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The Brave New World of Arbitration

Once, long ago, arbitration was a method of dispute resolution that the courts viewed with skepticism. Those days now are only a distant memory. In 1925, Congress laid the groundwork for change when it passed the Federal Arbitration Act.1 At first, outside the realms of organized industrial relations and international commercial transactions, little seemed different. It was not even clear to what extent the new federal policy on arbitration applied only to the federal courts, and to what extent it affected state courts and state law as well. In 1964, in Prima Paint Corp. v. Flood & Conklin Mfg. Co.,2 the Supreme Court signaled that a new and favorable day had dawned for arbitration. Perhaps this was because the pressure of exploding dockets was beginning to make itself felt; perhaps legal philosophers who had long urged the use of more harmonious methods of dispute resolution were making headway; perhaps, as class actions were becoming popular in the wake of the 1966 amendment to Federal Rule of Civil Procedure 23 and as discovery was becoming an expensive burden, people were looking for ways to simplify litigation.

Whatever the reason, there can be no denying that from Prima Paint through the 2001 decision in Circuit City Stores, Inc. v. Adams,3 the Court has systematically dismantled the remaining legal constraints that stood in the way of the recognition of agreements to arbitrate, the enforcement of such agreements, and the enforcement of the resulting arbitral awards. It has federalized the law of arbitration to a degree astonishing to those who have thought of the Rehnquist Court as the new expositor of states' rights and federalism. It has expanded the availability of arbitration far beyond the law merchant and collective bargaining to all parts of the non-criminal legal world, so that it now encompasses, in addition to those traditional subjects, practically all statutory claims, constitutional claims, consumer claims, and employee claims. The Court has turned away efforts to place limits on what it takes to form a pre-dispute contract for arbitration and has found voluntary consent to arbitration even if the contract was presented on a take-it-or-leaveit basis, even if actual notice of the arbitration clause is doubtful, and even if there were marked disparities in bargaining power between the parties.

It would be too much to say that a backlash has developed to the apparent triumph of arbitration. But doubts are springing up that a one-size-fits-all arbitral regime is optimal. Recent court decisions refusing to enforce some kinds of arbitration agreements and some arbitral awards display a new caution and concern for public policies that may be suffering as arbitration sweeps across the legal landscape. In today's talk, I would like briefly to review the key Supreme Court decisions that have brought us to where we are today, and then turn to the new issues that those decisions have brought to the fore and the skeptical undercurrents that can be detected in the courts. I conclude that arbitration in the United States today is still a work-in-progress. Some recalibration of the system is necessary and desirable if we are to reach a socially acceptable balance between dispute resolution in the public institutions known as courts and private dispute resolution that should be entitled to public enforcement.

I. Supreme Court Landmarks .

While the topic of arbitration arose from time to time in Supreme Court decisions after the passage of the Arbitration Act in 1925, for the most part the cases involved either industrial relations (especially in the railroad industry, where the Railway Labor Act has long required a special form of mediation and arbitration) or highly specialized areas, such as disputes between states or admiralty cases. One interesting exception to that pattern, however, arose in Hardware Dealers' Mut. Fire Ins. Co. v. Glidden Co.,4 a case involving the constitutionality of a Minnesota statute that required arbitration of the question of amount of loss in all fire insurance policies written in that state. The Supreme Court upheld the state law o...

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