Status and contract in AT&T Mobility v. Concepcion
on Sep 14, 2011 at 3:53 pm
The following contribution to our arbitration symposium is written byÂ Hiro Aragaki,Â Associate Professor of Law at Loyola Law School, Los Angeles. Â In two recent papers (here and here), Professor Aragaki uses the Courtâ€™s own antidiscrimination rhetoric to critique Federal Arbitration Act preemption jurisprudence and offer an alternative theoretical framework.Â With Karen Halverson Cross, he filed an amicus brief in support of the respondents in AT&T Mobility LLC v. Concepcion. The posting below is taken from his current work-in-progress.
Henry Sumner Maine once famously described the progression from traditional to modern societies as a progression â€œfrom status to contract.â€Â Until recently at least, the evolution of federal arbitration law might be described as charting a strikingly similar course.
Prior to the passage of the Federal Arbitration Act (FAA), common law courts denied legal status to the arbitration process by refusing to specifically enforce even post-dispute arbitration clauses.Â They reasoned that arbitral tribunals did not â€œpossess full, adequate, and complete meansÂ .Â .Â .Â to investigate the merits of the case, and to administer justice.â€Â In this era, arbitration effectively bore what Thomas Carbonneau describes as the stigma of illegitimacy: It was little more than a â€œbastard remedyâ€ that â€œlacked official status and proper standing.â€
Congress passed the FAA in 1925 in order to â€œshake off the old judicial hostility to arbitrationâ€ â€“ to free arbitration from its status as second-class adjudication â€“ by lifting the common law ban on specific performance.Â Arbitration could now become whatever the contracting parties agreed it would become, and the law would henceforth give meaning to such agreements just as it did to â€œany contract.â€Â In one case after another, from Shearson/American Express Inc. v. McMahon to Rent-A-Center, West, Inc. v. Jackson, the U.S. Supreme Court has steadfastly re-affirmed these principles, transforming federal arbitration law from a paradigm based on status to one based on contract.Â Widely hailed as â€œa resounding win for freedom of contract,â€ AT&T Mobility LLC v. Concepcion appears to represent the crowning achievement of this transformation.
I wish to suggest a radically different reading of Concepcion. Â In my view, Concepcion does not mark the triumph of contract so much as a regression back to the old days of status â€“ to the days when the law regulated arbitration based on assumptions about its true nature.Â To explain why this is so, I will first need to review some basics of FAA preemption.
The FAAâ€™s primary preemptive provision is found in section 2, which provides that a â€œwritten provisionÂ .Â .Â . to submit [specified disputes] to arbitration shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.â€Â The first clause of section 2 has generally been understood as â€œa policy guaranteeing the enforcement of private contractual arrangementsâ€ free of legislative interference from the states.Â The second clause of section 2 contains the only existing exceptions to this rule.Â It allows states to regulate the enforcement of arbitration agreements without running afoul of the FAA so long as they do so using â€œgenerally applicable contract defenses, such as fraud, duress, or unconscionability.â€Â The ostensible rationale for this savings clause is that by regulating arbitration agreements only by use of common law doctrines applicable to â€œany contract,â€ states do not threaten to â€œsingl[e] out arbitration provisions for suspect status,â€ as they had prior to the FAAâ€™s passage.Â Instead, consistent with the contract paradigm, they merely put agreements to arbitrate on an â€œequal footingâ€ with agreements to do just about anything else.
The fall of contract
The holding in Concepcion flies in the face of these widely accepted principles of FAA preemption.Â The arbitration agreement in that case prohibited either party from bringing an arbitral claim in a representative format.Â The lower federal courts refused to enforce this class arbitration â€œwaiverâ€ under the California Supreme Courtâ€™s decision in Discover Bank v. Superior Court, which set forth the conditions in which collective action waivers (in arbitration or litigation) would be deemed unconscionable.Â They reasoned that, as an unconscionability standard, Discover Bank fell within the savings clause of FAA section 2 and thus avoided preemption according to the principles described above.Â A divided Court in Concepcion, however, reached precisely the opposite conclusion:Â Discover Bank conflicted with FAA section 2â€™s â€œprimary purposeâ€ to â€œâ€˜ensure that private arbitration agreements are enforced according to their terms.â€™â€
The only way to square the majorityâ€™s conclusion with the contract paradigm is if the Discover Bank rule somehow does not qualify as a â€œground . . . for the revocation of any contractâ€ falling within the savings clause â€“ for example, because it is a rogue version of unconscionability doctrine otherwise unknown to the common law of contracts.Â During briefing on certiorari and on the merits, AT&T and its amici pressed this very point, arguing that the California rule was a â€œdistortionâ€ that â€œb[ore] no resemblanceâ€ to traditional unconscionability law.Â The Concepcions and their amici, in turn, argued just the opposite:Â Discover Bank was nothing more than a refinement of ordinary unconscionability principles.
It cannot be underemphasized that, on this point at least, the Supreme Court did not accept AT&Tâ€™s position. Â (It may have accepted AT&Tâ€™s argument that the Discover Bank rule effectively â€œdiscriminatedâ€ against arbitration, but that is a basis for FAA preemption that sounds in antidiscrimination, not contract.)Â Instead, the Court assumed with the Concepcions that the Discover Bank standard was in fact a bona fide contract law doctrine but then turned around and held that this perfectly correct application of state unconscionability law was nonetheless preempted by the FAA.Â If FAA preemption no longer depends on whether the state law is a genuine contract law defense, it seems to me the contract paradigm can no longer explain FAA preemption after Concepcion.Â A fortiori, it no longer captures the â€œpurposes and objectivesâ€ (Hines v. Davidowitz) of the FAA.Â Something else, therefore, must be at work.
Some continue to assert that Concepcion upheld freedom of contract just because it shielded AT&Tâ€™s class arbitration waiver from Californiaâ€™s law of unconscionability. Â But it would be an odd conception of contractual liberty if a law were taken to restrict freedom of contract simply because it interfered with the partiesâ€™ agreement as written.Â For example, would we consider contracting parties to be freer if the state held them to an agreement that had been procured by fraud or duress? Â An agreement that turns out to be impracticable? Â Or one that lacks consideration? Â Surely these examples demonstrate that refusing to enforce agreements to the letter can do just as much to augment freedom of contract as it can to diminish it.
The rise of status
If the contract paradigm does not explain the outcome in Concepcion, what does?Â The answer is far more complex than I have the time to explain here.Â But as I have already hinted, it has something to do with status.
A keystone of the holding in Concepcion is the Courtâ€™s determination that class arbitration is not really â€œarbitration.â€Â Class arbitration, we are told, is time consuming, formalistic, and procedurally complex â€“ all the things that arbitration under the FAA is neither supposed to be nor likely can be.Â â€œArbitration is poorly suited to the higher stakes of class litigationâ€ because, unlike the de novo review of class certification questions available in court, the vacatur standards in FAA section 10 amount to â€œno effective means of review.â€Â Moreover, â€œ[a]rbitrators are not generally knowledgeable in the often-dominant procedural aspects of certification,â€ so that it is â€œat the very least odd to think that an arbitrator would be entrusted with ensuring that third partiesâ€™ due process rights are satisfied.â€Â In Concepcion, the Court held that making these quintessentially litigation-like demands on arbitration â€œinterferes with fundamental attributes of arbitration (emphasis added).â€
In these passages from Concepcion, the Court wanders deep into the lair of essentialism.Â The false hope of discovering arbitrationâ€™s true nature led it to embark on this unfortunate path a year earlier, in Stolt-Nielsen S.A. v. AnimalFeeds Intâ€™l Corp.Â There, the Court held that if an arbitration agreement is silent about whether to permit class proceedings and there is no other extrinsic evidence of the partiesâ€™ intent on the matter, arbitrators may not â€“ consistent with the FAA â€“ impose such proceedings.Â The rationale was that class arbitration â€œchanges the nature of arbitration to such a degree that it cannot be presumed that the parties [objectively] consented to it (emphasis added).â€
This type of essentialism is dangerous: It can be used to legitimize result-driven decisions and to entangle arbitration unnecessarily in the political skirmishes of lawyers and their client-constituents.Â As I have explained elsewhere (see here and here), just decades ago the Court marshaled similar essentialistic arguments about arbitrationâ€™s inherent nature in order to undo valid, broadly worded arbitration agreements and thereby to permit plaintiffs asserting federal statutory claims to bring those claims in court.Â Only later would the Court come to see that its â€œoutmoded presumptionsâ€ about arbitrationâ€™s status masked the very same anti-arbitration hostility that the FAA was designed to reverse. Â The same, I hope, will one day be appreciated about the Courtâ€™s pronouncements in Concepcion and Stolt-Nielsen.
To be sure, status can favor as much as disfavor a class of persons or things.Â But anyone who believes that Concepcion favors arbitration would be sorely mistaken for several reasons.
First, it is important to distinguish between favoring the institution of arbitration and favoring its most loyal patrons.Â The result in Concepcion may favor big businesses that wish to avoid collective action claims (whether in arbitration or litigation). But that does not necessarily mean it favors arbitration.
Second, it is not even clear that Concepcion favors business.Â Consider in this vein the one thousand or so duplicative arbitrations recently filed by plaintiffsâ€™ law firms on behalf of AT&T customers seeking to block AT&Tâ€™s announced merger with T-Mobile.Â At least in part a â€œbe careful what you wish forâ€ response to Concepcion and Stolt-Nielsen, these cases expose the problematic flip-side of the proposition that arbitrationâ€™s status is fundamentally incompatible with the class mechanism.Â Together with the collateral ligation they will almost certainly spawn, these cases also represent a staggering waste of legal, psychological, and material resources â€“ precisely the type of waste that the FAA was designed to avoid.Â All of us, not least of which arbitration, are the worse off for it.
Third, there is a fine line between favoritism and infantilization.Â Consider Muller v.Oregon, a 1908 case in which the Court upheld a paternalistic statute making it a crime to employ women for more than ten hours per day.Â The Court conceded that the statute would be unconstitutional if it restricted the employment of male workers, but it held that â€œinherent difference[s]â€ between men and women justified restricting the working hours of women, even if they wished to work longer.Â As the Court would acknowledge in more recent times, these notions about the nature of the sexes â€œput women, not on a pedestal, but in a cage.â€Â I argue that Concepcion is to arbitration what Muller was to gender.
Tellingly, even AT&T infantilizes arbitration in the recent complaints it filed in district courts to enjoin the merger arbitrations.Â In those complaints, AT&T argued â€“ ironically â€“ that allowing the individual arbitrations to proceed would cause it irreparable injury because, among other things, arbitrators would be called on to evaluate â€œhighly sophisticated and complex econometric and engineering modelsâ€ and conduct â€œa detailed assessment of this evidence as it relates to the benefits to consumers and businessesâ€ â€“ tasks that presumably cannot be expected from an essentially fast, cheap, and simple adjudicative forum.Â These statements may come from the mouthpiece of arbitrationâ€™s supposed champion, but they certainly do not favor arbitration.Â They are better seen as embodying the type of anti-arbitration hostility that the Courtâ€™s own jurisprudence resoundingly forbids.