Arbitration About Arbitration
My article "Arbitration About Arbitration" will appear in the Stanford Law Review (forthcoming 2017).
Recently, the U.S. Supreme Court's interpretation of the Federal Arbitration Act ("FAA") has nearly eliminated consumer and employment class actions, sparking vigorous debate. Yet another important development in federal arbitration law has received less attention. Traditionally, judges granted motions to compel arbitration only after confirming that the parties formed a valid agreement to arbitrate that applies to the underlying lawsuit. But now, through the use of "delegation clauses," businesses are giving arbitrators the exclusive power to decide these matters. Increasingly, critical questions about the arbitration-including whether the process is fair-are being resolved in arbitration.
This mind-bending issue-arbitration about arbitration-has become one of the most important and unsettled areas on the docket. In 2016 alone, there were 198 reported decisions dealing with delegation clauses. Moreover, judges are struggling with every major issue related to arbitration about arbitration. Indeed, they have splintered over how to determine whether a contract contains a delegation clause, how to gauge the validity of these provisions, and whether arbitrators can decide whether the FAA even applies to a lawsuit.
The Article then contends that this doctrinal chaos stems from a single faulty premise. The spread of arbitration about arbitration can largely be traced to a single analytical gambit in a 2010 opinion called Rent-A-Center West, Inc. v. Jackson. In that decision, Justice Scalia declared that delegation clauses are nothing less than full-fledged "agreement[s] to arbitrate threshold issues concerning the arbitration agreement." In other words, Justice Scalia cast delegation provisions as independent arbitration clauses that apply to any dispute about the agreement to arbitrate the underlying lawsuit. In turn, viewing delegation clauses this way infuses them with the full force of the FAA and gives them the same exalted status as agreements to arbitrate the plaintiff's complaint.
However, drawing on the FAA's text, legislative record, and forgotten strands of federal common law, the Article contends that arbitration about arbitration is manifestly different from arbitration about the merits of a case. First, the law has long distinguished between agreements to arbitrate a complaint and agreements to arbitrate the enforceability or scope of an arbitration provision. When it comes to the merits, there is a hallowed presumption that "any doubts . . . should be resolved in favor of arbitration." But for substantive arbitrability, the premise flips: "[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is "clea[r] and unmistakabl[e]" evidence that they did so." Thus, Rent-A-Center fuses two things that courts have traditionally treated differently.
This doctrinal divergence was not random; to the contrary, it stemmed from a clear-eyed assessment that delegation clauses are more problematic than arbitration provisions. Congress passed the FAA to facilitate the arbitration of lawsuits, not arbitration about whether lawsuits should be arbitrated. As a result, sections 3 and 4 require judges to decide whether the parties have formed a valid agreement to arbitrate that encompasses the plaintiff's causes of action. When parties try to draft around these commands, they cut against the grain of the statute. Likewise, equating arbitration and delegation provisions ignores the fact that arbitration about arbitration is an exotic issue that parties are unlikely to notice or comprehend. Many plaintiffs would be alarmed to find that they have entrusted an arbitrator-who, unlike a judge, bills by the hour-to decide the very question of whether a dispute should be arbitrated. Finally, the Article explains how acknowledging the ways in which delegation clauses are unique can resolve the many of the questions that are currently dividing courts.