Originally from American Review of International Arbitration - ARIA

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I. INTRODUCTION: THE U.S. SUPREME COURT AND ARBITRATION

There is no mistaking the force and direction of the federal judicial policy on arbitration.  For more than forty years, the U.S. Supreme Court has touted the recourse to arbitration;  more specifically, it has protected arbitration from inhospitable state regulation, contract challenges based on formation deficiencies,  and subject matter limitations on its scope of application.  In more than forty decisional pronouncements,  the Court altered significant parts  of the Federal Arbitration Act (FAA),  the governing statute, to make it the repository of an unwavering judicial policy in favor of arbitration. While the “edifice”  of doctrine was periodically rendered unsteady by the Court’s makeshift analytical inventions,  its rulings on arbitration have always been characterized by an unshakable positivistic end.  With the exception of an isolated case,  the judicial doctrine on arbitration constantly endeavors to achieve the enforcement of arbitral agreements and awards  and thereby erect and maintain a de facto, albeit functional, private process for the adjudication of civil disputes.  

II.  DISPARATE-PARTY ARBITRATION

The Court’s policy on arbitration avoided serious objections until the development of employment  and consumer  arbitration in the late 1980s and early 1990s. The emergence of disparate-party arbitration generated some dissension among lower courts centering upon the enforceability of adhesion contracts.   The Court itself basically shunned the matter. In several landmark opinions,  it provided an oblique response by holding fast to the position that the statutory duty of courts was to enforce arbitration contracts.   In effect, the Court was saying that would-be contract unfairness did not alter the “prime directive” of the governing statute.  Displaying its allegiance to the contract foundation of arbitration, the Seventh Circuit provided an unequivocal justification for tolerating inequity in contract formation.  It declared that adhesion contracts were legitimate contracts, as long as they gave each side to the transaction significant benefits that were desirable and in furtherance of their individual interests.   In effect, the Seventh Circuit advanced a new perspective on contract formation, one which minimized and superseded the requirement of bilaterality and freely given consent, and focused upon the “benefits of the bargain.”  

When a merchant or employer imposed the obligation to arbitrate upon a customer or employee as a condition of doing business or employment, the unilateral character of the imposition, in addition to its origin in the power of the economically superior party, did not necessarily nullify the “agreement.” These circumstances merely demonstrated a substantial imbalance in the negotiation of the agreement, so-called procedural unconscionability.  The critical question was whether the terms and conditions of the “bargain” actually oppressed the weaker party.  Would an “objective and rational” consumer or employee, empowered with choice, reject or accept the transaction with its contingencies? In a more populous world in which regulatory conflicts can readily flare and in which markets were ever more competitive, the traditional contract, like the concept of judicial litigation as the mainstay of adjudication, needed to be adapted and reformulated.