Forced Injustice in Arbitration: Heads, Corporate America Wins; Tails, Ordinary Americans Lose

What a difference a day makes in the Roberts Court.

On Monday, during the Rent-A-Center v. Jackson oral argument, discussed here, the conservative Justices gave every indication that employees who sign arbitration agreements with corporate employers without having any real choice whether to sign at all—let alone agree to the terms of arbitration—are simply out of luck.  Yet on Tuesday, in a ruling along ideological lines in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., the conservative Justices refused to require Stolt-Nielsen, an international shipping company, to submit to class arbitration of price-fixing claims because it wasn’t entirely clear to the Justices that the company had meaningfully agreed to arbitrate class actions.  Back on Monday, in Rent-A-Center, Justice Scalia told the lawyer for Antonio Jackson that just because a job applicant might have no choice but to submit to the unfair terms of an employer’s mandatory arbitration agreement in order to get the job doesn’t mean the employee has been forced into anything—the employee is just “a stupid person who voluntarily signs an unconscionable contract.”  But on Tuesday, demonstrating the conservative majority’s newfound solicitude for full, clear, meaningful agreement to arbitrate, Justice Alito explained that the Court’s pro-arbitration policy is all about consent (and, in case you were wondering, there was no suggestion whatsoever that Stolt-Nielsen was just a stupid international shipping company that voluntarily signed an ambiguous and broad arbitration agreement).

So what gives?  Well, it turns out that as different as the conservative Justices’ approach to arbitration in these two cases may seem on the surface, they lead to the same result:  more arbitration, less justice.

An explanation of the facts and real-world consequences of the two cases helps to explain why this is so.  A pro-arbitration ruling in Rent-A-Center would mean that job applicants and employees—not to mention pretty much anyone who has a cell phone, obtains a credit card, or goes to see a doctor—can be forced to give up their right to seek justice in the courts and instead be required to resolve any and all future disputes in private arbitration even if they did not have a meaningful choice about whether to be bound by such an arbitration agreement.  This is especially troubling given that these cases generally involve everyday Americans on one side of the agreement, and a big corporation on the other.  Because corporations are repeat players in the arbitration system and their continued patronage keeps private arbitrators in profitable business, arbitrators may well be predisposed to rule in favor of the corporate interest.  Moreover, many corporations load arbitration agreements with terms that favor them over the individuals who are effectively required to sign them.  Thus, it was deeply troubling on Monday to see the Justices so committed to forcing workers and consumers into arbitration, particularly because there is powerful textual and historical evidence that Congress did not even intend to include consumer and employment contracts within the Federal Arbitration Act in the first place.

One could perhaps defend the Justices’ “pro-arbitration” stance in Rent-A-Center on the grounds that the arbitration process is less costly and more efficient than federal court litigation.  But that argument is undercut considerably by the Court’s ruling Tuesday.  In Stolt-Nielsen, the arbitration panel ruled that antitrust claims against Stolt-Nielsen could proceed as a single class action, thus saving the claimants the time and money that would be needed to arbitrate each claim separately.  But the Court’s ruling, written by Justice Alito and joined by Chief Justice Roberts and Justices Scalia, Kennedy and Thomas, disallows such class proceedings when the corporation has not expressly agreed to them, which threatens to wipe out consumer class claims altogether in instances in which the parties have signed a general arbitration agreement. The ruling in Stolt-Nielsen thus isn’t an anti-arbitration decision—Stolt-Nielsen’s customers are still required to arbitrate their claims that the company engaged in bad corporate conduct, they just have to do so individually in separate arbitrations instead of as a group in one proceeding.  So much for efficiency.  And, as Justice Ginsburg pointed out in her excellent dissent, this often means that claims won’t be brought at all due to the cost of arbitration for those seeking to vindicate their rights, resulting in fewer corporations being held responsible for their misconduct.  (If there were any doubt that Stolt-Nielsen applies beyond the context of international cargo shipping, it should be dispelled by the fact that the wireless communications industry—the folks who put the arbitration agreement into your cell phone contract—filed a brief supporting the outcome reached in this case.)

Should the Court rule against the employee in Rent-A-Center, such a ruling, combined with Justice Alito’s opinion in Stolt-Nielsen, would be a double blow to the rights of consumers and employees to seek justice in the courts when they believe they have been wronged.  Given the tenor of the oral argument in Rent-A-Center, and the ruling in Stolt-Nielsen, it just may be that the Roberts Court will allow corporations to force pretty much every claim into private arbitration, but won’t respect arbitrators’ efforts to make the process fairer or more efficient for the victims of corporate misconduct.  Heads, corporate America wins; tails, ordinary Americans lose.  This is not what Congress intended when it passed the Federal Arbitration Act, and it is surely not what the American people consider to be justice.