Rhetoric Versus Reality in Arbitration Jurisprudence: How the Supreme Court Flaunts and Flunks Contracts
RHETORIC VERSUS REALITY IN ARBITRATION JURISPRUDENCE: HOW THE SUPREME COURT FLAUNTS AND FLUNKS CONTRACTS
LAWRENCE A. CUNNINGHAM 0 1
0 Copyright © 2012 by Lawrence A. Cunningham. This article is also available at
1 Henry St. George Tucker III Research Professor, The George Washington University Law School. For helpful comments , thanks to Barbara Black, Jim Cox, David Horton, Don Langevoort, Alan Morrison, Margaret Moses, Alan Rau, Jean Sternlight , and Stephen Ware. Thanks to participants attending presentations of this paper at the Duke University / Institute for Law and Economic Policy conference, a Florida State University faculty workshop, and the Federalist Society program during the 2011 Association of American Law Schools annual meeting. In order to meet the page limitations of this print version, many of the footnotes, citations, discussion of background, and nuances have been omitted. All may be found in a version of the paper available at , USA
Reflecting this contractual basis of arbitration, the FAA declares that any
“written provision” agreeing to resolve designated disputes by arbitration in
any “contract evidencing a transaction involving commerce” is “enforceable,
save upon such grounds as exist at law or in equity for the revocation of any
contract.”6 The statute targeted commercial actors, which often reneged on
signed arbitration agreements,7 and also aimed to uphold similar commitments
made in non-commercial arbitration agreements.8 Despite that clarity and
context, the Supreme Court in recent decades heralds the FAA as stating a
sweeping national policy favoring arbitration that preempts contrary state law.9
True, in some older cases, the Court rightly stressed that the FAA’s primary
purpose was reversing judicial hostility to arbitration and enforcing contractual
commitments to arbitrate.10 Although some detect continued judicial aversion
to arbitration, pervasive hostility died generations ago, yet today’s Court often
speaks as if such hostility were a daily threat to civil society. While championing
this national policy, the Court has insisted that it is only enforcing contracts in
accordance with contract law. But, although the Court’s holdings since the
1980s may sometimes show greater fidelity to contracts than previously,11 there
is a discernable gap between its rhetoric about that fidelity and what the Court
The Court’s arbitration jurisprudence stimulates intense debate in a vast
literature on many interrelated subjects. For example, critics object to the lack
The question is one of intention, to be ascertained by the same tests that are applied to
contracts generally. Courts are not at liberty to shirk the process of construction under the
empire of a belief that arbitration is beneficent any more than they may shirk it if their belief
happens to be the contrary. No one is under a duty to resort to these conventional tribunals,
however helpful their processes, except to the extent that he has signified his willingness.
Marchant v. Mead-Morrison Mfg. Co., 252 N.Y. 284, 169 N.E. 386 (1929).
6. 9 U.S.C. § 2 (2006).
7. See Jeffrey W. Stempel, Keeping Arbitrations from Becoming Kangaroo Courts, 8 NEV. L.J.
251, 266 (2007) (“The paradigmatic commercial problem addressed by the FAA was that of a ‘shirking
vendor,’ unwilling to pay a bill or perform a contractual obligation.”).
8. See generally Stephen J. Ware, Arbitration Clauses, Jury-Waiver Clauses, and Other
Contractual Waivers of Constitutional Rights, 67 LAW & CONTEMP. PROBS. 167 (2004).
9. E.g., Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 275 (1995); Moses H. Cone
Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983). See discussion infra text
accompanying notes 20–27 (discussing Moses Cone).
10. E.g., Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 220 (1985); Volt Info. Sci., Inc. v. Bd. of
Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989).
11. The Court enforced arbitration contracts despite federal statutory protections previously seen
to require litigation rather than arbitration. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc., 473 U.S. 614, 636 (1985) (enforcing the arbitrability of antitrust claims under the Sherman Act);
Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 224 (1987) (given national policy favoring
arbitration agreements, claims under the Securities Exchange Act of 1934 and Racketeer Influenced
and Corrupt Organizations Act can be arbitrated) (distinguishing Wilko v. Swan, 346 U.S. 427 (1953));
Rodriguez de Quijas v. Shearson/Am. Exp., Inc., 490 U.S. 477, 477 (1989) (stating “agreement to
arbitrate claims under the Securities Act of 1933 is enforceable and resolution of the claims only in a
judicial forum is not required”) (overruling Wilko v. Swan, 346 U.S. 427 (1953)); Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) (statutory claims generally).
of judicial attention given to the limits of arbitration,12 while proponents stress
its virtues.13 Overlooked in this vast literature is the rhetoric–reality gap: the
difference between the Court’s incantations about arbitration as contract—and
its purported application of contract law—and the reality that its jurisprudence
imposes on private parties, impinges on freedom both of contract and from
contract, intrudes upon state contract law, and changes and distorts actual
contract-law doctrine. This article documents that gap and explores its causes
The most likely cause can be stated simply: a national policy favoring
arbitration over litigation and federal law over state law is constitutionally
suspect unless based on voluntary assent of the people, meaning a basis in
contract; but contracts that choose state law or that channel disputes into
litigation instead of arbitration are incongruent with that policy and disfavored.
The rhetoric of contracts is a device to portray the national policy as legitimate,
even while departures from the rhetoric in practice are necessary to implement
the policy. After first documenting the rhetoric–reality gap, this article explores
this and other possible explanations for it, before considering why the gap
matters, highlighting costs to judicial legitimacy and doctrinal coherence, and
noting how it gives contract law a bad name.
DOCUMENTING THE RHETORIC–REALITY GAP
It is well known that, in pivotal cases in recent decades, courts applied the
Supreme Court’s early interpretation of the FAA to hold that virtually all
arbitration agreements in most contracts are governed by federal law. Most
famously, in Southland Corp v. Keating,14 the Court found that the FAA was a
substantive statute establishing federal law, also applicable in state courts,15 and
12. E.g., Richard M. Alderman, Pre-Dispute Mandatory Arbitration in Consumer Contracts: A Call
for Reform, 38 HOUS. L. REV. 1237 (2001); Barbara Black, Is Securities Arbitration Fair to Investors?,
25 PACE L. REV. 1 (2004); Edward Brunet, Arbitration and Constitutional Rights, 71 N.C. L. REV. 81
(1992); Sarah Rudolph Cole, Fairness in Securities Arbitration: A Constitutional Mandate?, 26 PACE L.
REV. 73 (2005); Linda J. Demaine & Deborah R. Hensler, “Volunteering” to Arbitrate Through
Predispute Arbitration Clauses: The Average Consumer’s Experience, 67 LAW & CONTEMP. PROBS. 55
(2004); Jeffrey W. Stempel, Arbitration, Unconscionability, and Equilibrium: The Return of
Unconscionability Analysis as a Counterweight to Arbitration Formalism, 19 OHIO ST. J. ON DISP.
RESOL. 757 (2004); Jean R. Sternlight & Elizabeth J. Jensen, Using Arbitration to Eliminate Consumer
Class Actions: Efficient Business Practice or Unconscionable Abuse?, 67 LAW & CONTEMP. PROB. 75
(2004); David S. Schwartz, Enforcing Small Print to Protect Big Business: Employee and Consumer
Rights Claims in an Age of Compelled Arbitration, 1997 WIS. L. REV. 33 (1997); David S. Schwartz,
Mandatory Arbitration and Fairness, 84 NOTRE DAME L. REV. 1247 (2010).
13. E.g., Christopher R. Drahozal, Federal Arbitration Act Preemption, 79 IND. L.J. 393 (2004);
Stephen J. Ware, The Case for Enforcing Adhesive Arbitration Agreements—With Particular
Consideration of Class Actions and Arbitration Fees, 5 J. AM. ARB. 251 (2006). Additional examples of
aspects of these scholarly debates are noted in an online version of this paper.
14. Southland Corp. v. Keating, 465 U.S. 1 (1984).
15. This amounted to a functional overruling of Bernhardt v. Polygraphic Co. of Am., 350 U.S. 198
(1956), which viewed the FAA as procedural, not substantive.
LAW AND CONTEMPORARY PROBLEMS [Vol. 75:129
preempts any state law that obstructs the FAA’s objectives,16 which the Court
said announced “a national policy favoring arbitration.”17 Less appreciated,
though, is how the Court’s jurisprudence since then increasingly eclipses the
role of contracts and contract law with a radically different body of law.
Although the Court insists it is simply enforcing contracts and applying contract
law,18 its rhetoric about that has escalated while its fidelity has proportionally
declined. Often the rhetoric–reality gap is vast and can appear to reflect
conscious choice, though sometimes it appears to be a simple misunderstanding
of contract law.19 In any event, the species of law the Court actually applies is so
16. Southland, 465 U.S. at 16. In Southland, franchisees filed a class action lawsuit against a
franchisor asserting various theories, including violations of state franchise statutes. The company
invoked an arbitration clause in each of the contracts. California courts debated whether arbitration
applied to the statutory violation claim because a related state statute rendered invalid any contract
term that might waive statutory protections of franchisees. The Supreme Court declared that the FAA
applied and preempted the California law because it “undercut the enforceability of arbitration
17. The Court began making such bold statements in Moses H. Cone Memorial Hospital, 460 U.S.
1 (1983), discussed infra text accompanying notes 20–23, and has exuberantly repeated them for
decades. Only two limitations appear: the contract must be within the statute’s scope, principally
involving commerce, and an agreement to arbitrate is subject to any grounds in law or equity as would
invalidate any contract. The Court wrote: this “broad principle of enforceability” of agreements to
arbitrate should not be “subject to any additional limitations under state law.” Southland. The Court
claimed to find support for its sweeping expansion in the legislative history of the FAA, but scholars
challenge its accuracy. See IAN R. MACNEIL, RICHARD E. SPEIDEL & THOMAS J. STIPANOWICH,
FEDERAL ARBITRATION LAW: AGREEMENTS, AWARDS AND REMEDIES UNDER THE FEDERAL
ARBITRATION ACT §10.53 (1994) (calling it a “pillar of sand”). Justice O’Connor dissented, objecting
to federalizing this field of law. She stressed that the FAA and kindred state statutes had long been
understood by contracts law scholars as procedural, not substantive, leaving contract law intact.
Southland, 465 U.S. at 27 n.13 (O’Connor, J., dissenting) (citing 6 S. WILLISTON & G. THOMPSON, LAW
OF CONTRACTS § 368 (rev. ed. 1938)). Though O’Connor ultimately capitulated to the Court’s
persistence, citing stare decisis, Allied-Bruce, discussed infra, the results continue to be debated.
Compare Paul D. Carrington & Paul H. Haagen, Contract and Jurisdiction, 1996 SUP. CT. REV. 331
(opining that Southland was fundamentally erroneous and has caused extensive damage to arbitration
law and practice) with Christopher R. Drahozal, In Defense of Southland: Reexamining the Legislative
History of the Federal Arbitration Act, 78 NOTRE DAME L. REV. 101 (2002). Though many opinions
and Justices have forged headlong into federal preemption of state law in this field, Justice Thomas,
devotee of federalism, steadfastly dissents from preemption; Justice Scalia often echoes the objection
but has retreated somewhat; Justice O’Connor once steadfastly opposed preemption but eventually
relented. Chief Justice Rehnquist steered colleagues toward federalism.
18. See Stephen J. Ware, Arbitration and Unconscionability after Doctor’s Associates, 31 WAKE
FOREST L. REV. 1001, 1006 (1996) (“While the substance of the Court's arbitration decisions over the
last twenty years has been remarkably faithful to the contractual approach, the Court's rhetoric has
been even more supportive of the principle that arbitration law is a part of contract law.”).
19. A good example appears in Justice Scalia’s dissent in Allied-Bruce Terminix Cos., Inc. v.
Dobson, 513 U.S. 265 (1995), which protested federalization but stressed stare decisis. Scalia suggested
that for parties who had relied on Southland Corp. v. Keating, 465 U.S. 1 (1984), which he considered
erroneous, “rescission of the contract for mistake of law would often be available.” Allied-Bruce, 513
U.S. at 285 (Scalia, J., dissenting) (citing CORBIN ON CONTRACTS § 616 and RESTATEMENT (SECOND)
OF CONTRACTS § 152). The authorities Scalia cited for this proposition do not support the assertion—
nor would others. Contract law allows rescission based on mutual mistake of a material fact that is a
basic assumption of a contract. It is not obvious that a binding precedent of the Supreme Court, later
overruled, qualifies. An old-fashioned view even held that mistakes about law are not grounds to
rescind a contract. See E. ALLEN FARNSWORTH, CONTRACTS 679, § 9.2 (2d ed. 1990) (“Some courts
have denied relief [in mistake of law cases but] the modern view is that the existing law is part of the
alien to actual contract law as to defy the repeated assurances that arbitration is
fundamentally about contracts or contract law.
A. Interpretive Presumptions and Limited Choice of Law
Contract law’s tools to address ambiguity channel analysis into recognized
categories, useful to determine such recurring matters as whether to admit
extrinsic evidence to aid interpretation or whether parties manifested
sufficiently definite intention to form a binding contract. Contract law does not
take a stance on whether to treat ambiguous language to channel performance
in any particular direction—though the Court’s arbitration jurisprudence rushes
it headlong into that territory.
In 1983, the Court invented a presumption favoring arbitration. Despite
declaring that arbitration is contractual, Justice Brennan in Moses H. Cone
Memorial Hospital v. Mercury Construction Corp.20 asserted that the FAA
“requires a liberal reading of arbitration agreements” and “is a congressional
declaration of a liberal federal policy favoring arbitration agreements,
notwithstanding any state . . . policies to the contrary”21 and “establishes that, as
a matter of federal law, any doubts concerning the scope of arbitrable issues
should be resolved in favor of arbitration.”22
Though such assertions do not exist in the common law of contracts,23 there
are doctrinal grounds that could justify them. Among the methods of
interpretation elaborated in Arthur Corbin’s definitive treatise, for example,
these assertions could be classified as a method of contract construction in the
public interest—stressing congruence not with particular intentions of specific
parties but with general judicial notions of public policy.24 More generously, the
Court might be seen as establishing a default rule to deal with ambiguity, at
least in the sense that parties can avoid the result by avoiding ambiguity.25 But
the Court did not provide any such analysis. Indeed, neither the Moses Cone
Court’s rhetoric about contracts nor its presumption was relevant to the issue
state of facts at the time of agreement. Therefore, most courts will grant relief for such a mistake, as
they would for any other mistake of fact.”) But what’s wrong with Justice Scalia’s statement is not
about the difference between a mistake of law or fact. It is about the state of the law existing at the time
of contract formation. At that time, the parties did not mistakenly apprehend the state of the law.
Under Scalia’s model, they were not mistaken at all. The Court was mistaken.
20. 460 U.S. 1 (1983).
21. Id. at 24 (quoted in, e.g., Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002)).
22. Id. at 24–25 (quoted in, e.g., Stolt-Neilsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758
(2010); First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (1995); Mastrobuono v. Shearson Lehman
Hutton, Inc., 514 U.S. 52 (1995)).
23. See Jean R. Sternlight, Panacea or Corporate Tool? Debunking the Supreme Court’s Preference
for Binding Arbitration, 74 WASH. U. L.Q. 637, 704–705 (1996) (noting how foreign these ideas are to
24. See ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 550.
25. See Alan Scott Rau, Everything You Really Need to Know About “Separability” in Seventeen
Simple Propositions, 14 AM. REV. INT’L ARB. 1, 29, 32, 34 (2003); see also infra text accompanying
notes 45–58 (noting Justice Breyer’s attempts to defend some of the Court’s jurisprudence using
contract law’s default-rule theory).
LAW AND CONTEMPORARY PROBLEMS [Vol. 75:129
the Court faced.26 Even so, the dicta influenced the Court’s arbitration
jurisprudence, simultaneously declaring freedom of contract while imposing a
national policy favoring arbitration.27
For a few years, it remained possible for parties to opt out of the FAA and
choose the law of a particular state, as suggested by 1989’s Volt Information
Sciences, Inc. v. Stanford University.28 This case addressed a construction
contract naming California the applicable law. The relevant statute allowed
courts to stay arbitration pending litigation among third parties in order to
avoid the risk of potentially inconsistent rulings on like facts. Amid a payment
dispute, the contractor wanted to arbitrate, but the owner wanted to litigate
against the contractor and others not party to the arbitration agreement. In a
rare and never-repeated show of restraint, the Supreme Court agreed with the
California court’s ruling for the owner. Federal policy favors arbitration and
requires interpreting contracts accordingly, but there is no policy or rule about
particular arbitration procedures.29 For the same reasons, state law was not
preempted, Chief Justice Rehnquist’s opinion concluded.
Volt’s respect for contract and choice of law was short-lived, however,
truncated in a nearly identical case six years later, Mastrobuono v. Shearson
Lehman Hutton, Inc.30 A standard-form securities-brokerage contract chose
New York law and directed arbitration under industry rules. After customers
won an arbitration award of punitive damages, the broker wanted it vacated
because, under New York law, arbitrators lacked the authority to award
punitive damages.31 The Court refused, in an opinion by Justice Stevens, saying
the contract did not manifest intention to include New York’s law limiting
arbitrators’ power to award punitive damages. The Court perceived a conflict
between the choice of New York law, so limiting arbitrator power, and the
securities arbitrator’s rules allowing punitive awards.32 In fact, there was no
conflict. The choice of New York law could easily mean no punitive damages
could be awarded in arbitrations that the contract said would be used to resolve
disputes. Indeed, that was the brokerage firm’s simple and compelling
argument, which would be deferential to New York law and faithful to the
Though stating that arbitration is a matter of contracts and contract law, the
Court instead chose a convoluted approach that first created ambiguities in the
26. The issues concerned the finality and appealability of judgments.
27. See Sternlight, supra note 23, at 660–61, 674 (“[T]he Court significantly recharacterized the
policy and purpose of the FAA, proclaiming the myth that commercial arbitration . . . should be
favored regardless of the parties' intentions.”).
28. 489 U.S. 468 (1989).
29. Id. at 477.
30. 514 U.S. 52 (1995).
31. See Garrity v. Lyle Stuart, Inc., 353 N.E.2d 793, 834 (N.Y. 1976) (“The law does not and should
not permit private persons to submit themselves to punitive sanctions of the order reserved to the
32. Mastrobuono, 514 U.S. 52.
contract and then applied federal arbitration jurisprudence, along with a
modicum of state contract law, to resolve them. Standard contract-law
principles33 and conflict-of-laws rules34 hold that a choice of law incorporates
into a contract the law of the named jurisdiction—including rules barring
arbitrators from awarding punitive damages. But the Court decided that a
choice of law could mean less than that and that the relevant law’s scope could
be limited, including by ignoring arcane rules like a state law denying
arbitrators the power to award punitive damages. Presto: the contract contained
To resolve the ambiguity, the Court used three principles. The first was a
fair rendering of contract law, construing ambiguities against the drafter, the
brokerage.36 The second was a strained rendering of another contract-law
principle, harmonizing all terms of a contract, which the Court thought required
denying effect to part of the New York law to uphold a broader scope of the
arbitration clause. But the opposite reading is equally consistent with that
principle. The Court’s third, and most striking, ground was the expanding
federal arbitration law hatched in Moses Cone: “[A]mbiguities as to the scope
of the arbitration clause [are] resolved in favor of arbitration.”37 The upshot is
to require crystal clarity on terms restricting arbitration power, even in a
standard-form adhesion contract.38 The common law requires no such clarity,
and it is a stretch to contend that the Court’s interpretive gymnastics are merely
supplying a default rule that parties can readily reverse at will. Worse, a basic
principle of contract law is to interpret similar contracts similarly, yet
Mastrobuono does not square with Volt. Mastrobuono silently overruled Volt—
and, thus, diminished respect for states, contracts, and contract law—putting the
Court’s novel national policy favoring arbitration ahead of the country’s
longerstanding tradition favoring freedom of contract.
The Court’s 1995 Allied-Bruce Terminix Co. v. Dobson39 opinion completed
the diminution of parties’ abilities to choose the applicable law—despite the
33. See SAMUEL WILLISTON, A TREATISE ON THE LAW OF CONTRACTS § 15.11
(Richard A. Lord
ed., 4th ed. 2007)
[hereinafter WILLISTON, CONTRACTS].
34. RESTATEMENT (SECOND) CONFLICT OF LAWS §§ 186 cmt. b; 187(1); 187(3) cmt. b, c, h; cmt.
a–j, Reporter's Note; 207.
35. In dicta, the Court suggested that, if the contract were silent about punitive damages, silence
would manifest no intention to bar them and they would be allowed because the FAA would preempt
New York’s law barring them. Mastrobuono, 514 U.S. at 59. Why this is so is not clear. The Court
assumed that a state law limiting remedies available in arbitration was anti-arbitration, unsurprising
given the Court’s enthusiasm for expansive readings of the FAA. But such a law is not obviously
antiarbitration. Punitive damages are allowed in tort actions but not for breach of contract, and there are
considerable differences between procedural and substantive rules of law on the one hand and the law
of remedies on the other.
36. For the two contract-law principles, the Court rightly drew upon state law (of New York, the
applicable law selected in the contract, as well as of Illinois, where the contract was formed), along with
the Restatement (Second) of Contracts. Mastrobuono, 514 U.S. at 62–63.
37. Id. at 62.
38. See WILLISTON, CONTRACTS, supra note 33, § 15.11.
39. 513 U.S. 265 (1995).
LAW AND CONTEMPORARY PROBLEMS [Vol. 75:129
Court’s rhetoric stressing freedom of contract. Justice Breyer’s opinion
addressed the FAA’s scope, capturing contracts that “evidenc[e] a transaction
involving [interstate] commerce.”40 The issue was whether to read this as a
directive from Congress about the population of contracts within its reach or as
a reference to parties’ intentions about the scope of the deals they make. The
case concerned a contract between a homeowner and a termite-protection
provider. The Alabama Supreme Court denied that the FAA applied,
considering the local nature of the contract and lack of any indication that the
parties contemplated the transaction involving interstate commerce.41
The U.S. Supreme Court reversed, deciding that “contemplation of the
parties” is not the test for whether the FAA applies.42 The Court instead stated
a test solely based on its declarations about what constitutes interstate
commerce. It took this position by reaffirming Southland’s preemption a decade
earlier, despite twenty state attorneys general filing amicus briefs to overrule
it.43 The Court invoked stare decisis and the statute’s recently discovered
national policy favoring arbitration. But the ruling gets contract law backwards.
Contract law is all about contemplation of parties. Aside from narrow technical
corners such as the statute of frauds,44 contract law is not about statutory
directives channeling agreements into baskets for legislatively ordained
treatment or courts setting default rules that parties are not allowed to change.
Despite stern proclamations that its arbitration jurisprudence is all about
contracts and contract law, the Court curtailed private autonomy to opt out of
the Court’s national policy in favor of state law.
B. Clarity of Intention
Even in the rare cases when the Court tries to imagine what the contracting
parties actually intended, or would have intended had they thought about an
issue, its national policy retains a strong presence. The result is jurisprudence
ringing of classical contract-law rhetoric worked into forms that make contract
law a tool of social control. For example, in First Options of Chicago, Inc. v.
Kaplan,45 the Court addressed an agreement between a company and a
securities firm containing an arbitration clause. A dispute had arisen between
individuals who had not signed the agreement, who wished to litigate, and the
securities firm, which wanted to arbitrate. At issue was whether a court or
40. 9 U.S.C. § 2 (2006); Allied-Bruce, 513 U.S. at 265.
41. As a result, Alabama law applied, which then barred arbitration. Allied-Bruce Terminix Co. v.
Dobson, 628 So.2d 354 (Ala. 1993).
42. See Allied-Bruce, 513 U.S. at 266 (“For several reasons, this ‘commerce in fact’ interpretation
is more faithful to the statute than the ‘contemplation of the parties’ test adopted below and in other
43. See id. at 272 (“[W]e find it inappropriate to reconsider [Southland, which] is by now
wellestablished law.”); supra text accompanying note 14.
44. Even such technical statutory directives are subject to considerable ameliorating doctrines,
such as part performance. See infra note 113.
45. 514 U.S. 938 (1995).
arbitrator decides if the arbitration clause governs. Reciting standard rhetoric,
the Court said that determination “turns upon what the parties agreed about
that matter,”46 usually by applying “ordinary state-law principles that govern the
formation of contracts.”47 Having recited the rhetoric, the Court retreated with
an “important qualification”[:] courts cannot assume parties agreed to arbitrate
such questions absent “clear and unmistakable” evidence of that intention.48
The holding in First Options creates a special rule of federal arbitration
jurisprudence alien to contract law: amid ambiguity about who decides whether
an arbitration clause governs, doubts are resolved in favor of the courts. That
special rule differs from the Court’s special rule of arbitration interpretation,
invented in Moses Cone and extended in Mastrobuono, resolving ambiguities in
the scope of a clause in favor of arbitration. Justice Breyer distinguished the
cases using hypothetical-bargain analysis popular among contract-law
theorists.49 He supposes that parties to agreements with arbitration clauses
“likely gave at least some thought to the scope of arbitration” so that, given a
national policy favoring arbitration, the Court demands clarity to show parties
did not intend arbitration—as in Moses Cone and Mastrobuono.50 In contrast,
“who (primarily) should decide arbitrability” is “rather arcane” and “[a] party
often might not focus upon that question.”51 After reverting to contract
rhetoric—under “the principle that a party can be forced to arbitrate only those
issues it has specifically agreed to submit to arbitration”52—the Court insisted
on “clear and unmistakable” evidence of that intent, inventing a standard alien
to contract law and of such limited use in law generally as to bewilder rather
Despite the attempt at using contract theory’s hypothetical-bargain analysis,
its use underscores weaknesses in the Court’s jurisprudence, not strengths in
Breyer’s engagement. The analysis supposes that people forming contracts with
arbitration clauses make degrees of calculation about matters closely related.
The Court does not justify its belief that there are significant differences
between whether an issue will be resolved by arbitration and whether a court or
arbitrator decides fights over that. Both are arcane. Parties often will give
neither issue the slightest thought. Those giving thought to one can as likely be
supposed to have given thought to the other. The First Options Court’s analysis
46. Id. at 943.
47. Id. at 944.
48. Id. (quoting a case from the context of labor arbitration, AT&T Techs., Inc. v. Commc’ns
Workers of Am., 475 U.S. 643 (1986) (refusing to compel arbitration of labor dispute though possibly
within scope of collective bargaining agreement)).
49. E.g., David Charny, Hypothetical Bargains: The Normative Structure of Contract Interpretation,
89 MICH. L. REV. 1815 (1991).
50. First Options, 514 U.S. at 945 (internal quotation omitted).
53. See id. at 944 (“Courts should not assume that the parties agreed to arbitrate arbitrability
unless there is ‘clea[r] and unmistakabl[e]’ evidence that they did so.”).
LAW AND CONTEMPORARY PROBLEMS [Vol. 75:129
also departed from contract law when applying its new test to the facts. In
deciding that the reluctant parties had not “clearly and unmistakably” vested
the arbitrator with decision-making power, the Court concentrated not on the
terms of the agreement, but on post-contractual conduct.54
In Howsam v. Dean Witter Reynolds, Inc., the Court saw the obverse of First
Options, finding requisite “clear and unmistakable” intent.55 A dispute under a
brokerage contract requiring arbitration posed a threshold issue of whether an
arbitrator or court should decide if, under industry arbitration rules, a time
limitation for bringing claims applied or had run. As usual, the Court recited
rhetoric (“[A]rbitration is a matter of contract and a party cannot be required
to submit to arbitration any dispute which he has not agreed so to submit”)56
then added qualifications (“[There is a] liberal federal policy favoring
arbitration agreements”57 with a heightened clarity standard about the “who
decides” issue58). The Court elaborated its hypothetical-bargain analysis from
First Options, this time finding clear and unmistakable intent bound up in the
contract’s structure and language. In this exercise, however, the Court drew
inferences less about what parties would want under the common law of
contracts, and more about what they would want given the Court’s FAA
jurisprudence—while making it no clearer what the imported and rarely-used
concept of “clear and unmistakable” means.
Again, the hypothetical-bargain analysis is a nice touch, but proves more
rhetorical than real, as indicated by Justice Thomas’s concurring opinion in
Howsam. He stressed that “arbitration is a matter of contract”—and he really
meant it.59 As the Court held in Volt, under the FAA, courts must enforce
agreements to arbitrate just as they would enforce what Justice Thomas called
“ordinary contracts”—in “accordance with their terms.”60 Volt’s holding directs
courts to choice of law clauses in agreements containing arbitration clauses and
tells courts to enforce them. The Howsam contract chose the law of New York,
whose highest court construed a nearly identical agreement to mean the
decision was for an arbitrator, not a court.61 Justice Thomas is thus clear: state
contract law governs, not federal arbitration jurisprudence. On inspection,
therefore, the Court’s Howsam opinion emerges as characteristically opaque:
expressing fealty to contract law while advancing arbitration jurisprudence
54. Id. at 946.
55. 537 U.S. 79 (2002).
56. Id. at 83.
58. See id. (“Although the Court has also long recognized and enforced a ‘liberal federal policy
favoring arbitration agreements,’ it has made clear that there is an exception to this policy: The
question whether the parties have submitted a particular dispute to arbitration, i.e., the ‘question of
arbitrability,’ is ‘an issue for judicial determination [u]nless the parties clearly and unmistakably
provide otherwise.’” ) (internal citation omitted).
59. Id. at 87 (Thomas, J., concurring).
61. Id. (citing Smith Barney Shearson Inc. v. Sacharow, 689 N.E.2d 884 (N.Y. 1997)).
expressing a national policy favoring arbitration over freedom of contract.
C. Federal Severing of Private Contracts
The common law of contracts takes a contextual approach to determining
the effects of one clause’s invalidity on the rest of a contract.62 The Court’s
federal arbitration jurisprudence imposes a severability rule so that the
existence of an arbitration clause—even in a fraudulent, illegal, or
unconscionable bargain—leaves determinations of the bargain’s validity for
arbitration, not the courts. The Court minted this tool in Prima Paint Co. v.
Flood & Conklin Manufacturing Co.,63 in which a business buyer sued its seller
to rescind a contract based on fraud, and the seller invoked the contract’s
arbitration clause. The seller won because the Court made a stunning move: it
severed the arbitration clause from the rest of the contract. The Court observed
that the buyer challenged the contract as a whole as fraudulently induced, but
did not specifically challenge the arbitration clause.64 So the arbitration clause
stood, and the Court directed the fraud claim to arbitration.65 Nothing in the
contract authorized the Court to do so, and the common law of contracts
warrants the opposite.
Despite controversy,66 the Court repeatedly embraces its severability
invention. In Buckeye Check Cashing, Inc. v. Cardegna,67 a borrower objected to
usurious terms as illegal under Florida law, and the lender invoked an
arbitration clause. The Florida Supreme Court held the entire contract void,
including its arbitration clause.68 The U.S. Supreme Court reversed, citing Prima
Paint’s federal procedure to sever the arbitration clause from the rest of the
contract. Justice Scalia also announced: “The issue of the contract’s validity is
different from the issue whether any agreement . . . was ever concluded”69—
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meaning essentially that courts can decide questions about contract formation,
such as whether a party had contractual capacity. But nothing in contract law
makes any such distinction to disempower courts to decide the legality of a
contract. Buckeye thus sustains an invention of uncertain congruity with
contract law, and of certain incongruity with the Court’s stern declarations that
it never holds people to arbitration agreements to which they did not assent.70
The apotheosis of the separation of arbitration jurisprudence from contract
law using severability is Rent-A-Center, West, Inc. v. Jackson.71 An
employee-atwill signed an employment application containing nothing but an agreement to
arbitrate disputes and related rules, including a meta-clause directing that
arbitration would resolve whether that agreement to arbitrate was valid. The
employee sued for unlawful discrimination and alleged that the agreement was
unconscionable because its arbitration rules were obnoxious.
Justice Scalia took the familiar formula, starting with incantations:
arbitration is a matter of contract; the FAA puts arbitration clauses on an equal
footing with other contracts; courts must enforce arbitration agreements in
accordance with their terms; and agreements to arbitrate are, like other
contracts, subject to defenses “such as fraud, duress, or unconscionability.”72
The rhetoric restated, the Court then applied federal arbitration jurisprudence,
not contract law, and severed the clause. In a rare show of candor, however, the
Court acknowledged that the source of its rule is federal arbitration
jurisprudence.73 Despite that acknowledgement, the Court insisted that its
holding “merely reflects the principle that arbitration is a matter of contract.”74
D. Dealing with Silence by Federal Judicial Fiat
Contractual silence is a vexing problem in the common law that has at least
twice bedeviled the Supreme Court’s arbitration jurisprudence as well. In Green
Tree Financial Corp. v. Bazzle,75 Justice Breyer’s opinion returned to the issue
of “who decides” and what “clear and unmistakable” intent means. The
arbitration clause at issue in Bazzle was silent about whether arbitration may
take the form of class arbitration. The South Carolina Supreme Court held that
its contract law takes such silence to permit class arbitration.76 The U.S.
Supreme Court reversed because the state court wrongly thought that question
was for the judiciary when—as a matter of federal arbitration jurisprudence,
particularly in light of Howsam—it was for the arbitrator to decide (the Court
finding “clear and unmistakable” party intention).77
Bazzle confused people (as much of the Court’s arbitration jurisprudence
does). That confusion manifested when the Court chastised arbitrators for being
confused and rebuked them for allegedly not following the law. Stolt-Neilsen
S.A. v. AnimalFeeds International Corp.78 involved a commercial shipping
contract with a standard arbitration clause. A customer wanted to use class
arbitration to air allegations that the shipping company illegally fixed prices for
many years. The two agreed that their contract did not say one way or the other
whether class arbitration was authorized. So they asked arbitrators to rule on
the meaning of that silence.79 The arbitrators held a hearing, took testimony,
and researched the law and industry practice. Their written report concluded
that the clause authorized class arbitration, citing the clause, custom in the
shipping industry, and general arbitration practice plus contract law precedents
from New York and elsewhere.80 The shipping company objected and sued to
have that ruling vacated.
The Court vacated the award, accusing the arbitrators of exceeding their
power under the FAA.81 The Court recited the full litany of its incantations—
nearly every specimen of contract rhetoric the Court has used to characterize its
arbitration jurisprudence since 1983: arbitration-clause interpretation is a
matter of state contract law;82 “arbitration ‘is a matter of consent, not
coercion’”;83 the FAA’s purpose is to make arbitration clauses enforceable
according to their terms;84 arbitrators derive power from contract;85 and
arbitration procedures can be freely designed because arbitration is a
consensual matter.86 Justice Alito then wrote that it is “clear from our
precedents and the contractual nature of arbitration that courts and arbitrators
give effect to these contractual limitations [and we] must not lose sight of the
LAW AND CONTEMPORARY PROBLEMS [Vol. 75:129
purpose of the exercise: to give effect to the intent of the parties.”87
Despite saying all of that, the Court never showed how a contract-law
analysis would apply to the case or yield a result different from what the
arbitrators reached under New York contract law. Instead, after acknowledging
that sometimes it is appropriate to supply missing terms to agreements
otherwise sufficiently definite to be binding,88 it simply declared that the
difference between “arbitration” and “class arbitration” is too vast to imply
such a term. This is not a statement of contract law, of course, but of
federalarbitration-law opinion, for which the Court cited no authority. The Court’s
thick and stirring rhetoric about its devotion to contract law makes its reliance
on perceived differences between direct and class arbitration pale by
E. The Death of Contract and the Denial of Death
Under the common law of contracts, people are usually free to make
bargains on any terms they wish and to have those terms enforced. That is the
essence of freedom of contract. Contract law’s third-party-beneficiary doctrine
recognizes that strangers may enforce contracts only in narrow circumstances
when parties to contracts have manifested intention to grant them that right.
This doctrine exquisitely illustrates a corollary principle called freedom from
contract.89 The Court’s arbitration jurisprudence gives short shrift to both
fundamental principles, though proclaiming devotion to them.
In Arthur Andersen LLP v. Carlisle,90 clients sued professional advisors after
a tax shelter the advisors fashioned was held illegal. Contracts between the
clients and a management firm had arbitration clauses; but the firm was
bankrupt, so that party and its contracts were out of the case. Still, the advisors
invoked those contracts, to which they were not parties, to seek a stay. Lower
courts denied the stay given that the advisers were strangers to the contracts. In
an opinion by Justice Scalia, the Court reversed.
The opinion begins with the familiar incantations—arbitration agreements
are contracts that federal law puts on equal footing with other contracts, and
state law governing contracts generally applies to determine what contracts are
enforceable.91 It added that the FAA directs courts to stay litigation in the face
of arbitration clauses found binding under state law.92 The Court declared that
the lower courts erred in holding that strangers to contracts cannot obtain stays
under arbitration clauses because, it said, state law allows “a contract to be
enforced by or against nonparties to the contract through ‘assumption, piercing
87. Stolt-Nielsen, 130 S. Ct. at 1774–75.
88. Id. at 1775 (citing RESTATEMENT (SECOND) OF CONTRACTS § 204 (1979)).
89. E.g., Richard Speidel, Contract Theory and Securities Arbitration: Wither Consent?, 62 BROOK.
L. REV. 1335, 1337 (1996).
90. 129 S. Ct. 1896 (2009).
91. Id. at 1902.
the corporate veil, alter ego, incorporation by reference, third-party beneficiary
theories, waiver and estoppel.’”93
The Court did not explore how any of those theories could give the advisors
rights against the clients under the latter’s agreements with the management
firm. None of the listed theories work. The only theory the advisors asserted
was estoppel, the equitable doctrine available to do justice when legal principles
fail, but that was unlikely to be applicable on the facts. So the Court simply
declared that third-party-beneficiary law might be a sufficient ground and
reversed on that basis. But that was an even wilder stretch because there was no
evidence that the clients intended for the advisers to have rights under their
contracts with the management firm. Although state contract law on third-party
beneficiaries varies slightly from state to state, all at minimum require the third
party to prove that the contract parties intended them to have rights.94 The
Court’s assertions that arbitration is a matter of contractual consent, not
coercion, thus fall flat.95
The clearest declaration of the death of contract in federal arbitration
jurisprudence is Hall Street Associates, L.L.C. v. Mattel, Inc.96 The Court in Hall
Street declared that parties are not allowed by contract to supplement FAA
grounds for judicial review of arbitration awards. The FAA states the grounds
courts may invoke to vacate or modify an award, including fraud, arbitrator
misconduct, or (as in Stolt-Neilsen) an arbitrator’s exceeding his powers.97 The
parties in Hall Street provided by contract that awards under the arbitration
agreement they assented to would be subject to judicial review for erroneous
conclusions of law. The arbitrator drew such an erroneous conclusion, and the
party it harmed sought judicial review. The Supreme Court refused to enforce
95. Nor could the Court avoid that criticism by blaming the statute, as it tried to do when writing:
“If a written arbitration provision is made enforceable against (or for the benefit of) a third party under
state contract law, the statute’s terms are fulfilled.” Arthur Andersen, 129 S. Ct. at 1902. Professors
Stone and Bales put the point presciently in their casebook without adverting directly to Arthur
Andersen, wondering whether third-party-beneficiary status should be determined by state contract law
or by special federal law congruent with federal preemption and liberal federal-arbitration policy. See
STONE & BALES, supra note 1, at 418. They ask if the federal presumption favoring arbitration
commands that states grant third-party-beneficiary status “whenever there is a colorable claim” to that
standing and then ask, poignantly, “If so, what happens to the bedrock principle that arbitration is
grounded in consent of the parties?” Id. The Arthur Andersen case, like the dozen others considered in
this article, raises the issue of whether that “bedrock principle” is more rhetorical than real.
96. 552 U.S. 576 (2008); see Richard C. Reuben, Personal Autonomy and Vacatur After Hall
Street, 113 PENN. ST. L. REV. 1103, 1105 (2009) (“This decision constitutes arguably the most
significant constraint on party autonomy in arbitration that the Court has imposed.”).
97. 9 U.S.C. § 10 (2006); see supra note 81 (summarizing grounds the FAA authorizes courts to use
to vacate awards).
LAW AND CONTEMPORARY PROBLEMS [Vol. 75:129
that contract, demolishing contractual freedom,98 despite forty years of
proclaiming that its arbitration jurisprudence rests on contract and is intended
to enforce contracts. The Court thus shows both the death of contract at its
hands and its denial of that death.
A final example is AT&T Mobility v. Concepcion,99 in which the issue was
whether California unconscionability law applies to “any contract” within the
meaning of the FAA as the Court construes it. The case involved a form
contract about which a consumer claimed a fraud of thirty dollars and sought to
wage a class arbitration—which a contract clause barred. California contract
law classified as unconscionable such procedurally adhesive clauses that can be
used to prevent people from banding together to challenge crooked practices
that involve stealing small sums from large numbers of people.100 The Court said
the FAA preempted that contract law.
The case showed that the Court’s rhetoric is at war with itself: rhetoric from
pure nineteenth-century freedom of contract suggests upholding the bar
because the clause is in the written agreement; rhetoric about state contract law
suggests striking the bar because the written agreement is invalid. The Court’s
opinion, however, was oblivious to this tension. Instead, the Court followed its
usual course, offering an opinion rich with empty rhetoric about arbitration
being a creature of contract. At the same time, the Court was more explicit than
ever that what matters in these cases is the Court’s powerful national policy
strongly favoring a particular form of arbitration over other methods of dispute
The Court could not accept the validity of California contract law because it
did not advance its favored national policy. Justice Scalia gave a new definition
of that national policy, again combining two conflicting ideas while pretending
they are in harmony: “to ensure the enforcement of arbitration agreements
according to their terms, so as to facilitate informal, streamlined proceedings.”101
The opinion fights tirelessly but unsuccessfully to prove that it has not made up
this new version of the national policy. It struggles strenuously but
unsuccessfully to persuade that there is no conflict between its devotion to
arbitration and basic principles of Anglo-American contract law.
The Court commits contradictions that manifest a lack of understanding of
contract law and even life. Most strikingly, on one page Justice Scalia observes
that consumer contracts are totally “adhesive” today;102 yet, on the very next
page, he strikes the California law because the aggregate actions it ordains are
not “consensual.”103 The passages are oblivious to how difficult it is to conceive
of an adhesion contract as consensual. There may be ways to reconcile these
propositions, but it would require much-more-honest confrontation with the
fact that it is the national policy favoring arbitration alone that is driving
things—not contract, not freedom, not volition, and not consent.
Nor did Justice Breyer’s dissenting opinion address or appreciate the gap
between what the Court says and what it does about contracts in its arbitration
jurisprudence. It instead fights the majority on the statute’s purpose concerning
arbitration as a national policy, on the differences between arbitration and
litigation, and on the differences between direct and class arbitration.104 Only
Justice Thomas, as usual, offered any serious effort to engage in contract-law
discussion and analysis. He struggled to map the statute onto the law of
contracts. He took the statutory text literally, though, treating the word
“revocation” in its savings clause to recognize only those defenses to arbitration
agreements that affect the making of a contract rather than its enforceability or
validity.105 This enabled him to concur. Though flawed, it is a far better ground
than the majority offered because it is faithful to contracts and contract law.
EXPLAINING AND ASSESSING THE RHETORIC–REALITY GAP
The Supreme Court routinely says that the FAA and federal arbitration
jurisprudence are a matter of contract law. There is some truth to such
assertions, particularly when referring to the existence of a flicker of volition
nodding toward arbitration for dispute resolution. But the Court’s rhetoric
about contracts and contract law is more exuberant than the reality that
dislodges contracts and contract law from their usual roles. And the problem is
not limited to widely referenced contexts such as when consumers or employees
sign adhesion contracts with boilerplate arbitration clauses that the Court
nevertheless enforces. The Court likewise imposes its national policy favoring
arbitration on commercial parties in arm’s-length negotiations using equally
alluring rhetoric. Wonderment arises: What explains this gap and why might it
A. Doctrinal Explanations
Scholars could defend the Court’s arbitration jurisprudence by
reinterpreting it in different ways, loosely classifiable as doctrinal. Doctrinal
explanations might assert that: (1) there is less difference than appears between
rhetoric and reality, or between any gap the Court shows and gaps prevalent in
other areas of law or the general law of contracts; or (2) contract law’s default
rule theory explains the Court’s jurisprudence, including any perceived
103. Id. at 1750–51.
104. Id. at 1757–59.
105. Id. at 1753–55.
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differences between what it says and what it does. However, neither retelling of
the Court’s arbitration jurisprudence is compelling. Instead, the best doctrinal
account is less an explanation than another anomaly requiring explanation: the
Court’s rhetoric reflects nineteenth-century classical contract law, whereas its
applications evince a caricature of late-twentieth-century, post-realist contract
law that Grant Gilmore called “contorts” in his famously enigmatic book, The
Death of Contract.106
1. Rhetoric and Reality
The rhetoric–reality gap may simply reflect similar gaps that are pervasive in
law. Courts roundly intone one policy tradition of grand and enduring appeal,
such as tort law’s “no duty to rescue,” then announce an exception, in a process
that—if repeated enough—yields the familiar result of the exception swallowing
the rule. Episodes like that recur in law. But they still tend to be special cases
rather than routine. Rhetoric–reality gaps remain an anomaly to highlight,
explain, or criticize—as this article does—rather than representing the norm to
be expected. In the case of the Court’s talk versus its actions, it repeatedly
asserts a singular rule—freedom of contract—then often generates applications
at odds with that. At that general level, the gap is difficult to deny.
At a more particular level, it is possible to claim that a peculiarly vibrant
rhetoric–reality gap pervades contract law. Besides freedom of contract, judges
routinely proclaim mantras in contract law supporting such principles as that no
punitive damages are allowed, that mutuality is required, and that party
autonomy is the standard. Yet judges do periodically award damages greater
than necessary to compensate for breach of contract (such as to “punish willful
breach”); case analysis shows that mutuality is often lacking when binding
contracts are found; and party autonomy has faded into the deep background
amid the past century’s proliferation of standardized forms. To that extent, the
Court’s arbitration jurisprudence may replicate national contract-law
But there are both qualitative and quantitative differences. The Court has
fielded only a handful of arbitration cases annually in the past two generations,
and the Justices do not rotate very much. The same dozen people have written
about a score of opinions. They can be expected to produce opinions coherent
in rhetoric and reality more readily than a welter of far-flung courts in many
jurisdictions facing a bewildering variety of fact patterns, contending equities,
and varying judicial staffing. Yet the small coterie of Justices has not produced
such a coherent body of opinions, leaving a gap more pronounced than appears
elsewhere in the law of contracts.
On the other hand, a variation on this explanation might question whether
the gap portrayed in part II is exaggerated because of contract law’s breadth
and capaciousness. After all, contract law governs an infinite variety of deals.
That often requires tailoring general doctrines to particular contexts, such as
106. GRANT GILMORE, THE DEATH OF CONTRACT (1974).
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RHETORIC VERSUS REALITY
transactions in goods, land sales, construction contracts, or consumer
exchanges. The Court’s adaptation of general contract law to the special context
of arbitration may simply advance a grand tradition—still about freedom of
contract, warranting the rhetoric—but with applications that differ slightly from
applications in other contexts. Some of the Court’s rules may be explained in
these terms, particularly its rules for interpreting ambiguous expressions—
construing doubtful clauses to favor arbitration though insisting on clear and
unmistakable evidence of intent to have arbitrators decide threshold
But many of the Court’s arbitration-law doctrines depart from general
contract law so considerably that they achieve a different purpose—one in the
service of social control, not freedom of contract. Examples are the Court’s
announcing federal rules in Allied-Bruce declaring which contracts are within
the FAA’s scope,108 expanding the enforcement rights of strangers to contracts
under Arthur Andersen,109 and denying party autonomy to contract for judicial
review of arbitration awards as stated in Hall Street.110 The rules more clearly
advance the purpose of a national policy committed to arbitration than a
national policy committed to freedom of contract—while denying doing that—
as evidenced in the Court’s approach to choice of law clauses in such cases as
Mastrobuono111 and in its severability rule stated in cases such as Prima Paint,
Buckeye, and Rent-A-Center.112 Thus, there remains something unusual about
the rhetoric–reality gap in the Court’s arbitration jurisprudence requiring
2. Default-Rule Theory
Another doctrinal explanation for the Court’s jurisprudence, and its gap
between rhetoric and reality, reinterprets the jurisprudence in terms of
defaultrule theory in contract law. This framework appreciates that no contract can be
perfectly complete given transaction costs and limitations of human foresight.
One function of contract law is to provide rules that apply when a contract does
not address an issue or that apply no matter what, courtesy of public policy.
Most contract-law default rules can be changed (such as risk of loss to goods in
LAW AND CONTEMPORARY PROBLEMS
transit or the destruction of a contract’s subject matter); the few that cannot
(such as the compensation principle or the statute of frauds) exhibit a strong
and readily identifiable rationale consistent with fundamental principles of
contract law and accompanied by ameliorating doctrines to avoid harsh results
in particular cases.113
The strongest examples supporting the default-rule explanation of the
Court’s jurisprudence are the Court’s express statements of this approach in
cases such as Howsam and First Options. In those cases, the Court is explicit in
using hypothetical-bargain analysis and stating that the Court’s goal is to “align
probable expectations with the understood comparative expertise of
institutional arbitrators in interpreting their own rules.”114 But, aside from being
rare for that feature, the talk remains more rhetorical rather than real; the rest
of the Court’s arbitration rules tend to be statements of judicial fiat in the name
of the national policy favoring arbitration, without regard to presumed or
probable party intent.
Exquisitely, Allied-Bruce denies that party contemplations matter when
determining whether the Court’s national policy or state law should govern,
favoring a determination based on what the Court declares to involve interstate
commerce.115 Another strong example negating the default-rule explanation is
the Court’s express denial of this approach in Hall Street. Interpreting the FAA,
the Court refused to validate a contract clause authorizing a court to review
whether an arbitration award rested on erroneous legal premises.116 This denial
of freedom of contract illustrates how default-rule theory simply crumbles as an
explanation of the Court’s jurisprudence and its rhetoric–reality gap.117
It is also difficult to explain cases such as Mastrobuono in terms of
defaultrule theory. That case denied effect to a choice-of-law clause selecting New
York law when the Court found that state’s laws regarding arbitrators’ powers
unappealing. Portraying this as a matter of default-rule theory might begin by
asserting that choice-of-law clauses choose only among state laws, not between
state and federal law, because both of the latter are sovereign in the states. But
if the Court has produced an appealing contribution to the law governing
arbitration, authentically about contract law, then it has also created a choice
between co-equal governing laws, such as New York versus federal. Yet cases
113. For example, exceptions from the nominally immutable statute-of-frauds default rule include
the part-performance doctrine and, in some states, promissory estoppel; exceptions from the nominally
immutable default rule against stipulated remedies that impose penalties for breach include the
114. See supra text accompanying notes 45–58 (noting Justice Breyer’s attempts to defend some of
the Court’s jurisprudence using contract law’s default-rule theory).
115. See supra text accompanying notes 39–44 (discussing Allied-Bruce Terminix Cos., Inc. v.
Dobson, 513 U.S. 265 (1995)).
116. See supra text accompanying notes 96–98 (discussing Hall St. Assocs., L.L.C. v. Mattel, Inc.,
552 U.S. 576 (2008)).
117. Some language toward the end of the Hall Street opinion obliquely suggests some possibility of
altering the Court’s rule by reference to general principles of state law discussed in Volt, but that escape
route is neither explicated nor highly reliable.
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RHETORIC VERSUS REALITY 149
such as Mastrobuono do not promote free party choice over whether a
particular state’s law or the Court’s FAA law should govern. That is not exactly
consistent with default-rule theory.
Arthur Andersen cannot be squared with default-rule theory. The opinion
expands the Court’s presumption favoring arbitration by finding that parties
who signal will to arbitrate anything agree to arbitrate everything. Conceiving
of the case in default-rule terms, Professor Rau suggests this analogy: If you
expressly agree to arbitrate about the sale of fruit, then you implicitly agree to
arbitrate about whether the sale of tomato is a sale of fruit.118 The analogy may
be persuasive in principle, but does not justify Arthur Andersen.
The question in Arthur Andersen was whether a party may be compelled to
arbitrate an issue, not against a party it made that agreement with, but against a
party with whom it made no such agreement. That is not analogous to the fruit–
tomato example. Indeed, in compelling that arbitration, the Court distinguished
its rhetoric suggesting it does not compel people to arbitrate issues they did not
agree to arbitrate. The result is greater reluctance to compel arbitration about
classifying tomatoes under an agreement to arbitrate about fruit and a greater
willingness to compel arbitration against a stranger to a contract so long as that
contract had an arbitration clause.119
Even if the default-rule theory of the Court’s arbitration jurisprudence
retains some purchase, another weakness in that conception is how many of the
Court’s default rules tend to be sticky. True, if classified as default rules, some
are easy to contract around, such as avoiding ambiguity or using an adjective to
modify the word arbitration if intending to authorize particular forms of
arbitration, such as class arbitration. But it is much more difficult to circumvent
other default rules, such as by selecting a law other than the FAA or by
providing that no third parties can enforce an arbitration clause.
The logic, if not the language, of the Court’s opinions indicate a stickiness
not common in general contract-law default rules. As a contrast, consider such
routine subjects as the default rule setting a reasonable time, which may be
contracted around simply by stating dates and times. The Court’s arbitration
default rules, as a class, are more akin to warranty law that can only be
disclaimed by following particular procedures, especially using unambiguous
and specific language.120 These rules are more familiar in the law of torts than
118. See Alan Rau, Arbitral Jurisdiction and the Dimensions of Party “Consent,” 24 ARB. INT’L 199
119. Professor Rau allows that no party can compel another to arbitrate who has not agreed to any
arbitration whatsoever. But, as in First Options, that just reemphasizes the national-policy thumb on
this scale to determine the default rule. Agree to anything, and you agree to everything, even if that
default rule differs from standard third-party-beneficiary law. Again, the Court insists it is merely
following and applying contract law, here third-party-beneficiary doctrine, and not making a special
default rule for “signatories in arbitration.” But this is not a contract or contract law, despite rhetoric. It
is mandatory obligation, more akin to contorts, as discussed in the next subsection.
120. The history of warranty is a central story in the history of the relationship between contract
and tort law.
LAW AND CONTEMPORARY PROBLEMS [Vol. 75:129
they are in the law of contracts, inviting a final doctrinal view of the Court’s
jurisprudence better classified as contorts than contracts.
A final way to classify the Court’s arbitration jurisprudence is as classical in
rhetoric, but post-realist in application. The Court reflects two contending
strands of contract law, one exuberantly and classically reflecting autonomy, the
other consciously and modernly injecting a role for society in contracts and
contract law. Contract law is rooted deeply in party autonomy and freedom and
was historically unshackled by status-based impositions that distinguish contract
from tort law. These deep roots and this vital distinction loom large in the
Court’s rhetoric about arbitration jurisprudence. Another view of contracts
recognizes its distinction from tort as far more blurry and its roots in party
autonomy often overstated. This view was charmingly dubbed “contorts” by
Grant Gilmore in his controversial caricature of modern contract law, The
Death of Contract.121 This concept is more congruent with the Court’s real
applications in its arbitration jurisprudence, rhetoric aside.
In this interpretation, autonomy is not so much an exercise of preference
given the contexts and purposes of people, but an interpretation of action
limited by the contexts and purposes of the rules. The Court is not merely
heeding old-fashioned principles in the common law of contracts—the Court is
not applying the common law of contracts, but a special brand of contract law it
has developed for arbitration in light of its declared national policy favoring
arbitration. It is a national policy that supersedes values embedded in the
common law of contracts (volition, autonomy, freedom of and from contract).
There is thus a gap between the Court’s rhetoric (all about these venerable
values) and the reality (heavily influenced by a superseding national policy),
which remains to be explained.
B. Legalistic Accounts
A likely explanation for the rhetoric–reality gap is that it is a tool to cover
an inherent conflict in the Court’s arbitration jurisprudence. The Court insists
that there is a national policy favoring arbitration over litigation. That entails a
policy disfavoring trial by jury as guaranteed by the Constitution along with
other procedural due process.122 To validate that national policy requires
respecting such constitutional rights and associated traditions. It demands some
voluntary basis to direct people to arbitration instead of the courthouse. That
means contracts.123 But, if parties have true freedom of contract, they could
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interfere with that national policy. People could freely agree to levels of judicial
review over arbitration awards,124 be free from strangers asserting mandates to
arbitrate disputes,125 and easily escape the clutches of federal law, in favor of
their chosen state law.126 Allowing such a full range of contractual freedom
would impede a national policy favoring arbitration. The tension thus induces
rhetoric about contracts.
Similarly, when insisting on a national policy favoring arbitration, the
Justices know that implementing this policy entails the federalization of an area
of law traditionally reposed in the states. This is true for all Justices, whatever
their usual view on the relative powers of federal and state government. Such a
move defies federalism. States’ rights are thus at stake in the Court’s arbitration
jurisprudence. To promote the respectability of an assertion of national policy,
it helps to maintain the policy’s links to state-law prerogatives. That means
contract law. But, again, too much deference to state law would undermine a
national policy. That tension induces rhetoric about state contract law. It is
therefore easy to understand why the Court would embrace the rhetoric of
contracts and of contract law while advancing its national policy favoring
On the other hand, maneuvering to secure legitimacy under constitutionally
pedigreed access to justice or federalism impulses does not require a rhetoric–
reality gap as wide as the cases reveal. Finding requisite citizen volition to
warrant rechanneling disputes from litigation to arbitration can be done within
a federal arbitration regime expressly unmoored from contract law. Gestures
towards federalism could be made without rhetorical exaggeration by showing
such linkages between the Court’s jurisprudence and state law that do exist.
Certainly, the rhetoric–reality gap as to contract law does not cure the
federalism objection, and the rhetoric about fidelity to contracts is not a perfect
disguise for the coercive aspects of the jurisprudence.
An additional explanation for the rhetoric–reality gap is the statutory basis
of the Court’s jurisprudence. The FAA was motivated by judicial reluctance to
enforce contracts. The text of the statute speaks of contracts. The Court’s talk
of anchoring its application of the statute in contract law thus makes obvious
sense. But it does not explain why the Court fashioned a separate federal
arbitration law, distinct from the common law of contracts, and it certainly does
not explain the rhetoric–reality gap. The choice to develop a different body of
law is explicable, ultimately and simply, by the Court’s determination that there
That prospect ups the ante favoring contractual rhetoric.
124. Contra Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008). See supra text
accompanying notes 96–98.
125. Contra Arthur Andersen LLP v. Carlisle, 129 S. Ct. 1896, 1902 (2009). See supra text
accompanying notes 90–95.
126. Contra Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265 (1995); Mastrobuono v.
Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995). See supra text accompanying notes 39–44
(discussing Allied-Bruce); supra text accompanying notes 30–38 (discussing Mastrobuono).
LAW AND CONTEMPORARY PROBLEMS
should be a national policy favoring arbitration. Once that policy was declared,
a new set of tools, not merely those found in general contract law, was necessary
to implement it. The rhetoric compensates for the need to be faithful not only
to the statute—and the Constitution and federalism—but to the Court’s
determination of the national policy it expresses. Again, though a partial
explanation for the gap, this legalistic account is not definitive. After all, it
suggests that the Justices consciously cultivate the rhetoric–reality gap. But
evidence is scarce to support such disingenuous calculation. So the legalistic
accounts are probably incomplete and further explanation warranted.
C. Institutional Stories
A credible institutional explanation for the rhetoric–reality gap is the
Justices’ lack of interest in the subtleties required when grappling with contract
law in the arbitration context. One version of this explanation suggests that the
Court may think it is enforcing contracts according to the common law of
contracts, supplemented with federal rules that are also contractual. The
Justices occasionally cite contract-law authority.127 In clear cases of departures,
especially with its severability rule, the Court stresses forthrightly that it is
developing and applying substantive arbitration law based on the FAA.128 In
others, such as the Court’s presumptions concerning the question of “who
decides” whether an issue is subject to arbitration, it even uses the tools of
hypothetical bargain to struggle with contract-law terrain.129 But those citations,
admissions, and struggles are sparse. Most of the Court’s citations in its
arbitration opinions are to its own previous opinions, not to material on the
common law of contracts or state contract law.
Another version of this explanation is more fundamental—that the Court is
not equipped to attend to the required subtleties of the common law of
contracts. There is a good deal of evidence to support this take. The Court has
historically acknowledged its comparative disadvantage in matters of the
common law, including contracts, which can vary among the states.130 The Court
has few occasions to immerse the Justices in the common law of contracts
because it is rarely the court of last resort to address contract-law issues. This
setting contrasts with the Court’s routine and deep engagement in the fields
that form most of its docket, such as constitutional law, federal courts,
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RHETORIC VERSUS REALITY 153
administrative law, and statutory and regulatory interpretation. Leading
students of the Court’s arbitration jurisprudence detect a comparative lack of
serious interest in the subject.131
The most cynical explanation for the rhetoric–reality gap is that the
judiciary is a primary beneficiary of the Court’s discernment of a national policy
favoring arbitration. Federal judges, especially Justices of the Supreme Court,
may be uncomfortable as primary marketers of such a national policy. The
Court might just find it easier to wrap the product and pitch in slogans of
contracts and contractual freedom—while exercising the powerful leverage of
federal law to guarantee the product’s marketing success.
Finally, it is difficult to attribute the rhetoric–reality gap to ideology, since
all the Justices contribute to the gap. Indeed, scholars stress that the Justices
share the perception of a national policy favoring arbitration and the resulting
pro-arbitration bias pulsing through its jurisprudence.132 In early cases
developing this national policy, in the 1980s, there was divergence on
ideological grounds between the Justices as to federalism—a majority willing to
invade state territory while a conservative minority resisted on federalism
grounds—notably Justices O’Connor and Rehnquist in the 1980s and Justices
Scalia and Thomas later.133 That initial rallying charge was led by another
conservative, Justice Burger, and gradually all but Justice Thomas capitulated
to federalization.134 That said, opinions by Justices Thomas and Rehnquist
concerning federalism exhibit the narrowest gap between the rhetoric of
contracts and the reality.135
Though ideology does not explain the rhetoric–reality gap, it does influence
its shape. Justice Brennan, liberal lion, wrote the Court’s most forceful
131. E.g., Alan Scott Rau, “Separability” in the United States Supreme Court, STOCKHOLM INT’L
ARB. REV., 13 (06/2006), available at http://ssrn.com/abstract=893601 (referencing opinions by Justice
Scalia); Alan Scott Rau, Fear of Freedom, 17 AM. REV. INT’L ARB. 469, 486 (2006) (referencing
opinion by Justice Souter). The Court receives plenty of briefs and could read the substantial literature
about all aspects of the issues. But lawyers and scholars involved likewise have not stressed the
rhetoric–reality gap, nor given the Court reason to redress it. Much of the Court’s jurisprudence, as
with the literature, uses vocabulary unique to arbitration cases. The vocabulary is not only alien to the
common law of contracts but sometimes suggests a subordination of contracts and contract law to
arbitration and national policy. A pervasive, though modest, example of the subordination rhetoric is
how the Court refers to contract law as providing “background principles.” Though this phrase is
commonly used among contract-law scholars to designate default rules that parties can tailor in
particular settings, the Court’s use suggests those default rules are subordinate to what it declares to be
the principles of federal arbitration law.
132. E.g., Jeffrey W. Stempel, Mandating Minimum Quality in Mass Arbitration, 76 U. CIN. L. REV.
383 (2008); Siegel, supra note 3, at 1142–43.
133. See supra notes 17 & 19.
134. For example, though many opinions and Justices have forged headlong into federal
preemption of state law in this field, Justice Thomas, devotee of federalism, steadfastly dissents from
preemption; Justice Scalia often echoes the objection but has retreated somewhat; Justice O’Connor
once steadfastly opposed preemption but eventually relented; Chief Justice Rehnquist steered
colleagues toward federalism.
135. See supra text accompanying notes 60–62.
LAW AND CONTEMPORARY PROBLEMS [Vol. 75:129
assertions of federal pro-arbitration policy in Moses Cone.136 Then-Justice
Rehnquist, a conservative, objected to Justice Brennan’s opinion: “In its zeal to
provide arbitration for a party it thinks deserving, the Court has made an
exception to established rules of procedure”137—not an objection to FAA
jurisprudence, but an acknowledgement of zealotry’s role in protecting a
favored party class. Likewise, Justice Rehnquist, devotee of federalism,
deferred to state law in Volt.138 In contrast, Justice Stevens, a liberal less moved
by states’ rights, withheld deference in Mastrobuono on analytically identical
facts.139 Stevens empathized with consumers, including securities-brokerage
customers, and leaned over backwards in Mastrobuono to allow them an award
of punitive damages. Justice Thomas, die-hard conservative, dissented. But the
majority opinions in Volt and Mastrobuono stated the standard contract
rhetoric and then applied federal arbitration jurisprudence discordantly.
Justice Breyer wrote the Court’s principal opinions on the clarity of
threshold intent about “who decides.”140 These opinions portray a moderate
judge offering a nuanced approach, finding room for judicial oversight of
arbitration. They commanded assent among the Justices.141 In contrast, Justice
Scalia wrote the Court’s recent opinions on the severability doctrine.142 Those
reflect a conservative judge taking a formal approach committed to the
arbitrator’s power. They prompted dissents by liberal Justices, like Stevens, who
are more willing to use policing tools such as unconscionability. But all these,
and other opinions—by Justices Alito, Breyer, Ginsberg, Scalia, Souter and
Stevens—first venerated contract law and then applied arbitration
jurisprudence in ways at odds with contract law.143 So there is little doubt that
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RHETORIC VERSUS REALITY 155
ideology plays a role in how the Justices approach federal arbitration
jurisprudence and how they perceive, describe, and apply contract law
principles. But the rhetoric–reality gap transcends the ideological spectrum,
making this at best a partial explanation for the character of the gap.
Nor is it the case that the Justices are faithful to or disagree about a
particular theory of contract law or school of contract-law thought—such as
classical, formalist, realist, anti-formalist, neo-formalist, or anything else. Far
from struggling to classify contract law into such categories, the Court elides
them, sallying forth to state and apply versions of contract law that suit its
national policy favoring arbitration.144 Indeed, the persistence and widening of
the rhetoric–reality gap is likely also due to there being no higher court that can
correct the Supreme Court, even in matters outside its bailiwick, such as
contract law. The story helps to underscore the beauty of the common law as a
system. It seems highly unlikely that a group of nine judges, sitting on high and
hearing a handful of cases annually over a few decades, will produce law as
appealing as that produced in contract-law jurisprudence over centuries by up
to fifty state supreme courts plus England’s high courts over tens of thousands
Scholarly debate concerning federal arbitration jurisprudence is dominated
by disagreement about the comparative efficacy of arbitration compared to
litigation.145 What is at stake is the fairness and efficiency of the process. By
studying federal arbitration jurisprudence from the perspective of contract
rhetoric versus reality, a different set of problems appears. These concern the
effects of a federal jurisprudence that is often wrong and misleading about
contracts and contract law. The rhetoric–reality gap produces abstract costs of
illegitimacy; defiance or distortion; incoherence; and misperception.
Any gap between what judges or other public officials do and what they say
creates risk to the legitimacy of the official and the official’s actions. The
rhetoric–reality gap in federal arbitration jurisprudence exposes several
legitimacy problems. The talk of freedom of contract obscures how the primary
engine of this jurisprudence is the Court’s discernment of a national policy
favoring arbitration. This policy has nothing to do with freedom of contract or
with the exquisitely apolitical body of contact law,146 but has everything to do
awards, prompted two dissents—one by the liberal Justice Stevens and joined by the conservative
Justice Kennedy, and one by the moderate Justice Breyer. Hall St. Assocs., L.L.C. v. Mattel, Inc., 552
U.S. 576 (2008). See supra text accompanying notes 96–98.
144. The only version of such a theory that the Court tends to embrace is the notion of “contorts.”
See supra Part III.A.3. But that is not so much a school of thought as it is a critical account of certain
trends in common-law jurisprudence evident in the period before 1970.
145. See supra notes 12–13 and accompanying text.
146. See David A. Hoffman & Tess Wilkinson-Ryan, Breach is for Suckers, 63 VAND. L. REV. 1003,
1011 (2010) (“[C]ontract law is usually considered to be the most technical and least political of the
first-year law courses . . . .”).
LAW AND CONTEMPORARY PROBLEMS [Vol. 75:129
with judicial power and institutional prerogatives.147 It is also by definition a
national rather than state policy; the talk of deference to state contract law as a
gesture to federalism not only makes the assertion hypocritical but invalidly
mutes valid federalism objections to the Court’s usurpation of the field.
A related risk of perceived illegitimacy is that the Court’s pronouncements
may provoke state defiance.148 The Supreme Court faces rebuke from state
courts, which thumb their noses at the Court,149 or state legislatures, which
sometimes leave on the books statutes that would be illegal under its
precedents.150 Obviously, such state objections to federal invasion may exist
even if the Court’s rhetoric were faithful to its applications. But it seems likely
that the gap between rhetoric and reality fortifies state objections; it invites
states to explain why, under contract law as state officials know it—unlike how
the Supreme Court develops it—the state is correct and the Court wrong. State
officials may have a duty to resist usurpations of constitutionally protected state
prerogatives, including those that federal law purports to preempt under the
On the other hand, some states simply knuckle under, declaring the Court’s
opinions the law of the land and withdrawing contrary state opinions after being
rebuked.152 Though not all states defy the federal regime, those following it
often cause the problem of distortion. Before Prima Paint,153 leading state courts
held that defenses asserting fraud in the inducement were for courts to decide,
not arbitrators. Among these was New York, leader in contract law, including in
arbitration cases.154 The grounds were straightforward principles of contract law:
The arbitration clause was not severable from the principal contract. Similar
results and reasoning appeared elsewhere.155 Prima Paint led New York to
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RHETORIC VERSUS REALITY 157
switch and to instead follow the federal rule.156 The grounds were a more
adventuresome principle of arbitration policy: Following contract law
“defeats . . . two of arbitration’s primary virtues, speed and finality.”157
The Court’s jurisprudence has prompted the distortion of state law in other
states, too, including in California. The state’s high court likewise construed the
California arbitration statute to distinguish sharply between arbitration clauses
and the broader contracts of which they usually are part.158 The court’s rationale
was the same: putting arbitration policy above freedom of contract. In dissent,
Justice Mosk declared the court’s approach to be putting the cart before the
horse, showing “resupination: logic and procedure turned upside down.”159
Mosk was more persuaded by the “irrefutable dissent” in Prima Paint and the
few state courts that held out against the sweep of the federal rule.160 Mosk
stressed that, if arbitration is really a matter of contract, then courts must take
seriously—and not merely rhetorically—basic principles, including that “one of
the essential elements of a contract [is] that the parties enter into it knowingly
and consensually, not through fraud, duress, menace, undue influence, or
The gap and challenges to jurisprudential legitimacy pose additional
practical problems of doctrinal incoherence, both within federal jurisprudence
and collaterally on the law of contracts. The Court’s jurisprudence is often
confusing, especially concerning questions such as “who decides”162 and what
“clear and unmistakable” means.163 The confusion is likely at least a partial
product of the Supreme Court’s assertions that contracts and contract law
dominate with applications showing that a national federal policy favoring
arbitration dominates. Indeed, the concept of “clear and unmistakable” simply
does not appear as an interpretive principle or presumption anywhere in the
law of contracts.164 Worse, other courts are nevertheless tempted by the
LAW AND CONTEMPORARY PROBLEMS [Vol. 75:129
Supreme Court’s lead to adapt statements of presumptions about contractual
intent from the arbitration context to the general context of contracts.165
A cumulative variation of all these problems is the problem of
misperception. The Court’s rhetoric, taken literally, gives contract law a bad
name. For example, Professor Linda Mullenix wrote: “[T]he supremacy of
contract law over long-established jurisdictional doctrines has significantly
eroded certain fundamental litigation rights.”166 This lays the blame for
infirmities in the Court’s jurisprudence on contract law. But it is not the
“supremacy of contract law” that is responsible for any such infirmities that may
exist. It is the rhetorical invocation of notions of contracts while really using a
different batch of arbitration jurisprudence.
My initial motivation for writing this article was receipt in early 2010 of a
reprint of an Illinois Law Review article by noted arbitration scholar Thomas
Stipanowich, apparently sent to contract-law teachers nationally.167 In a
comprehensive review of the state of arbitration law and practice, the piece
criticized editors of Contracts casebooks for paying too little attention to
arbitration, especially for how the attention given was often extremely
negative.168 As a contract-law teacher for twenty years, the point resonated with
me.169 With modest exceptions, contract-law books and courses have not
generally given arbitration much in-depth treatment, and the treatment is often
in the context of illustrating doctrines like unconscionability or lopsided terms
not comporting with reasonable expectations of a community. The piece thus
stimulated my interest in arbitration.
I began following pending Supreme Court cases on the subject and
scrutinizing those handed down in preceding terms. I found the Court’s talk
about contracts and contract law intriguing because it made it sound as if
arbitration were at the center of contract law and contract law at the center of
arbitration law. This idea made it seem irresponsible for me,
Contractscasebook editors, and other teachers to leave arbitration at the margins of the
Contracts course or outside it altogether. Alas, the truth is that contracts and
RHETORIC VERSUS REALITY
contract law have so little to do with what happens in arbitration jurisprudence,
particularly compared to Court rhetoric, that it would confuse or mislead
students taking Contracts to provide it as an illustration. To that extent,
arbitration thus deserves the glancing treatment in the Contracts course,
warranting treatment in a separate one.170
Even so, Contracts teachers and students may wish to pay more concerted
attention to what the Court has been up to because the rhetoric–reality gap
should be of some concern to them. Moreover, as pressure to close the gap
builds, the Court may abandon its novel experiment with a national policy
favoring arbitration dressed in contract rhetoric and embrace the older national
policy favoring real freedom of contract. That would be of great interest to
Contracts teachers and students. In fact, the idea raises one of this article’s
normative implications worth stating explicitly: The Court should either give up
its national policy favoring arbitration and truly respect freedom of contract or
come clean about its national policy’s real implications, and acknowledge its
embrace of a restricted conception of contracts and contract law.
62. See E. ALLEN FARNSWORTH , CONTRACTS 679 § 5 . 7 - 5 - 9 (2d ed. 1990 ) ; RESTATEMENT (SECOND ) OF CONTRACTS § 184; Mark Movsesian , Severability in Statutes and Contracts , 30 GA. L. REV. 41 , 42 , 46 - 48 ( 1995 ).
63. 388 U.S. 395 ( 1967 ).
64. Id . at 406.
65. The basis for this invention of federal arbitration jurisprudence, which is not based on state contract law, was the FAA . Section 4 outlines procedures to compel arbitration and stay litigationwhen the court, after a hearing, is “satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue .” 9 U.S.C. § 4 ( 2006 ). When reviewing an application to stay under FAA section 3, the Court found that section 3 limits the court's consideration to issues “relating to the making and performance of the agreement to arbitrate .” Prima Paint , 388 U.S. at 404 (analyzing 9 U.S.C. § 3 in light of 9 U .S.C. § 4).
66. See , e.g., Richard L. Barnes, Prima Paint Pushed Compulsory Arbitration Under the Erie Train, 2 BROOK . J. CORP. FIN. & COM . L. 1 ( 2007 ); Richard C. Reuben, First Options, Consent to Arbitration, and the Demise of Separability: Restoring Access to Justice for Contracts with Arbitration Provisions, 56 SMU L . REV. 819 ( 2003 ); Stephen J. Ware, Arbitration Law's Separability Doctrine After Buckeye Check Cashing, Inc . v. Cardegna , 8 NEV. L.J. 107 ( 2007 ). For a resounding defense of the severability doctrine, based in part on the policies favoring arbitration, but mostly on earnest attempts to anchor it in traditional contract-law doctrine , see also Rau, supra note 25.
67. 546 U.S. 440 ( 2006 ).
68. Cardegna v. Buckeye Check Cashing Inc., 894 So. 2d 860 (Fla . 2005 ).
69. Cardegna , 546 U.S. at 442 n.1.
70. E.g., Howsam v . Dean Witter Reynolds , Inc., 537 U.S. 79 ( 2002 ) ; First Options of Chi ., Inc. v. Kaplan, 514 U.S. 938 ( 1995 ) ; Volt Info . Sci., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468 ( 1989 ).
71. 130 S. Ct . 2772 ( 2010 ).
72. Id . at 2776 (quoting Doctor's Assocs. , Inc. v. Casarotto, 517 U.S. 681 , 687 ( 1996 )) (citing Buckeye, 546 U .S. at 443; Volt, 489 U.S. at 478).
73. Rent-A-Center , 130 S. Ct . at 2780 n.4 (“The severability rule is a 'matter of substantive federal arbitration law,' and we have repeatedly 'rejected the view that the question of “severability” was one of state law, so that if state law held the arbitration provision not to be severable a challenge to the contract as a whole would be decided by the court .'”).
74. Id . at 2777 (citing Green Tree Fin . Corp. v. Bazzle, 539 U.S. 444 , 452 ( 2003 ); Howsam, 537 U.S. at 83-85; First Options, 514 U.S. at 943).
75. 539 U.S. 444 ( 2003 ).
76. Bazzle v. Green Tree Fin. Corp. , 569 S.E. 2d 349 (S.C . 2003 ).
77. Bazzle , 539 U.S. at 452.
78. 130 S. Ct . 1758 ( 2010 ).
79. Id . at 1761.
80. Id .
81. Id . at 1770. Section 10(a)(4) of the FAA authorizes federal courts to vacate awards when arbitrators exceed their powers. 9 U.S.C. § 10(a)(4) ( 2006 ).
82. Stolt-Neilsen , 130 S. Ct . at 1773.
83. Id . (quoting Volt Info . Sci., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468 , 479 ( 1989 )).
84. Id . (citing Volt, 489 U.S. at 479; Mastrobuono v. Shearson Lehman Hutton , Inc., 514 U.S. 52 , 57 , 58 ( 1995 )).
85. Id . at 1774 ( citing AT & T Techs ., Inc. v. Commc'ns Workers , 475 U.S. 643 , 648 - 49 ( 1986 ); Steelworkers v . Warrior & Gulf Nav . Co., 363 U.S. 574 , 581 ( 1960 )).
86. Id . (quoting Mastrobuono, 514 U.S. at 57) (citing EEOC v . Waffle House , Inc., 534 U.S. 279 , 289 ( 2002 ) ; First Options of Chi ., Inc. v. Kaplan, 514 U.S. 938 , 943 ( 1995 ); Volt, 489 U.S. at 479). Conspicuously, the Court failed to cite an opinion from its prior term contradicting its hyperbole about how important contracts and contract law really are in the Court's arbitration jurisprudence, Arthur Andersen LLP v . Carlisle , 556 U.S. 624 ( 2009 ), discussed infra text accompanying notes 90-95.
93. Id . at 1902 (quoting WILLISTON ON CONTRACTS § 57 : 19 , 183 ).
94. Compare Wilson v. Waverlee Homes , 954 F. Supp . 1530 (M.D. Ala . 1997 ) (applying Alabama law to require intention of the parties to benefit a stranger), abrogated on other grounds, Davis v . S. Energy Homes , Inc., 305 F.3d 1268 , 1271 - 72 ( 11th Cir . 2002 ), with E.I. DuPont de Nemours v. Rhone Poulenc Fiber & Resin , 269 F.3d 187 ( 3d Cir . 2001 ) (applying Delaware law to require not only intention to benefit but also either intention to make a gift or to discharge a debt and for that point to be a material part of the exchange ).
98. See Christopher R. Drahozal , Contracting Around Hall Street, 14 LEWIS & CLARK L. REV . 905 ( 2010 ) (demonstrating insurmountable obstacles facing people who wish to contract around the Court's holding in the case ).
99. 131 S. Ct . 1740 ( 2011 ).
100. E.g., Fensterstock v . Educ. Fin. Partners , 611 F.3d 124 ( 2d Cir . 2010 ) (reviewing and applying California unconscionability doctrine to arbitration clause in consumer-finance contract), vacated and remanded, 131 S. Ct . 2989 ( 2011 ).
101. AT& T Mobility , 131 S. Ct . at 1743.
102. Id . at 1750.
107. Compare Moses H. Cone Mem'l Hosp . v. Mercury Constr. Corp., 460 U.S. 1 ( 1983 ), with First Options of Chi ., Inc. v. Kaplan, 514 U.S. 938 ( 1995 ). See supra text accompanying notes 20-27 (discussing Moses Cone); supra text accompanying notes 45-54 (discussing First Options).
108. See supra text accompanying notes 39-44 (discussing Allied-Bruce Terminix Cos ., Inc. v. Dobson, 513 U.S. 265 ( 1995 )).
109. See supra text accompanying notes 90-95 (discussing Arthur Andersen LLP v . Carlisle , 129 S. Ct . 1896 ( 2009 )).
110. See supra text accompanying notes 96-98 (discussing Hall St . Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 ( 2008 )).
111. See supra text accompanying notes 30-38 (discussing Mastrobuono v . Shearson Lehman Hutton , Inc., 514 U.S. 52 ( 1995 )).
112. See supra text accompanying notes 67-70 (discussing Buckeye Check Cashing, Inc . v. Cardegna, 546 U.S. 440 ( 2006 )) ; supra text accompanying notes 71-75 (discussing Rent-A- Center , W. , Inc. v. Jackson , 130 S. Ct . 2772 ( 2010 )).
121. GILMORE, supra note 106.
122. See generally Jean R. Sternlight , Rethinking the Constitutionality of the Supreme Court's Preference for Binding Arbitration: A Fresh Assessment of Jury Trial, Separation of Powers, and Due Process Concerns, 72 TUL. L. REV. 1 ( 1997 ).
123. Even with contractual assent to arbitration, state action may be present in the process to warrant imposition of constitutional rights and due-process norms . See Richard C. Reuben, Public Justice: Toward a State Action Theory of Alternative Dispute Resolution , 85 CAL. L. REV. 577 ( 1997 ).
127. Examples from principal cases discussed in this article include a few citations to the Restatement (Second) of Contracts, occasional references to Williston on Contracts or Corbin on Contracts, and the odd invocation of state-high-court contracts opinions .
128. E.g., Buckeye Check Cashing , Inc. v. Cardegna, 546 U.S. 440 ( 2006 ); Rent-A- Center , W. , Inc. v. Jackson , 130 S. Ct . 2772 ( 2010 ). See supra text accompanying notes 67-70 (discussing Buckeye); supra text accompanying notes 71-753 (discussing Rent-A-Center) .
129. E.g., First Options of Chi ., Inc. v. Kaplan, 514 U.S. 938 ( 1995 ); Howsam v . Dean Witter Reynolds , Inc., 537 U.S. 79 ( 2002 ). See supra text accompanying notes 45-54 (discussing First Options); supra text accompanying notes 55-620 (discussing Howsam).
130. See , e.g., Lehman Bros . v. Schein, 416 U.S. 386 , 391 ( 1974 ) (describing the Court as an “'outsider' lacking the common exposure to local law which comes from sitting in the jurisdiction”).
136. Moses H. Cone Mem'l Hosp . v. Mercury Constr. Corp., 460 U.S. 1 ( 1983 ). See supra text accompanying notes 20-27.
137. Id . at 30 (Rehnquist, J., dissenting).
138. Volt Info . Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468 ( 1989 ). See supra text accompanying notes 28-29.
139. Mastrobuono v. Shearson Lehman Hutton , Inc., 514 U.S. 52 ( 1995 ). See supra text accompanying notes 30-38.
140. See First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 ( 1995 ); Howsam v . Dean Witter Reynolds , Inc., 537 U.S. 79 ( 2002 ). See supra text accompanying notes 45-54 (discussing First Options); supra text accompanying notes 55-62 (discussing Howsam).
141. First Options was unanimous and Howsam nearly unanimous, with only Justice Thomas filing a concurring opinion .
142. Buckeye Check Cashing , Inc. v. Cardegna, 546 U.S. 440 ( 2006 ); Rent-A- Center , W. , Inc. v. Jackson , 130 S. Ct . 2772 ( 2010 ). See supra text accompanying notes 67-70 (discussing Buckeye); supra text accompanying notes 71-75 (discussing Rent-A-Center) .
143. Justice Alito , a conservative, strained himself in Stolt-Neilsen to prevent class actions against businesses over the liberal Justice Ginsburg's dissent, which called the majority out for benefiting big business on terms that may not apply to help consumers, with both opinions making the same points about contractual freedom and contract law and then burying that in conflicting federal arbitration jurisprudence. Stolt-Neilsen S.A . v. AnimalFeeds Int'l Corp ., 130 S. Ct . 1758 ( 2010 ). See supra text accompanying notes 78-88 . Justice Scalia's majority opinion in Arthur Andersen, taking an expansive view of third-party-beneficiary law, prompted a dissent joined by the liberal Justice Stevens, the conservative Justice Roberts, and the moderate Justice Souter-and all show the gap . Arthur Andersen LLP v. Carlisle , 129 S. Ct . 1896 ( 2009 ). See supra text accompanying notes 90-95 . Justice Souter's majority opinion in Hall Street, denying contractual freedom to expand judicial review of arbitration
147. See Anthony Niblett, Tracking Inconsistent Judicial Behavior (unpublished manuscript) (July 31, 2010 ), available at www.ssrn.com/abstract=1434685.
148. See David A. Straus , Reply: Legitimacy and Obedience , 118 HARV. L. REV. 1854 , 1866 ( 2005 ) (“To question the legitimacy of something-a constitution, a statute, a legal regime-is to question whether it is entitled to obedience .”).
149. See generally Doctor's Assocs. , Inc. v. Casarotto, 517 U.S. 681 ( 1996 ) ; see Scott J . Burnham , The War Against Arbitration in Montana, 66 MONT. L. REV. 139 ( 2005 ) (discussing the tension between a federal act telling states not to treat arbitration clauses differently from general contract provisions and a state statute limiting the enforceability of arbitration provisions).
150. See STEPHEN J. WARE , PRINCIPLES OF ALTERNATIVE DISPUTE RESOLUTION 20 , 39 n. 126 (2d ed. 2007 ) (listing examples of existing state laws from California , Colorado, Georgia, New York, Rhode Island, South Carolina, South Dakota, Tennessee and Vermont, which are likely preempted under the Supreme Court's cases) .
151. See generally David S. Schwartz, State Judges as Guardians of Federalism: Resisting the Federal Arbitration Act's Encroachment on State Law, 16 WASH . U. J.L. & POL'Y 129 ( 2004 ).
152. E.g., Cardegna v . Buckeye Check Cashing, Inc., 930 So. 2d 610 , 611 (Fla. 2006 ) (Florida Supreme Court so capitulating after the Supreme Court opinion in Buckeye) .
153. Prima Paint Corp. v. Flood & Conklin Mfg . Co., 388 U.S. 395 ( 1967 ). See supra text accompanying notes 63-66.
154. E.g., Wrap-Vertsier Corp . v. Plotnick, 143 N.E. 2d 366 (N.Y . 1957 ).
155. E.g., Am. Airlines v. Louisville & Jefferson Cnty. Air Bd., 269 F.2d 811 , 816 - 17 ( 11th Cir . 1959 ); Kulukundis Shipping v . Amtorg Trading Corp., 126 F.2d 978 ( 2d Cir . 1942 ) (Jerome Frank , J.).
156. Weinrott v. Carp , 298 N.E.2d 42 , 47 (N.Y . 1973 ).
157. Id . The court thought its new-found approach more compatible with both “the initial intent of the parties as well as legislative policy” and further justified because it aligned state law with the federal rule. It stressed its belief that “no party” agrees to arbitration's scope “based on whether the contract in question involves interstate commerce.” Id. The Supreme Court echoed that sentiment in Allied-Bruce Terminix Cos ., Inc. v. Dobson, 513 U.S. 265 ( 1995 ). See supra text accompanying notes 39-44.
158. Ericksen v. 100 Oak St ., 673 P.2d 251 , 257 ( 1983 ).
159. Id . at 258 (Mosk, J., dissenting).
160. E.g., George Engine Co. v. S. Shipbuilding Corp., 350 So. 2d 881 , 884 - 85 (La. 1977 ).
161. Ericksen , 673 P.2d at 260 (Mosk, J., dissenting).
162. See , e.g., Green Tree Fin. Corp. v. Bazzle , 539 U.S. 444 ( 2003 ). See supra text accompanying notes 75-78.
163. See , e.g., First Options of Chi ., Inc. v. Kaplan, 514 U.S. 938 ( 1995 ); Howsam v . Dean Witter Reynolds , Inc., 537 U.S. 79 ( 2002 ). See supra text accompanying notes 45-54 (discussing First Options); supra text accompanying notes 55-62 (discussing Howsam).
164. The phrase “clear and unmistakable” is not used in law generally. It is an invention of the Supreme Court that the Court has used with some regularity in the context of addressing waivers in the labor-union context and in ascertaining congressional intent. A December 2010 Westlaw search for this phrase in Supreme Court opinions returned a mere sixty-six instances, the vast majority using the phrase colloquially rather than as an operative legal standard .
165. For instance, there is no general principle of contract law directing the construction of ambiguous clauses in favor of arbitration, yet courts have enlarged the Court's version of that statement to portray it as a general principle of contract law . E.g., Collins v. Int'l Dairy Queen , Inc., 2 F. Supp . 2d 1473 (M.D. Ga . 1998 ).
166. Linda S. Mullenix , Another Choice of Forum, Another Choice of Law: Consensual Adjudicatory Procedure in Federal Court , 57 FORDHAM L. REV. 291 , 296 - 97 ( 1988 ).
167. Thomas J. Stipanowich , Arbitration: the “New Litigation”, U. ILL. L. REV ., 2010 , at 1.
168. Id . at 50.
169. Similar points have resonated with peers . See Richard L. Barnes, Manipulating Court Doctrine for the Good of the Common Law and Compulsory Arbitration, 51 S. TEX. L. REV . 41 , 42 ( 2009 ) (“Five years ago, after having taught contracts for fifteen years, [the FAA] was little more than a footnote to me. Yet that statute can have an enormous impact [on] the common law . . . .”).