The Road to Arbitration and the Supreme Court’s Wrestling with Alternative Dispute Resolution

On the one hand, the Court understands arbitration as another form of litigation, referring in its April 24 decision, in Lamps Plus, Inc. v. Varela, 587 US ___ (2019),  to different categories of arbitration: individual arbitration (the default form) and class arbitration. Arguably, this takes the “alternative” out of alternative dispute resolution or dilutes it. Still, the Court maintains that arbitration is to be differentiated; “parties forgo the procedural rigor and appellate review of the courts in order to realize the benefits of private dispute resolution: lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes.”

The decision reaffirms the Court’s stranglehold on arbitration and class actions. As a refresher, Supreme Court precedent does not strictly observe the doctrine of competence-competence, or allowing arbitrators to sit in judgment of their own authority. Rather in the United States, it is the courts in the first instance who act as gatekeepers to arbitration and resolve gateway questions of the arbitrability of the dispute — unless otherwise agreed by the parties. That is, the Court has established a pre-arbitration procedure for deciding whether an arbitration agreement is valid. A party that disputes the validity of the arbitration clause resorts to a court to determine the threshold question of whether the dispute is arbitrable; should the court determine the arbitration clause is valid, the Court then refers the dispute to arbitration. (Ideally, the court’s power when faced with a potential arbitration question should be complementary of an arbitrator and not supervisory. The Court’s position is more orthodox.)

Lamps Plus continues with the rhetoric of courts as the final arbiters of arbitration — keeping the gates to arbitration controlled — and creates additional distinctions between different forms of arbitration. One of the main holdings of Lamps Plus is that “[c]ourts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.” Instead, the availability of class arbitration or parties joining as a class to represent their interests, for instance, in employer-employee disputes as in Lamps Plus, must be affirmatively spelled out in the arbitration agreement. Effectively, many individual arbitration agreements for similarly situated individuals cannot be used to create a potential class agreement, unless otherwise provided for in each agreement. This is ostensibly because “class litigation” invokes different considerations and requires different procedures, according to the Court. This new hoop adds a new avenue for courts, not arbitrators, to determine whether the agreement to arbitrate is expressed with sufficient clarity.

This is an unusual holding when considered in the context of the Federal Arbitration Act and reminds one the of the effort of Congress to curb class actions in the securities realm. The Federal Arbitration Act is a monolithic statute. Although the Act does recognize differences in enforcement procedures for domestic and foreign (international) arbitral awards, it does not explicate different classes and categories of arbitration. Now, the Court says individualized arbitration is the preferred and traditional form of arbitration contemplated by the FAA.

The decision acknowledges the import of arbitration within a litigation system, while showing  the United States as a pro-arbitration policy-oriented regime but with reservations. In the United States, there remains a clear preference for court adjudication and supervision and a fear of arbitration’s unbridled procedure.