Re-Inventing Arbitration: How Expanding the Scope of Arbitration Is Re-Shaping Its Form and Blurring the Line Between Private and Public Adjudication

18 NEV. L.J. 381, HENSLER KHATAM - FINAL 3/27/18 2:33 PM RE-INVENTING ARBITRATION: HOW EXPANDING THE SCOPE OF ARBITRATION IS RE-SHAPING ITS FORM AND BLURRING THE LINE BETWEEN PRIVATE AND PUBLIC ADJUDICATION Deborah R. Hensler* & Damira Khatam† Contemporary academic research and scholarship are highly specialized. Legal scholarship on arbitration reflects this trend. There is extensive literature on domestic arbitration jurisprudence, on international commercial arbitration practice, and on investor-state arbitration procedure, and there are debates about the appropriate use of arbitration within all of these domains. But few of the participants in these debates are attentive to developments outside their own domains, and there are few examples of scholarship surveying trends across the three domains. Undertaking that analysis reveals important similarities in the challenges facing arbitration in each domain and in the responses to these challenges. Looking across all three domains—domestic arbitration within the United States, international commercial arbitration, and investor-state arbitration—we observe an expanding application of arbitration beyond purely private disputes to disputes with significant public policy dimensions. In response, there is increasing pressure in all three domains to incorporate in arbitration measures traditionally associated with public courts, including due process protections, public appointment of adjudicators, and process and outcome transparency. The result is a new form of dispute resolution, neither wholly private nor fully public, and satisfying neither those who promote the virtues of private dispute resolution nor those who insist that public courts are the proper locus for disputes with important public policy implications. We argue that re-inventing arbitration to adhere to public justice norms risks undermining its value for private actors with private disputes, while at the same time undermining courts as institutions for public contest over public policy issues. Rather than adding the trappings of public adjudication to arbitration, we should re-think the scope of arbitration in domestic and international spheres. * Judge John W. Ford Professor of Dispute Resolution, Stanford Law School. This article was initially prepared for a public lecture at the Saltman Center for Conflict Resolution at the University of Nevada Law School. I am grateful to Jean Sternlight for first proposing this lecture and to her and attendees at the lecture for their comments. Unfortunately, due to the constraints of the publication schedule, I was not able to benefit from the insights of the authors who responded to this paper. † Doctor of Science of Law (J.S.D.) candidate, Stanford Law School. 381 18 NEV. L.J. 381, HENSLER KHATAM - FINAL 382 3/27/18 2:33 PM NEVADA LAW JOURNAL [Vol. 18:381 TABLE OF CONTENTS INTRODUCTION ................................................................................................ 382 I. PRIVATIZING THE PUBLIC IN U.S. DOMESTIC ARBITRATION ............... 387 A. Early Evolution of U.S. Federal Arbitration Law ........................ 387 B. The Expansion of Arbitration to Disputes Involving Public Policy Doctrines........................................................................... 389 C. Responses to the Expansion of the Scope of Domestic Arbitration in the United States ................................................... 393 1. Securities Arbitration............................................................. 393 2. Employment Arbitration ........................................................ 395 3. Consumer Arbitration ............................................................ 396 D. Trends in Domestic Commercial Arbitration Generally ............. 399 II. RESPONDING TO PRIVATE NEEDS IN INTERNATIONAL COMMERCIAL ARBITRATION ...................................................................................... 400 A. From Early History to Institutionalization .................................. 400 B. Towards a Harmonized System of International Commercial Arbitration.................................................................................... 403 C. From Streamlined Dispute Resolution to Formal Adjudication .. 406 III. PROTECTING PUBLIC INTEREST IN INVESTOR-STATE ARBITRATION ... 409 A. The Emergence of Investment Arbitration ................................... 409 B. The Judicialization of Investor-State Arbitration ........................ 411 IV. RE-INVENTING ARBITRATION .............................................................. 420 A. Domestic Arbitration in the United States ................................... 421 B. International Commercial Arbitration ......................................... 423 C. Investor-State Arbitration ............................................................ 424 INTRODUCTION Contemporary academic research and scholarship are highly specialized. Legal scholarship on arbitration reflects this trend. There is extensive literature on domestic arbitration jurisprudence, on international commercial arbitration practice, and on investor-state arbitration procedure, but few examples of scholarship surveying trends across domains.1 Law schools offer separate 1 Recent dispute resolution scholarship has begun to cross national boundaries but not the three arbitration domains that are the subject of this article. See, e.g., Judith Resnik, Diffusing Disputes: The Public in the Private of Arbitration, the Private in Courts, and the Erasure of Rights, 124 YALE L.J. 2804, 2930–31 (2015) (focusing mainly on U.S. developments but incorporating references to EU law and policy). Some authors caution against inferring anything about developments in one domain from observations of developments in another. See, e.g., Rémy Gerbay, Is the End Nigh Again? An Empirical Assessment of the “Judicialization” of International Arbitration, 25 AM. REV. INT’L ARB. 223 n.3 (2014) (arguing that “there are different dynamics at play internationally and domestically, which render domestic and international arbitration difficult to compare.”). 18 NEV. L.J. 381, HENSLER KHATAM - FINAL Winter 2018] RE-INVENTING ARBITRATION 3/27/18 2:33 PM 383 courses on arbitration in domestic and international spheres, and casebooks for instructional use reflect this divide.2 Within each of these arbitration domains—domestic, international commercial, and international investment—there are disputes about arbitration policy and practice. Recent U.S. Supreme Court decisions upholding the use of mandatory arbitration clauses to preclude class actions3 have evoked a storm of controversy4 and led to legislative and regulatory efforts to outlaw such claus- 2 See, e.g., THOMAS E. CARBONNEAU, ARBITRATION IN A NUTSHELL (3d ed. 2012) (summary of U.S. law with a section on international commercial arbitration); THOMAS E. CARBONNEAU, CASES AND MATERIALS ON ARBITRATION LAW AND PRACTICE (7th ed. 2015) (focusi (...truncated)