News. Worthy.

The Arbitration Delusion

June 6, 2019
Minnesota Lawyer and Finance & Commerce - Partner Content
Author: Joseph W. Anthony

The arbitration delusion is a combination of two ideas that have coalesced over time to form an entirely false impression of the purpose and function of arbitration. The Federal Arbitration Act (“FAA”) was passed in 1925 to address judicial hostility to the enforcement of contractual arbitration clauses.

The legislative history makes clear that the FAA “… was designed to provide a means of dispute resolution particularly adapted to the settlement of commercial disputes.” Congress observed that arbitration is “peculiarly suited to the disposition of the ordinary disputes between merchants as to questions of fact-quantity, quality, time of delivery, compliance with terms of payment, excuses for non-performance and the like.” Congress intended to afford merchants of relatively equal bargaining power a speedy and economical means of resolving commercial disputes. There is no support in the legislative history that Congress ever intended to compel arbitration where one party set the terms of an agreement while the other was left to “take it or leave it.”

Over time the Supreme Court has veered away from the original intent of the drafters and has developed revisionist thinking on the FAA’s purpose. In 1983, for the first time in the FAA’s 58-year history in Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983), the Supreme Court found that the “FAA evinces a liberal federal policy favoring arbitration.” The Supreme Court found a liberal federal policy favoring arbitration absent the existence of any discernible evidence in the legislative history.

Once the Supreme Court determined that there was a liberal federal policy favoring arbitration there began an almost limitless creep to the reach of the FAA. The FAA’s original purpose was soon eclipsed by the Court’s more expansive view. The FAA was soon applied to a host of securities and employment-based statutory claims. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 105 S. Ct. 3346 (1985); Shearson/American Express Inc. v McMahon, 107 S. Ct. 2332 (1987); Gilmer v Interstate/Johnson Lane, 111 S. Ct. 1647 (1991). Read more.