As I mentioned in an earlier post, I am concerned that the current version of the proposed Arbitration Fairness Act of 2013, S. 878 and H.R. 1844, will lead to wasteful litigation regarding its applicability in state courts. From its enactment in 1925 to 1984, the Federal Arbitration Act was generally considered a purely procedural statute applicable solely in Federal courts. In 1984, the Supreme Court of the United States radically transformed the Federal Arbitration Act in a flawed decision called Southland Corp. v. Keating, 465 U.S. 1 (1984), where the Supreme Court misinterpreted the Federal Arbitration Act and held that the statute is applicable in State courts. See generally Ian R. Macneil, American Arbitration Law: Reformation, Nationalization, Internationalization (1992). If the Arbitration Fairness Act of 2013 is intended to restore the Federal Arbitration Act to its original meaning, a good argument can be made that the Arbitration Fairness Act of 2013’s restrictions are only binding on Federal courts. Under this reading, State courts would then be free to enforce consumer and employment arbitration agreements. (I’m sure corporations and employers will push this interpretation, and an over-docketed, pro-business state court judge who wants to get rid of a case and go play golf may accept this argument.)
To correct this problem, and to ensure that no court, State or Federal, enforces a consumer or employment predispute arbitration agreement, I have slightly modified the current version of the Arbitration Fairness Act of 2013 with a few minor tweaks. My suggested version appears below, and I’ve tried to bold and underline the main changes I am suggesting:
SECTION 1. SHORT TITLE.
This Act may be cited as the “Arbitration Fairness Act of 2013”.
SECTION 2. FINDINGS.
The Congress finds the following:
(1) The Federal Arbitration Act (now enacted as chapter 1 of title 9 of the United States Code) was intended to apply to disputes between commercial entities of generally similar sophistication and bargaining power.
(2) The Supreme Court of the United States in a series of decisions has interpreted the Act so that it now extends to consumer disputes and employment disputes, contrary to the intent of Congress.
(3) Most consumers and employees have little or no meaningful choice whether to submit their claims to arbitration. State and Federal courts routinely enforce arbitration agreements involving consumers and employees, and often, consumers and employees are not even aware that they have given up their rights to sue in State or Federal courts.
(4) Mandatory arbitration undermines the development of public law because there is inadequate transparency and inadequate judicial review of arbitrators’ decisions.
(5) Arbitration can be an acceptable alternative when consent to the arbitration is truly voluntary, and occurs after the dispute arises.
SECTION 3. ARBITRATION OF EMPLOYMENT, CONSUMER, ANTITRUST, AND CIVIL RIGHTS DISPUTES.
Definitions:
(1) the term “antitrust dispute” means a dispute–
(A) involving a claim for damages allegedly caused by a violation of the antitrust laws (as defined in subsection (a) of the first section of the Clayton Act (15 U.S.C. 12)) or State antitrust laws; and
(B) in which the plaintiffs seek certification as a class under rule 23 of the Federal Rules of Civil Procedure or a comparable rule or provision of State law;
(2) the term “civil rights dispute” means a dispute–
(A) arising under–
(i) the Constitution of the United States or the constitution of a State; or
(ii) a Federal or State statute that prohibits discrimination on the basis of race, sex, disability, religion, national origin, or any invidious basis in education, employment, credit, housing, public accommodations and facilities, voting, or program funded or conducted by the Federal Government or State government, including any statute enforced by the Civil Rights Division of the Department of Justice and any statute enumerated in section 62(e) of the Internal Revenue Code of 1986 (relating to unlawful discrimination); and
(B) in which at least 1 party alleging a violation of the Constitution of the United States, a State constitution, or a statute prohibiting discrimination is an individual;
(3) the term “consumer dispute” means a dispute between an individual who seeks or acquires real or personal property, services (including services relating to securities and other investments), money, or credit for personal, family, or household purposes and the seller or provider of such property, services, money, or credit;
(4) the term “employment dispute” means a dispute between an employer and employee arising out of the relationship of employer and employee as defined in section 3 of the Fair Labor Standards Act of 1938 (29 U.S.C. 203); and
(5) the term “predispute arbitration agreement” means any agreement to arbitrate a dispute that had not yet arisen at the time of the making of the agreement.
No predispute arbitration agreement in connection with a transaction involving interstate commerce shall be valid or enforced by a State or Federal court if it requires arbitration of an employment dispute, consumer dispute, antitrust dispute, or civil rights dispute.
SECTION 4. APPLICABILITY.
(1) IN GENERAL- An issue as to whether the Arbitration Fairness Act of 2013 applies to an arbitration agreement shall be determined under Federal law. The applicability of the Arbitration Fairness Act of 2013 to an agreement to arbitrate and the validity and enforceability of an agreement to which the Arbitration Fairness Act of 2013 applies shall be determined by a court, rather than an arbitrator, irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement.
(2) COLLECTIVE BARGAINING AGREEMENTS- Nothing in the Arbitration Fairness Act of 2013 shall apply to any arbitration provision in a contract between an employer and a labor organization or between labor organizations, except that no such arbitration provision shall have the effect of waiving the right of an employee to seek judicial enforcement of a right arising under a provision of the Constitution of the United States, a State constitution, or a Federal or State statute, or public policy arising therefrom.
SECTION 5. TECHNICAL AND CONFORMING AMENDMENTS.
(1) IN GENERAL- Title 9 of the United States Code is amended–
(A) in section 1, by striking “of seamen,” and all that follows through “interstate commerce”;
(B) in section 2, by inserting “or as otherwise provided in the Arbitration Fairness Act of 2013” before the period at the end;
(C) in section 208–
(i) in the section heading, by striking “Chapter 1; residual application” and inserting “Application”; and
(ii) by adding at the end the following: “This chapter applies to the extent that this chapter is not in conflict with the Arbitration Fairness Act of 2013.”; and
(D) in section 307–
(i) in the section heading, by striking “Chapter 1; residual application” and inserting “Application”; and
(ii) by adding at the end the following: “This chapter applies to the extent that this chapter is not in conflict with the Arbitration Fairness Act of 2013”.
(2) TABLE OF SECTIONS-
(A) CHAPTER 2- The table of sections for chapter 2 of title 9, United States Code, is amended by striking the item relating to section 208 and inserting the following:
“208. Application.”.
(B) CHAPTER 3- The table of sections for chapter 3 of title 9, United States Code, is amended by striking the item relating to section 307 and inserting the following:
“307. Application.”.
SEC. 6. EFFECTIVE DATE.
This Act, and the amendments made by this Act, shall take effect on the date of enactment of this Act and shall apply with respect to any dispute or claim that arises on or after such date.