A Dozen SCOTUS Anti-Contract Arbitration Rules

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2 Responses

  1. Alan Rau says:

    An interesting post: What it may not capture, though, is the extent to which default rules are already part of our regime of the “common law of contracts”; although we sometimes forget that they are omnipresent, they reflect, or ought to reflect, conscious choices that are context-dependent. Thus, we may choose a particular default rule in circumstances where we want to mimic the parties’ most likely bargain—or in circumstances where we want to put the burden on drafting parties to contract around the most efficient solution. (These usually amount to the same thing—as it is sensible to attribute to contracting parties the desire to act in such a way as to reduce costs, thereby creating gains from trade.)

    This, then, readily explains, without more, your point #2 (“Separability” is indeed a strong default rule, and can be defended as such—but there is nothing impossibly “rigid” about it—-as illustrated by the hundreds of cases dealing with so-called “narrow” arbitration clauses). It also probably explains without difficulty your points #1 and #3.(The English cases here talk about the presumed desirability for the parties of “one stop adjudication”).

    #4 is really not about “contracts” at all—but it does raise the question of what a choice of law clause is supposed to do. Such clauses discriminate horizontally among different state laws, or among co-archical national laws. Mastrobuono reflects the banal insight that such clauses in contracts are not usually thought to have anything whatever to do with the vertical choice between state and federal law.

    # 9 and #11 [Hall Street and Stolt-Nielsen] strike me, not as departures from “the common law of contract,” but as departures from the usual purposes and policies of arbitration law itself—which is why both cases are decried and objected to by proponents of arbitration with whom you seem to have little else in common.

    Thanks; I enjoyed this.

  2. Lawrence Cunningham says:

    Prof. Rau,

    Thank you! What most interests me is comparing how the Court describes its arbitration jurisprudence (heavy rhetoric stressing that it is all about contract, contract law, and consent) versus the rules it has actually developed and applied (more influenced by national policy favoring arbitration that it repeatedly asserts).

    Applying default rule theory as you suggest underscores the differences. Most contract default rules are majoritarian or tailored—what most parties or the particular parties likely would prefer based on the contract they made (e.g., expectancy damages, construing the contract as a whole, few third party beneficiaries). There are a handful of penalty defaults and immutable defaults—based on public policy (e.g., punitive damages, statute of frauds).

    In its arbitration jurisprudence, the Court used such analysis when Breyer in First Options (and Howsam) (#3) distinguished between construing ambiguity on whether an issue is within an arbitration clause to favor arbitration versus insisting on clear intent to submit the decision about that question to arbitration.

    The Court showed no such interest in party intent, real or presumed, in its original statement of the ambiguity resolution rule (Brennan in Cone)(#1) or its contemporary severability opinions (both by Scalia—Buckeye and Rent-A-Center) (#2). In those and others (#4-8, #10), the chosen default rules are based more on what the Court sees as a national policy than actual or presumed intent.

    My primary interest in the rhetoric-application gap points to a feature of both the jurisprudence and literature that you suggest when referencing Hall Street and Stolt-Neilsen (#9 & #11): both seem to pivot more on opinions about arbitration versus litigation than about what parties to contracts contemplate or intend. That may be fine, but if true it is a curiosity that the Court’s rhetoric so emphatically and repeatedly asserts it is doing nothing but contract analysis when, in fact, it is doing social control.

    Your article, Fear of Freedom, used a pithy quotation that is relevant here:

    “One keeps saying the same thing, but the fact that one has to say it is eerie.” Elias Canetti, The Human Province 246 (1978).

    I can add two others:

    “It is always a matter of the highest interest when courts—like people generally—say one thing while doing its opposite.” –Grant Gilmore, The Death of Contract (1970), p. 2.

    “The [Court] doth protest too much, methinks.” Hamlet, Act III, scene 2.