The Politics of Class Action Arbitration: Jurisdictional Legitimacy and Vindication of Contract Rights
THE POLITICS OF CLASS ACTION ARBITRATION: JURISDICTIONAL LEGITIMACY AND VINDICATION OF CONTRACT RIGHTS
A. The Problematic Nature of Collective Action
Two cases, one theme
Exactly one year apart, the U.S. Supreme Court decided two cases on “class arbitration” proceedings, one about international shipping and the other on consumer purchases of mobile telephones. Each decision inflicted damage on a claimant’s right to invoke collective action in arbitrations. Read together, the opinions serve as a prism through which to refract key elements in an increasingly politicized debate on the legal framework for arbitration, particularly within the United States.
In Stolt-Nielsen v. AnimalFeeds, an arbitral tribunal had been constituted to hear antitrust claims arising from maritime agreements for transport of liquids such as food oils and chemicals.1 Asked to interpret a series of charter-parties negotiated by experienced business managers, the tribunal rendered a unanimous award saying that the contract language permitted class proceedings. Having determined that the agreements authorized class arbitration, the arbitrators’ next job would have been to determine whether the case should in fact go forward on that basis, an exercise involving evaluation of various criteria, such as the existence of common questions of law and fact, relevant to the appropriateness of class rather than bilateral action. Only then would the tribunal proceed to rule on the merits of the claims.
The arbitrators never got the chance to take the next steps, however. A majority of the Supreme Court decided that by construing the contracts as having authorized class arbitration, the arbitral tribunal exceeded its authority. The award was then remanded to the lower court to be vacated.2 For the majority, respondents’ failure to consent to class proceedings trumped any efficiency benefits from collective arbitration such as the sharing of costs that might otherwise inhibit pursuit of claims.
Twelve months later, in AT&T Mobility v. Concepcion, the same Court addressed arbitration arising from a federal court action brought by consumers against the manufacturer of cellular telephones.3 The standard-form sales contracts provided for arbitration, but prohibited class proceedings. Relying on an earlier California judicial ruling striking down such prohibitions as unconscionable, the lower federal courts refused to compel arbitration. The Supreme Court reversed on the basis that state rules barring class action waivers ran afoul of federal law.4
Vigorous dissents were issued in each instance. In Stolt-Nielsen the dissenters contended that the arbitral process had not yet reached a point ripe for judicial review. Moreover, the arbitrators were simply doing what the parties instructed them when designating the American Arbitration Association (AAA) Supplementary Rules on Class Arbitration as the framework for the arbitration. In AT&T Mobility, the dissent authored by Justice Breyer stressed the advantages of class arbitration, and argued that the California rule on waivers fell within the role accorded to state law in determining the validity of arbitration agreements.
The comment triggered by these cases has explored the dispute resolution’s fairness, a capacious notion that incorporates a responsibility to hear before deciding (due process), its respect for the contours of arbitral jurisdiction (whether imposed by contract or public policy) and the general duty of impartiality and independence.5 Controversy has addressed not only the fairness of the format for adjudication, whether collective or bilateral, but also that of the forum, whether public courts or private arbitration.6
Politics and judicial attitudes
The ideological overtones of these two decisions will not escape careful observers, aware of how class arbitration in the United States tends to implicate passions associated with “business vs. consumer” conflicts. Indeed, shortly after AT&T Mobility, the New York Times carried a scathing editorial describing the decision as “a devastating blow to consumer rights” that would “bar many Americans from enforcing their rights in court [and in many cases] from enforcing rights at all.”7
In the context of current American political debate, four of the five judges striking down the award in Stolt-Nielsen, and confirming the class waivers in AT&T Mobility, would be described as conservative: Justices Alito, Roberts, Scalia and Thomas.8 The dissents came from Court members all of whom would be considered to the left of those in the majority: Justices Ginsburg, Stevens, Breyer and Sotomayor, along with Justice Kagan, whom President Obama appointed to succeed Justice Stevens after his retirement.
Normally inclined to endorse arbitration as consistent with freedom of contract,9 the right side of the American political spectrum remains skeptical about class proceedings, seen as a tool of lawyers taking cases on a contingency basis for a portion of the judgment or settlement. By contrast, for those thought of as leaning to the left politically, class actions present themselves as a mechanism to promote consumer and employment claims which, because of the small individual recovery, might not otherwise be brought either in court or in arbitration.
Support of class action arbitration does not necessarily mean satisfaction with arbitration itself. Within the United States, complaints against arbitration of consumer and employment disputes have been raised not only by journalists, but also by legal scholars in popular as well as academic literature. Arbitration has often been portrayed as a way to sidestep the perceived safeguards of a civil jury in favor of more “pro-business” arbitrators.10 A quarter of a century ago, in the landmark Mitsubishi decision allowing arbitration of antitrust claims, a dissent by Justice Stevens declared that: “Consideration of a fully developed record by a jury, instructed in the law by a federal judge, and subject to appellate review, is a surer guide to the competitive character of a commercial practice than the practically unreviewable judgment of a private arbitrator.”11
Resistance to arbitration from the liberal side of the aisle has also worked its way into legislation reducing the vitality of arbitration clauses in consumer and employment contracts.12 Notably, the pending Arbitration Fairness Act provides that ‘no pre-dispute arbitration agreement shall be valid or enforceable if it requires arbitration of an employment dispute, consumer dispute, or civil rights dispute.”13 The bill’s preamble includes a proposed finding that “decisions by the Supreme Court of the United States have changed the meaning of the [Federal Arbitration] Act” so that it now extends to consumer and employment disputes in a way that “undermines the development of public law because there is inadequate transparency and inadequate judicial review of arbitrators’ decisions.”
The politicization of arbitration in the United States derives in large measure from two idiosyncrasies of American legal culture. The first lies in the absence of any general nationwide statute to insulate consumers and employees from abusive arbitration arrangements. The second rests in the availability of civil juries to decide ordinary contract cases. Arbitration thus commends itself to those with doubts about the reliability of such juries, often perceived as rendering unreasonable verdicts tainted with bias against manufacturers and employers.14
With greater or lesser degrees of nuance, political scientists and journalists attempt to chart the ideology on judicial decisions, in the sense that certain judges tend to vote together.15 The so-called “Martin-Quinn Scores” use a scale with negative numbers translating to liberalism, and positive numbers translating to conservatism. Thus Justice Douglas, considered a very liberal judge, received an average ideological score of minus 4, while a score of positive 4.30 was accorded the conservative Justice Rehnquist.16
Less successful has been the establishment of any intellectually rigorous way to connect the dots among the disparate questions that work their way into the right-left debate, such as criminal procedure, competition law, healthcare, taxes, gun control, a Christmas crèche on the village green, campaign finance, affirmative action, gay marriage and abortion. Notions of being a “fiscal” rather than a “social” conservative, which appeal to many Americans, provide some refinement on the theme, while still leaving open what exactly makes a position left or right.17
Likewise, it is less than self-evident how such inclinations have come to figure so prominently in the area of arbitration, with its protean quality of changing from context to context. The choice to arbitrate, rather than proceed to otherwise competent courts, justifies itself differently depending on whether the final and binding private adjudication relates to labor disputes, construction contracts, commercial transactions, international finance, or investor allegations of host state expropriation, to mention just a few of arbitration’s incarnations.
The elusiveness of political categories in arbitration also manifests itself through intertemporal shifts from one generation to another. A half century ago, liberal judges tended to wax eloquent about the benefits of arbitration, in the context of labor disputes18 or construction cases,19 providing many “pro-arbitration” passages that have since become locus classicus. In all instances, labels remain highly sensitive to cultural and geographical context. The bar to arbitration of consumer disputes, while radical in the United States, has long been the norm in Europe.20
The complexity of arbitration’s political ideology also presented itself in the investor-state dispute resolution provisions of the U.S.-Korean Free Trade Agreement, contested by the South Korean left but likely to appear progressive to those living north of the 38th parallel.21 After the ruling conservative Saenuri Party succeeded in having the Free Trade Agreement adopted in late 2011, the more liberal opposition proposed renegotiation of the treaty’s investor-state arbitration provisions, arguing that arbitration’s alleged impartiality was more illusion than reality.22
Enter investor protection
A few months after the decision in AT&T Mobility, the tribunal in an international arbitration known as Abaclat rendered a jurisdictional award which wrestled with similar questions about class arbitration.23 The claims had been brought by an association acting as agent for approximately sixty thousand Italian bondholders,24 including some added after the claims were initially filed, dissatisfied by Argentine debt restructuring following the 2001 economic crisis.
Filed pursuant to the Italian-Argentine investment treaty, the Abaclat case took a different direction from the U.S. Supreme Court decisions. The majority took jurisdiction over the collectively-filed claims, while the dissenting arbitrator expressed concerns about the appropriateness of such proceedings.25 Citing both Stolt-Nielsen and AT&T Mobility, the dissent endorsed the reasoning in both judgments as underscoring the fundamental differences between bilateral and class representative proceedings which, he wrote, required some “special consent of the parties” not to be assumed from a simple commitment to arbitrate.26
International arbitration between investors and host states implicates a shift in the political labels of those for or against class proceedings. Financial interests, considered as relatively conservative in the sense of resisting uncompensated governmental takings, urge investor-state arbitration beyond the traditional bilateral paradigm. Any jurisdictional risks stemming from the atypical dynamics of class proceedings seem outweighed by the prospect of enhancing the vindication of contract rights.
In Abaclat the majority saw the “mass action” not as a matter of jurisdiction, but rather of procedural “admissibility” presenting few comparisons to American-style class-action arbitration. The majority emphasized that the tribunal had jurisdiction over each individual claim, and found that no separate, specific consent was required with regard to the form of the proceeding. According to the majority: “Assuming that the Tribunal has jurisdiction over the claims of several individual Claimants, it is difficult to conceive why and how the Tribunal could [lose] such jurisdiction where the number of Claimants outgrows a certain threshold.”27
Taxonomy: class actions, consolidation and joinder
For American and non-American audiences alike, confusion may exist between “class” and “consolidated” arbitration.28 The former would normally be contemplated when stakes in any individual case remain small enough to make bilateral arbitration impractical from a cost standpoint. By contrast, consolidation implicates several cases each of which would proceed on a stand-alone basis, but which present related parties as well as common issues of law and fact, making it more economical for the claims to be heard together by a single tribunal.
In “class” arbitration, self-selected claimants represent others entitled to similar or analogous recovery. Assuming the relevant contract language can be construed to permit class arbitration, an arbitral tribunal would normally need to decide whether class proceedings justify themselves according to the types of factors relevant in class actions brought in federal court. Such criteria include not only common issues, but also a finding that the representatives and their counsel will fairly and adequately protect the class interests.
Consolidation, on the other hand, involves independent but related actions, without any one individual or entity standing as representative for others, even if each side engages a team of common counsel. Consequently, concerns about the fairness of group representation would normally be absent.29 All of the lawsuits would otherwise go forward individually. Consolidation simply promotes efficiency.30