Law Quarterly

The Problem of Judicial Efficiency

By Gordon Yang


Jurisprudence has long obeyed the criteria of fidelity to body of law incorporating statutes, precedents, and of course the Constitution. The Federal Arbitration Act (FAA) of 1925 was enacted in response to widespread judicial hostility to arbitration, a process by which parties refer, usually voluntarily, their disputes to be resolved informally by a third party based on the arguments and evidence they present. This has led to disagreements in recent years over whether arbitration as specified in consumer contracts are enforceable, finding its way to the Supreme Court. The issue itself isn’t arbitration, but what it entails- class-action waivers. The decisions in the cases are part of a larger trend towards judicial efficiency through arbitration and the transformation of class-action suits.

In American Express Co. v. Italian Colors Restaurant (2013), the respondent faced the problem of proving anti-trust claims estimated to cost at least hundreds of thousands of dollars, while the award would only be in the tens of thousands. The only viable way to pursue statutory remedies would be cost-sharing with other claimants in a similar situation, which happens to be a class-action in this case but need not be generally. In the absence of an “alternative mechanism to share, shift, or reduce the necessary costs”, effective-vindication, an exemption from such a clause determined by Mitsubishi lets arbitration agreements that “operat[e] . . . as a prospective waiver of a party’s right to pursue statutory remedies” be invalidated on “public policy” grounds. In Randolph it was ruled that effective-vindication is invoked when an agreement makes the vindication of federal claims “prohibitively expensive”. The majority, however, rejects this by saying that the “fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy”. The dissent argued that Randolph established a general principle, even though Randolph was procedural, and Italian Colors is substantial. In any case, it effectively bars claimants from their right to dispute their claim.

The dissent argued that the FAA runs counter to the Sherman Act and the exculpatory principle, which prevents a company from “us[ing] its monopoly power to protect its monopoly power, by coercing agreement to contractual terms eliminating its antitrust liability”. Although the majority recognizes the violation of anti-trust laws in this case, their answer is that “[they] do not guarantee an affordable procedural path to the vindication of every claim. [N]o legislation pursues its purposes at all costs.”

The cost being, before arbitration, “the legal requirements for success on the merits claim-by-claim and theory-by theory, the evidence necessary to meet those requirements, the cost of developing that evidence, and the damages that would be recovered in the event of success”. Such a “judiciary superstructure” would be inconsistent with the “speedy resolutions” intent of the FAA which requires courts to honor the contracts the parties designed (consumer contracts are only designed by one party) “for efficient, streamlined procedures tailored to the type of dispute” even if it means not hearing the case at all. While determining empirically if arbitration is more efficient to the judicial system and unjust to consumers is outside the scope of this article, one thing is clear: The Court ruled following what was supposedly the legislation’s’ intent, enforcing arbitration provisions at the expense of consumers’ rights. The majority was not compelled to choose the FAA over other general legal principles, precedents, and the anti-trust laws. They did so because they concluded it most prudent for the administrative burdens of the judicial system. Aristotle once said “an arbitrator goes by the equity of a case, a judge by the law, and arbitration was invented with the express purpose of securing full power for equity”. In this case, arbitration failed to secure equity because it was not the appropriate method of resolution, but was decided by judges to be since law is binding.

In Concepcion, the Court decided that the FAA pre-empted state’s unconscionable law, under the Supremacy Clause. Unconscionability challenged class-waivers, being generally applied to cases involving superior bargaining power and one-sided results, and was pre-empted because it was a categorical obstacle to the Act. As noted by the dissent and by Gilles, Concepcion was not like Italian Colors, a case of effective-vindication subject to the case-by-case prohibitive test established by Randolph. Nonetheless, the majority mentioned that the Court’s decision in Concepcion all but decided this case, explaining that the significance of that ruling was that the FAA “trump[ed] any interest in ensuring the prosecution of low value claims”. Despite the substantial change in approach, the majority is most concerned with the judicial regime that would result. Meanwhile, these “low value claims” add up, resulting in the unfair transference of wealth over time and no remedy to account for it. As arguments turn over to what is efficient, due process rights are also endangered.

With the recent decisions, some are predicting the rise of the attorney general to fill in the gap of class-actions and litigating cases for the public interest. This would coincide with the development in class settlement and multi-district litigations (i.e. Volkswagen, remember that emissions scandal? Many class-actions were consolidated), contractual aggregate non-class settlements, the quasi-class action, and finally the fund approach to aggregate claims resolution, each of which deviates increasingly from individuals being properly represented in court.

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