Tuesday, January 24, 2012

The Supreme Court and Arbitration

When we use a phrase like "alternative dispute resolution," we are usually referring to alternatives to bringing a lawsuit. Those who practice in the ADR field are often trying to persuade litigants to give up the right to sue, on the ground that the alternatives to court are better, cheaper or faster. Should ADR advocates be concerned when parties are compelled to give up their right to go to court even before a dispute arises? My answer would be yes, because I think arbitration or mediation should be freely chosen by the parties, not forced on them. And also because the word "alternative" loses all meaning if it is the only alternative. The right to jury trial should remain available if settlement negotiations fail. Maintaining the right to jury trial also provides parties with a powerful incentive to resolve their dispute before they have to let the court resolve it for them.

Recent arbitration jurisprudence, especially in the area of consumer contracts, has tended toward making arbitration the only alternative in many disputes. Most recently, in Compucredit Corp. v. Greenwood, the Supreme Court had to interpret the meaning of a statutory mandate enacted by Congress that credit repair companies disclose that consumers maintain the right to sue the companies. The Court held, 8-1, that this requirement did not preclude the credit repair companies from mandating instead that consumers arbitrate any disputes. So consumers are being told by these companies, yes you have the right to sue us, but sorry, you have to give up that right if you want to do business with us in the first place.

As a matter of statutory interpretation, the result is understandable. That it was decided by an 8-1 vote shows that it was not difficult for most of these Justices to wrap their heads around the concept that consumers are entitled to waive even fundamental rights. That is the whole point of the Federal Arbitration Act of 1925. We have the right to sue in many other circumstances, but we waive that right all the time. And if Congress had wanted to bar credit repair companies from requiring consumers to sign arbitration agreements, there were much more direct ways of accomplishing that than simply mandating disclosure of the right to sue. One could also interpret the "right to sue" as including the right to pursue claims in arbitration, although that may be a stretch.

On the other hand, you have to sympathize with the consumer's situation in being handed a contract with a credit repair company that on the one hand clearly guarantees the right to sue the company if the consumer is dissatisfied, and on the other hand, clearly requires that he or she waive that right. I believe the legal term for such a clause is "Catch-22."  Yet another example of how queasy we should feel in enforcing pre-dispute mandatory arbitration clauses that are contained in take it or leave it contracts that people are required to sign to engage in an increasing number of ordinary business transactions.

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