[MUSIC] Arbitration is a mechanism by which litigants can choose to have their disputes resolved, not in our court systems, but before a private decision maker. Arbitrators are men and women who are paid professionals, whose job it is to resolve disputes that would otherwise be heard in the court system, but whom the litigants decide to hire to resolve their dispute instead. Now why might a litigant want to have a case heard before an arbitrator instead of before a court? Well broadly speaking, arbitrators are sometimes less formal. There is the possibility that arbitration might be less expensive than a lawsuit. Arbitration can produce a quicker result sometimes. Arbitration carries the promise, at least, of being more final because the opportunities to appeal an arbitration decision are fewer. And so litigants will often get a dispute that will be completely over at a, at a, a sooner point in the process from, from an arbitrator than would be true from a civil court system. There are many reasons why, historically, arbitration has been an option that some litigants have wanted to pursue. And in the United States, there's a federal statute, the Federal Arbitration Act, which was enacted in 1925, which grants a favored status to arbitration. And in particular, what this federal statute says, is that if people sign a contract in which they agree that if a dispute arises between them, then they're going to arbitrate that dispute instead of litigating it in the courts. Then that contract has to be enforceable and courts are not allowed to set aside that contract simply because they're hostile towards the idea of arbitration. That they don't like the idea of arbitration. Okay. So in recent years, the practice of arbitration has wound up being a major focus of attention among courts and commentators for a very specific reason, which is, the capacity of arbitration to wind up not just being an alternative venue or an alternative mechanism for disputes to be resolved. But also the capacity of arbitration to displace some of the more powerful features of our procedure system. And indeed, in recent years, the Supreme Court has decided a series of cases that have given defendants, and in particular corporate defendants, who are the ones who usually draft contracts, a lot of powerful tools for shielding themselves from certain types of civil lawsuits, and certain types of powerful civil procedure tools that might be available in the federal courts. This is actually one of the major issues that is getting discussed in the field of civil procedure and dispute resolution today. And it's worth taking a moment to spell out exactly what is at stake here. A lot of the attention on arbitration, in the last several years, has focused on class actions, and the ways in which arbitration can be used to prevent plaintiffs from bringing class actions in certain types of cases. Class actions, that powerful tool that we discussed in the previous section, are this mechanism by which lots and lots of claims that might not be affordable to bring on an individual basis, can be collected together and brought on a representative basis, all at once, in front of a court. So let's, imagine that we have a series of potential claimants, a class of potential claimants, all of whom have signed a similar contract. It could be a contract with a credit card company. It could be a contract with a cell phone company. And they think that they have a potential claim. Let's say that the company, in drafting its contract, has included an arbitration clause. A clause which says, if you have a dispute with this company, then you agree that you're going to resolve that dispute through arbitration, rather than by bringing a lawsuit. So, let's then imagine that somebody believes that they've been injured and they believe that the entire class of people had been injured. The company has engaged in an improper billing practice and it's engaged in that improper practice with respect to everybody who gets a certain service from that company, right? Classic case where the plaintiff might come into court and say, I'd like to represent not just myself but an entire class of people who have been harmed. If the company has put an arbitration clause into its contract, then the company can respond by saying, you're not allowed to bring that case in a court. You have to bring that court before an arbitrator. So, a situation like this would present two questions. First of all, can the defendant really force this case to be heard in front of an arbitrator instead of in front of a court? Can the arbitration clause really be enforced? And more to the point, are there any limits on the ability of the drafter of that arbitration clause to compel its enforcement. The second question is, let's say the case is heard in front of an arbitrator. Can it be heard as a class, nonetheless? Is there such a thing as class arbitration? And what are the circumstances under which there might be a class proceeding in front of an arbitrator, instead of a class proceeding in front of a court? In a series of decisions over the last ten years or so, the Supreme Court has addressed these questions. And it has addressed these questions in a way that severely limits the ability of plaintiffs to bring class action proceedings. And in particular, it gives defendants and the people who draft contracts, mostly corporate actors who provide services or perhaps even who employ a lot of people. It gives a lot of tools to those types of defendants to shield themselves from certain types of class or, or mass adjudication. In particular, let's talk about two cases that the supreme court has decided, that addressed this question of the ability of defendants, and in particular corporate actors, to use arbitration clauses to shield themselves from certain kinds of class actions or mass disputes. One of them is called AT&T Mobility versus Concepcion and it was decided in 2011. And the second is called American Express versus Italian Colors Restaurant, which was decided in 2013. Both of these were cases in which the corporate defendant had drafted a contract. In the case of AT&T Mobility, it was a contract for cell phone services that was drafted for the company's customers. In the case of American Express, it was a merchant agreement that American Express entered into with certain merchants, like restaurants for example, that specified the terms on which those restaurants could accept American Express cards by way of payment. And in both of these contracts, the company included an arbitration clause, that said that this lawsuit had to be litigated if at all, as an arbitration rather than as a lawsuit. And, both of these contracts were also designed to explicitly prevent class actions. And the arbitration clause not only said, this case has to be arbitrated, but the arbitration clause also said, no class-wide arbitration. And in the case of At&T Mobility versus Concepcion, there were some provisions in the contract that sought to make it easier for individuals to bring individual arbitrations. But that made it clear that class-wide arbitrations were not permitted. In Italian Colors, there were provisions that not only made it clear that a class action wouldn't be possible, but there were also provisions that prevented merchants from banding together on a more individual basis, and seeking to pool their resources, and make it more affordable for them collectively to bring a lawsuit asserting what was, in that case, anti-trust claims, federal anti-trust claims against American Express. Both of these lawsuits went up to the Supreme Court, on the question of whether these arbitration clauses could be enforced. And in both cases, the argument was not just a sort of abstract question about the enforceability of the arbitration clause, but they were questions specifically about what the practical impact of the arbitration clause would be, on the ability of people to assert their claims. So in AT&T versus Concepcion, the question was whether in the absence of a class action, there was going to be any real enforcement under state law against what the plaintiffs asserted was an improper billing practice on the part of AT&T Mobility. And in the Italian Colors case, the question was whether there would be any affordable mechanism at all for these individual merchants to assert their anti-trust claims. To assert that American Express was misusing its market power in some way, in defining the terms that it extracted from merchants, this was the allegation in their, in their payment relationships. And there were very good arguments to the effect, in both of these cases, that if the arbitration clause was enforced on its terms, that the practical consequence would be that there either would be very few claims brought, in the AT&T case, or there might be no claims at all brought, in the Italian Colors case, because it simply would not be affordable for individuals to assert these claims on their own. And in both cases, the Supreme Court held that under this very powerful statute, or the statute at least that it's interpreted in very powerful ways, the Federal Arbitration Act, that the arbitration clauses had to be enforced. That the corporate defendants could draft these clauses, which it would offer to people as what's often called a contract of adhesion. That is to say, these are the terms on which we're willing to do business with you. We're not going to negotiate these contract terms. And you've probably signed half a dozen contracts of adhesion in the past couple of weeks, if you've made reservations online, if you've signed up for a gym membership. All of these everyday activities that we engage in, that involve clicking online or checking a box or signing a contract, have many, many terms in them that we would never think about trying to negotiate, and that indeed, might not be subject to any negotiation. That's often described as a contract of adhesion. And defendants have the ability now, corporate actors have the ability now, to write these arbitration clauses that shield them from some of the very powerful procedural mechanisms by which people who think they've been injured, might otherwise be able to seek to pursue their claims. And the question that was before the court in the Concepcion case and in the Italian colors case was, are there any limits on the ability of a corporate defendant to succeed, to enforce those arbitration clauses, even if what it means is that the plaintiff is going to be deprived of any practical opportunity to enforce their claims. And in both cases, the Supreme Court said, yes. And in, in the Concepcion case, which was a state law case, the court focused a lot on the ways in which federal law trumps state law. Federal law in this case being the Federal Arbitration Act. And the court said, specifically, that even if the enforcement of an arbitration clause under this federal statute might mean that certain claims might quote, unquote, fall through the cracks. But that's not a basis for arguing around the mandate of this federal statute as the Supreme Court interpreted it. The Italian Colors case was a case in which the claims at issue were federal claims, and so you had two federal statutes potentially squaring off against each other. The Anti-Trust Statute on the one hand, the Federal Arbitration Act on the other hand. And so the plaintiffs in the Italian Colors case said, well our case is different, there has to be some kind of accommodation between these two competing federal statutes. The Supreme Court wasn't buying it and they said once again, as in Concepcion, that the mandate, what the court viewed as the mandate of the Federal Arbitration Act, require this arbitration clause to be enforced. And the court said, in the Italian Colors case, that the mere fact that a plaintiff has a claim under a statute like the Anti-Trust Statute, doesn't guarantee that the plaintiff will have an affordable procedural path towards the vindication of that claim. And so even if the arbitration clause is structured in such a way that, as a practical matter, it becomes impossible for a plaintiff to pursue her claim, the mere fact that, as a practical procedural matter, the claim becomes unaffordable, doesn't mean that, that other federal statute, that competing federal statute, has somehow been improperly treated or improperly served. Now, this I think once again, has two important lessons for us. Number one, procedure really matters, and the mechanisms by which plaintiffs seek to enforce their claims are sometimes just as important as the definition of their substantive rights under the applicable law. And, this is a fact that the people who draft contracts and the people who make major financial planning understand very well. And so, focusing on how procedure operates is often just as important for corporate defendants and indeed for plaintiffs advocates, as well as focusing on the definition of people's substantive rights. The second lesson that I think this has for us, is the importance of remembering our history. We started this conversation with this quote, this famous quote from Karl Llewellyn, that it is important to read the substantive law courses in law school through the spectacles of procedure. Because substantive law means nothing except in terms of what procedure says that you can make real. In 2013, we had the Supreme Court saying something that sounds almost the polar opposite. The Supreme Court's saying, yes, you may well have substantive rights, but having a substantive right doesn't entitle you to an affordable procedural path for actually vindicating and enforcing that right. In saying that, the Supreme Court seems, in some ways, to have forgotten or perhaps even to have rejected the lessons that gave rise to the federal rules of civil procedure in the first place. The lessons that said that you need to understand substantive principles through the spectacles of the procedure, because substance means nothing except in terms of what procedure says that you can make real. In deciding how to administer questions of transsubstantivity, how to draw distinctions between substance and procedure, and when it should be permissible for powerful actors to opt out of the procedural system, even when it means shielding themselves from all kinds of liability. I think it's very important for us to continue viewing the substantive law through the spectacles of the procedure. The observation that Karl Llewellyn made, way back in 1929, has proven to be just as true today as it was then. [MUSIC]
