This past term, the Supreme Court held in Epic Systems v. Lewis that arbitration clauses in employment contracts that contain class action waivers are enforceable. Beyond implications for employers, employees, and class actions, the Court also made crystal clear what it had earlier suggested was its view with respect to arbitration more generally: Arbitration is meant to displace litigation. This position, in turn, has implications for all different kinds of arbitration. One area not to be ignored is the impact on international commercial arbitration.
According to the Court in Epic, once you have an arbitration clause in a valid contract, the arbitration that follows should give parties what they bargained for: an escape from litigation’s alleged parade of horribles. Arbitration is “informal,” “speedy,” “efficient,” “inexpensive,” and “individualized.” Understood this way, the Court’s pro-arbitration stance seems consistent with its hostility to litigation in other contexts (limiting class actions, raising pleading standards, cabining the scope of personal jurisdiction, curbing discovery, etc.).
But the Court’s approach is not, in fact, as pro-arbitration as it seems—especially with respect to international commercial litigation. The Court’s pro-arbitration and anti-litigation values sometimes conflict. And when they do, hostility to litigation wins. For example, consider an arbitration clause that explicitly authorizes extensive judicial review. Pro-arbitration policies of respecting party autonomy would enforce the clause and allow judicial review, but anti-litigation norms would require the opposite. Allowing judicial review, under that theory, would make arbitration look too much like litigation. In that factual context and others, the Supreme Court’s hostility to litigation has overridden its support for arbitration. Parties may not contract for more judicial review.
Such results are particularly problematic for international commercial arbitration. International commercial arbitration relies on courts to enforce arbitration clauses and awards and to respect arbitrators’ authority and cede control over arbitral proceedings and outcomes. Courts provide this support through litigation.
Moreover, international commercial arbitration is defined by its flexibility and parties’ ability to cater it to their needs; as it continues to expand in complexity and significance, it looks more and more like high-stakes commercial litigation. International arbitration can be formal, slow, expensive; it can involve multiple parties. Importantly, the Supreme Court’s dedication to enforcing its view of arbitration and litigation as opposites does international commercial arbitration no favors because it creates default rules for interpreting arbitration clauses that can wrest authority away from arbitrators and otherwise undermine parties’ expectations.
In The Arbitration-Litigation Paradox, forthcoming in the Vanderbilt Law Review in 2019, I explain that the Epic decision is the latest installment of Supreme Court arbitration decisions that favor arbitration and exhibit hostility to litigation. Examining the Court’s supposedly “pro-arbitration” decisions with international commercial arbitration in mind, however, lays bare the uneasy coexistence of the Court’s pro-arbitration and anti-litigation tendencies. These positions seem consistent. But because courts play an important role in supporting arbitration, courts need to be at least somewhat supportive of litigation in order to be supportive of arbitration. In its haste to squelch certain kinds of litigation and to maintain artificial distinctions between arbitration and litigation, however, the Court has damaged international commercial arbitration by undermining international arbitration norms, parties’ choices, and the effectiveness of arbitral awards.
The better view recognizes that litigation both supports arbitration and competes with it for selection in international commercial contracts. These dual roles should inform courts’ views on the scope of their authority to regulate arbitration. The Supreme Court is unlikely to change its mind about arbitration’s supposedly defining characteristics in the short term, but lower courts and state courts need not take the Court’s description of arbitration in dicta as binding precedent. They would do well to ignore the rhetoric defining arbitration so narrowly as the opposite of litigation, and instead strive to understand courts’ role in supporting arbitration and do their best to make their decisions in cases involving or affecting international commercial arbitration truly “pro-arbitration.”
Professor Pamela Bookman is a Professor at Temple University Beasley School of Law, where she teaches Contracts and Civil Procedure. Her research focuses on adapting the U.S. judicial system to transnational disputes. Prior to joining Temple Law, Professor Bookman was a Counsel at Wilmer Cutler Pickering Hale & Dorr LLP where she advised clients regarding complex commercial business disputes with a focus on transnational disputes.