Letting the Arbitrator Decide Unconscionability Challenges
by Karen Halverson Cross*
Karen Halverson Cross, a Professor of Law at the John Marshall Law School in Chicago, has written an article examining the current trend of increasing deference toward arbitrators in the United States. This article appears in the forthcoming Volume 26 Issue 1 of The Ohio State Journal on Dispute Resolution. Professor Cross uses both historical and comparative perspectives in her assessment that the courts are increasingly allowing arbitrators to determine jurisdictional questions.
Professor Cross frames her article around the recent United States Supreme Court decision of Rent-A-Center, West, Inc. v. Jackson, issued in 2010. The Court’s decision baffles many readers, including Professor Cross, in that it is based on a position which was not presented by either party in the case: the “separability doctrine” of the 1967 case of Prima Paint Corp. v. Flood & Conklin Mfg. Co. Professor Cross argues that this Supreme Court ruling, the first to explicitly state that unconsionability challenges must go the arbitrator, is the culmination of a push by federal courts to give more power to the arbitration forum and prevent litigators from evading the process. The courts are pushing arbitration in this way to increase efficiency and consistency. Cross warns, however, that because the courts have effectively lessened their control over arbitration awards, public confidence in the legitimacy of the institution of arbitration as a whole may be decreasing.
The recent increase in successful unconscionability challenges to arbitration agreements has led to differing rationales to explain the phenomena. Professor Cross cites to two theorists, Jeffrey W. Stempel and Aaron-Andrew P. Bruhl, who have very different theories regarding the increase. While Stempel sees it as a natural response by state courts to the Supreme Court’s “pro-arbitration jurisprudence,” Bruhl sees it as an act of hostility by the state courts against federal policy. In any event, Cross characterizes recent unconscionability jurisprudence as “increasingly invoked by inconsistently applied.”
There are two primary concerns for Professor Cross in a court’s allocation of discretion to an arbitrator: the timing of when to allocate discretion, and the scope of the arbitrator’s review. While most of the historical cases involving arbitration jurisdiction involved only the timing of review, usually set at the award-enforcement stage. Cross explains, however, that after the First Options of Chicago, Inc. v. Kaplan case in 1995, and the dictum contained therein, there has also been a shift in allocation of discretion in terms of the scope of review in which a court is willing to engage. That case suggests that the arbitrator’s decision should be subject to only deferential review, while the Federal Arbitration Act suggests that it should be subject to de novo review when the scope or existence of the arbitration agreement is at issue.
In comparing the recent trends of the United States to other countries, Professor Cross explains that those other countries have been deferring to the judgment of the arbitrator for years. The arbitration practices of those countries differ from the United States, however, in that they often prohibit mandatory arbitration clauses in the commercial and employment contexts. Another difference that has arisen since First Options is that judicial review at the award stage is recognized in other countries as being critical to maintaining the credibility and fairness of the arbitration system.
Returning to the initial frame of the Rent-A-Center case, Professor Cross concludes her article with an examination of the possible ramifications of the Supreme Court decision. Cross believes that the decision in Rent-A-Center evidences a preference of the Court to endorse a relatively liberal reading of the First Options dictum. As a result, efforts to challenge arbitration agreements on an unconscionability basis will be much more difficult than they already are. As a result, unconscionability will be greatly reduced in its effect as a safeguard against mandatory arbitration agreements. This may be most true in the commercial and employment contexts, where one side often controls the majority of the bargaining power. A secondary but important effect is that the weaker side will be forced to endure the costs of the arbitration, even if it is later found that the contract was unconscionable. According to Professor Cross, the effect of Rent-A-Center that will most have to be addressed in the near future is whether a delegation clause can affect the rights of the parties to seek post-award judicial review.
As a result of these Supreme Court rulings, Professor Cross believes that Congress ultimately will have to act if it wishes to alter the way that arbitration works in this country. Professor Cross cites the Dodd-Frank Act, as well as the Franken Amendment to the 2010 Department of Defense Appropriations Act, as a sign that Congress is aware of this need for action. Professor Cross believes that this may lead Congress to take another large step in amending the Federal Arbitration Act to prohibit pre-dispute arbitration in consumer, franchise, and employment disputes. Regardless of Congressional action or inaction, Professor Cross believes that the dictum presented in the First Options case must be read narrowly for future judicial decisions.
*Article Summary written by Kyle Heitman, Moritz College of Law Class of 2011