April 26, 2011
Lawrence Cunningham (GW Law) has posted his forthcoming article Rhetoric vs. Reality in Arbitration Jurisprudence: How the Supreme Court Flaunts and Flunks Contracts (and Why Contracts Teachers Need not Teach the Cases) on SSRN. The article addresses the contradictions in the Supreme Court’s arbitration jurisprudence caused when the Court recites incantations about freedom of contract while rendering decisions enforcing the federal presumption in favor of arbitration that the Court has discovered in the FAA. As Professor Cunningham (and others before him) demonstrates, the Court’s decisions do not in fact honor freedom of contract. From Mastrobuono to Allied-Bruce Terminix to Hall Street, Stolt-Nielsen, and Rent-a-Center, the Court has paid lip service to freedom of contract while reading arbitration agreements to compel arbitration under terms that cannot be found in the actual contracts. Professor Cunningham concludes that the Court’s arbitration jurisprudence, while speaking the language of contracts, actually has very little to do with contract law at all, and from that he concludes that Contracts professors should not feel compelled to include arbitration in their coverage of the basic Contracts course (this point apparently is in response to Tom Stipanowich’s Illinois Law Review article “Arbitration: The ‘New’ Litigation,” which encouraged Contracts professors to pay greater heed to arbitration).
Professor Cunningham’s article is, characteristically, thoroughly researched and powerfully argued. Its dissection of the Court’s arbitration cases is spot-on. But I want to suggest that arbitration is important in the law of contracts for a different reason than the one Professor Cunningham addresses. The Supreme Court has focused on freedom of contract as applied to the enforcement of arbitration agreements. It may be more significant, however, to focus on the role of contract law in the enforcement of arbitral awards. As more and more disputes are funneled into arbitration, arbitration increasingly becomes a substitute for express contractual agreement. As I argued in the Oregon Law Review several years ago, arbitral awards can (and in my view, should) be understood as contract terms. The arbitrator is a contract reader engaged by the parties to supply the terms they did not anticipate in order to give effect to their agreement. If that view is correct, then contract law is enormously important in arbitration, and vice versa. Arbitral awards must meet all the requirements that limit parties’ freedom of contract, most importantly the limits on exculpatory contracts. Where an arbitral award, viewed ex ante as a contract term, would amount to an unenforceable exculpatory contract, the award should not be enforceable. (The article explains why this is so in detail.) That is a critical point that the Court has never engaged, but that could (should) bring arbitration and contract law back together.
In my view, as we graduate new generations of students who will not be able to avoid arbitration agreements, we need to educate them about how contracts doctrine and arbitration intersect. Arbitration is not merely a product of contract—arbitration is contract. So while it is true that the Supreme Court’s arbitration jurisprudence does not adhere to its freedom-of-contract rhetoric, there is still much that students of arbitration need to know about contract, and much that students of contract need to know about arbitration.
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