To people who’ve been paying attention (which is not, unfortunately, most of the American public), it’s not exactly news that Corporate America has been exempting itself from most of the United States civil legal system. Most consumer business-to-contracts and a growing number of employment contracts contain terms that provide that if the individual has a dispute against a corporation, they cannot bring a lawsuit in court, but instead they have to take their dispute to a private arbitrator who is picked by an arbitration company that is (in turn) picked by the corporation who wrote the standard contract. For years, consumer and civil rights advocates have questioned a system where the judges are essentially picked by one side to a dispute.
We shouldn’t worry, the U.S. Supreme Court and some corporate advocates have essentially responded, because if the arbitrator does something unfair, courts will review their decisions. In the real world, this is a truly empty promise, because courts will not overturn an arbitrator’s decision except in the most narrow and rare of circumstances. One federal court of appeals recently held that arbitrators’ decisions may not be overturned even when their legal reasoning is "wacky," and another federal court of appeals held that arbitrators’ decisions can’t be overturned even if they include "gross errors" of legal reasoning. The Supreme Court itself has held that arbitrators’ decisions can’t be overturned even when their findings of fact are "silly." President Reagan famously said "Trust, but verify." Well, the Supreme Court and corporate advocates may tell us we can trust that corporate-selected arbitrators will be fair, but the courts have made sure that no one will actually verify that they follow the law.
While corporations have generally been happy enough to have their hand-picked arbitrators decide disputes between corporations and consumers without any meaningful review, some corporations have wanted a little more of a law-abiding system for business-to-business arbitrations. Accordingly, a few businesses have started negotiating contracts that provide for arbitration of commercial disputes, but have also provided that any decision by the arbitrator should be reviewed on appeal to court just as freely and seriously as if it were a decision by a court.
On March 25, 2008, in Hall Street Associates v. Mattell, the Supreme Court held that private parties can’t re-write the Federal Arbitration Act ("FAA") to provide for meaningful review, just because they want the arbitrators to be held to the law. Writing for the majority in a 6-3 decision, Justice Souter pointed out that the FAA clearly provides for an incredibly narrow type of judicial review, and that parties can’t just go around re-writing federal statutes just because they don’t like them.
While Justice Souter’s decision is a lawyerly and fair reading of the plain language of the statute, it remains to be seen whether Corporate America will be willing to subject themselves to the same lawless system that it likes to impose upon its consumers and employees. There have already been a rash of stories in the business press about how various corporations have been abandoning pre-dispute binding arbitration for their own business-to-business disputes, and the betting here is that the Hall Street Associates case will accelerate this trend.