Relevant Facts: An auto dealership sued Mitsubishi Motors under the Sherman Act, a federal anti-trust law. Mitsubishi moved to compel arbitration under an arbitration clause in the contract. Neither party disputed that the arbitration agreement was valid, but the question of arbitrability arose as the contract also contained a choice-of-law clause, providing that the arbitration would occur in Japan. The dealership argued, among other things, that because the Sherman Act is designed to protect businesses like theirs, the federal anti-trust act required a court, not an arbitrator, to enforce it. As such, the dealership argued that Sherman Act claims were non-arbitrable.
Question Before The Court: Whether claims alleging violations of federal statutes are “arbitrable” under the Federal Arbitration Act.
The Opinion: In a monumental decision, the Court held for the first time that federal statutory claims may be compelled into arbitration, despite the fact that arbitrators hold only the power to enforce contracts, not the law at large. The Court asserted, “The ‘liberal federal policy favoring arbitration agreements’ manifested by [the FAA] is at bottom a policy guaranteeing the enforcement of private contractual arrangements. . . We find no warrant in the Arbitration Act for implying in every contract within its ken a presumption against statutory claims. . . There is no reason to depart from these guidelines where a party bound by an arbitration agreement raises claims founded on statutory claims.” The Court declared that the FAA establishes and regulates a duty to honor an arbitration provision, and requires courts to rigorously enforce them.
“By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits their resolution in an arbitral, rather than a judicial forum. It trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration,” the Court continued. “We must assume that if Congress intended the substantive protection afforded by a given statute to include protection against waiver of the right to a judicial forum, that intention will be deducible from a text or legislative history.” The Court showed little concern for the potential obstacles to civil law enforcement an arbitral forum might present. “[This Court has] established a strong presumption in favor of enforcement of freely negotiated contractual choice-of-forum provisions…. that presumption is reinforced by the emphatic federal policy in favor of arbitral dispute resolution.”
The Court ruled, “Potential complexity should not suffice to ward off arbitration. . . so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.” The Court allowed that a “party resisting arbitration may attack directly the validity of the agreement to arbitrate . . . the party may attempt to make a showing that would warrant setting aside the forum-selection clause – that the agreement was affected by fraud, undue influence, or overweening bargaining power, that enforcement would be unreasonable and unjust, or that proceedings in the contractual forum will be so gravely difficult and inconvenient that the resisting party will for all practical purposes be deprived of his day in court. But, absent such a showing . . . there is no basis for assuming the forum inadequate or its selection unfair.”
Finally, according to the Court, parties need not specify by name which statutory claims are covered by the arbitration clause. In the Court’s view, nonspecific broadly-written forced arbitration clauses can be read to capture all federal statutory claims, unless otherwise specified by the parties or the legislature. To appropriately determine the arbitrability of a federal statutory claim requires a two-step inquiry: first, ascertain whether the parties’ agreement to arbitrate reached the statutory issue; then, upon finding it did, consider whether legal constraints external to the parties’ agreement foreclosed arbitration of those claims. However, in applying this two-step analysis when an arbitration clause potentially conflicts with a federal statute, “it is the Congressional intention expressed in some other statute [and not the FAA] on which courts must rely to identify any category of claims as to which agreements to arbitrate will be held unenforceable.”
With this decision, all statutory claims – federal and state – are now presumed arbitrable, with a high bar established for challenging arbitration of any statutory claims. Practically speaking, once this decision came down, big, powerful companies started drafting contracts of adhesion that included extremely broad language requiring “all claims” against them to be resolved solely in binding arbitration—a move that allows them to avoid airing nearly all consumer and employee grievances in a public forum.
Expressing strong disagreement, Justice Stevens penned a full-throated dissent, warning against requiring people to trade important judicial elements in exchange for “informality.” Finding that the majority’s holding was “premised on the assumption that arbitral processes are commensurate with judicial processes and that Congress impliedly intended federal courts to defer to arbitral decision on Title VII issues,” the dissent, “deem[ed] this supposition unlikely.” Cautioning that forced arbitration could lead to the inconsistent application of important public rights, Justice Stevens explained the important distinctions between the informal procedures in arbitration and the need, in certain cases, to develop a formal record and provide essential judicial review. He expressed particular concern regarding arbitration’s lax approach to building the record, fact-finding, discovery, admission of testimony, and cross-examination—all essential adjudicatory functions that are only guaranteed to those seeking justice by a public court. Regrettably, these arguments fell on deaf ears, and the destruction to our judicial system foreseen by the dissent has since largely come to pass.
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