Legal Rights That Are Protected In Courts, May Well Be Lost In An Arbitration

I haven’t commented in the past on this, because there was too much else going on directly on point with ERISA. However, as many of you may know, the Supreme Court issued an opinion a week or two back in essence concluding that parties may not contract between themselves to allow a court to review an arbitration award beyond the limited review provided for under the Federal Arbitration Act. As I have discussed on this blog more times than I care to remember, commercial arbitration suffers from a number of problems, and I have suggested in the past that commercial entities who want to arbitrate should take preemptive steps to solve those problems at the time they agree to arbitrate. Probably the biggest barrier to arbitration serving as a forum for complicated commercial disputes is that the Federal Arbitration Act effectively provides no substantive oversight of an arbitration ruling, making the arbitrator’s ruling the final decision, and only allows judicial review for the purpose of addressing any serious procedural errors during the course of an arbitration. Commercial entities have been well advised in the past to try to negotiate around this problem, to leave some type of judicial review in place that will provide oversight of an arbitration panel that is akin to what a federal appeals court provides to a trial court. The Supreme Court’s opinion effectively deprives parties who wish to arbitrate from agreeing to allow such a review by a federal court, making arbitration a forum that, quite simply, isn’t appropriate for a party that wants to maintain rights of appeal should the original decision maker - whether an arbitration panel, a trial judge or a jury - err significantly on either the particular law or the application of that law to the facts proven in the case.

Frankly, from a substantive real world approach, it’s the wrong decision. Arbitration can work for commercial entities, but not in a cookie cutter manner and only if they can negotiate around the problem of limited judicial review. The Supreme Court’s ruling precludes contractually remedying that problem. As a hypothetical question for a federal courts class, it might be the right answer; in the real world, it certainly isn’t. Indeed, I have commented in the past on empirical and anecdotal evidence that commercial entities are losing interest in resolving complicated business disputes by arbitration, and this ruling isn’t going to reverse, or even slow, that trend.

What’s the occasion for this soliloquy? This article right here, out of Texas Lawyer, which hits these notes right on the head (I like a good mixed metaphor on a Monday).