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Valparaiso Univ. Law School

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Tuesday, April 20, 2010

The Next Phase in Challenges to Arbitration Provisions: David Horton in the UCLA Law Review

HortonWhile we are discussing the arguments pending before the U.S. Supreme Court in Rent-A-Center West v. Jackson, Loyola Law School Los Angeles's David Horton have moved on to the next issue in the world of arbitration agreements.  Professor Horton's article, The Shadow Terms: Contract Procedure and Unilateral Amendments has appeared in the current issue of the UCLA Law Review.  The full text is here.  The abstract is reproduced below:

For decades, courts and commentators have debated the normative implications of contract procedure. Conservatives argue that mandatory arbitration clauses reduce the burden on the judicial system and that class arbitration waivers, choice-of-law clauses, and jury trial waivers allow businesses to pass litigation savings to their consumers in the form of lower prices. In response, liberals object that contract procedure dilutes substantive rights and runs roughshod over important jurisdictional and constitutional values.

This Article argues that neither view has accounted for a defining trait of contract procedure: the regularity with which drafters unilaterally amend procedural terms. Indeed, many standard form consumer agreements and a growing number of state statutes authorize drafters to revise procedural terms unilaterally. The frequency with which drafters exercise this power undermines the foundational conservative theory that sophisticated adherents can exert market pressure on drafters to offer efficient procedural terms. However, the liberal model of contract procedure—which urges courts to nullify procedural terms that erode substantive, jurisdictional, or constitutional interests—creates perverse incentives. Drafters respond to judicial decisions voiding procedural terms by amending their terms again. The target audience for these revisions is not the adherents who will be subject to them, but the courts who will adjudicate their validity. This “private conversation” between corporations and courts not only widens the informational gulf between drafters and adherents, but increases the burden on the judicial system. To end this pernicious feedback loop, the Article encourages policymakers to eliminate drafters’ ability to amend procedural terms unilaterally.

[Jeremy Telman]

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