ANTITRUST ENFORCEMENT BY ARBITRATION: DOJ’S USE OF ARBITRATION IN UNITED STATES V. NOVELIS PUTS MATTER OF CONSUMER PROTECTION IN QUESTIONABLE HANDS

By: Hugh Fleming, Volume 104 Staff Member

The suit filed by the United States Department of Justice (DOJ) Antitrust Division against Novelis, Inc. began like any other antitrust enforcement action under the Clayton Act,[1] but quickly took an unusual turn: the parties decided to submit a central issue in the dispute to binding arbitration.[2] Novelis is a producer of aluminum auto body sheet who sought to acquire Aleris Corporation, a competitor in the same domestic market.[3] After reviewing the proposed merger, DOJ sued to preserve competition in the market.[4] Subsequently, the parties agreed to arbitrate the central issue of product market design,[5] citing authorization under the Administrative Dispute Resolution Act of 1996 (ADRA).[6] Later, remarks from Assistant Attorney General Makan Delrahim, from DOJ’s Antitrust Division, signaled that the Department may increasingly utilize arbitration in future antitrust enforcement actions,[7] raising serious questions about the propriety of this practice.

Antitrust law seeks to maintain competition among various businesses participating in a certain market segment.[8] A central premise of antitrust law is that when markets are uncompetitive, businesses have the ability to unfairly price their products or services, ultimately harming consumers.[9] The primary sources of antitrust law are the Sherman Act of 1890,[10] the Clayton Act of 1914,[11] and the Federal Trade Commission Act of 1914.[12] Antitrust laws may be enforced through civil actions brought by the Federal Trade Commission, DOJ, state attorneys general, or private parties.[13]

Arbitration has been used in private antitrust disputes for years.[14] Conversely, government enforcement actions have not traditionally been decided by arbitrators and present different policy concerns which arbitration does not adequately serve. This Post briefly addresses key considerations stemming from the DOJ’s use of arbitration in Novelis, including the DOJ’s legal authority to arbitrate under the ADRA in this situation, basic characteristics of arbitration as a dispute resolution mechanism, and finally, relevant implications of DOJ’s use of arbitration in antitrust enforcement actions. Government enforcement actions are characteristically different than private antitrust disputes and for this reason, even if the DOJ has the authority to arbitrate these matters, arbitrating these cases presents serious risks.

I.  DOJ AUTHORITY UNDER THE ADMINISTRATIVE DISPUTE RESOLUTION ACT OF 1996

Arbitration is a widely-used tool in the realm of private dispute resolution.[15] Modern contracts often include a clause specifying arbitration as the selected method for resolving disputes that arise under an agreement.[16] In passing the ADRA, Congress recognized the benefit of allowing government agencies to use alternative dispute resolution methods to direct further litigation traffic away from the already overburdened courts.[17] The ADRA grants agencies the authority to supplement existing dispute resolution proceedings through a variety of non-traditional techniques.[18] For example, federal agencies’ commonly use this ADRA authority in fields like securities disputes.[19] However, while use of the ADRA authority in antitrust disputes is less common, the plain text of the ADRA appears to clearly authorize this procedure.[20]

II.  UNIQUE CHARACTERISTICS OF ARBITRATION

Like both traditional litigation procedures and other alternative dispute resolution proceedings, arbitration aims to resolve some or all disputed issues in a case in an adversarial setting.[21] Despite these similarities, arbitration has both similarities and distinctive characteristics from traditional courtroom adjudication and other alternative dispute resolution methods.

First, the parties in an arbitration have the ability to select the arbitrator to preside over the contested hearing.[22] Traditional litigants are assigned a judge at the outset of their case and are bound by that assignment, barring extraordinary circumstances. However, arbitration is meant to be a more flexible process, and thus, the parties are given an opportunity to select a neutral to preside over their case.[23]

Second, in many cases, arbitration decisions are binding on the parties.[24] Unlike other alternative dispute resolution methods like mediation,[25] arbitration decisions are treated as if they were made by a court of law and are appealable to the court system on limited grounds.[26] Furthermore, arbitration decisions frequently create little or no written record and have limited appealability.[27]

Finally, arbitration decisions have little or no precedential value in future disputes.[28] Arbitration does not adhere to the principle of stare decisis, which is fundamental to the American common law system.[29] Scholars have debated whether arbitration decisions in fact create precedent for future actions.[30] However, even if past arbitration decisions may be considered by arbitrators, these decisions undoubtedly do not hold the same weight of authority as a court’s decision.

III.  USE OF ARBITRATION IN GOVERNMENT ANTITRUST ENFORCEMENT

The DOJ’s statements regarding intentions to arbitrate future antitrust enforcement actions raise significant concerns based on the unique characteristics of arbitration noted above. As Mr. Delrahim notes, arbitration may provide a cheaper and more efficient dispute resolution tool.[31] However, aren’t there areas of law with more important considerations than just cost savings, flexibility, and efficiency? Governmental antitrust enforcement actions serve the public interest by seeking to maintain competitive markets.[32] Such an important purpose should not be relegated to arbitration merely for the sake of efficiency and cost savings.

In Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., the Supreme Court held that arbitration could be used to litigate private antitrust actions.[33] However, antitrust enforcement actions brought by the federal government raise important policy considerations beyond private actions. Antitrust enforcement actions under the Clayton Act are brought when a business accumulates too much market power.[34] Defendants in these cases may be better-funded and much more sophisticated than those in other arbitration settings.[35] This reality exacerbates potential risks stemming from arbitration’s unique factors, namely arbitrator bias and the option of submitting a dispute to arbitration.

As noted above, parties have an opportunity to select the arbitrator to preside over the dispute.[36] DOJ posits that this presents an opportunity to utilize subject-matter experts as arbitrators in these disputes.[37] However, critics caution that the business background common among arbitrators may introduce bias to their decisions.[38] Unlike federal judges, arbitrators are not nearly as insulated from undue pressures that may influence their decisions.[39] A decision rendered by a biased arbitrator is nevertheless binding and may improperly absolve a defendant company of liability, leaving limited challenges to the decision.[40]

Finally, the less formal requirements for proceedings in arbitration raise the concerns of legitimacy of arbitration decisions and weighs against allowing arbitration these disputes.[41] If some cases are arbitrated and others handled in courts, defendants faced with an enforcement action may attempt to select one resolution method over the other, allowing them to choose whether to submit to a more rigid application of existing precedent by an Article III court if it is beneficial to them.

Unlike some other areas of law where arbitration is more common, like securities disputes,[42] government antitrust enforcement can be analogized to a prosecutorial action on behalf of consumers. For this reason, arbitration may be a poorly-suited method of adjudication. Supporters of DOJ’s new move likely will point to the fact that arbitration has been available in private antitrust disputes for decades.[43] However, even if the use of arbitration is feasible in the antitrust field, it is not necessarily appropriate to give defendants in these actions the option to choose arbitration over a court proceeding. Given the potential for problems with arbitrator bias, this may allow defendants the opportunity to exploit it for their own benefit to the ultimate detriment of the public. As the Second Circuit Court of Appeals noted in American Safety Equipment Corp. v. J.P. Maguire & Co, antitrust law addresses a unique area of public interest.[44] When the federal government deems it necessary to engage in antitrust litigation to protect the public, the importance of reaching the proper resolution should outweigh the benefit of a quicker, cheaper resolution.

CONCLUSION

As Mr. Delrahim states, the use of arbitration presents numerous potential benefits to the area of antitrust enforcement, such as cost effectiveness and efficiency.[45] However, as the court in American Safety aptly stated, “[i]n some situations Congress has allowed parties to obtain the advantages of arbitration if they are willing to accept less certainty of legally correct adjustment, but we do not think that this is one of them.”[46] While DOJ’s use of arbitration in Novelis is undoubtedly allowable, the heightened public interests at stake render arbitration an inappropriate means for determining antitrust enforcement cases.

[1] See Complaint at 15, United States v. Novelis, Inc., no. 1:19-cv-02033 (N.D. Ohio 2019).

[2] Justice Department Sues to Block Novelis’ Acquisition of Aleris, 399 Corp. Counsel’s Monitor NL 5 (2019).

[3] Id.

[4] Id.

[5] See Ryan C. Thomas & John M. Majoras, DOJ Merger Challenge Makes Unprecedented Use of Arbitration to Determine Market Definition, Jones Day (Sept. 2019), https://www.jonesday.com/en/insights/2019/09/doj-merger-challenge.

[6] Makan Delrahim, Assistant Attorney General, Special, So Special: Specialist Decision-Makers in, and the Efficient Disposition of, Antitrust Cases, Remarks at 7^th Bill Kovacic Antitrust Salon (Sept. 9, 2019), https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-7th-bill-kovacic-antitrust (citing the authority provided by the ADRA of 1996 for this action); 5 U.S.C. §§ 571–84 (2018).

[7] See Delrahim, supra note 6.

[8] See, e.g., 15 U.S.C. § 1 (2018) (“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce . . . is declared to be illegal.”).

[9] See Apex Hosiery Co. v. Leader, 310 U.S. 469, 493 (1940) (“The end sought [in passing the Sherman Act] was the prevention of restraints to free competition in business and commercial transactions which tended to restrict production, raise prices or otherwise control the market to the detriment of purchasers or consumers of goods and services, all of which had come to be regarded as a special form of public injury.”).

[10] 15 U.S.C. §§ 1–7 (2018) (Sherman Act).

[11] 15 U.S.C. §§ 12–27 (2018) (Clayton Act).

[12] 15 U.S.C. §§ 41–58 (2018) (Federal Trade Commission Act).

[13] 15 U.S.C. § 21 (2018) (granting FTC enforcement authority); 15 U.S.C. § 4 (2018) (duty of Attorney General to commence enforcement actions upon finding unfair restraints upon trade); 15 U.S.C. § 15c (2018) (providing right of action for state attorneys general under parens patriae authority); 15 U.S.C. § 15 (2018) (creating private right of action).

[14] See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) (recognizing the ability of parties to enter into arbitration pursuant to arbitration clause in contract);

[15] See Commercial Arbitration for the 1990s 1 (Richard Medalie ed. 1991); cf. Pamela K. Bookman, The Arbitration-Litigation Paradox, 72 Vand. L. Rev. 1119, 1145–49 (2019) (discussing the Supreme Court’s concerns with cost and delay of traditional litigation and describing the Court as “pro-arbitration”).

[16] E.g., Peter B. Rutledge & Christopher R. Drahozal, Contract and Choice, 2013 B.Y.U. L. Rev. 1, 16–17 (2013) (noting most credit card agreements include an arbitration clause).

[17] See 5 U.S.C. § 572(a) (2018) (“An agency may use a dispute resolution proceeding for the resolution of an issue in controversy that relates to an administrative program . . . .”); see also 5 U.S.C. § 575 (2018) (authorizing use of arbitration).

[18] 5 U.S.C. § 571(3) (2018) (“alternative means of dispute resolution” means any procedure that is used to resolve issues in controversy, including, but not limited to, conciliation, facilitation, mediation, factfinding, minitrials, arbitration, and use of ombuds, or any combination thereof.”).

[19] See, e.g., American Arbitration Association, The American Arbitration Association: A Long History of Working With Government, Am. Arb. Ass’n 1–2, https://www.adr.org/sites/default/files/document_repository/AAA%20Government%20Services.pdf (last visited Feb. 18, 2020) [hereinafter AAA, Working With Government] (providing some representative government cases utilizing arbitration, including an antitrust matter in 2010).

[20] See 5 U.S.C. § 572(a) (2018); 5 U.S.C. § 575 (2018).

[21] Arbitration, A.B.A., https://www.americanbar.org/groups/dispute_resolution/resources/DisputeResolutionProcesses/arbitration/ (last visited Feb. 18, 2020).

[22] Eric J. Fuglsang, Comment, The Arbitrability of Domestic Antitrust Disputes: Where Does The Law Stand?, 46 DePaul L. Rev. 779, 783–84 (1997).

[23] Id.

[24] Id.; see also 9 U.S.C. §§ 10–11 (2018) (providing narrow circumstances for judicial review or modification of arbitration award).

[25] Mediation, A.B.A., https://www.https://www.americanbar.org/groups/dispute_resolution/resources/
DisputeResolutionProcesses/mediation/ (last visited Mar. 28, 2020).

[26] Arbitration, supra note 21.

[27] See Fuglsang, supra note 22, at 816 (recognizing concerns about the availability of meaningful judicial review of arbitration decisions).

[28] See Michael Abramowicz & Maxwell Stearns, Defining Dicta, 57 Stan. L. Rev. 953, 1004 (2005) (discussing arbitration decisions within a framework of horizontal stare decisis as merely resolving disputes rather than attempting to make law).

Cf. W. Mark C. Weidemaier, Toward a Theory of Precedent in Arbitration, 51 Wm. & Mary L. Rev. 1895, 1903 (2010) (recognizing traditional arguments that arbitral decisions do not create precedent).

[29] Abramowicz & Stearns, supra note 28, at 1001 (“[N]onbinding mediation and arbitration . . . do not develop binding bodies of internal precedent in the same manner as do courts.”).

[30] Much of this debate focuses on treatment of precedent by arbitrators based on concerns that arbitrators operate in a separate sphere and generally disregard established judicial law. See Weidemaier, supra note 28, at 1903–07 (discussing arguments relating to arbitrators’ treatment and potential disregard of existing precedent).

[31] Delrahim, supra note 6.

[32] See, e.g., American Safety Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821, 826 (2d Cir. 1968) (“Antitrust violation can affect hundreds of thousands— perhaps millions— of people and inflict staggering economic damage.”).

[33] Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 (1985).

[34] Cf. 15 U.S.C. § 4 (2018) (noting the duty of United States attorneys to institute proceedings to prevent and restrain antitrust violations).

[35] Cf. American Safety, 391 F.2d at 827 (noting that the high likelihood for potential imbalances in resources between litigants in antitrust actions given defendants’ position as potential monopolists).

[36] See 5 U.S.C. § 577 (2018) (allowing parties to a proceeding to participate in selection of arbitrator).

[37] See Delrahim supra note 6.

[38] See, e.g., Stephen J. Choi, Jill E. Fisch, & A.C. Pritchard, The Influence of Arbitrator Background and Representation on Arbitration Outcomes, 9 Va. L. & Bus. Rev. 43, 85–88 (2014) (discussing study results which suggest that an arbitrator’s background is correlated to arbitration outcomes); American Safety, 391 F.2d at 827 (“Since commercial arbitrators are frequently men drawn for their business expertise, it hardly seems proper for them to determine these issues of great public interest.”).

[39] Compare U.S. Const. art. III § 1 (establishing life tenure for federal judges), with 5 U.S.C. §§ 573, 577 (2018) (providing criteria for arbitrators under ADRA).

[40] Arbitration, supra note 21.

[41] See Richard H. McAdams, The Expressive Power of Adjudication, 2005 U. Ill. L. Rev. 1043, 1118 (2005) (suggesting excessive use of arbitration will slow or prevent common law from evolving); Fuglsang, supra note 22, at 817 (noting discovery procedures in arbitration are less sophisticated than in a judicial forum, potentially leading to difficulties in reaching a decision without complete information).

[42] See AAA, Working With Government, supra note 19.

[43] See generally Fuglsang, supra note 22 (discussing developments in the use of arbitration in antitrust disputes).

[44] American Safety Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821, 828 (2d Cir. 1968).

[45] Delrahim, supra note 6.

[46] American Safety, 391 F.2d at 828 (internal citation omitted).