Originally from World Arbitration And Mediation Review (WAMR)

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SCHOLARLY COMMENTARY ON ARBITRATION

AN EMPIRICAL STUDY OF COST-BASED
CHALLENGES TO ARBITRATION AGREEMENTS
By Christopher R. Drahozal*

This article is adapted from a longer one entitled “Arbitration Costs and
Contingent Fee Contracts,” recently published in the Vanderbilt Law
Review.1 In this excerpt, I summarize some key characteristics of the
reported2 federal court decisions adjudicating cost-based challenges to
arbitration agreements from December 11, 2000, to June 30, 2005.3 By
cost-based challenges, I mean challenges to the enforceability of arbitration
agreements on the ground that arbitration costs are excessive. The U.S.
Supreme Court decided Green Tree Financial Corp.—Alabama v. Randolph
on December 11, 2000,4 so the cases studied are limited to post-Green Tree
decisions. Included are both court of appeals decisions and district court
decisions, although the description of the results below sometimes
distinguishes the two. Each case is included only once, either at the district
court level or the court of appeals level. If, for example, the court of appeals
reversed the district court decision on the cost issue, only the court of
appeals’ decision is included, and the case is characterized accordingly.
One important caveat needs to be noted: reported court cases are subject
to various forms of selection biases making generalizing from the results
problematic. First, the sample of cases arising under arbitration clauses is
affected by “ex ante selection”—selection due to parties deciding whether to
agree to pre-dispute arbitration agreements. Second, selection occurs when
claimants decide whether to assert their claims in arbitration. This sort of
“ex post selection” bias may be particularly problematic here, where the
cases in which arbitration costs preclude a party from asserting his or her
claim might be precisely those that never make it to court. Third, the