Arbitration|United States

CPR Weighs In on the Arbitration Fairness Act

The International Institute for Conflict Prevention and Resolution (CPR Institute) has very seldom taken a position in amicus briefs or on pending legislation.  But its Board of Directors recently posted a 22-page letter to the leaders of the House and Senate Judiciary Committees “to voice out concern over the Arbitration Fairness Act of 2009.”  When the Sphinx speaks I guess we’d better listen.

The CPR Board is an illustrious group — chaired by Charles Renfrew and William Webster, it includes senior counsel from General Electric, Nestlé, Newell Rubbermaid, Schering-Plough, IBM, Fireman’s Fund and several of the world’s top law firms.  And, again, when they speak on a matter of public concern we would do well to attend.

CPR’s concerns are on every level.  At the outset, the letter notes that arbitration has been encouraged throughout American legal history — it was employed by George Washington in his estate planning and Abraham Lincoln served as an arbitrator — and has been statutorily regulated since the Federal Arbitration Act of 1925.  Thus, in purporting to limit the use of arbitration, “the Act would be the first major reversal of policy in almost 85 years of thoughtfully developed arbitration law.” 

The CPR letter is particularly critical of the provision of the proposed Act  that “the validity or enforceability of an agreement to arbitrate shall be determined by the court, rather than by the arbitrator” — a rule that, unlimited as it is, would effectively overturn the holdings of Prima Paint, Buckeye and all of their progeny, that pre-dispute arbitration agreements are separable from the contracts of which they are a part, and valid even if the rest of the contract is attacked.

The CPR letter also “gets dirty” on the facts.  It cites, among other sources:

The CPR letter notes with alarm that the Act’s provisions barring arbitration of civil rights claims “provide no guidance to the parties or to the courts as to their intended applicability,” which might embrace “all rights protected by the U.S. Constitution, State Constitutions and all rights to obtain benefits prescribed by law.”

In a passage of particular interest, the CPR letter addresses the argument that, if arbitration yields benefits over litigation, it might as easily be selected after the dispute arises as before.  That view, states CPR, reflects a lack of “actual experience resolving disputes.”  Once a dispute has arisen, argues CPR, “parties generally act out of anger — a desire to inflict injury on the other side.”  Part of that desire to injure may be expressed by turning to

“…a  judicial forum that will delay the proceedings, significantly increase the cost of legal representation and lead to the threat of a war of attrition over five years or more, favoring a corporate litigant, or the risk of a runaway jury verdict in a class action, often favoring an individual litigant and leading to unwarranted settlements or costly appeals.  Neither alternative is desirable for a society that favors the just resolution of disputes in a relatively inexpensive, speedy proceeding and neither alternative is possible when the parties have signed a valid, pre-dispute arbitration agreement.”

I’m tender to CPR and I’m deeply skeptical of the Arbitration Fairness Act.  Yet this argument is a weak one.  The parade of horribles cited by CPR would also be forestalled if the Federal Rules of Civil Procedure were revised to make American litigation more efficient and rational.  Or it could be just as easily avoided if parties were to sign a post-dispute arbitration agreement. 

The letter suggests that we experienced dispute managers understand what naive lawmakers do not — that blind rage reduces disputants to blubbering masses of self-delusion and neurosis, unable to make rational decisions like arbitrating rather than litigating the matter.  Yet parties are sane enough, post-dispute, to hire counsel and seek dispassionate advice on litigation strategy, including whether to arbitrate the pending claim.  Indeed, it seems a bit patronizing to say that a fiduciary charged with managing a conflict on behalf of a company’s shareholders has enough sense to enter into a pre-dispute arbitration agreement but not enough sense to enter into the same agreement once the dispute has arisen.

To press the point, in the case of employment arbitration agreements in particular, isn’t the driving assumption behind pre-dispute arbitration agreements that you want to commit the employee to waiving a judicial forum before an actual dispute arises, in the abstract as it were, so that once the dispute does arise, in all its upsetting reality, she is barred from doing what she would likely want — that is, to sue?  If that’s not the assumption, why bother with a pre-dispute agreement in the first place?

I accept absolutely that it is often very difficult to get parties to the mediation or arbitration table once a dispute arises.  But that is a bad thing only if the measure of success is the frequency of mediation or arbitration.  What if the measure of success were party satisfaction in the dispute resolution process?  What if all disputants chose arbitration because they actually preferred it as a means to resolve their present problem?  What if the only parties to arbitration were people who wanted to be there?  What if, at least in employment claims, there were no occasion for Section 2 motions to compel recalcitrant claimants?

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