FAIRNESS REQUIRES THE ELIMINATION OF FORCED ARBITRATION

By Robert S. Kitchenoff, Heidi M. Silton, Pamela Gilbert, Nigar A. Shaikh, and Geoffrey H. Kozen¹

Mandatory arbitration and its kissing cousin, the class action waiver, are virtually ubiquitous in contracts of adhesion. The dominant party uses its superior market power to impose these provisions on its powerless counterparty to the transaction. Arbitration is routinely forced upon small businesses, consumers, investors, franchisees, software users, and even employees in situations where the power imbalance makes specious any claim that arbitration was bargained for or voluntary. It was not always so.

Arbitration began as a means for "merchants . . . to resolve disputes of fact, not law, under the customs of their industries, where the parties possessed roughly equivalent bargaining power."² But courts, whether jealously guarding their jurisdiction or for other parochial reasons, often refused to enforce these consensual arbitration agreements.³

Enter the Federal Arbitration Act ( "FAA"),⁴ signed into law by President Calvin Coolidge in February 1925.⁵ The FAA provides that "an agreement in writing to submit 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."⁶ The FAA’s legislative history shows that the Act was not intended to make new law but rather to ensure that arbitration agreements in commercial and admiralty contracts were considered on the same footing as other contracts.⁷ For decades the FAA was uncontroversial, applying primarily to commercial contracts between companies engaged in business across state lines.⁸