ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, May 22, 2018

Update: In Which Arbitration Reigns Supreme (Supreme Court Kind-Of Pun Intended)

I just blogged about the Ninth Circuit case of Morris v. Ernst & Young, and the Supreme Court has now come out with its decision, reversing the Ninth Circuit (shorter analysis here). Where the Ninth Circuit found that arbitration clauses prohibiting concerted actions by employees violated the National Labor Relations Act, the Supreme Court found that permitting concerted actions by employees where arbitration clauses existed would violate the Federal Arbitration Act. Justice Ginsburg wrote a long dissent; the majority opinion was written by Justice Gorsuch. The trend out of the Supreme Court has been that arbitration trumps every other policy. The Federal Arbitration Act is like the royal flush of statutes.

In a world where contracts with arbitration clauses govern almost every imaginable transaction, courts are forced into interesting decisions to press against the primacy of arbitration. So, for instance, on the same day the Supreme Court handed down its decision, the Western District of Pennsylvania declined to enforce an arbitration provision in Jones v. Samsung Electronics America, Case No. 2:17-cv-00571-MAP (behind paywall). Jones sought to bring a class action against Samsung based on alleged defects in its S3 cell phones. Samsung sought to arbitrate, citing the contract allegedly contained in the instruction booklet included with the phone. But the court disagreed that the arbitration clause was enforceable. It found that the clause was "tucked away" in a section entitled "Manufacturer's Warranty" contained in a 64-page booklet. The court agreed that the clause might possibly have been more inconspicuous, but found that

the degree of prominence of the Arbitration Agreement here seems calibrated with dual goals: on the one hand, just enough to persuade a court to smother potential litigation; on the other hand, not enough to make it likely that a consumer will actually notice the Agreement and perhaps hesitate to buy. It is one thing to hold consumers to agreements they have not read; it is another to hold them to agreements that, perhaps by design, they will probably never know about.

The court's decision here makes some sense, but it seems rooted in a somewhat fictional hypothetical. I don't know but I feel like Samsung could sell its phones with an instruction booklet with "ARBITRATION CLAUSE" in big, bold, red letters with exclamation points on the front of it, and I'm not sure it would in fact cause most consumers to "hesitate to buy," especially not if the majority of other cell phones contain similar arbitration clauses (the major cell phone carriers do).

But the bigger fiction at issue here is the idea that we're all "voluntarily" entering into these contracts. I mean, we are, to the extent that it's "voluntary" to have a cell phone in today's world. The answer to that question is: It is, to some extent, but not to the extent that we're willing to forego one entirely based on the mere possibility we might want to sue someday and can't. We all take risks, and maybe the court's view is this a risk that doesn't pay off for the consumer, oh, well, but it seems like the consumer has almost no power to take any other kind of risk. (This is, of course, not limited to cell phone contracts. So the real question is: is it "voluntary" to be a consumer in our capitalist society?) Likewise, is it "voluntary" to accept a job that require arbitrations, if you need a job to survive and jobs without arbitration clauses might be tough to come by?

There are statutory ways to shift the supremacy of arbitration, of course, as the Supreme Court's decision acknowledges. And at one point the FCC was contemplating doing something about the type of arbitration clause the court looked at in Jones. Maybe add it to your list of things to contact your representatives about, if you so desire.  

https://lawprofessors.typepad.com/contractsprof_blog/2018/05/update-in-which-arbitration-reigns-supreme-supreme-court-kind-of-pun-intended.html

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