Arbitration vs. Litigation: It's Not An Either-Or Proposition

Daniel Fisher 

The New York Times drew a lot of criticism, from me and others, for its three-part series on arbitration that largely ignored the wealthy special-interest group that opposes arbitration the most: Class-action lawyers.

In an editorial today the Times repeats the error, equating arbitration with a “shift away from the civil justice system,” as if people with $2 disputes over their cell phones could recover any meaningful relief through a conventional lawsuit. Arbitration is part of the civil justice system, and if there is a problem with compulsory arbitration, it is lack of informed consent and meaningful oversight by the courts. To reject it wholesale would be to chip away at the right of individuals to order their transactions the way they want.

“A robust system of arbitration is healthy for our court system — it serves as a safety valve,” said Imre Stephen Szalai, a professor at the Loyola University College of Law in New Orleans and expert on the Federal Arbitration Act, that “dusty” (according to the New York Times) 1925 law that has been upheld in U.S. Supreme Court cases as enforcing contracts requiring disputes to be settled out of court. If low-dollar litigation “is going to get clogged up in the federal court system,” Szalai told me, “it can easily flow to an alternative system.”

Szalai is no fan of the widespread use of binding arbitration clauses in consumer contracts. His book, “Outsourcing Justice,” attacks the theory animating Chief Justice John Roberts’ robust enforcement of the FAA, which is that Congress passed the law to keep state-court judges from meddling with contracts among consenting adults. That’s a misreading of history, Szalai said. The FAA reflected mayhem in the federal court system, where until the Federal Rules of Civil Procedure were passed in 1938, each judge picked whatever procedural rules he wanted and courts were overwhelmed with Prohibition-related cases anyway.

Practicing law in federal courts in the 1920s “has been compared to Sanskrit,” Szalai said. “So it’s not an accident businesses pushed for a quick, efficient way to resolve business disputes.”

The Times series paints a simplistic, either-or portrait of arbitration, however, leaving readers with the impression consumers who agree to arbitration have given up their “right to sue” when that is a practical illusion. No lawyer will take small consumer disputes unless they are bundled together into a class action, where there is ample evidence attorneys often settle on terms that are profitable for them but don’t bring much to their clients.

Original