In her post this week, Jean Sternlight argues that the logic of the Supreme Court’s recent decision in Wellness Int’l Network v. Sharif casts doubt on the constitutionality of private mandatory arbitration, at least as applied to consumers and employees. She challenges the insistence by the Court’s pro-arbitration Justices that arbitration does not implicate constitutional rights
ecause arbitrators do not exercise judicial power, but are instead private actos rendering “decisions” pursuant to contract. Jean contends that the lack of voluntary and informed consent,coupled with rules requiring judges to enter awards as judgments and an absence of meaningful appellate review, undermine that distinction.

As I do most of the time, I tend to agree with Jean. I believe that arbitration as currently practiced deprives citizens of important constitutional rights. But I want to suggest–echoing earlier arguments–that it is possible to construct a coherent jurisprudence on the premise that arbitration is truly a private, contractual process.

Begin by assuming that the arbitration process and the resulting award are not substitutes for adjudicatio
n, but instead constitute an extension of the original agreement. This is the way labor arbitration has been understood at least since the Steelworkers Trilogy. In this model, the arbitrator acts as an agent of the parties, filling in the contractual blanks where the parties failed to anticipate the exact set of circumstances that has befallen them. The arbitral award is then legally equivalent to a contract term to which the parties agreed ex ante and are now obligated to adhere. Arbitration law allows the parties to ensure that that particular dispute need not be contested further by giving the new “term” the force of res judicata.

If we think of the award as simply an extension of the parties’ underlying agreement, made durable through doctrines of preclusion, then we are led to different conclusions about the judicial role with respect to arbitral awards.

Despite encomiums to freedom of contract, private individuals are limited in the types of contracts they may enter into. Most obviously, parties cannot agree to break the law. Beyond that, there are limits on parties’ ability to enter into exculpatory contracts, i.e., contracts that  waive legal rights.

Take the example of common carriers. An agreement between a common carrier and a customer purporting to waive the common carrier’s liability to the customer for its negligence is unenforceable. See id. at 39. Now assume a common carrier fails to take reasonable safety precautions, causing injuries to a customer. If a resulting claim by the customer went to arbitration, the arbitrator would, in theory, look back in time to try to discern what the parties would have agreed on had they considered exactly such a circumstance. If the award absolves the common carrier, but a court in the relevant jurisdiction would find liability, then the award is legally equivalent to a waiver of a common carrier’s liability for its own negligence.

There are no obvious reasons why, if the parties to a contract could not legally agree in advance that one party would have no remedy in the event of an injury occurring under a  particular set of circumstances, they should be able to accomplish that result through the expedient of arbitration. Under this model, then, courts should arguably refuse to enforce awards whenever they would refuse to enforce a contract term contemplating the circumstances as they eventually arise. In the language of FAA Section 10, an arbitrator who issued such an award would have exceeded her authority.

What would that mean for arbitration?  Well, the types of claims for which exculpatory provisions are proscribed include negligence on the part of common carriers and other public service providers, negligence by employers, and intentional torts under all circumstances. Further, disparities in bargaining power often carry presumptions of liability for the stronger party. Id. at 41. Thus, many of the most controversial areas of arbitration–including consumer complaints, claims over medical care, and discrimination–would come under much greater judicial scrutiny. Burdens of proof and persuasion would likely vary from jurisdiction to jurisdiction, but at a minimum, it would be much easier to get the facts of a claim subject to arbitration before a court.

That would leverage adjudicative rights up somewhat from their current nadir, but it would also increase costs. I’m not convinced I prefer this approach to Jean’s. I’d prefer we read the FAA as it was intended: to provide for efficient resolution of claims between roughly equal commercial actors involving default rules of contract, mostly price and quantity. But if the Supreme Court sticks to its position that arbitration agreements are enforceable for all claims because arbitration is a creature of private contract, then its logic leads down this path.