Mandatory Arbitration and Fairness

Notre Dame Law Review Volume 84 | Issue 3 3-1-2009 Mandatory Arbitration and Fairness David S. Schwartz Follow this and additional works at: http://scholarship.law.nd.edu/ndlr Recommended Citation David S. Schwartz, Mandatory Arbitration and Fairness, 84 Notre Dame L. Rev. 1247 (2009). Available at: http://scholarship.law.nd.edu/ndlr/vol84/iss3/5 This Article is brought to you for free and open access by NDLScholarship. It has been accepted for inclusion in Notre Dame Law Review by an authorized administrator of NDLScholarship. For more information, please contact . Article 5 MANDATORY ARBITRATION AND FAIRNESS David S. Schwartz* Until recently, it was understood that mandatory arbitrationwas "do-ityourself tort reform" corporate defendants could reduce their liability in consumer and employment disputes through an adhesion contract clause requiring predispute arbitration. But now that there is a significantpossibility that Congress will amend the Federal Arbitration Act to make predispute arbitration clauses unenforceable, critics have been stymied by the reemergence of an argument that mandatory arbitrationis 'fairer"than litigation. Mandatory arbitration supporters argue that (1) critics have failed to make an empirical case against mandatory arbitration, because existing studies seem to show that plaintiffs do at least as well in arbitration as in court; and (2) mandatory arbitrationis a more egalitarianforum than litigation because it is more accessible to smaller claims and claimants. This argumentfor mandatory arbitration's 'fairness" has effectively tabled the discussion of whether tort reform through mandatory arbitrationis justified, and whether an adhesion contract, rather than legislation, should be the vehicle for creating a 'fair"dispute resolution system. This Article argues there is no 'fairness"justification for imposing a dispute resolution system through adhesion contracts. The economic incentives of the mandatory arbitrationsystem only work by reducing the prospects of plaintiffs with high-cost/high-stakes cases. And while shifting the empirical "burden of proof' onto critics is clever rhetorical strategy, in fact it is the egalitarian argumentfor mandatory arbitrationthat is empirically unfounded as well as illogical. © 2009 David S. Schwartz. Individuals and nonprofit institutions may reproduce and distribute copies of this Article in any format, at or below cost, for educational purposes, so long as each copy identifies the author, provides a citation to the Notre Dame Law Review, and includes this provision and copyright notice. * Professor of Law, University of Wisconsin Law School. I'd like to thank my colleagues Alexander Colvin, Anuj Desai, Howie Erlanger, Shubba Ghosh, Neil Komesar, William Whitford, and Jason Yackee for their insightful comments on drafts of this Article. Thanks to Will Dalsen, Class of 2010, for his valued research assistance. 1248 NOTRE INTRODUCTION I. DAME LAW REVIEW [VOL. 84:3 .................................................. THE CONCEPT OF "FAIRNESS" ARBITRATION DEBATE ..................................... 1253 A. 1254 1254 1256 1257 1258 1259 "Fairness"Defined: Process, Outcome and Access .......... 1. Process Fairness .................................. 2. Outcom e Fairness ................................ 3. Access Fairness ................................... B. Fairness to Whom-and Compared to What? .............. C. The Empirical Game: Who Has the Burden of Proof ....... II. 1249 IN THE MANDATORY AN ANALYTICAL APPROACH TO ASSESSING FAIRNESS ARGUMENTS: FORUM PREFERENCE AND COST ................ 1264 A. 1264 Arbitration and Litigation Preferences as a Function of Cost 1. Defendants' Arbitration Preference: Robbing Litigation-Preferring Plaintiffs to Pay Arbitration Claim ants ........................................ 2. The Costs of Disputing: Process and Liability ..... 3. The Heart of the Matter: PLDA Cases Are High Cost/High Stakes ................................ B. Characteristicsof High-Cost/High-Stakes (PLDA) Cases: A Closer Look ........................................... 1. Discovery and Proof .............................. 2. A ppeals .......................................... 1264 1266 1272 1274 1274 1281 III. AN EMPIRICAL DEAD END? THE (PERHAPS INSURMOUNTABLE) IV. DIFFICULTIES OF OUTCOMES ANALYSIS ...................... 1283 A. The Difficulty of Collecting Data and Defining the Universe B. The Problem of Sampling Error.......................... 1. Establishing Baseline Values ...................... 2. Arbitration and Litigation Case Streams .......... 3. Comparing Trials and Arbitrations While Omitting Settlem ents ...................................... 4. Improper Sampling and Sorting .................. C. A Case in Point: The Eisenberg and Hill Study ........... 1. "Censoring": Analyzing the Wrong Cases ......... 2. The Sorting Error ................................ 3. Reinterpretation of the Data ..................... D. Other Fairness-RelatedIssues ............................ 1. The "Repeat Player" Effect ....................... 2. Is Arbitration Faster and Cheaper than Litigation? 1284 1286 1287 1289 THE EGALITARIAN (PSEUDO-POPULIST) ARGUMENT FOR MANDATORY ARBITRATION ................................. A. 1291 1295 1297 1299 1301 1308 1309 1309 1312 1315 The Accessibility Myth: Is Arbitration Really "The People's Court"? .............................................. 1316 1. Precision About Claimants and Forum ............ 1318 2009] MANDATORY ARBITRATION Empirical Evidence of Relative Access of Arbitration and Litigation ........................ 3. The Theoretical Limits of the "Populist Effect" ... B. Disguised Tort Reform: The Truth Behind the PseudoPopulist Argument ..................................... 1. The "Takes Two" Paradox ........................ 2. The Failure to Consider Alternatives .............. 3. Mandatory Arbitration as a Workers' Compensation Bargain ........................... 1249 2. V. 1320 1325 1327 1328 1330 1333 NORMATIVE RESOLUTION ................................... 1335 A. Stop Waiting for Social Science .......................... B. A Political Solution .................................... 1336 1338 1340 CONCLUSION .. .................................................... INTRODUCTION Is mandatory arbitration fair?' The question has risen to the forefront of a fifteen-year academic debate that for the first time may have imminent policy implications. Under a series of controversial judicial interpretations of the Federal Arbitration Act (FAA),2 the courts have consistently enforced predispute arbitration agreements imposed on employees, consumers and franchisees in adhesion contracts. 3 Courts have been mostly deaf to the arguments of critics that mandatory arbitration is "do-it-yourself tort reform," systematically favoring corporate defendants. 4 And Republican congressional majorities from 1994 to 2006 ke (...truncated)