WASHINGTON -- It's not abortion or affirmative action -- or, for that matter, campaign finance -- but a series of recent cases on arbitration has sharply divided the Supreme Court along familiar ideological lines and driven congressional Democrats to try to override the Court.
Two proposed laws, the Arbitration Fairness Act and the Consumer Mobile Fairness Act, take direct aim at contract provisions hidden in the fine print that force people out of court, away from class actions and into private arbitration when disputes arise. The goal of congressional Democrats is to increase legal protections for consumers and employees generally or, if that's not possible, cellphone users alone.
In the past two years, the Court's five-member conservative wing has broadly read the Federal Arbitration Act of 1925 to approve such pre-dispute arbitration provisions, even in non-negotiable contracts (also known as adhesion contracts) formed between parties with unequal bargaining power. In other words, take-it-or-leave-it contracts between companies and consumers and between employers and employees.
But Sen. Al Franken (D-Minn.) and Rep. Hank Johnson (D-Ga.), the lead sponsors of the Arbitration Fairness Act in the Senate and House, disagree with that reading. According to them, the Court has expanded the 1925 law far beyond its original intent. As described in Franken and Johnson's bills, the earlier law "was intended to apply to disputes between commercial entities of generally similar sophistication and bargaining power."
The Arbitration Fairness Act would amend the 1925 law to void any pre-dispute agreement that requires arbitration of an employment, consumer or civil rights dispute. To reverse a recent Supreme Court decision, the bill would also mandate that "a court, rather than an arbitrator," determine the validity of a contract containing such an arbitration clause.
The bill's passage, however, is unlikely. It has been kicking around Congress since Johnson and then-Sen. Russ Feingold (D-Wis.) first introduced it in 2007. And the resistance it faced then is not likely to abate now that the Court has defined the battle lines separating congressional Democrats and Republicans.
At a Senate Judiciary Committee hearing last week, Sen. John Cornyn (R-Texas) praised arbitration's positive qualities: It is generally a quick and inexpensive alternative to the long waits imposed by overburdened court systems, courts can still reject arbitrary or manifestly unjust arbitration decisions, and an arbitration provision itself can be invalidated under on traditional grounds of fraud, duress and unconscionability.
The law has long defined an unconscionable contract provision as one in which "no man in his senses and not under delusion would make." That may cover the Human CentiPad clause concocted by the writers of "South Park," but the Supreme Court has made clear that the clauses barring class arbitration to recover small sums found in every major cellphone carrier's contract are not, on their face, unconscionable.
Sen. Richard Blumenthal (D-Conn.), along with Sens. Franken and Sheldon Whitehouse (D-R.I.), is hoping that his Consumer Mobile Fairness Act will succeed where the more general -- and more aspirational -- Arbitration Fairness Act will likely fall short. The Consumer Mobile Fairness Act reads much like the other bill except that it makes invalid only those pre-dispute arbitration agreements between a cellphone user and the cellphone service provider.
Staffers in Franken's office explained the senator's support for the more targeted Consumer Mobile Fairness Act by noting the bipartisan popularity of other industry-specific restrictions on pre-dispute arbitration agreements. Sen. Chuck Grassley (R-Iowa), for instance, fought to restrict the use of such clauses in the poultry industry, and Sen. Orrin Hatch (R-Utah) did the same for agreements between auto dealers and manufacturers.
Both bills will face resistance from those with their own idealistic views of the role of contracts in a free market, in which people freely bargain for and agree to the provisions contained in their signed contracts. If a party does not like what's in the contract, the thinking goes, the party can negotiate for better terms or go to a competitor.
Washington lawyer and longtime tort reformer Victor Schwartz advanced this notion on behalf of the U.S. Chamber of Commerce at last week's Senate hearings. In the cellphone market, where a contract cannot be negotiated and all major competitors have the same objectionable provision, Schwartz suggested that people should just opt out. "I lived in a world where there were no cellphones," Schwartz said. "I kind of made it. I was all right."
That perfect-world perspective -- negotiate, walk away or opt out -- underpins the Supreme Court's decisions as well, much to the agitation of the Court's liberal dissenters. And the Court is likely to rule similarly in a case argued earlier this month concerning pre-dispute arbitration clauses in contracts with credit card distributors promising to raise consumers' low credit scores. At oral argument, Justice Ruth Bader Ginsburg offered her reality-based assessment that "the consumer doesn't really elect arbitration" in adhesion contracts. Former federal judge Michael McConnell, the lawyer for the credit card company, reminded Ginsburg that "that is an argument against arbitration that this Court has rejected several times."
McConnell did point to the Dodd-Frank law's requirement that the Consumer Financial Protection Bureau "conduct a serious study of the use of arbitration procedures in consumer financial matters" to find out if real-world conditions warrant a change in the Court's broad interpretation of the federal policy favoring arbitration. Depending on the results of the study, the bureau will be vested "with authority either to outlaw arbitration awards or to require conditions or to reform them," explained McConnell.
Nevertheless, given Republicans' mass resistance to the Consumer Financial Protection Bureau and their more under-the-radar allergy to the two proposed arbitration bills, such a change in policy is not as simple -- or as imminent -- as McConnell made it out to be.
