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Arbitration Conflicts

By David L. Noll. Full text here.

Abstract: “Among the most important recent developments in U.S. civil procedure is the rise of arbitration as a substitute for litigation in public courts. Seeking to lower legal costs and protect themselves from entrepreneurial litigation, firms from Amazon to Wells Fargo have added arbitration clauses to their standard form contracts and invoked them to defend against all manner of litigation. Increased use of arbitration—underpinned by the Supreme Court’s view that the Federal Arbitration Act (FAA) requires arbitration agreements to be enforced according to their terms—has transformed arbitration from a method for resolving contractual differences into an all-purpose private justice system. In this new environment, regulation by federal administrative agencies has emerged as a crucial check against the most problematic uses of arbitration. But agencies’ efforts to regulate arbitration have been plagued by persistent questions about their statutory authority to do so. Those questions have played a central role in the Trump administration’s efforts to roll back Obama-era arbitration regulations, as agencies cited doubts about their statutory authority to justify reversing Obama-era rules. And the issue has divided courts. In its first encounter with an agency arbitration regulation, the Supreme Court in Epic Systems v. Lewis divided sharply over the lawfulness of a National Labor Relations Board ruling that regulated arbitral class action waivers under the National Labor Relations Act.

This Article offers a theory of how the FAA relates to other federal laws, the legal issue at the heart of conflicts over agency arbitration revolution. That theory proceeds from two propositions: (1) the FAA functions as a statutory floor that establishes default rules governing the status and enforceability of agreements to arbitrate; and (2) the FAA’s relationship to other laws presents an ordinary question of statutory interpretation; the Act is not, on any accepted theory of statutory interpretation, a “super-statute” that occupies a special position in federal law.

This theory challenges several common assumptions about the law governing arbitration. Under ordinary interpretive principles, the FAA’s default rules of dispute resolution procedure are not only modified by statutes that expressly address the validity, enforceability, or revocability of arbitration agreements— a point that is generally accepted in doctrine and scholarship— but also by a range of statutes that modify the FAA impliedly. Among those statutes are laws governing primary conduct, laws that define procedures and remedies for statutory claims, laws that subject regulated parties’ contracting to administrative oversight, and laws that direct an agency to implement subsidiary statutory policies that are negatively affected by arbitration. Between them, these statutes supply authority for many contested agency arbitration regulations. But in contrast to much of the scholarly literature, this Article demonstrates that the issue is not governed by Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.