudicating their
controversy.

The historical context of the term, “commercial arbitration,” is clearly tied to economic activity –
and commerce. Whether it was guilds or particular categories of business (e.g. textile and
apparel industry or the movie/theatre industry), participants in multiple transactions in these
businesses sought to develop a flexible, prompt method for resolving disputes that would
systematically incorporate and respect principles that were consistent with and supportive of the
industry’s prevailing business norms. As business enterprises expanded their services in both
size and scope, using arbitration to resolve disputes supported efforts to advance efficiency and
fairness.

In structuring international business transactions, persons engaged in commerce have
systematically negotiated provisions for using arbitration to resolve future disputes; doing so
increases the probability of stable, predictable adjudicatory practices rather than parties risking
the idiosyncrasies – and possibly unsympathetic treatment – of resolving their legal claims in
their business counterpart’s distinctive domestic court system. Importantly, many companies,
when negotiating employment contracts with its international staff members, agree to use
arbitration processes to resolve future disputes arising over terms or conditions of employment.

As noted previously, beginning in the late 1960s/early1970s, there was increased interest among
judicial administrators and public officials to use ADR processes to resolve court-annexed cases.
Chief Justice Warren E. Burger promoted initiatives that made access to justice systems easier
for a broader range of citizens and at less cost.43 Concerns about significant “case backlogs,”
whether it was in court systems or governmental administrative agencies, prompted judges and
court officials to experiment with various “diversion programs.” One early initiative quickly
replicated elsewhere was the “advisory arbitration” program in Philadelphia, in which parties to
standard civil cases – typically a personal injury case involving an auto accident – presented their
case to a three-person panel of arbitrators (licensed lawyers who served as arbitrators on a
                                                            
43
      Speech by Hon. Chief Justice Warren E. Burger, supra at n. 16. 


                                                                 
                                                               45
volunteer basis). These arbitrators would weigh the evidence and render an “advisory”
arbitration award. Parties were free to accept or reject the award. The goal of this program was
to give the litigants and their lawyers a sound, objective basis for evaluating their case and assist
them in making a decision as to whether to proceed with their litigation or consider and embrace
settlement terms based on the arbitrators’ award. Many such cases settled. This form of “court-
annexed advisory arbitration” has since been adopted in many state court jurisdictions.44

Many variations of this “advisory arbitration” approach have been tried.                         For instance, in
Michigan, pursuant to a statutory scheme, all claims involving medical malpractice are first
“tried” before a three-person arbitration panel, which pursuant to statutory guidelines, consists of
a professional in health services, a ‘public member,’ and a lawyer who serves as chair. At the
conclusion of the case presentation, the panel renders an award. Parties are free to reject the
award in favor of proceeding with trial but the statute provides that if the party rejecting the
arbitration award does not “beat” the arbitrator’s recommended financial award by at least 10%,
then it must pay for all arbitration expenses. In a different context, Professor Alfred Blumrosen
proposed to the EOC that it use arbitration to help the agency “tackle” what at that time was
reported to be a case backlog of approximately 80,000 claims.

This accelerating impetus by the Courts to use arbitration or other non-court dispute resolution
processes to resolve a perceived explosion of disputes gained important momentum from other
civil society segments. In the 1980s, there was significant movement to “privatize” what had
previously been viewed as “public services;” this movement was explained in part as a response
to global economic challenges and in part to a changing political culture.45.                             Although
“privatization” initiatives were strongly resisted by public-sector unions, some state and local
public officials explored hiring private sector firms to assume responsibility for delivering such
public services as garbage collection or school-bus transportation services.


                                                            
44
  Congress passed the Civil Justice Reform Act of 1990 requiring each U.S. federal district court to create its own
plan to facilitate the adjudication of civil cases through the use of various ADR techniques; it was amended in 1996
and 1998. Based on perceived success of various efforts in the federal system, various state courts initiated
comparable efforts. With these combined state and federal historical streams, there are currently 36 states that use
some form of court-annexed arbitration to resolve disputes. 
45
      See Savas, supra at n. 17. 


                                                                 
                                                               46
Businesses operating in this social and political milieu could comfortably view the use of
arbitration as the “privatization” of the dispute resolution processes. Cynics, of course, would
accuse businesses that used arbitration as corporations that were trying to escape being held
accountable for their legal responsibilities. Whichever perspective one embraced, many
observers thought it reasonable to view the “privatization” of dispute resolution procedures as an
important, strategic component for operating in an efficient, effective, and nimble manner in a
rapidly changing, globalizing, marketplace. As studies documented the rising costs for litigating
cases, the expansion of “legal rights” to previously unprotected individuals,46 and the propensity
of Americans to be distinctively aggressive in translating disputes into lawsuits,47 the economic
case for a business to use arbitration became more compelling.

With these growing currents, the use of commercial arbitration expanded from its traditional
context among business persons regularly engaged in commercial transactions to situations that
were more individualistic: a dispute involving a car owner and the operator of a parking garage
might now go to arbitration rather than court; a patient and hospital would argue their case
involving billing disputes or medical care to an arbitrator; franchise agreements contained
arbitration provisions; and an employee contesting her discharge on the basis of alleged sexual
discrimination used an ADR process.

Businesses trying to anticipate future disputes – and the possibility of their being mass numbers
of such disputes– developed and adopted pre-dispute arbitration clauses in their service
contracts. That is, they incorporated into their operating procedure, as a condition of doing
business, that persons within the organization (employees) and customers would resolve disputes
regarding services within the arbitral forum. Designers of arbitration systems exhibited the same
confidence that had led other social partners to believe that the private sector could provide the
‘public service’ of dispute resolution in a capable, competent manner. They developed and

                                                            
46
   For example, new statutory protections were created for: persons with pension protections who were about to
retire; individuals who wanted to engage in their respective religious practices at the workplace without being
discharged or disciplined for such conduct; and parents and children who sought to have school districts develop
individualized educational plans for eligible-handicapped students. 
47
  Professor Marc Galanter challenged this view of U.S. citizens being an overly litigious society. Others, however,
pointed to such data as the percentage of lawyers per 1000 citizens – when compared to other countries – to support
their belief about the litigious nature of U.S. citizens. 


                                                                 
                                                               47
implemented arbitration processes, believing that private individuals, selected by the parties to
adjudicate their controversy, could, in appropriate circumstances, render thoughtful, precise
decisions involving the interpretation and application of contract, statutory or constitutional
language that might otherwise be the province of judges.

In a short, yet tumultuous time frame – a quarter century – the use of ‘commercial’ arbitration
expanded from its being a process used predominantly by and among commercial players
engaged in economic activities to its wide-spread deployment as a dispute resolution procedure
in such separately identified segments as ‘consumer,’ ‘employment,’ ‘franchisee’, ‘real estate,’
‘medical malpractice,’ ‘personal injury’ and other subject-category areas. It expanded from
being a forum used primarily as one in which the decision-maker resolved disputes by appealing
to prevailing business norms well-known to persons interacting in an identifiable commercial
community to a dispute resolution process in which decision-makers would interpret and apply
state, federal, or common-law provisions in adjudicating disputes arising among “strangers,”
“one-time players,” or persons interacting in an employer-employee business setting governed by
an “at-will” employment doctrine.

The significant increase in the use of arbitration was accompanied by growth in the number of
ADR providers of commercial arbitration services. There are at least two established categories
of private-sector providers:48 those organizations who design and administer their own
arbitration program and those “independent” ADR providers whose business consists of
developing and administering the arbitration processes of other businesses or parties. Any
business or organization – e.g. a health maintenance organization or a university – could operate
as a “single, one-party administrator.” Examples of the “independent” ADR providers –
international and national – include, in alphabetical order, the American Arbitration Association
(AAA), Judicial and Arbitration Mediation Services (JAMS), the Institute of Chartered
Arbitrators (ICA), the International Chamber of Commerce (ICC), the International Institute for
Conflict Prevention & Resolution (CPR), and the National Arbitration Forum. But multiple
organizations also provide such services, such as some offices of the Better Business Bureau or
local Bar Associations. As noted previously, the increased use of “advisory arbitration” panels
                                                            
48
  For a discussion of this and related topics, see L. Bingham, Control Over Dispute –System Design and Mandatory
Commercial Arbitration, 67 Law & Contemp. Problems 221 (2004). 


                                                                 
                                                               48
in civil court systems has resulted in expanding the work duties of various civil court clerks and
staff to administer these programs.

    4. Why People Choose Arbitration

People choose to use arbitration for different reasons, depending on contexts. Yet, there are
common considerations that transcend boundaries.

Choosing an arbitrator – one’s decision-maker – enables parties to select an individual whom
they respect for her judgment, temperament, and knowledge.           Choosing an arbitrator with
expertise in the subject matter of the dispute is often viewed as a crucial element in increasing
the likelihood that the decision-maker can more rapidly and thoroughly understand the actual
dynamics of the controversy, perceptively assess the credibility of the parties and the testimony
offered, and appreciate the implications of her decision. Without casting aspersions on full-time
elected or appointed judges, parties to arbitration of disputes in specialized areas – commodities,
copyright or patents, finance, construction – gain confidence in the process when they choose
decision-makers they believe to have a firm understanding of the multiple dynamics of the
dispute.

In choosing arbitration, parties have the opportunity to design their hearing process: they can
determine: procedural matters, such as the hearing locale and the form, if any, of pre-hearing
information exchanges; degree of procedural formality, including whether or the extent to which
discovery occurs; guidelines governing the use of courtroom rules of evidence when conducting
the hearing; and the nature and time frame for decision-making, such as whether the arbitrator’s
decision will be accompanied by a written analysis, or the number of days from the close of the
hearing in which the arbitrator must render her decision. In short, parties can tailor the process
to meet their multiple needs – and since party needs often differ significantly, the shape of the
arbitration process is not identical in every setting.

Another reason parties choose arbitration is that the process, from beginning to end, normally
takes less time than processing the claim through the available court system. Further, with there
being very limited statutory grounds for appealing an arbitrator’s award, the parties can expect
that the arbitrator’s award will constitute “closure” of the controversy and that they would not be
subject to an extended appeal process in which one party tries to set aside the award. When

                                                    
                                                  49
these dynamics occur, arbitration is a speedier process than a court procedure. Reduced time
should also result in reduced transaction costs.

Finally, arbitration parties can authorize the decision-maker to fashion remedies tailored to their
situation.

       5. Role of ADR Provider Organizations

If people use arbitration to resolve their disputes, someone – or some organization – must attend
to the administrative details to engage and implement the process.                  ADR “provider
organizations” have developed to fit that need.

It is important to note that it is possible – indeed a rather common practice - for individual parties
to an arbitration, particularly in commercial cases, to bypass using an ADR provider organization
and simply contract individually with their chosen arbitrator for her services and together with
that arbitrator establish their own procedures. We focus below on ADR provider organizations
that provide ADR administrative services, and, in particular, those that provide services for
handling commercial, not labor-management, arbitration hearings.

As noted previously,49 it is important to distinguish distinctive types of ADR provider
organizations. First, there are civil court personnel in state court systems who administer the
various “advisory arbitration” programs. While normally not viewed as “ADR providers” since
they are public employees, these personnel perform many of the functions that private sector
ADR provider organizational personnel execute and that are duties distinguishable from their
processing of cases headed for a bench or jury trial. For example, these personnel, often in
conjunction with judges, develop the list of eligible arbitrators, designate the arbitrators to serve
on the case, and monitor progress on the hearing timetable. Since these responsibilities are often
blended with other court-related tasks, it is often challenging to assess performance evaluation
using criteria associated with independent ADR providers.

Second, the ADR “provider” can be the very organization that is a party to the contract that
requires the use of arbitration to resolve controversies arising in the relationship. For example,

                                                            
49
      See discussion at page 48 and accompanying reference in footnote 48. 


                                                                 
                                                               50
in both Hooters of America v. Phillips and Engalla v. Permanante Medical Group discussed
above, the defendant was the entity responsible for designing the arbitration process, developing
its rules, and administering the various claims. These party-administered processes, in turn, are
to be distinguished from ADR providers that operate as stand-alone, independent organizations –
both not-for-profit and for-profit – whose business service is to provide administrative services
to persons and organizations that want to use arbitration; the ICC and JAMS are examples of
these latter organizations.

Though these three types of entities differ significantly in their structure and services, they share
common features.                          First, each develops a set of “rules” governing the operation of their
respective arbitration processes.50 These rules are comparable to the rules of civil procedure
governing the conduct of a court case. They would provide for such matters as time limitations
(when the claim must be filed; time for responding; time limitations for the arbitrator to render
an award); the number of arbitrators (one, three or some other figure) and the method of
selection; the scope of arbitral authority regarding damages; and the like.                              The rules,
appropriately, are thorough and extensive; they address and anticipate multiple challenges; they
are revised regularly; they are typically developed in consultation with arbitral users. In short, a
significant service ADR providers extend to users is the development of a set of procedural rules
designed to provide an effective, thorough, and fair hearing process.

Second, ADR providers identify, recruit and train persons to serve as arbitrators; they recruit
persons from multiple areas of expertise and then train them in arbitration policies and practices
– they then place those qualified individuals on their “roster of arbitrators.” When parties use the
ADR provider, the provider typically provides parties with a list of “names” of possible
arbitrators and then the parties make their selection. An ADR provider’s reputation depends in
significant measure on the quality of individuals its recruits and trains to serve as arbitrators.

Third, ADR providers provide the administrative infrastructure for processing the case. The
ADR provider manages communications among party representatives and between an arbitrator
                                                            
50
  This feature does not apply as directly to “advisory arbitration” programs attached to court systems. In those
arbitrations, the parties typically have not agreed to follow a set of special procedural rules that the other ADR 
designers or providers normally develop; rather, the parties normally follow the civil procedure rules operative for
that court’s jurisdiction. 


                                                                    
                                                                  51
and party representatives regarding any aspect of the case. The provider has responsibility for
stewarding the case in an efficient, appropriate manner.

Some ADR providers develop and deliver other services, including conducting education and
training programs for advocates on how to participate effectively in arbitration; developing and
evaluating pilot arbitration projects; supporting the development of training materials (e.g.
videotapes); and participating in scholarly projects.

It is easy to discern why parties use an independent ADR provider.                       To be efficient, the
arbitration process benefits from operating pursuant to a set of commonly adopted rules that are
focused, clear and comprehensive. Adopting the rules of an organization that has developed
such a set, based on its extensive experience in administering multiple cases and often after
extensive consultation and input from multiple process stakeholders, eliminates the need for
individual parties to “re-invent the wheel;” it also enables them to operate pursuant to a set of
public/published rules. Equally significant, having a non-partisan organization responsible for
all administrative aspects reduces the fear that one party might manipulate the administrative
matters (e.g. timing of responses to information requests) in a manner that favors one side. In
short, using a reputable ADR provider reinforces party confidence in the integrity and
impartiality of the decision-making process.

It is also easy to appreciate the singularly compelling reason why one party might want to
administer the process by itself: cost control. In short, parties must pay the independent ADR
provider to administer the case and the costs, through the bill, are tangible.                    In a single-
organization administrative model, some, though not all, of those costs are reduced.

Finally, we note here an important contemporary trend: many organizations today, particularly
larger organizations, are developing comprehensive, integrated conflict management systems
(ICMS) as part of their corporate policy and strategic behavior.51 These systems cover many
more types of conflicts than simply those that might constitute legal causes of action and they
provide multiple entry points for individuals to raise (or “access”) the system. While many

                                                            
51
  For the most thorough study and analysis of this development, see Lipsky and Fincher, Designing Integrated
Conflict Management Systems: Guidelines for Practitioners and Decision Makers in Organizations, (Institute of
Conflict Resolution, 2001). 


                                                                 
                                                               52
ICMS initiatives selectively use external ADR providers to provide targeted services, control of
the overall initiative remains with the organization. This blending process raises new challenges
not captured by the traditional “private provider” or “third-party provider” distinction noted
above.




                                                 
                                               53
C.      Arbitration and the Courts

There are predictable tensions between the courts and arbitrators.

The challenge is simply identified: what deference, if any, should a judge give to the decision of
a private individual who was selected by parties to a controversy and who agreed to be bound by
her decision? Its historical lineage bears a rich jurisprudence.

     1. Scope of Judicial Review
The tension surrounding the scope of judicial review emanates from two competing values: the
voluntary agreement of the parties to be bound by the decision of a third-party and the public
policy that restricts the rights of individual citizens to exempt themselves by contract from a
court’s jurisdiction and the application of public principles.


In choosing arbitration, the parties have, presumptively, voluntarily chosen a mutually acceptable
third party to resolve their dispute. That agreement is a contract, seemingly not unlike other
contracts for personal services; if standard conditions for valid, enforceable contracts are met,
this contractual arrangement should be enforced.  

But what if the parties, when contracting to use arbitration, not only agree to displace the
jurisdiction of the civil court in favor of its own venue and procedures, but also, and most
significantly, agree to use governing norms that may differ significantly from the publicly
promulgated laws that apply to all citizens in the jurisdiction? Should a court enforce that
substantive contract? The tension arises between supporting the parties’ right to contract with
the goal of insuring a common civil society.

Historically, courts were hostile to having parties in a civil society displace their jurisdiction.
They displayed this hostility by supporting any party’s attempt to disavow its promise to arbitrate
disputes if that disaffirmance was asserted by a party at any time prior to an arbitrator rendering
her award. One had the freedom to contract – but if the contract displaced the court, it was
voidable.




                                                   
                                                 54
The consequence of this judicial attitude towards arbitration was straightforward: there was no
certainty that arbitration would resolve a controversy, for every contract to arbitrate, unlike any
other standard contract, was voidable. Any person could agree to use arbitration but disavow
that promise at any time short of the arbitrator rendering her award (including one’s participating
in an arbitration hearing with the presentation of the evidence and thereafter withdrawing). That
meant that there was no guarantee, other than a person’s word, that the agreement to use
arbitration – or even its actual use short of a decision- would expedite the dispute resolution
process (efficiency) or advance/sustain performance norms in a given industry.

In 1925, Congress passed the Federal Arbitration Act. Section 2 was central; that provision
stated that a written agreement to resolve a dispute using arbitration was a “…valid, irrevocable,
and enforceable contract;” that provision served notice of the Federal policy to eradicate judicial
hostility towards enforcing commercial arbitration agreements for matters involving commerce.
Following passage of the FAA, state legislatures adopted comparable arbitration statutes, thereby
eliminating the differential treatment accorded contracts to use arbitration from all other
contractual obligations.                            In short, these “modern arbitration statutes” made a contract to use
arbitration enforceable.

While a negative judicial attitude towards enforcing arbitration agreements persisted in some
states long after 1925, it was eased significantly with a series of U.S. Supreme Court cases in the
1960s involving “grievance arbitration” and the work of labor arbitrators. These cases, now
known as the Trilogy,52 importantly clarified the role of the Courts and the arbitrator in those
situations when one party challenged its duty to participate in arbitration in circumstances in
which it appeared that it was contractually obligated to do so. While this topic – often referred to
as questions of arbitrability – is examined in Section (b) below, we note that the Court, in these
signal cases, decreed that the Court’s role was limited sharply to deciding only whether the party
seeking arbitration was making a claim that was presumptively governed by the contract; if the
answer to that was affirmative, the court’s role was to enforce the agreement to arbitrate and it
was then the arbitrator’s duty and role to determine the merits of the grievance.

                                                            
52
  United Steelworkers of America v. American Manufacturing Co., 363 U.S. 564 (1960); United Steelworkers of
America v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960); United Steelworkers of America v. Warrior & Gulf
Navigation Co., 363 U.S. 574 (1960). 


                                                                         
                                                                       55
Put differently, the court’s role in such circumstances was to establish the basic threshold of
arbitrability: was this kind of controversy the type that the parties agreed should be decided by
the arbitrator? Assuming an affirmative answer, the court was then to withdraw.

Justice Douglas expanded the policy basis for this approach when noting – some believe
effusively – the expertise of persons serving as labor arbitrators to decide such matters. He
observed that parties chose individual arbitrators (and presumptively preferred them to a
publicly-appointed and randomly-assigned judge) because of their confidence in the arbitrator’s
sophisticated knowledge and understanding of workplace practices and industrial needs and their
confidence that she would use that experience to fashion decisions, within the confines of her
authority, that promoted industrial harmony and effectiveness.

Almost thirty years after the Trilogy, the Court sustained its support for labor arbitrator expertise
and limited court review of an arbitrator’s decision. In United Paperworkers International
Union, AFL-CIO v. Misco, Inc.,53 the Court held that, absent fraud by the parties or an
arbitrator’s dishonesty, a reviewing court was not authorized to consider the merits of the
arbitrator’s award, let alone overturn the arbitrator’s decision “…simply because [the court]
disagrees with [the arbitrator’s] factual findings, contract interpretations, or choice of
remedies.”54 In short, if the parties were going to choose arbitration, the Courts would support
their choice, hold them to their bargain, and presume that they were confident in the integrity of
their arbitrator’s judgment.

While Courts treated the arbitration of grievances in the labor relations context with particular
deference, this same principle of holding the parties to their contract to use arbitration – and the
related principle of respecting arbitrator expertise and understanding – grew slowly but strongly
in the commercial arbitration sector.                          These developments are examined in Section (c) below.
But even in the labor-relations contexts, the question arose:                             were there limits to this
displacement of the Courts?



                                                            
53
      482 U.S. 220 (1987). 
54
      Supra at 3. 


                                                                        
                                                                      56
In Alexander v. Gardner-Denver,55 the tension arose in the context of a Title VII employment
discrimination claim. Alexander, an African-American, was terminated from his job. He filed a
grievance, contesting his discharge on grounds that included a claim that he had been
discriminated against because of his race in violation of Title VII. The arbitrator sustained the
discharge. Alexander sought to assert his Title VII claims by filing his claim with the EEOC; the
employer moved to dismiss the case, claiming the arbitrator had already decided the matter. The
Court determined that an employee had not waived his statutory right to a trial de novo under
Title VII when prosecuting his grievance through an arbitration process governed by a non-
discrimination clause.                            The Court noted that the arbitrator’s authority was limited to the
resolution of contractual rights, even if those rights resembled or duplicated statutory rights. The
issue becomes more clouded, though, as discussed in Section (c).

       2. Arbitrability

A second, predictable tension between courts and the arbitrator – referenced briefly above –
arises from the dilemma posed by the question of whether the arbitrator has the authority to
decide the question of whether the arbitration process, as agreed to by the parties, should
proceed? Again, these questions arise in two contexts.

First, presume the contracting parties agree to use arbitration to resolve future disputes. Pursuant
to that agreement, one party, months later, submits a demand for arbitration under the contract;
the opposing party refuses to participate, claiming that she only signed the predispute arbitration
clause under duress and, as such, the contractual commitment to arbitrate is void. Who decides –
the court or the arbitrator – whether the parties have a valid agreement to arbitrate?

Second, presume the contracting parties agree to use arbitration to resolve future disputes.
Pursuant to that agreement, one party, months later, submits a demand for arbitration under the
contract; the opposing party refuses to participate. The party refusing to arbitrate does not
contend that the agreement to arbitrate is void because secured under duress or fraud; rather, she
claims that the issue the moving party wants to have arbitrated is not the kind of dispute that was
included or envisioned to be subject to the arbitration process – hence, the arbitrator has no

                                                            
55
     465 U.S. 1 (1984). 


                                                                        
                                                                      57
jurisdiction to hear the case. Who decides – the court or the arbitrator – whether the predispute
agreement to arbitrate covers this controversy?

Judicial doctrine refers to these questions as matters of arbitrability. The Trilogy, reinforced by
Misco, establishes clearly that questions of arbitrability of the second type are to be decided by
the arbitrator, not the court. Were it otherwise, the Court would be performing precisely the
function for which the parties had selected their arbitrator.

                                                                                            56
In 1967, the Court, in Prima Paint Corp. v. Flood & Conklin Mfg. Co.,                            answered these
questions on the commercial side. It ruled that a court’s role was restricted to adjudicating
challenges to the validity of the contract to arbitrate – i.e., did any party have a legitimate
defense to declare the contract to arbitrate void, such as it was secured by fraud, or under duress?
All other questions of interpretation and application of the agreement were to be decided by the
arbitrator. In 2006, the Court, in Buckeye Check Cashing, Inc. v. Cardegna57 affirmed that
approach.

       3. Range of Substantive Issues an Arbitrator Can Decide

These court-arbitrator tensions predictably, and understandably, have persisted in both the labor
and commercial contexts. What if a labor arbitrator, pursuant to standard interpretive principles,
reinstated a pilot who was terminated for piloting a commercial airline while under the influence
of alcohol, the arbitrator reasoning that the Employer’s “past practice” for disciplining its
employees suffering from alcoholic problems was to impose some discipline on that employee
but always provided rehabilitative counseling and one “last chance” opportunity to correct his
behavior ?58




                                                            
56
      388 U.S. 395 (1967). 
57
     546 U.S. 440 (2006). 
58
  Delta Air Lines v. ALPA, 861 F. 2d 665 (11th Cir. 1988), cert. denied, 493 U.S. 871 (1989). See also Exxon
Shipping Co. v. Exxon Seamen’s Union, 993 F. 2d 357 (3rd Cir. 1993). 


                                                                 
                                                               58
A related question emerged and became prominent: did a labor arbitrator have the authority to
interpret and apply a federal statute to resolve a grievance? Would public policy support such a
“private arbitral” decision?59

Many labor arbitrators have noted that when deciding grievance arbitration cases “only in the
context of the collective bargaining agreement,” an arbitrator routinely must consider, interpret,
and apply multiple federal laws: a wage and hour decision implicates the Fair Labor Standards
Act; a discharge decision might involve the interpretation of the Age in Employment
Discrimination Act; work assignments regularly involve interpretation of Title VII prohibitions
barring discrimination against an employee based on her religious orientation; leave provisions
require interpretation and application of the Family and Medical Leave Act; challenges to
retirement matters require knowledge and application of ERISA; and wage disputes arising from
plant closings might involve the application of the WARN Act.60 In short, it is naïve and
incorrect to believe that labor arbitrators, when deciding “grievances,” are not required to
interpret and apply federal or state law.

Yet the question persisted: was this the type of expertise that Justice Douglas referred to in the
Trilogy?

Although labor arbitrators had addressed and wrestled with the challenge of developing their role
in a way that simultaneously remained faithful to being a “reader of the collective bargaining
agreement”61 while thoughtfully insuring that their decisions were consistent with appropriate
                                                            
59
   Three of the country’s pre-eminent labor arbitrators examined this tension in a remarkable series of exchanges.
See Bernard Meltzer, Ruminations About Ideology, Law, and Labor Arbitration, PROCEEDINGS OF THE 20TH ANNUAL
MEETING OF NAA (BNA 1967), Robert Howlett, The Arbitrator, the NLRB, and the Courts, PROCEEDINGS OF THE
20TH ANNUAL MEETING OF NAA (BNA 1967), and Richard Mittenthal, The Role of Law in Arbitration,
PROCEEDINGS OF THE 21ST ANNUAL MEETING OF NAA (BNA 1968). The question they examined could be
crystallized sharply: what should an arbitrator do when faced with clear language of a collective bargaining contract
that warranted a result that was inconsistent with the requirements of federal (or state) law? By implication, should
a court give deference to the arbitrator’s award if she rendered a decision that was inconsistent with the law?  
60
  The Court’s ruling in Penn Plaza LLC v. Pyett this term,60 holding that a collective bargaining agreement
containing a provision that clearly and unmistakably requires union members to arbitrate claims under the Age
Discrimination in Employment Act (ADEA), does not appear to overrule Alexander and appears consistent with
Court’s analysis of cases involving commercial arbitral authority. See discussion at pages 54–57. 
61
  Theodore St. Antoine, Discussion, PROCEEDINGS OF THE 21ST ANNUAL MEETING OF THE NAA (BNA Books,
1968). 

                                                                 
                                                               59
interpretations and applications of relevant federal and state statutes, the tension for commercial
arbitrators was more exposed: could parties authorize a private arbitrator to adjudicate their
controversy pursuant to applicable federal law and still have that arbitrator’s award subject only
to limited judicial review?

In 1953, the Court, in Wilko v. Swan62 answered that question in the negative. The Court
observed that the Securities Act of 1933 had created special protections and procedural
advantages for the buyer of securities, including, for example, switching the burden of proof for
establishing scienter of unfair dealing from the plaintiff, which was the common-law practice, to
imposing the burden on the defendant securities broker or firm to establish that it had acted in
good faith; the Act also expanded Plaintiff’s venue options. Reading the Act’s Section 14
prohibition against enforcing any contractual agreement that diminished or eliminated the
broker’s duties under the Act, the Court ruled that the parties’ pre-dispute arbitration clause in
their margin agreement which reduced venue options and presumptively followed the common-
law practice regarding burden of proof was void, hence, unenforceable.

    By the late 1980s, however, the Court reversed that approach. In Rodriguez de Quijas v.
Shearson/American Express, Inc.,63 the Court explicitly overruled Wilko, holding that a
predispute agreement to arbitrate claims under the Securities Act of 1933 was enforceable – it
asserted that such a ruling furthered the purpose of the FAA, did not undermine the Securities
Act, and facilitated conducting business transactions.              A private arbitrator, comparable to a
judge, had the ability to interpret and apply the statutory guidelines that should govern the
resolution of the case.

If an arbitrator could be authorized by parties to adjudicate a controversy based on her
interpretation of a federal securities law, could the parties give her comparable authority to
interpret statutes when the statutes did not regulate business or economic transactions but
established civil rights? Alexander was a labor-relations case, where Alexander was a member
of a union. The Court in that case stated, in passing, that the Union could not waive the
individual’s right to a court hearing of his civil rights claim. But what if parties were individuals
                                                            
62
     346 U.S. 427 (1953).  
63
     490 U.S. 477 (1989). 


                                                                 
                                                               60
and they chose to waive their right to a court hearing? Would the Court enforce that agreement?
The Court’s answer came in 1991 in Gilmer v. Interstate/Johnson Lane Corp.64

Gilmer was an employee working in the securities industry. As a condition of employment, he
was required to sign a predispute arbitration clause, agreeing to resolve any controversy arising
out of his employment through arbitration. Gilmer was terminated from his employment. He
filed a lawsuit, alleging that his employer had violated the Age Discrimination in Employment
Act when terminating him. The employer sought to compel arbitration of the issue. The
Supreme Court ruled that the parties’ predispute agreement to arbitrate all claims, including
statutory claims of this sort – civil rights statutes – was enforceable under the FAA. Noting that
the ADEA does not explicitly preclude arbitration, the Court held that the parties’ agreement
stands. The Court ruled that the parties, contrary to Gilmer’s contention, were not sacrificing
statutory rights and remedies but simply choosing a non-judicial forum in which to adjudicate
those matters; citing with approval the language from its decision in Mitsubishi,65 the Court
wrote: “…by agreeing to arbitrate a statutory claim, a party does not forego the substantive
rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a
judicial, forum.”

How else could parties shape the jurisdictional reach of arbitrators? The Court determined that,
pursuant to the FAA, parties could contract to have the arbitrator decide whether to award
punitive damages, even if state law denied such arbitral authority. But parties could not expand
the FAA’s reach by stipulating that an arbitrator’s award could be set aside by a Federal District
Court if it determined that the arbitrator’s conclusions of law were erroneous.66




                                                            
64
    500 U.S. 20 (1991). 
65
     Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 at 628 (1985). 
66
      Hall Street Associates, LL.C. v. Mattel, Inc., 552 U.S. ____ (2008). 


                                                                 
                                                               61
       4. Contracts of Adhesion: Their Relationship to Arbitration Policy and Practice

As noted above67, a contract of adhesion is a standard form contract in which one contracting
party dictates the terms of the contract and leaves it to the other party to accept on a “take-it-or-
leave-it” basis.

There is no equality of bargaining power in such situations: the contracting party that develops
the contractual terms drafts it in a way that affords itself significant protections. The contract
often contains multiple elements, thereby making it difficult for the non-drafting party to
understand all the terms being proposed, even if they can find them (i.e. sometimes potential
parties talk about terms being “buried deep” in the proposed extensive contractual language).

Such contracts enjoy widespread use in our contemporary commercial life. Manufacturers and
distributors of products that rely on mass production of goods and services develop, through
contractual provisions of the “boilerplate” or “form language” type, an ability to calculate and
predict costs of doing business.

The drawbacks to enforcing adhesion contracts are apparent: the party with the power can dictate
contractual terms that attempt to limit or escape any meaningful sanctions that would otherwise
govern contractual relationships and their breaches.                Terms can be written so as to be
intentionally confusing or difficult to understand, thereby making that party’s “acceptance” of
the proposed contract a sham.

Courts, however, routinely enforce adhesion contracts.               They are central to our economic
transactions. Traditionally, parties entering into a contract of adhesion had a ‘duty-to-read’ the
contract prior to signing; thus, a signed contract constituted objective evidence that the weaker
party assented to the terms presented by the superior party. With increased usage of adhesion
contracts, however, court doctrine developed three exceptions to the “duty-to-read” principle. In
short, even if the parties are found to have “read” the document, if the language proposed by the
stronger party is inconsistent with one of these three exceptions, the contract is void. Those




                                                            
67
      See discussion at pages 22–23. 


                                                                 
                                                               62
exceptions are: a) “unconscionable terms”; b) contract terms that violate public policy; and c)
contracts that lack true assent.68

Most adhesion contracts focus on substantive elements of the transaction.                                Inserting an
arbitration provision into such a contract is distinctive in that it focuses on processes for
resolving disputes among the parties. Attacks on the enforceability of an arbitration clause in an
adhesion contract most often appeal to the concept of “unconscionability.” That doctrine is a
state-developed concept, not federal.                          Therefore, it is understandable that there is little
predictability and consistency across states with respect to whether particular arbitration clauses
or practices violate this standard.

What appears common across jurisdictions, however, is that the presence of an arbitration
provision in an adhesion contract is not per se unconscionable. Rather, courts have ruled
arbitration provisions void based on some aspect of the particular arbitration system that the
superior party was proposing or administering – e.g. the arbitration locale imposed particular
burdens on an individual, given the monetary amount of the claim; or that the arbitrator panel or
selection process was fundamentally flawed.

In short, the proper focus of concern of the AFA is not that arbitration as a process is
constitutionally unconscionable as a dispute resolution process. Rather, the critique must be that
there are certain design or administrative elements of a given arbitration procedure – no matter
how it is entered into by the parties – that violate fundamental principles of fairness.




                                                            
68
   For cases reflecting each of these exceptions, see Weaver v. American Oil Co., 257 Ind. 458, 276 N.E. 2d 144
(1971) (holding that a party seeking to enforce a clause in an adhesion contract must show that the other party had
knowledge of the clause and voluntarily assented to the terms and that the contested provision must be separable
from the reset of the contract and cannot be hidden either writing it in fine print or excluding title headings);
Henningsen v. Bloomfield Motors, 32 N.J. 358 (1960) (holding that a party with greater bargaining power cannot
use its power and knowledge to relieve itself from liability of injury, particularly if it is negligence that caused the
injury); Williams v. Walker-Thomas Furniture, 350 F. 2d 445 (D.C. Cir. 1965) (party with no bargaining power and
no knowledge of the terms in contract did not knowingly assent to terms; in such a case, the court must consider
whether the terms are so unfair as to render void the terms of the contract). 


                                                                     
                                                                   63
       5. Class Actions

Historically, multiparty disputes create challenges to the enforcement of arbitration agreements.
The Comment to Section 10 of the Revised Uniformed Arbitration Act elegantly states the
issues:

              When conflict erupts in complex transactions involving multiple contracts, it is
              rare for all parties to be signatories to a single arbitration agreement. In such
              cases, some parties may be bound to arbitrate while others are not; in other
              situations, there may be multiple arbitration agreements. Such realities raise the
              possibility that common issues of law or fact will be resolved in multiple fora,
              enhancing the overall expense of conflict resolution and leading to potentially
              inconsistent results. See III McNeil Treatise Section 33.3.2 such scenarios are
              particularly common in construction, insurance, maritime and sales
              transactions…”69
The challenge is particularly acute in the consumer setting. Often, individual consumers have
suffered only modest financial harm, perhaps less than One Hundred Dollars. But if the issue at
stake was identical to the experiences of millions of credit-card holders, for example, then the
ramifications of a decision could be significant.

Most state arbitration statutes, the FAA, and many arbitration agreements do not specifically
address consolidated arbitration proceedings. The absence of contractual language addressing
consolidation has generated a lack of uniformity among jurisdictions when addressing this
matter. Some courts have interpreted the absence of contractual language as a block to ordering
consolidation, while other courts have interpreted such silence as not creating a bar to ordering
consolidation. In 2003, the U.S. Supreme Court held that consolidated actions were allowed,
even if the arbitration agreement did not explicitly address that issue.70 It appears that most
courts have interpreted this ruling to mean that all express prohibitions of consolidated actions
are enforceable but that silence licenses consolidation; yet even that statement is too broad, as
state courts have declared unconscionable arbitration clauses that preclude consolidation.71

                                                            
69
   Comment (1), Revised Uniform Arbitration Act, Section 10. See also Goldberg, et al. Dispute Resolution (5th
ed.), 231 (2007). 
70
      Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003). 
71
      Ting v. AT&T, supra at n. 36 and accompanying discussion in text. 


                                                                 
                                                               64
AFA advocates are concerned that the ability of one party not only to unilaterally impose an
arbitration process on an individual through an adhesion contractual clause but also to exclude
from that process the arbitrator’s ability to hear consolidated claims systematically minimizes the
drafter’s liability. While parties often propose contractual provisions that seek to minimize their
damages, prohibiting class actions in this context is distinctive: first, if all individual cases were
to go to arbitration, administrative efficiency would not be promoted. Second, if all individual
cases were to go to arbitration, there may be troubling inconsistencies among decisions. But
third, many individuals would probably not try to vindicate their claim because the financial
amount involved in their individual claim is so small – for example, less than One Hundred
Dollars – that it is financially more expensive to take the case to arbitration, or obtain legal
counsel, than the party would receive if it won its case. Hence, barring consolidation of claims
in a pre-arbitration agreement effectively removes public scrutiny of untoward or illegal
practices.

       6. Regulate or Prohibit?

Congress can choose to regulate or eliminate pre-dispute arbitration. In Chapter IV below, the
Task Force examines the evidence marshaled in support that one approach is more effective than
another. The philosophical differences and arguments warrant discussion.

In principle, eliminating the validity of all pre-dispute arbitration agreements for the affected
cases promotes clarity, hence predictability. All courts would treat similar cases in a similar
manner.

This approach presumes definitional clarity and distinctiveness for the relevant cases. The FAA
currently defines two types of transactions governed by the FAA: “maritime transactions” and
“commerce.”72 The AFA prohibits pre-dispute arbitration agreements for a “civil rights
                                                            
72
   Section (1): “ “Maritime transaction”, as herein defined, means charter parties, bills of lading of water carriers,
agreements relating to wharfage, supplies furnished vessels or repairs to vessels, collisions, or any other matters in
foreign commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction;
“commerce”, as herein defined, means commerce among the several States or with foreign nations…but nothing
herein contained shall apply to contracts of employment of seaman, railroad employees, or any other class of
workers engaged in foreign or interstate commerce.” Section (2), in pertinent part, reads: “A written provision in
any maritime transaction or a contract evidence a transaction involving commerce to settle by arbitration a
controversy thereafter arising out of such contract or transaction….” 


                                                                 
                                                               65
dispute,”73“consumer dispute,” “employment dispute,” and “franchise dispute.”                                  To achieve
clarity in what is prohibited, there must be broad-based consensus on what these terms mean and
the categories must be distinct. If there is a controversy about whether a particular transaction
constitutes a “consumer” dispute rather than a “commercial dispute involving commerce,” there
will be ambiguity in coverage; if it is possible for a “civil rights” claim to be a component of a
dispute “involving commerce,” the prohibition scheme is weakened.

Prohibiting pre-dispute arbitration provisions presumes that alternative venues for affirming
rights are available; it further presumes that it is consistent, as a matter of policy, to prohibit pre-
dispute arbitration provisions but regulate post-dispute arbitration processes.

Conversely, adopting a regulatory approach presumes meaningful standards of performance and
effective oversight. Congress often establishes administrative agencies to provide oversight,
with EEOC, NLRB, and OSHA being illustrative. Some AFA advocates have suggested that
creating an agency to oversee pre-dispute arbitration activities would increase access for review
to those parties who were effectively compelled to agree to arbitration and would potentially
provide consistency in interpretation and application of standards to insure process integrity.

Regulating activities can also establish benchmarks that enable affected parties to use the arbitral
process to advance process integrity. For example, in the labor-management arena, the Wagner
Act created the NLRB, providing it with oversight responsibilities for implementing and
                                                                                   74
enforcing its provisions.                            In NLRB v. Truitt Mfg. Co.,        the NLRB had ruled that Truitt had
violated Section 8(a)(5)’s duty to bargain in good faith when it claimed, during the course of
bargaining, that it could not afford to pay higher wages but then refused all union requests to
provide information that would substantiate that claim. On appeal to the U.S. Supreme Court,
the Court upheld the Board’s finding. That ruling established a standard that has permitted
parties to an arbitration to request the arbitrator to rule on requests that one party provide to the
other meaningful information that is within the latter party’s exclusive domain and already
organized in a structured manner so that the requesting party can thoughtfully and an informed


                                                            
73
      This category appears only in S.931 Sec. 401 (1), not in HR.R. 1020s 
74
      NLRB v. Truitt Mft. Co., 351 U.S. 149 (1956). 


                                                                         
                                                                       66
manner prepare or present its case. The regulatory scheme, in such instances, gains extension
and effectiveness.

Of course, regulatory regimes can be inefficient and ineffective. An agency can be overwhelmed
with case filings, understaffed to process investigations or assume representative roles, or
captured by groups it is charged with regulating.

Importantly, the decision to regulate or prohibit reflects significant philosophical differences
regarding the appropriate role of government in promoting and securing freedom.




                                                  
                                                67
D. The Data Debate: What We Know and Do Not Know about Commercial
Arbitration Practice and the Impact of the AFA

    1. Commercial Arbitration Cases

While there have been important efforts to conduct empirical studies of commercial arbitration
practices, scholars and policy personnel acknowledge how challenging it is to gather reliable data
about commercial arbitration practices and outcomes and to organize it in a manner suitable for
analysis and comparison.

There are multiple challenges to gathering reliable data about commercial arbitration practice.
The following are illustrative:

        1) the arbitration process is private, so developing a reliable estimate as to the actual
               numbers of cases that are handled through arbitration is difficult;

        2) the categories of “consumer arbitration” and “employment arbitration” are not
               distinctly and consistently defined, thereby making it challenging to be certain that
               persons are comparing like cases;

        3) reliable data is more likely to be secured only for controversies that actually proceed
               through the entire arbitration process and are closed by issuance of an award – data
               for any controversy “settling” before that point is either not attainable or not
               illuminating as to outcomes;

        4) data regarding costs of arbitration only focus on fees related to the administrative
               process costs of ADR providers and arbitrator fees – it does not track transactions
               costs incurred by parties in deciding to arbitrate, preparing for arbitration, and
               conducting the arbitration

    2. Alternative Forum

The AFA makes the civil court system the presumptive forum for resolving all consumer,
employment, franchise and civil rights disputes unless the parties, post-dispute, choose to use
arbitration.


                                                      
                                                    68
It is not possible to know – or extrapolate from the data that does exist – the number of possible
cases that might go to a court forum under the amended statutory regime. This is true both for
the total number of such cases or, more sharply, to which courts and in which states various
cases might appropriately go (as determined by the respective court’s jurisdictional limits and the
amount in controversy.)

One image for ‘consumer cases’ is that the presumptive court for adjudicating those cases subject
to a predispute arbitration clause is a state’s “small claims court.” These courts, part of the civil
justice system, were established to provide prompt resolution in an informal setting of matters
involving ‘small’ financial controversies; parties frequently can and do appear without lawyers.

To gain some appreciation for the volume of activity in these courts, the Task Force assembled
the most recently available data for caseloads of such courts in selected jurisdictions; their
caseload numbers are as follows:

       ‐   California ($7500 jurisdictional limit):
               o 2006:        236, 511 cases
                        Cases pending at end of 2006:     data not available
       ‐   Colorado ($7500 jurisdictional limit):
               o 2008:        12, 600 cases
                        Cases pending at end of 2008:     data not available
       ‐   Florida ($5,000 jurisdictional limit)
               o 2007-08: 305,992
                        Cases pending at end of 2008:     39, 156
       ‐   Illinois ($10,000 jurisdictional limit)
               o 2007: 163, 499 cases
                        Cases pending at end of 2007:     83, 578
       ‐   Massachusetts ($2,000 or less)
               o 2008: 106,148 cases
                        Cases pending at end of 2008:     data not available
       ‐   Minnesota ($7,500 jurisdictional limit)
               o 2007: 152, 320 cases
                        Cases pending at end of 2007:     data not available
       ‐   New York: ($5,000 jurisdictional limit)
               o 2007: 28, 591 cases
                        Cases pending at end of 2007:     data not available
       ‐   Ohio ($3,000 jurisdictional limit)
               o 2008: 76, 152 cases
                        Cases pending at end of 2008:     19, 753




                                                   
                                                 69
These numbers do not reflect the manner in which case dispositions occur – by dismissal,
settlement, trial, or some other ADR procedure. They underscore several features: first, while
jurisdictional amounts are consistent though not identical across states, they are substantially
lower than “consumer arbitration” case amounts examined in most recent studies of consumer
arbitration cases.75      Second, this data does not indicate the time elapsed from filing to
disposition, so comparing “speed” of a justice process to arbitration is difficult. Finally, these
statistics do not reflect filing fees for small claims court, though informal surveys indicate that
some fees exceed $70; this makes it problematic to determine if “access” to small claims court is
barred by financial costs as is speculated to be the case for access to consumer arbitration.

For consumer cases exceeding these small-claims court jurisdictional amounts – and perhaps
most, if not all, “employment” cases – the courts of jurisdiction would presumptively be the
courts of original trial jurisdiction. No data exists that gives one a basis for predicting the
number of cases that would go to court nor how they might be distributed across state
jurisdictions (i.e. would there be a disproportionate percentage of consumer case filings in
highly-populated areas such as Los Angeles or Miami or would the distribution follow
population patterns). Nor is there data that predicts how many of these cases that might be filed
in civil court would be the subject of appeals by a losing party.

The picture, therefore, of “mandatory” consumer arbitration’s use – and its alternatives - is an
ambiguous one.        This situation is no different from that which characterizes “commercial
arbitration” as defined by the FAA and the AFA – i.e. predispute arbitration agreements between
commercial entities. Data regarding costs, numbers of cases, the parties’ transaction costs, or the
impact on a public justice system should these cases be heard in that forum rather than arbitration
are comparably discordant.

These empirical ambiguities and uncertainties should not deter policy analysis and development;
they reinforce the need to distinguish policies developed in response to empirical findings from
those that are more normatively based.
                                                            
75
    Christopher R. Drahozal et al. Consumer Arbitration Before the American Arbitration Association, Preliminary
Report. Searle Center on Law, Regulation and Economic Growth. Searle Civil Justice Institute. (March 2009).

 


                                                         
                                                       70
       3. ADR Providers

Some data regarding the practices and conduct of ADR providers is widely available; other
information is difficult to elicit.

Information regarding the rules governing the arbitration process is deliberately public. Potential
users of arbitration can examine, study, compare and evaluate proposed rules and proceed
accordingly. In a similar vein, there is some, albeit limited, information about prospective
arbitrators available for prospective users. By contrast, commercial arbitration practice does not
appear to require the ADR provider to make available to the complaining party – presumptively
a “one-time only” player – the accumulated information about arbitrator awards that the “repeat”
player to that process might reasonably expect to have in its files.

Data with respect to case outcomes is not widely accessible.                      One explanation is the
understandable desire to keep competitive information confidential; another is to protect the
privacy of the users of their service.

Though some ADR providers, under appropriate protocols, have made data sets available to
researchers for study, not all do so. Further, consistency of information across case files, while
normally strong within a given ADR provider, becomes less so when comparing differing ADR
providers.               For example, under California’s requirements, “consumer” cases as acceptably
reported by NAF include both ‘consumer’ and ‘employment’ cases; this contrasts with how
‘consumer’ cases are coded in the AAA study.76

Identifying various entities as “ADR providers” is somewhat challenging.                       While several
providers operate on a national or international scale and are well-known, other “providers” can
include not-for-profit conflict resolution organizations as well as court personnel who administer
“advisory arbitration” programs.


                                                            
76
  See Christopher R. Drahozal et al. Consumer Arbitration Before the American Arbitration Association,
Preliminary Report. Searle Center on Law, Regulation and Economic Growth. Searle Civil Justice Institute.
March 2009 and Public Citizen. The Arbitration Trap: How Credit Card Companies Ensnare Consumers.
www.citizen.org/publications/release/cfm?ID-7475 (Sept. 2007).

 


                                                                 
                                                               71
E.         Revisiting the AFA: Its Projected Impact on Arbitration Policy and
           Practice
With this context, we revisit the AFA to examine its proposed changes and their projected impact
on arbitration practice.

     1. Changes to FAA


The AFA amends the FAA in the following ways:

             1.     Definitions of disputes covered by the FAA.
                     i. The AFA leaves unchanged the definition of ‘maritime transaction’ and
                        ‘commerce.’
                    ii. The AFA identifies five new terms and stipulates definitions for them.
                        Those terms are: (1) ‘employment dispute,’ (2) ‘consumer dispute’, (3)
                        franchise dispute,’ (4) ‘civil rights dispute’ (in S. 931 only), and (5)
                        predispute arbitration agreement.
             2.     It makes invalid and unenforceable any predispute arbitration agreement for
                    the arbitration of an employment, consumer, franchise, or civil rights ( S.931)
                    dispute.
             3.     It provides that a court, not an arbitrator, decides any challenge by a party that
                    contests the applicability of the AFA to an agreement to arbitrate or to the
                    validity and enforceability of an agreement to arbitrate.
             4.     It (S. 931) prohibits any Employer and Union from having an arbitration
                    provision in its collective bargaining agreement that has the effect of waiving
                    the right of an employee (whose terms and conditions of employment are
                    governed by that collective bargaining agreement) from seeking judicial
                    enforcement of a constitutional right (Federal or State), a Federal statute, or
                    public policy arising from those sources.
             5.     All provisions of the AFA take effect on its enactment date and apply to any
                    dispute arising on or after that date.
             6.     Any individual or business entity retains the right to agree to resolve an
                    existing controversy through arbitration, including those disputes involving
                    consumer, employment, franchise, and civil rights.


     2. Projected Impact of Proposed Changes

     The AFA would appear to generate the following outcomes and impact:

     (1)     By prohibiting pre-arbitration agreements for consumer, employment, franchise and
             civil rights disputes:




                                                    
                                                  72
          a. individuals would be protected from mandatory participation in a dispute
             resolution forum to which they did not freely and knowingly consent.
          b. society would benefit from having controversies involving important public
             policies presumptively adjudicated in a forum that could be observed by any
             citizens and adjudicated by persons who publicly account – and are accountable –
             for their decisions and who are under a duty to use standards and criteria to decide
             cases that faithfully apply public policies contained in legislative enactments.


    (2)   Persons who agree to use arbitration to resolve consumer, employment, franchise, and
          civil rights disputes (“post-dispute”) are free to do so. This is acceptable because they
          are presumed to strike their contractual relationship in an “arms-length” negotiation
          that reflects bargaining equality in terms of knowledge and power, given that each
          party retains the fall-back option to litigate the matter. In choosing to use arbitration
          at this post-dispute phase, it is further presumed that such arbitral features as privacy
          of process, the adjudication of statutory issues by non-judicial individuals, and the
          administrative processing of the case by ADR providers do not impugn the integrity,
          enforceable or fairness of that procedure.


    (3)   The AFA’s requirement that courts, not arbitrators, decide all arbitrability questions
          changes current judicial doctrine in which court review is restricted to the validity of
          the agreement to arbitrate only.      H. 1020 appears to apply this change to all
          commercial arbitration agreements, including all cases involving “commerce” as well
          as “consumer, employment, franchise, and civil rights disputes;” S. 931 appears to
          restrict that guideline to only employment, consumer, franchise and civil rights
          disputes conducted on a “post-dispute” basis, excluding those cases involving
          “commerce.”


    (4)   S. 931’s provision to prohibit collective bargaining agreements from precluding
          individuals from waiving judicial enforcement of civil rights claims as part of its
          grievance arbitration process appears to reaffirm the policy of Alexander v. Gardner-



                                                 
                                               73
          Denver and reject the waiver doctrine presumptively announced in 14 Penn Plaza
          LLC v. Pyett.


    (5)   By applying to any claim or dispute arising after its enactment, the AFA effectively
          makes retroactive its ban on the enforceability of any pre-existing predispute
          arbitration agreements.




                                               
                                             74
F.        Principles for Evaluating Public Policy Governing Arbitration of
          Maritime, Commerce, Employee, Consumer, Franchise and
          Civil Rights Disputes


It is valuable to identify principles and standards that can guide deliberations regarding public
policies that should govern arbitration practice pursuant to the FAA.           We suggest those
principles and standards would include at least the following:

     1.   No dispute resolution process should be supported in public law if its design and
          operations violate fundamental conceptions of fairness.
     2.   The proposed procedures should be accessible to all users (i.e. it should not be cost
          prohibitive in terms of administration or securing representation; the hearing or review
          should be timely; and in-person meetings should conducted at a location and times that
          are reasonably convenient to the parties).
     3.   There must be an accurate understanding of how the various dispute resolution processes
          operate before one approach is adopted and others are rejected.
     4.   Any proposed amendments to current practice should effectively address the concerns
          and problems that prompted the perceived need for change.
     5.   Any proposed changes to the FAA should, to the extent possible, sustain predictability
          for party use of arbitration by minimally dislodging accepted judicial doctrines and
          accepted party practices.
     6.   Any proposed change in practice or doctrine should be grounded in the best available
          empirical data regarding the projected effects of the proposed changes.
     7.   Any dispute resolution process used by parties to resolve controversies governed by the
          FAA should be transparent to the extent appropriate.
     8.   The use of arbitration, supported by public policy, should reflect speed, economy and
          justice.
     9.   Any amendment to the FAA should reflect an understanding of the diversity of
          arbitration styles and the range of disputes.
     10. Any amendment should be readily understandable to party participants.

                                                     
                                                   75
    11. Any amendment should preserve arbitration as a process that is separate and distinct
        from the practice of judicial proceedings.
    12. Any amendment should ensure that arbitrators may come from a variety of backgrounds.
    13. Any amendment should preserve the impartiality of arbitrator.
    14. Any amendment should provide sound procedural protections for the parties and the
        arbitrator. 
Applying these principles to an analysis of the AFA, the Task Force endorses the following
principles with respect to the AFA and proposed amendments to the FAA:
    1. The procedures governing the operation of the arbitration process must be consistent with
       due process requirements and include:

           a. Access to relevant, threshold information for the preparation and presentation of
              one’s case.

           b. Access to appropriate representation.

           c. Principles that prohibit reducing statutory procedural protections or available
              remedies.

           d. Written decision with reasons for all cases based on a statutory claim.

    2. The integrity and impartiality of the arbitrator must be beyond reproach.

           a. The arbitrator must be impartial in both fact and perception for that case.

           b. The arbitrator must be competent to adjudicate the controversy both in terms of
                 process and subject matter.

           c. The arbitrator must have an appropriate arms-length relationship to both the
                 provider and its users.

           d. The roster of arbitrators should be sufficiently diverse to reflect the racial, gender,
              and cultural diversity of those being served.

    3. The costs of participating in the process should bear some reasonable relationship to the
       size of the claim, including costs for case preparation, travel to the hearing site, arbitrator
       fees and expenses, and administrative services. Where the process is effectively required,
       the costs to the individual participant should be minimal or at least commensurate with
       the costs that would be incurred in filing the case in a court of law.

    4. The operation of the arbitration process should be transparent to all its users.



                                                   
                                                 76
           a. Every party to a contract to arbitrate disputes, including those covered by an
              employee handbook, must have access to relevant information written in plain
              prose that describes its operation, including administrative rules and practices that
              would guide its use.

                   i. ADR providers should make available on its website a description of rules
                      and practices governing case administration practices.

                  ii. ADR providers should have available descriptions of how the arbitration
                      process works that are readily accessible to potential users.

           b. The arbitrator’s decision for statutory claims or cases over a certain dollar
              threshold should be reflected in a written decision with reasons.

           c. All arbitrator decisions involving a “repeat participant” must be available to all
              participants in a subsequent arbitration involving the repeat participant, but that
              information must be disclosed in such a manner that protects the privacy rights of
              the non-repeat participants in the prior arbitration.

    5. There should be an opt-out provision for pre-dispute arbitration agreements pursuant to
       which an individual participant could, within a reasonable time period from the initial
       contract date, elect not to be bound by the pre-arbitration agreement and retain the right
       to prosecute a future dispute through an appropriate court setting. The opt-out provision
       must be accompanied by a principle that there can be no retaliation or penalty against the
       person electing that option.

    6. Arbitrator Selection Process

           a. ADR Provider Organizations. When administering cases pursuant to a pre-
           dispute mandatory arbitration agreement, the independent ADR provider organization
           should have:

                    i. Procedures and practices that enable parties to have access to relevant
                       information about potential arbitrators, including, where appropriate,
                       their decisions and awards.

                    ii A roster of arbitrators whose professional competency and personal
                       integrity is above reproach.

                    iii. Procedures and practices that insure continuing training and education of
                         its arbitrators.

                    iv. Procedures that enable an arbitration participant to file a complaint about
                        arbitrator performance and methods for investigating and resolving each


                                                  
                                                77
                       complaint, including, where appropriate, removing an arbitrator from its
                       roster.

           b. Organizations with Self-Administered Arbitration Processes. When the
              administering organization is itself a party to an arbitration case arising from a
              mandatory pre-dispute agreement and that case is being administered pursuant to
              procedures that party has unilaterally developed, the organization should:

                  i. Use procedures and practices to establish its panel of arbitrators that insure
                     the individual independence, competency, and impartiality of each
                     member both in fact and in appearance.

                  ii. Develop procedures that enable an arbitration participant to file a
                      complaint about arbitrator performance and establish methods for
                      investigating and resolving each complaint, including, where appropriate,
                      removing an arbitrator from its roster.

    7. Role of ADR Provider Organizations and Professional Dispute Resolution Organizations

           a. ADR provider organizations and other professionals have a continuing
              professional responsibility to promote and develop well-designed dispute
              resolution systems and arbitration practices through such activities as:

                  i. Developing and revising protocols that govern the arbitration of
                      employment and consumer disputes.

                  ii. Developing and conducting public education programs about the
                       arbitration process.

                 iii. Participating in appropriate research initiatives that examine the use,
                       efficiency and fairness of arbitration procedures.

           b. ADR provider organizations should develop practices, to the extent possible, that
              make arbitration procedures and practices transparent to users, including:

                  i. Refusing to administer privately-designed arbitration procedures that do
                      not comport with principles set forth in the relevant professional
                      protocols.

                  ii. Supporting best practices in arbitration that include an arbitrator rendering
                       a written award with reasons for each case s/he arbitrates.

                 iii. Supporting best practices of ADR providers and arbitrators that make an
                       arbitrator’s written award available for review by potential parties to an
                       arbitration in which that individual might serve as arbitrator, with

                                                 
                                               78
                        appropriate protocols operating to protect the privacy rights of the
                        individual participants in those prior cases.

    8. Relationship of the Courts to the Arbitration Process

           a. Judicial doctrines that uphold the validity and enforceability of agreements to
              arbitrate future disputes reflect sound public policies and should be sustained, for
              they support party choice to use less formal but efficient, fair, and prompt
              procedures to resolve disputes.

           b. Judicial doctrines that support the enforceability of pre-dispute arbitration
              agreements must display increased sensitivity to arbitration processes and
              practices that appear neutral on their face but in fact mask severe inequities and
              should develop material procedural and substantive standards that justify
              declaring such processes and practices unconscionable.




                                                 
                                               79
G.      Task Force Conclusions

     1. Findings

The Task Force supports the following important insights advanced by the AFA:

           a.      The Task Force endorses the AFA important critique that identifies essential
                   elements of a fair arbitration process, at both a pre-dispute and post-dispute
                   stage, which has been, in some reported instances, egregiously ignored.
                   Those elements include: knowledge of process rules and practices; non-
                   coercive process choice; impartial adjudicators; timely processing; process
                   access at a reasonable cost. With regard to the due process concern that all
                   parties should have access to relevant information for the preparation and
                   presentation of its case, the Task Force endorses the individual participant’s
                   right to obtain threshold information that is within the exclusive possession
                   and control of the other party and already in a format that is useable by the
                   requesting party, for that approach promotes process integrity without
                   undermining arbitral values of efficiency, fairness and access.

           b.      The Task Force endorses the AFA critique that the absence of transparency in
                   some arbitration practices – for example, that the repeat-user might know or
                   have access to information regarding the prior decisions of a particular
                   arbitrator but that the prospective individual complainant would not – results
                   in significant perceptions of unfair practices.

           c.      The Task Force endorses the AFA critique that standard practice does not
                   require commercial arbitrators to prepare and submit to the parties a written,
                   reasoned decision for the verdict it renders. The Task Force notes that while
                   some commercial arbitrators are lawyers, many have expertise and training in
                   other areas; as amply demonstrated by the history of arbitrators who have
                   served with distinction in the labor-management arena, arbitrators of whatever
                   background can be trained to effectively write arbitral decisions with reasons.
                   The Task Force does not worry, therefore, that reforming the practice so that a
                   commercial arbitrator must render a written decision with reasons will

                                                   
                                                 80
                                    transform the informality of the arbitration process into a mini-trial.
                                    However, recognizing that requiring a written opinion with reasons in every
                                    case would importantly increase the cost of arbitration, the Task Force
                                    underscores that arbitration parties can negotiate (or state law mandate)77, as
                                    part of their procedure, arbitrator conduct in this area. The Task Force notes
                                    that practices vary: some parties do not require the arbitrator to state reasons
                                    for her decision; others require that the arbitrator write an opinion with
                                    reasons; and still others require that the arbitrator write an opinion with
                                    reasons but restrict the page limit of such opinions to approximately 10 pages.

                      d.            The Task Force endorses the AFA critique that highlights the absence of
                                    bilaterality that permits the party drafting the pre-arbitration agreement to
                                    sustain potentially unfair practices as well as minimize, and perhaps escape,
                                    liability by prohibiting individual complainants from consolidate their claims
                                    into group action.

                      e.            The Task Force endorses the AFA critique that deplores the absence of
                                    impartiality from some persons selected by the ADR provider to serve as
                                    arbitrators.               The Task Force believes that the professional arbitrator
                                    community monitoring of such activity through the development and
                                    implementation of Codes of Professional Conduct or Protocols for Conducting
                                    Consumer or Employment Disputes, together with a strengthened judicial
                                    doctrine of unconscionability, are reasonably effective strategies for
                                    addressing this central concern.

       2. Principles

The Task Force strongly believes that the AFA inaccurately generalizes its social justice critique
of some reported, confirmed practices of pre-dispute arbitral processes to the practice of pre-
dispute arbitration in all its forms. Specifically, the Task Force finds unpersuasive the following
AFA claims and criticisms:

                                                            
77
      Massachusetts “lemon law” arbitration required arbitral written decisions in a stipulated format.   


                                                                             
                                                                           81
    a.   That federal court interpretation of the FAA that results in extending the FAA
         to situations not envisioned as “commerce” cases – i.e. business transactions
         between regular players in the commercial world – is an unprincipled,
         unwarranted change of the statutory purpose. To the contrary, the Task Force
         believes that the use of arbitration to assist business and individual consumers,
         employers and their employees, franchisee operators and owners, and the like
         importantly extend the possibility of justice to situations in which a court
         alternative is either prohibitively expensive or realistically a non-starter.

    b.   That the federal court interpretation of the FAA “strips” individual citizens of
         their statutory rights. To the contrary, the Supreme Court language is explicit
         that in choosing the arbitration forum for statutory disputes, “a party does not
         forego the substantive rights afforded by the statute; it only submits to their
         resolution in an arbitral, rather than a judicial, forum.”

    c.   That ADR providers, particularly those who administer arbitration processes
         independent of the parties to the controversy, have strong incentives to tilt the
         design and administration of the arbitration process in favor of the repeat
         player – or the party believed to be the primary “situs” of case referrals,
         hence, income to the ADR provider. Quite the contrary, the Task Force
         believes there is compelling evidence that ADR provider success is
         importantly tied to its continuing reputation for impartial administration of
         services and the provision of impartial, qualified arbitrators.

    d.   That provisions for a pre-dispute arbitration commitment, in all possible
         forms, should be permanently banned as an option for individuals or
         organizations. To the contrary, the Task Force believes that such a pre-
         dispute arbitration commitment, suitably designed, is an important source for
         insuring and expanding access to justice for citizens interacting in a vibrant,
         changing global economy.

    e.   That the judicial process is a viable forum for the resolution of these
         controversies in a manner that avoids justice problems the AFA associates


                                         
                                       82
         with pre-dispute arbitration. Quite the contrary. The Task Force believes
         there is ample evidence demonstrating that citizen access to courts is
         significantly skewed; that parties, even if the case is docketed on a court
         calendar, might be “channeled” to a diversion program such as “advisory
         arbitration”; that a judge deciding a case at the trial level in a state court
         system normally would not prepare a written opinion of her decision; and that
         the growing phenomenon of the “vanishing trial” presents the reality that
         cases not otherwise going to arbitration would not likely be heard in a
         courtroom.

    f.   That ADR providers are not capable of changing their administrative practices
         to meet important justice criticisms of their operations. The Task Force finds
         the efforts of the professional community in developing the various
         employment and consumer protocols, as well as the efforts of ADR providers
         to change practices in light of experience, constructive in self-regulating the
         practice.

    g.   That mandatory arbitration undermines the development of public law for
         civil rights because there is no meaningful review of arbitrator’s decisions.
         The Task Force believes this inaccurate on two grounds: first, development of
         public law, such as civil rights statutes, often become essential sources and
         grounds on which arbitrators base their decisions (e.g. see discussion of
         arbitrators making decision about work assignments consistent with
         requirements of Civil Rights Act duty to accommodate religious practices);
         second, in actual practice, arbitrators strongly adhere to established business,
         commercial, and statutory practices – the image that any and all commercial
         arbitrators believe they are free to decide in any manner that they believe
         appropriate is systematically inaccurate – that description is accurate only for
         the person who is selected to serve in one and only one arbitration case in her
         life. This latter point raises the question of arbitrator quality and the arbitrator
         selection process by the parties – there is significantly more quality control
         that the AFA suggests.


                                         
                                       83
                      h.            That           the         arbitrator   of   consumer   and   employment   cases   decides
                                    “disproportionately” in favor of the repeat player. The available evidence,
                                    despite the Public Citizen report regarding credit card enforcement, does not
                                    support this important claim.

                      i.            That the “single designer” of the arbitration process has a strong incentive to
                                    tilt the process in its favor. The Task Force is persuaded that recent studies
                                    suggest, counter-intuitively, the opposite conclusion: that the employer has
                                    incentive to design it to make it “too fair to the plaintiff” so that they are
                                    comfortable participating in the process. Further, experience suggests that
                                    “single designers” who include an arbitration process ultimately resolve cases
                                    well-short of using the arbitration procedure.78




                                                            
78
   See Seeber/Lipsky, The Ascendancy of Employment Arbitration in US Employment Relations: A New Actor in the
American System? ___British Journal of Industrial Relations ___ (2006) for related phenomenon in employment
setting. 


                                                                                   
                                                                                 84
H.        Task Force Recommendations

In light of the above discussion, the Task Force believes that the use of pre-dispute arbitration,
suitably shaped and administered, remains an important component of our system of justice. The
AFA, by eliminating its broad-based use, does not constitute sound, desirable public policy.

To insure that the practice of pre-dispute mandatory arbitration is consistent with community-
embraced principles of social justice, the Task Force recommends the following changes to
arbitration practice:

     1.     Congress should amend the Federal Arbitration Act to insure access to, transparency
            in, and fairness in the administration and conduct of the mandatory arbitration
            process.

     2.     Congress should not amend the Federal Arbitration Act in a manner that broadly
            prohibits the use of pre-dispute arbitration agreements involving consumers,
            employees, franchisees, and individuals involved in civil rights disputes, or, more
            broadly, quality of work disputes. Accordingly, H.R. 1020 and S.931 should not be
            passed in their present form.

     3.     Congress should amend the Federal Arbitration Act in ways that insure and advance
            the integrity of the pre-dispute arbitration process, from the inception of the
            agreement through the enforcement of the arbitration award, including:

            a. Due Process Requirements:

                    i. All parties to the arbitration must have access to a minimum yet effective
                       level of relevant information for the preparation and presentation of their
                       respective cases.

                   ii. All parties must have access to prior arbitration decisions and awards that
                       addressed the issue(s) being submitted for decision and that involved one
                       or more of the parties.

                   iii. All parties to the arbitration must have access to appropriate representation
                        during the preparation and presentation of their respective case.

                   iv. Any arbitration procedural rule that reduces statutory procedural
                       protections or reduces access to full available remedies must be
                       unenforceable.

                                                   
                                                 85
           v. Any arbitration procedural rule that waives class actions must be
              unenforceable.

          vi. An arbitrator must be impartial.

         vii. An arbitrator must provide all parties with a written decision with reasons
              for all cases based on a statutory claim or for any case involving a claim
              for more than Seventy-five Thousand ($75,000) Dollars.

    b. Arbitration procedures:

           i. All parties to the pre-dispute arbitration contract, prior to signing, should
              have access to a meaningful written description and explanation of the
              process and procedures that would be used.

           ii. Every agreement to arbitrate a future dispute governing a “consumer,”
               “employment”, “franchise” or “civil rights” dispute as defined in H.R.
               1020/S. 931 must contain a provision in the contract that enables any
               individual participant to withdraw from the proposed contractual provision
               within a meaningful time period from the initial contract date and it shall
               be illegal to retaliate against that individual or impose a penalty on the
               person who elects that option.

          iii. Every agreement to arbitrate a future dispute governing a “consumer,”
               “employment”, “franchise” or “civil rights” dispute as defined in H.R.
               1020/S. 931 must contain a provision that enables any such individual
               participant to withdraw from the proposed contractual provision within a
               reasonable period from the initial contract date and to have the right to
               pursue any claim in a court of appropriate jurisdiction.

          iv. The financial cost of participating in an arbitration process conducted
              pursuant to a pre-dispute arbitration agreement must bear a reasonable
              relationship to the size of the claim, and the financial cost of the process
              must be reasonably apportioned among the participants. No claimant
              should be required to participate in an arbitration hearing conducted at a
              venue further from where the case would normally be adjudicated in a
              court proceeding.

           v. The administration of the arbitration process required by a pre-dispute
              arbitration agreement must be conducted in an efficient, timely manner.

          vi. The ADR provider administering an arbitration process pursuant to a pre-
              dispute arbitration agreement must have procedures that enable an
              arbitration participant to file a complaint about arbitrator performance and

                                          
                                        86
                    establish methods for investigating and resolving each complaint,
                    including, where appropriate, removing an arbitrator from its roster.

               vii. The arbitrator participating in a single organization self-administered
                    arbitration program must be selected through procedures and processes
                    that insure that arbitrator’s independence, competency and impartiality.

         c. Arbitrator Selection Process

                 i. The roster of eligible arbitrators used in a self-designed and self-
                    administered arbitration program that is established pursuant to a pre-
                    dispute arbitration agreement must consist exclusively of individuals
                    whose impartiality and competency to arbitrate such cases are established
                    through procedures or certification processes and where appropriate that
                    are independent of the administering organization.

    4.   Congress should not amend the Federal Arbitration Act in a way that alters current
         judicial doctrines and practices regarding arbitrability.

    5.   Congress should not amend the Federal Arbitration Act in a way that alters current
         arbitration practices or judicial doctrines that govern the design and use of arbitration
         procedures to resolve future disputes among parties conducting international business
         transactions with one another.

    6.   Congress should not amend the Federal Arbitration Act in a way that alters current
         arbitration practices or judicial doctrines that govern the design and use of arbitration
         to resolve disputes arising in the collective bargaining context between an employer
         and a labor organization or between labor organizations.

    7.   Congress should support the continuing efforts of professional dispute resolution
         organizations and ADR providers and other stakeholders to develop innovative uses
         of arbitration and other ADR procedures to meet the evolving dynamics of a global
         economy and to engage in self-correcting and self-regulating policies to insure a
         minimum of process abuse.




                                                
                                              87
I. Bibliography
 
Articles, Books, and Reports

Reginald Alleyne, Arbitrators’ Fees: The Dagger in the Heart of Mandatory Arbitration for
Statutory Discrimination Claims, 6 U. Pa. J. Lab & Emp. L. 1 (2003).

Joseph A. Arnold, Comment, The Circumvention of Compulsory Arbitration: Two Bites at the
Apple, or a Restoration of Employees’ Statutory Rights?, 33 Seton Hall L. Rev. 1207 (2003).

Richard A. Bales, Normative Consideration of Employment Arbitration at Gilmer’s
Quinceanera, 81 Tul. L. Rev. 331 (2006).

Richard A. Bales, The Employment Due Process Protocol at Ten: Twenty Unresolved Issues, and
a Focus on Conflicts of Interest, 21 Ohio St. J. on Disp. Resol. 165 (2005).

Richard A. Bales, The Laissez-Faire Arbitration Market and the Need For a Uniform Federal
Standard Governing Employment and Consumer Arbitration, 52 U. Kan. L. Rev. 583 (2004).

Kerri Bandics, Toward a Future of Enforcement: A Critique of the Ninth Circuit’s Invalidation
of Mandatory Agreements in Employment Contracts, 34 Golden Gate U. L. Rev. 75 (2004).

Lisa Blomgren Bingham and David Henning Good, A Better Solution to Moral Hazard in
Employment Arbitration: It Is Time to Ban Predispute Binding Arbitration Clauses, 1 Minnesota
Law Review Companion 1 (2009).

Lisa Bingham, Control Over Dispute-System Design and Mandatory Commercial Arbitration, 67
Law and Contemporary Problems 221 (2004).

Lisa Bingham, An Overview of Employment Arbitration in the United States: Law, Public Policy
and Data, 23 New Zealand J. of Indus. Rel. 2 (1998).

Alfred Blumrosen, Six Conditions for Meaningful Self-Regulation, 69 ABA J. 1264 (1983).

Alfred Blumrosen, Exploring Voluntary Arbitration of Individual Employment Disputes, 16 U.
Mich. J.L. Reform 249 (1983).

Kelly Burton Beam, Note, Administering Last Rites to Employee Rights: Arbitration
Enforcement and Employment Law in the Twenty-First Century, 40 Hous. L. Rev. 499 (2003).

Matthew T. Bodie, Questions About the Efficiency of Employmet Arbitration Agreeements, 39
Ga. L. Rev. 1 (2004).

Stephen J. Choi, Jill E. Fisch, A.C. Pritchards, Attorneys as Arbitrators, NYU Law and
Economics Research Paper No. 08-18 (January 21, 2009)(Nov. 2008)
http://www.law.northwestern.edu/searlecenter/papers/Choi_attorneys_final.pdf

                                                
                                              88
Sarah R. Cole and K. Blankley, Empirical Research on Consumer Arbitration: What the Data
Reveals. 113 Penn St. L. Rev. 1051 (2009)

Alexander J.S. Colvin, Empirical Research on Employment Arbitration: Clarity Amidst the
Sound the Fury?, 11 Employee Rts. & Emp. Pol’y K. 405 (2007).

Kenneth G. Dau-Schmidt and Timothy A. Haley, Governance of the Workplace: The
Contemporary Regime of Individual Contract, 28 Comp. Lab. L. & Pol’y J 313 (2007).

Linda J. Demaine and Deborah R. Henlser, “Volunteering to Arbitrate Through Predispute
Arbitration Clauses: The Average Consumer’s Experience, Institute of Civil Justice (2005).

Christopher R. Drahozal et al. Consumer Arbitration Before the American Arbitration
Association, Preliminary Report. Searle Center on Law, Regulation and Economic Growth.
Searle Civil Justice Institute. March 2009.

Sharon Henderson Ellis. Due Process in Employment Arbitration, the Arbitration Fairness Act
and the Future of the Process. Proceedings of the 62nd Annual Meeting, National Academy of
Arbitrators (forthcoming 2009).

Cynthia L. Estlund, Between Rights and Contract: Arbitration Agreements and Non-Compete
Covenants as a Hybrid Form of Employment Law, 155 U. Pa. L Rev. 379 (2006).

Senator Russell D. Feingold, Mandatory Arbitration: What Process is Due?, 39 Harv. J. on
Legis. 281 (2002).

General Accounting Office, Securities Arbitration: How Investors Fare, GAO/GGD 92-74
(1992).

Kenneth Jeremy Geniuk Comment, Untipping the Scales: Using State Contract Law to Protect
At-Will Employees from Unfair Mandatory Arbitration Agreements, 74 UMKC L. Rev. 197
(2005).

Martha Halvordson, Employment Arbitration: A Closer Look, 64 J. Mo. B. 174 (2008).

Margaret M. Harding, The Limits of the Due Process Protocols, 19 Ohio St J. on Disp. Resol.
369 (2004).

Deborah Hensler, Our Courts, Ourselves: How the Alternative Dispute Resolution Movement Is
Re-Shaping Our Legal System, 108 Penn St. L. Rev. 1 (2003).

Laura Kaplan Plourde, Comment, Analysis of Circuit City Stores, Inc. v. Adams in Light of
Previous Supreme Court Decisions: An Inconsistent Interpretation of the Scope ad Exemption
Provisions of the Federal Arbitration Act, 7 J. Small & Emerging Bus. L. 145 (2003).



                                                
                                              89
Mara Kent, “Forced” vs. Compulsory Arbitration of Civil Rights Claims, 23 Law & Ineq. 95
(2005).

Friedrich Kessler, Contracts of Adhesion-Some Thoughts About Freedom of Contract, 43 Colum.
L. Rev. 629 (1943).

Jiro Kondo, Self-Regulation and Enforcement in Financial Markets: Evidence from Investor-
Broker Disputes at the NASD (2008).

Robert J. Landry, III and Benjamin Hardy, Mandatory Pre-Employment Arbitration Agreements:
The Scattering, Smothering and Covering of Employee Rights, 19 U. Fla. J.L. & Pub. Pol’y 479
(2008).

Michael H. LeRoy, Do Courts Create Moral Hazard?: When Judges Nullify Employer Liability
in Arbitrations, 93 Minn. L. Rev. 998 (2009).

Sara Lingafelter, Comment, Lack of Meaningful Choice Defined: Your Job vs. Your Right to Sue
in a Judicial Forum, 28 Seattle U. L. Rev. 803 (2005).

David Lipsky and Ariel C. Avgar, Toward a Strategic Theory of Workplace Conflict
Management, Ohio St. J. of Disp. Resol. 143 (2008).

David B. Lipsky, Ronald L. Seeber, Richard D. Fincher, Emerging Systems For Managing
Workplace Conflict: Lessons From American Corporations For Managers and Dispute
Resolution Professionals (Jossey-Bass) (2003).

Carlos Antonio Lopez, Note, Revoking an Employer’s License to Discriminate, 56 Rutgers, L.
Rev. 513 (2004).

Martin H. Malin, Due Process in Employment Arbitration: The State of the Law and the Need for
Self-Regulation, 11 Employee Rts. & Emp. Pol’y J. 363 (2007).

Martin H. Malin, Privatizing Justice-But By How Much? Questions Gilmer Did Not Answer, 16
Ohio St. J. on Disp, Resol. 589 (2001).

Joshua T. Mandelbaum, Note, Stuck in a Bind: Can the Arbitration Fairness Act Solve the
Problems of Mandatory Binding Arbitration in the Consumer Context?, 94 Iowa L. Rev. 1075
(2009).

Meredith R. Miller, Contracting Out of Process, Contracting Out of Corporate Accountability:
An Argument Against Enforcement of Pre-Dispute Limits on Process, 75 Tenn. L. Rev. 365
(2008).




                                                
                                              90
Edward S. O’Neal and Daniel R. Solin, Mandatory Arbitration of Securities Disputes: A
Statistical Analysis of How Claimants Fare (2007,
http://www.slcg.com/pdf/news/Mandatory%20Arbitration%20Study.pdf).

Michael A. Perino, Report to the Securities and Exchange Commission Regarding Arbitrator
Conflict Disclosure Requirements in NASD and NYSE Securities Arbitrations (Nov. 4, 2002,
http://www.sec.gov/pdf/arbconflict/pdf).

Michel Picher, Ronald L. Seeber, and David Lipsky, The Arbitraiton Profession in Transition: A
Survey of the National Academy of Arbitrators, Cornell Studies in Conflict and Dispute
Resolution. (2000).

Public Citizen. The Arbitration Trap: How Credit Card Companies Ensnare Consumers.
www.citizen.org/publications/release/cfm?ID-7475 (Sept. 2007)

David S. Schwartz, Mandatory Arbitration and Fairness, 84 Notre Dame L. Rev. 1247 (2009).

Ronald Seeber and David B. Lip sky, The Ascendancy of Employment Arbitrators in US
Employment Relations: A New Actor in the America System? ___ British Journal of Industrial
Relations ___ (2006).

David Sherwyn, Because It Takes Two: Why Postdispute Voluntary Arbitration Programs Will
Fail to Fix the Problems Associated with Employment Discrimination Law Adjudication, 24
Berkeley J. Emp. & Lab. L. 1, 37 (2003).

Society of Professionals in Dispute Resolution, Designing Integrated Conflict Management
Systems: Guidelines for Practitioners and Decision Makers in Organizations, Institute of
Conflict Resolution (2001).

Theodore St. Antoine, Mandatory Arbitration: Why It’s Better Than It Looks, 41 Univ. Mich. J.
L. Ref. 783-812 (2008)

Jean Sternlight, In Defense of Mandatory Binding Arbitration (If Imposed on the Company), 8
Nev. L.J. 82 (2007).

Jean Sternlight, The Rise and Spread of Mandatory Arbitration as a Substitute for the Jury Trial,
38 U.S.F.L. Rev. 17 (2003).

Jean Sternlight, Mandatory Binding Arbitration and the Demise of the Seventh Amendment Right
to a Jury Trial, 16 OH St. J. on Disp. Resol. 669 (2001).

Thomas J. Stipanowich, ADR and the “Vanishing Trial”: The Growth and Impact of “Alternative
Dispute Resolution,” 1 J. of Emp. Leg. Studies, 843 (2004).




                                                 
                                               91
Clyde W. Summers, Mandatory Arbitration: Privatizing Public Rights, Compelling the
Unwilling to Arbitrate, 6 U. Pa. J. Lab. Emp. L. 685 (2004).

David M. Trubek, Austin Sarat, William L. F. Felstiner, Herbert M. Kritzer, and Joel B.
Grossman, The Costs of Ordinary Litigation, 31 UCLA L. Rev. 72 (1983).

Katherine Van Wezel Stone, Mandatory Arbitration of Individual Employment Rights: The
Yellow Dog Contract of the 1990s, 73 Denv. U. L. Rev. 1017 (1996).

Stephen J. Ware, Consumer Arbitration as Exceptional Consumer Law (With a Contractualist
Reply to Carrington & Haagen), 29 McGeorge L. Rev. 195 (1998).

Steven M. Warshawsky, Gilmer, The Contractual Exhaustion Doctrine, and Federal Statutory
Employment Discrimination Claims, 19 Lab. Law. 285 (2004).

Maureen A Weston, Preserving the Federal Arbitration Act by Reining in Judicial Expansion
and Mandatory Use, 8 Nev. L. J. 385 (2007).

Maria Wusinich, Compulsory Pre-Dispute Arbitration Clauses in the Employment Context after
EEOC v. Luce, Forward, Hamilton & Scripps, 5 Pepp. Disp. Resol. L. J. 57 (2005).

Arbitration Protocols and Practices

A Due Process Protocol for the Mediation and Arbitration of Consumer Disputes (1998)

Employment Due Process Protocols (1995)

Sample Rules Governing Commercial/Consumer Arbitration Practices

       ‐   AAA Commercial Arbitration Rules

       ‐   AAA Supplementary Procedures for Consumer-Related Disputes

       ‐   JAMS Comprehensive Arbitration Rules

       ‐   JAMES Consumer Arbitration Minimum Standards

       ‐   NAF Code of Procedure 2008

       ‐   NAF Arbitration Bill of Rights

       ‐   BBB Rules and Regulations of Binding Arbitration

       ‐   BBB Rules of Binding Arbitration for Disputes Subject to Pre-Dispute Binding
           Arbitration Clauses

       ‐   BBB Conditionally Binding Arbitration Rules

       ‐   CPR Rules for Non-Administered Arbitration

                                                 
                                               92
Sample Rules Governing Employment Arbitration Practices

       ‐   AAA National Rules for Resolution of Employment Disputes

       ‐   JAMS Employment Arbitration Rules

Internet Resources

State Court Statistics Relating to Court Caseloads

California Courts http://www.courtinfo.ca.gov/

Colorado State Judicial Branch http://www.courts.state.co.us

Florida State Courts http://www.flcourts.org/gen_public/stats/reference_guide07_08.shtml;
http://trialstats.flcourts.org/TrialCourtStats.aspx

Judicial Branch of Georgia http://www.georgiacourts.org/

Illinois Courts http://www.state.il.us/court/

The Massachusetts Court System http://www.mass.gov/courts/

Minnesota Judicial Branch http://www.mncourts.gov/default.aspx

New York State Unified Court System http://www.courts.state.ny.us/

The Supreme Court of Ohio and the Ohio Judicial System http://www.supremecourt.ohio.gov/

Texas Courts Online http://www.courts.state.tx.us/

Securities Industry Arbitration

http://www.seclaw.com/centers/arbcent.shtml

http://www.finra.org/arbitrationmediation/index.htm

http://www.investorarbitration.com/HowNASDArbitrationWorks.html

http://finra.complinet.com/en/display/display_viewall.html?rbid=2403&element_id=4096&recor
d_id=5174 (FINRA Code of Arbitration Procedure for Customer Disputes)

Administrative Agencies

www.eeoc.gov




                                                   
                                                 93
J. Biographies of ACR Task Force Members


Richard D. Fincher, JD, is the Managing Partner of Workplace Resolutions LLC in Phoenix, Arizona.
Dick is an active mediator and arbitrator of commercial and employment disputes; he serves on the
Commercial, Mass Claims, and Employment Panels of the American Arbitration Association, as a
member of the Labor Arbitrator panels of the American Arbitration Association, the Federal Mediation
and Conciliation Service, and the National Mediation Board, and on numerous ADR panels. He regularly
teaches at the Scheinman Institute for Conflict Resolution at Cornell University, and recently served as
National Vice-President of ACR. Prior to establishing his neutral practice, Dick served as a senior
executive in law and human resources with three Fortune 500 corporations.



Timothy Germany, M.S., is a Commissioner with the Federal Mediation and Conciliation Services of
the U.S. Department of Labor based in New York, New York where he mediates labor-management
collective bargaining impasses and conducts skills-based training programs in negotiation and mediation
skills. A lecturer at professional meetings of multiple associations, Timothy is an active member of the
Labor and Employment Relations Association and the Association for Conflict Resolution, among others.



Marcia L. Greenbaum, is a full-time arbitrator and mediator of labor and employment disputes with
offices in Massachusetts. She has served as President of the Society of Professionals in Dispute
Resolution, the predecessor of the Association of Conflict Resolution, as Vice President of the National
Academy of Arbitrators, of which she has been a member for 45 years, and serves on the panels of the
American Arbitration Association and other organizations.



David B. Lipsky, Ph.D., is the Anne Evans Estabrook Professor of Dispute Resolution and the Director
of the Scheinman Institute on Conflict Resolution at the School of Industrial and Labor Relations at
Cornell University. He has served as an arbitrator, mediator, or factfinder in several hundred public
sector labor disputes. He served as dean of the ILR School from 1988 to 1997 and is the past national
president of the Labor and Employment Relations Association (formerly the Industrial Relations Research
Association).



Sharon Press, J.D., is an Associate Professor and Director of the Dispute Resolution Institute at Hamline
University School of Law. With a strong interest and background in mediator ethics, Sharon served on
the committee that produced the 2005 Model Standards of Conduct for Mediators. Sharon served as the
Director of the Dispute Resolution Center for the State of Florida from 1989-2009.



                                                      
                                                    94
James Rosenstein, J.D., is a commercial mediator and public policy facilitator in private practice in
Philadelphia. He is the immediate past-president of the Association for Conflict Resolution.



Joseph B. Stulberg, J.D., Ph.D., is the John W. Bricker Professor of Law at The Ohio State University
Moritz College of Law. An active mediator and arbitrator of employment, community and public policy
disputes as well as an experienced trainer of mediators, he served as Vice President for Community
Dispute Services of the American Arbitration Association from 1976-79. He served as the Reporter to the
Joint Committee that drafted the 2005 Model Standards of Conduct for Mediators and has written widely
in the area of dispute resolution. On behalf of the Task Force, Dr. Stulberg wishes to acknowledge the
invaluable, sustained research assistance and administrative contributions of Janice S. Kwon, a 2L at The
Ohio State University Moritz College of Law.




                                                      
                                                    95

				
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