Arbitration as an Article of Constitutional Faith

arbitration and the constitution

Scarcely any legal question arises in the United States that is not resolved, sooner or later, through arbitration.  If Alexis de Tocqueville could survey contemporary American legal culture, he would rub his eyes with amazement at the privatization of adjudication across a wide swath of issues previously committed to judicial resolution.  Cf. Alden v. Maine, 527 U.S. 706, 807 (1999) (Souter, J., dissenting); Federal Maritime Comm’n v. South Carolina State Ports Auth., 535 U.S. 743, 755 (2002).  From trade disputes posing serious questions of economic diplomacy to consumer contracts adhering to cell phones and credit cards, mandatory arbitration has displaced conventional adjudication in a wide variety of modern legal settings.

In that same country, one that de Tocqueville famously characterized as driven by its dedication to constitutional lawmaking through litigation, arbitration has become a dominant form of dispute resolution with little if any direct doctrinal influence by federal constitutional law.   This is the overriding theme of Peter B. Rutledge’s new book, Arbitration and the Constitution (Cambridge 2013).  If only by virtue of its sheer diversity and popularity, arbitration implicates the full panoply of constitutional issues, from judicial review and separation of powers to federalism, due process, and the Seventh Amendment right to a jury in civil cases.

As Professor Rutledge demonstrates in his thorough review of constitutional controversies surrounding arbitration, the Supreme Court has largely refrained from constitutionalizing arbitration.  Instead, most of the Supreme Court’s arbitration jurisprudence imparts constitutional values by indirect means.  The canon of construing statutes to avoid constitutional doubts, see, e.g., NLRB v. Catholic Bishop of Chicago, 440 U.S. 490 (1979), and the broader technique of wielding legislative history and judicially imparted statutory purpose to defeat the literal meaning of legal texts, see, e.g., Holy Trinity Church v. United States, 143 U.S. 457 (1892), loom large as the primary tools for making constitutional law in cases involving arbitration.

Most dramatically, perhaps, federal courts have allowed private parties to define minimum procedural standards emulating due process.  It seems reasonably clear that arbitration is a creature of private freedom of contract, rather than the product of coercive state power or even “significant encouragement” by the government, and therefore not state action for Fourteenth Amendment purposes.  See American Manufacturer’s Mutual Insurance Co. v. Sullivan, 526 U.S. 40, 52 (1999).  But see Richard C. Reuben, Constitutional Gravity: A Unitary Theory of Alternative Dispute Resolution and Public Civil Justice, 47 UCLA L. Rev. 949, 1006 (2000).  Despite the absence of state action, the Supreme Court has gauged the fairness of arbitral agreements according to their adherence to an assuredly nonconstitutional due process protocol devised by the American Arbitration Association.  See Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003); Cole v. Burns International Security Services, 105 F.3d 1465 (D.C. Cir. 1997); Hooters of America, Inc. v. Phillips, 173 F.3d 933 (4th Cir. 1999).

By contrast, the Supreme Court has shown far less solicitude for federalism and the prerogatives of the states in regulating arbitral agreements.  Critically, the Court has held that section 2 of the Federal Arbitration Act, which declares arbitration agreements to be presumptively “valid, irrevocable, and enforceable,” 9 U.S.C. § 2, applies in state court as well as federal court and therefore preempts state antiwaiver laws that would otherwise redirect contracts with arbitration clauses back into state court.  Southland Corp. v. Keating, 465 U.S. 1 (1984).  Although the Court has allowed state law to exert some influence over private parties’ choice-of-law clauses, Preston v. Ferrer, 552 U.S. 346 (2008); Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995); Volt Information Sciences, Inc. v. Board of Trustees of Stanford University, 489 U.S. 468 (1989); and the enforcement of arbitral awards, Hall Street Assocs., LLC v. Mattel, Inc., 552 U.S. 576 (2008), the Court has swept aside state-law unconscionability doctrine as a bar to mandatory arbitration coupled with a class action waiver.  See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).  The striking reach of Concepcion shows how vigorously the Supreme Court is willing to enforce a substantive federal policy favoring arbitration, as embodied in the Court’s interpretation of the Federal Arbitration Act, at the expense of state law.  As Professor Rutledge points out (p. 84), only Justice Thomas continues to call for the overruling of Southland, in spite of the Roberts Court’s general proclivity in favor of federalism.

In the international domain, where trade agreements committing disputes to binational arbitral panels strongly implicate separation of powers concerns in Articles II and III of the Constitution, the Supreme Court’s arbitration jurisprudence confronts its thorniest constitutional dilemmas.  Scholars have devised elaborate, even heroic, theories of appellate review that reconcile mandatory arbitration — which, after all, represents the removal of a class of federal legal questions from Article III courts — with the Constitution’s declaration that “[t]he judicial power shall extend to all cases, in law and equity, arising under this Constitution, the laws of the United States, and treaties made, or which shall be made, under their authority.”  U.S. Const., art. III, § 2, cl. 1.  See Richard H. Fallon, Jr., Of Legislative Courts, Administrative Agencies and Article III, 101 Harv. L. Rev. 915 (1988); James E. Phander, Article I Tribunals, Article III Courts, and the Judicial Power of the United States, 118 Harv. L. Rev. 643 (2004).

For my part, I have argued that NAFTA violates the appointments clause of Article II of the Constitution, since reliance on binational arbitral panels to resolve antidumping and countervailing duties controversies effectively allows these panelists to wield significant power of the United States without having been appointed by constitutional means.  See Jim Chen, Appointments with Disaster: The Unconstitutionality of Binational Arbitral Review Under the United States-Canada Free Trade Agreeement, 49 Wash. & Lee L. Rev. 1455 (1992).  A constitutional challenge to this arrangement, Coalition for Fair Lumber Imports Executive Committee v. United States, 471 F.3d 1329 (D.C. Cir. 2006), has settled and therefore “enabl[ed] the parties and the court, at least temporarily, to avoid resolution of these high-stakes constitutional issues” (p. 57).

The text of the Constitution could not be clearer.  The power to appoint “officers of the United States,” “by and with the advice and consent of the Senate,” is a presidential prerogative, except in those instances where “Congress may by law vest the appointment of such inferior officers, as they think proper, in the President alone, in the courts of law, or in the heads of departments.”  U.S. Const. art. II, § 2, cl. 2.  And yet binational arbitral review under NAFTA proceeds apace, the better to bind Canada, Mexico, and the United States in a free trade agreement spanning nearly all of North America.

Professor Rutledge’s masterful study of arbitration and the Constitution shows how the “catholic” approach to constitutional law as a body of tradition has triumphed over “protestant,” more stringently textualist approaches that stress the word rather than the spirit of America’s fundamental law.  See generally Sanford Levinson, Constitutional Faith (Princeton, 2d ed. 2011), . For an institution wholly alien to the Founders and even to friendly French observers, arbitration depends not on the letter of the the Constitution, but rather on the spirit of that document, as recognized and revived by succeeding generations of sympathetic judicial interpreters.  That is the respect in which squaring arbitration with American constitutional law requires a leap of legal faith.

Jim Chen is the Justin Smith Morrill Professor of Law, Michigan State University (effective July 1, 2013). In addition, he is also the founder and administrator of the online Jurisdynamics Network.

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