Arbitration|United States

Prof. Stipanowich Assesses "The Third Arbitration Trilogy"

Prof. Thomas J. Stipanowich  of Pepperdine University School of Law has come out with a smashingly responsible analysis of the most recent Supreme Court arbitration cases.  In his article, forthcoming in the American Review of International Arbitration, Stipanowich suggests that the three recent cases — Stolt-Nielsen, Rent-A-Center and AT&T Mobility — constitute a new “trilogy” of the stature of the historic Steelworkers cases in 1960.  But he urges that the recent trilogy of cases are flawed in reason, devoid of emprical grounding, and potentially harmful to the development of reasoned and just public arbitration policy.

Stipanowich is critical of the Court’s analysis, asserting rather than deducing “federal substantive law” under the Federal Arbitration Act as the basis for its outcomes.  He suggests that these references to such “substantive law” are “divined” or “discerned” rather than being the product of clear legal analysis, and that the Court’s avowed strong public policy concern to enforce arbitration agreements at times leads to outcomes clearly at variance with the Act.

For example, the arbitration agreement in Rent-A-Center was voided by the lower court on “such grounds as exist at law or in equity for the revocation of any contract,” not just for contracts to arbitrate.  Yet the Supreme Court ordered enforcement.  Prof. Stipanowich writes that the proffered basis seems to boil down to principles that the Court “‘discerns’ [as] new Federal substantive law surrounding the FAA.”

With the skill and clarity that one expects from the country’s leading arbitration scholar, Stipanowich demonstrates that the arbitral process is not as inflexible, and the public policies it implicates not as simple, as the Court and legislatures would suggest.  For at least twenty years, legitimate concerns have been expressed to conduct private adjudication in such a way as to protect the interests, rights, and access to justice of individual consumers and employees (for example).  The consequences of class actions are broader and more pervasive than a narrow focus on arbitration alone would suggest.  The infinite flexibility of arbitration to address particular contexts is demonstrated by Stipanowich’s references to state Lemon Laws, the availability of online dispute resolution processes, and arbitration conducted as part of regulatory schemes such as FINRA.

Compared to Stipanowich’s approach to the area, the Court’s efforts seem pedantic, uninformed and policy-driven.  Worse, these judicial outcomes threaten to marginalize American arbitration jurisprudence, as American law and policy becomes increasingly out of step with broad international trends ensuring meaningful judicial review of arbitration agreements and awards.

We recommend the Professor’s article for a definitive summary of the current judicial and legislative miscomprehension of this important ADR process, and for an appreciation of the nuances that need to be understood by those seeking to articulate public policy.

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