Default rules from mandatory rules: Privatizing law through arbitration

Minnesota Law Review

Volumn 83, Issue 3, 1999, Pages 703-753

  Ware, Stephen J ^a  

^a SAMFORD UNIVERSITY   (United States)

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EID: 0346983825     PISSN: 00265535     EISSN: None     Source Type: Journal    
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References (250)

1. See DANIEL YERGIN & JOSEPH STANISLAW, THE COMMANDING HEIGHTS: THE BATTLE BETWEEN GOVERNMENT AND THE MARKETPLACE THAT IS REMAKING THE MODERN WORLD 12-13 (1998).
2. On the use of the word "norm," see Richard H. McAdams, The Origin, Development, and Regulation of Norms, 96 MICH. L. REV. 338 (1997). [N]onlegal obligations may be created and enforced in a centralized or decentralized manner. Centralized private organizations, such as a diamond bourse, enforce relatively formal, usually written, rules, while groups and entire societies often enforce highly informal rules, such as the property norms ranchers follow in Shasta County. The distinction is important because some theorists prefer to use the term norms to refer only to decentralized rules and regard organizational rules as a set of obligations falling between centralized law and decentralized norms. Id. at 351 (citations omitted).
3. BLACK'S LAW DICTIONARY 1196 (6th ed. 1990) (defining private law as "all that part of the law which is administered between citizen and citizen, or which is concerned with the definition, regulation, and enforcement of rights in cases where both the person in whom the right inheres and the person upon whom the obligation is incident are private individuals").
4. Some might object that "law," under any coherent definition, presupposes government, an organized monopoly of coercive force. See, e.g., Hans Kelsen, The Pure Theory of Law and Analytical Jurisprudence, 55 HARV. L. REV. 44, 58, 65 (1941).
5. See generally ERVIN H. POLLACK, JURISPRUDENCE: PRINCIPLES AND APPLICATIONS 521-633 (1979) (discussing legal positivism). Others make strong arguments that law, in a meaningful sense, can exist without government.
6. See, e.g., RANDY E. BARNETT, THE STRUCTURE OF LIBERTY 284-97 (1998) (describing imaginary polycentric legal order);
7. BRUCE L. BENSON, THE ENTERPRISE OF LAW: JUSTICE WITHOUT THE STATE (1990) (describing and envisioning law without government).
8. See generally Tom W. Bell, Polycentric Law, 7 HUMANE STUD. REV. 1 (Winter 1991/92).
9. Other examples of private law include deeds, wills and trusts, and commercial devices, such as negotiable instruments and letters of credit. Another example is the doctrine of consent in tort. See discussion infra note 26.
10. RESTATEMENT (SECOND) OF TORTS § 402A (1965).
11. See id. cmt. m ("The consumer's cause of action . . . is not affected by any disclaimer or other agreement."); W. PAGE KEETON ET AL., PROSSER AND KEETON ON TORTS § 97, at 691-92 (5th ed. 1984 & Supp. 1988). This opposition to contract enforcement continues in the proposed revision to the Restatement of Torts.
12. See RESTATEMENT (THIRD) OF TORTS: PRODUCTS LIABILITY § 18 (1998).
13. See, e.g., Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 YALE L.J. 87, 87 (1989);
14. Randy E. Barnett, The Sound of Silence: Default Rules and Contractual Consent, 78 VA. L. REV. 821, 825 (1992).
15. Another way to phrase the distinction is that between alienable and inalienable rights. Default rules confer alienable rights, while mandatory rules confer inalienable rights. See Stephen M. Bainbridge, Insider Trading Under the Restatement of the Law Governing Lawyers, 19 J. CORP. L. 1, 36-37 (1993) ("Default rules in corporate law are analogous to alienable property rights . . . . Continuing the analogy, mandatory rules in corporate law are comparable to inalienable property rights.");
16. G. Richard Shell, Contracts in the Modern Supreme Court, 81 CAL. L. REV. 431, 444 (1993) ("[R]ights that are governed by an immutable rule are 'market-inalienable' because they cannot be traded as part of a contractual exchange. Rights governed by default rules are 'alienable' because parties may alter the rules as part of a market transaction."). Even rights conferred by mandatory rules, however, become alienable once a dispute has arisen. See discussion infra notes 115-16 and accompanying text.
17. See, e.g., Raymond T. Nimmer, Services Contracts: The Forgotten Sector of Commercial Law, 26 LOY. L.A. L. REV. 725, 733 (1993) ("'[D]efault rules . . . govern in the absence of contract terms to the contrary.");
18. W. David Slawson, The Futile Search for Principles for Default Rules, 3 S. CAL. INTERDISC. L.J. 29, 29 (1994) ("The contract preempts a law that would otherwise have determined the rights or duties of the parties.").
19. One can distinguish among default rules by the process parties must use to opt out of them. Some default rules require more elaborate processes than others. See, e.g., Ayres & Gertner, supra note 8, passim (contrasting penalty, tailored and untailored default rules); Stephen J. Ware, Consumer Arbitration As Exceptional Consumer Law (With a Contractualist Reply to Carrington & Haagen), 29 MCGEORGE L. REV. 195, 219 (1998) (contrasting contractual and "knowing and voluntary" standards).
20. See Ayres & Gertner, supra note 8, at 88 ("Immutable rules displace freedom of contract."). One can distinguish mandatory rules that are part of contract law from those that are not. Mandatory rules of non-contract law apply whether or not a contract is formed; mandatory rules of contract law apply only if a contract is formed. See Stewart Schwab, A Coasean Experiment on Contract Presumptions, 17 J. LEGAL STUD. 237, 239 n.6 (1988) (referring to mandatory rules of contract law "as coercive contract rules"); see also Ayres & Gertner, supra note 8, at 87 n.1 ("[I]mmutable entitlements are created by and conditioned upon contract, while inalienable entitlements exist outside of contract.").
21. But see Lawrence Kalevitch, Gaps in Contracts: A Critique of Consent Theory, 54 MONT. L. REV. 169, 170 n.1 (1993) ("[I]mmutable rules of contract law are oxymoronic and paradoxical."). I suggest a further distinction within mandatory rules of contract law. The mandatory rules specifying the requirements for forming an enforceable contract differ from other mandatory rules of contract law in that the former must, as a matter of logic, be mandatory. See discussion infra notes 197-99 and accompanying text.
22. See, e.g., Ware, supra note 9, at 207-09. Examples include the tort law of strict products liability, the warranty of habitability in landlord/tenant law, usury laws, and laws prescribing terms of insurance and employment contracts. See id.
23. "Arbitration is a form of adjudication because the parties participate in the decisional process by presenting evidence and reasoned arguments to an arbitrator whose final decision should be responsive to the dispute as presented." I IAN R. MACNEIL, RICHARD E. SPEIDEL & THOMAS J. STIPANOWICH, FEDERAL ARBITRATION LAW § 2.6.1, at 2:37 n.1 (1994)
24. (citing Lon Fuller, The Forms and Limits of Adjudication, 92 HARV. L. REV. 353, 363-64 (1978));
25. see also JOHN S. MURRAY, ALAN SCOTT RAU & EDWARD F. SHERMAN, PROCESSES OF DISPUTE RESOLUTION 500 (2d ed. 1996) (characterizing arbitration as "the process of private adjudication");
26. William M. Landes & Richard A. Posner, Adjudication As a Private Good, 8 J. LEGAL STUD. 235, 235 (1979) ("[E]ven today much adjudication is private (commercial arbitration being an important example).").
27. Unfortunately, even some of the most thoughtful arbitration scholars contrast "arbitration" with "adjudication." See Lisa Bernstein, Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry, 21 J. LEGAL STUD. 115, 148 (1992) ("[A]rbitration has important substantive and procedural advantages over adjudication.");
28. see also Harry T. Edwards, Alternative Dispute Resolution: Panacea or Anathema?, 99 HARV. L. REV. 668, 676 (1986) ("In strictly private disputes, ADR mechanisms such as arbitration often are superior to adjudication.");
29. Judith Resnik, Many Doors? Closing Doors? Alternative Dispute Resolution and Adjudication, 10 OHIO ST. J. ON DISP. RESOL. 211, 222-28 (1995);
30. Michael Hunter Schwartz, From Star to Supernova to Dark, Cold Neutron Star: The Early Life, the Explosion and the Collapse of Arbitration, 22 W. ST. U. L. REV. 1, 3 (1994) ("[T]he solutions for arbitration's ills necessarily will involve adapting procedures from adjudication to arbitration.");
31. Jeffrey W. Stempel, Pitfalls of Public Policy: The Case of Arbitration Agreements, 22 ST. MARY'S L.J. 259, 263-69 (comparing arbitration with adjudication).
32. See JACK H. FRIEDENTHAL ET AL., CIVIL PROCEDURE § 15.7-8, at 708-15 (2d ed. 1993).
33. See IV MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 38.1.1, at 38:1 (Supp. 1996).
34. See id.
35. As the Supreme Court puts it, "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960); see also First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) ("[A]rbitration is simply a matter of contract between the parties; it is a way to resolve those disputes - but only those disputes - that the parties have agreed to submit to arbitration."). Courts use a number of forms of alternative dispute resolution such as mediation, neutral expert fact-finding, mini-trials, settlement conferences and summary jury trials. See I MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 2.4.1, at 2:29 (Supp. 1994). One of the programs used by many courts is "court-annexed arbitration." Id. at 2:30 (Supp. 1994). These proceedings "deviate[ ] sharply" from contractual dispute resolution in two respects. Id. First, disputes go to court-annexed arbitration, not because the parties contracted for such a process, but because the court system imposed it. See id. Second, a party who does not wish to comply with an arbitral award has a right to a trial de novo if the award was rendered by a court-annexed arbitrator, but not if it was rendered by an arbitrator chosen by contract. See id.
36. See, e.g., Fils et Cables D'Acier de Lens v. Midland Metals Corp., 584 F. Supp. 240, 243 (S.D.N.Y. 1984). A search on July 10, 1998 for the phrase "arbitration is a creature of contract" in the Westlaw ALLCASES database yielded 177 cases.
37. 9 U.S.C. §§ 1-16 (1994).
38. The FAA extends to the limit permitted by the U.S. Constitution's Commerce Clause. See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273-74 (1995). There is an exception regarding labor and employment agreements. See Stephen J. Ware, Employment Arbitration and Voluntary Consent, 25 HOFSTRA L. REV. 83, 94 (1996).
39. 9 U.S.C. § 2 (1994).
40. See E. ALLAN FARNSWORTH, CONTRACTS § 12.8, at 871 (2d ed. 1990).
41. See 9 U.S.C. §§ 3-4 (1994).
42. See id. i§ 3.
43. If the consumer seeks to arbitrate and the seller refuses to participate, a court will order the seller to do so. See id. § 4. This order is another example of specific performance.
44. It is also possible to determine those laws that are default and those that are mandatory by looking to other privately-created law. See supra note 5.
45. Technically, it is not the contract that privatizes the law on nose-punching; it is the "consent" doctrine of tort law. See W. PAGE KEETON ET AL., supra note 7, § 18, at 112, 114 ("Consent ordinarily bars recovery for intentional interferences with person or property . . . . One who enters into a sport, game or contest may be taken to consent to physical contacts consistent with the understood rules of the game."). Contract cannot privatize the law on intentional torts beyond the privatization inherent in the tort law doctrine of consent. See FARNSWORTH, supra note 21, §5.2, at 353 n.17 ("A party clearly cannot exempt itself from liability in tort for harm that it causes intentionally or recklessly . . . . However, if the victim effectively consents, there may be no tort."). In some jurisdictions in which boxing is illegal, the law on nose-punching is not privatizable. See, e.g., Hart v. Geysel, 294 P. 570 (Wash. 1930). See generally Ian Forman, Boxing in the Legal Arena, 3 SPORTS L.J. 75 (1996) (exploring the history of and the legal issues surrounding boxing);
46. Peter E. Millspaugh, The Federal Regulation of Professional Boxing: Will Congress Answer the Bell?, 19 SETON HALL LEGIS. J. 33, 41-42 (1994) ("[F]orty-two states and the District of Columbia have come to regulate boxing. At this writing, the sport remains legal but unregulated in the remaining eight states.").
47. Safe goods are those goods not "in a defective condition unreasonably dangerous to the user." RESTATEMENT (SECOND) OF TORTS § 402A (1965).
48. See supra note 10.
49. See supra note 11 and accompanying text.
50. See infra Part II.B.3.
51. See infra Part II.B.3.
52. See infra notes 85-100 and accompanying text.
53. See infra Part III.A. If a particular law is enforced by a government agency, as well as private plaintiffs, then the arbitration agreement contracts out of it only to the extent it is enforced by private plaintiffs. As Paul Carrington and Paul Haagen put it, the enforcement of arbitration agreements allows parties "to contract out of effective private enforcement of regulations adverse to their interests." Paul D. Carrington & Paul Haagen, Contract and Jurisdiction, 1996 SUP. CT. REV. 331, 338 (emphasis added).
54. At best, we have the impressions of lawyers and parties who frequently litigate and arbitrate similar cases. These lawyers and parties may have impressions such as "plaintiffs in X sort of case do better in arbitration than litigation" or "plaintiffs in Y sort of case do worse in arbitration than litigation." These impressions are unscientific because no two cases are identical. Factual differences between cases, rather than differences between arbitrators and courts, may account for the results.
55. See infra notes 59-77 and accompanying text.
56. See, e.g., William C. Jones, Three Centuries of Commercial Arbitration in New York: A Brief Survey, 1956 WASH. U. L.Q. 193 (exploring the history of arbitration in New York).
57. See, e.g., MURRAY, RAU & SHERMAN, supra note 12, at 529 ("[I]n international commercial contracts, arbitration clauses "not only predominate but are nowadays almost universal' and are 'virtually taken for granted.'") (quoting The Hon. Mr. Justice Kerr, International Arbitration v. Litigation, 1980 J. BUS. L. 164, 165, 171).
58. See STEPHEN B. GOLDBERG, FRANK E.A. SANDER & NANCY H. ROGERS, DISPUTE RESOLUTION: NEGOTIATION, MEDIATION AND OTHER PROCESSES 199 (2d ed. 1992).
59. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 650 (1985) (Stevens, J., dissenting) (referring to "the undisputed historical fact that arbitration has functioned almost entirely in either the area of labor disputes or in 'ordinary disputes between merchants as to questions of fact'").
60. See infra note 57 and accompanying text.
61. The distinction between pre- and post-dispute agreements to arbitrate is discussed infra notes 115-17 and accompanying text.
62. See generally AMERICAN ARBITRATION ASSOCIATION, COMMERCIAL ARBITRATION RULES (1993).
63. See, e.g., American Safety Equip. Corp. v. J.P. Maguire & Co., 391 F.2d 821, 828 (2d Cir. 1968) (declaring antitrust claims "inappropriate for arbitration"). But see Mitsubishi Motors Corp., 473 U.S. at 640 (holding an agreement to arbitrate a claim arising under the Sherman Antitrust Act enforceable). For an interesting discussion of arbitration as a tool of cartels, see Heinrich Kronstein, Business Arbitration - Instrument of Private Government, 54 YALE L.J. 36 (1944).
64. This Article discusses "subject matter" arbitrability, as opposed to "contractual" arbitrability. The latter is the case-by-case question of whether the particular contract sends to arbitration all claims or only some types of claims. The most important issue regarding contractual arbitrability is who, court or arbitrator, decides whether a claim is arbitrable. [Most countries' laws] contain the kompetenz-kompetenz doctrine, under which arbitral tribunals are given the authority to rule initially at least upon questions of contractual inarbitrability. These determinations are subject to judicial review . . . at the stage of enforcement when a final award can be challenged on the basis of an invalid or non-existent arbitration agreement or for excess of arbitral authority. Thomas E. Carbonneau, Beyond Trilogies: A New Bill of Rights and Law Practice Through the Contract of Arbitration, 6 AM. REV. INT'L ARB. 1, 17 (1995). In contrast, the FAA sends contractual arbitrability decisions to courts, rather than arbitrators, see 9 U.S.C. § 3 (1994), but this is a default rule so the parties can agree to have contractual arbitrability decided by the arbitrator. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 946-47 (1995).
65. See Wilko v. Swan, 346 U.S. 427, 438 (1953).
66. See Page v. Moseley, Hallgarten, Estabrook & Weeden, Inc., 806 F.2d 291, 298-300 (1st Cir. 1986). "RICO" is an abbreviation for "Racketeer Influenced and Corrupt Organizations." 18 U.S.C. §§ 1961-68 (1994).
67. See Beckman Instruments, Inc. v. Technical Dev. Corp., 433 F.2d 55, 63 (7th Cir. 1970).
68. See Kamakazi Music Corp. v. Robbins Music Corp., 522 F. Supp. 125, 137 (S.D.N.Y. 1981), aff'd, 684 F.2d 228 (2d Cir. 1982).
69. See Zimmerman v. Continental Airlines, 712 F.2d 55, 59 (3rd Cir. 1983). But see Hays and Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1155 (3d Cir. 1989) (overruling and holding that non-core bankruptcy proceedings are arbitrable). A core proceeding involves "the administration of the estate; the allowance of claims against the estate; the voidance of preferences or fraudulent transfers; determinations as to dischargeability of debts; priorities of liens; or the confirmation of a plan." Id. at 1156 n.9.
70. See Utley v. Goldman Sachs & Co., 883 F.2d 184, 187 (1st Cir. 1989).
71. See Nicholson v. CPC Int'l Inc., 877 F.2d 221, 231 (3rd Cir. 1989).
72. See Barrowclough v. Kidder, Peabody & Co., 752 F.2d 923, 941 (3d Cir. 1985).
73. See supra notes 36-39 and accompanying text.
74. Cf. Sarah Rudolph Cole, Incentives and Arbitration: The Case Against Enforcement of Executory Arbitration Agreements Between Employers and Employees, 64 U.M.K.C. L. REV. 449, 462-64 (1996) (explaining that common law courts rarely had occasion to address noncommercial arbitration and would have been skeptical of it); Stempel, supra note 12, at 273 (discussing arbitration in early America and noting that no "personal injury actions, employer-employee disputes, or landlord-tenant disputes" arose during that time).
75. See generally IAN R. MACNEIL, AMERICAN ARBITRATION LAW 134-55 (1992) (discussing the history of arbitration since 1938, focusing on changes in the past 30 years).
76. "[T]he public policy defense is dead under the FAA, unless [in a particular statute] Congress has made plain to the contrary." II MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 16.3.3.1, at 16:41.
77. See id. § 16. The Ninth Circuit, however, recently concluded that the Civil Rights Act of 1991 renders Title VII claims inarbitrable. See Duffield v. Robinson Stephens & Co., 144 F.3d 1182, 1199 (9th Cir. 1998) ("Congress intended to preclude compulsory arbitration of Title VII claims."); accord Winkler v. Pacific Brokerage Servs., Inc., No. 97 C 7340, 1998 WL 341622 (N.D. Ill. June 19, 1998); Martens v. Smith Barney, Inc., 181 F.R.D. 243 (S.D.N.Y. 1998); Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 995 F. Supp. 190 (D. Mass. 1998). The majority of circuit courts ruling since the 1991 Civil Rights Act have found that Title VII claims are arbitrable. See Seus v. John Nuveen & Co., 146 F.3d 175 (3d Cir. 1998); Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465 (D.C. Cir. 1997); Austin v. Owens-Brockway Glass Container, Inc., 78 F.3d 875 (4th Cir. 1996); Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482 (10th Cir. 1994); Bender v. A.G. Edwards & Sons, Inc., 971 F.2d 698 (11th Cir. 1992).
78. Thomas J. Stipanowich, Punitive Damages and the Consumerization of Arbitration, 92 NW. U. L. REV. 1, 8 (1997).
79. Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 232 (1987).
80. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985) ("By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum."). The Court also cited this proposition in Rodriguez de Quijas v. Shearson/Am. Express Inc., 490 U.S. 477, 483-84 (1989) (holding that a claim arising under the Securities Act of 1933 may be subject to a pre-dispute mandatory arbitration agreement), and Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 23 (1991) (holding that a claim brought under the ADEA was subject to a pre-dispute mandatory arbitration agreement).
81. Some federal statutes expressly state that they are mandatory rules. For instance, the Securities Act of 1933 declares void "[a]ny condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of [the Act]." 15 U.S.C. § 77(n) (1994). The Securities Exchange Act of 1934 has the same language. See 15 U.S.C. § 78(cc)(a) (1994). Other statutes do not expressly say whether they are mandatory or default rules, but courts have interpreted them to be mandatory. The employment discrimination statutes are examples of such statutes. See, e.g., MACK A. PLAYER, EMPLOYMENT DISCRIMINATION LAW § 5.84 (1988);
82. David S. Schwartz, Enforcing Small Print to Protect Big Business: Employee and Consumer Rights Claims in an Age of Compelled Arbitration, 1997 WIS. L. REV. 33, 111.
83. 473 U.S. 614 (1985).
84. Mitsubishi involved a sales agreement between Mitsubishi, a Japanese car manufacturer, and Soler, a Puerto Rican corporation. See id. at 616-617. The agreement stated that it "will be governed by and construed in all respects according to the laws of the Swiss Confederation," id. at 637 n.19, and provided for disputes to "'be finally settled by arbitration in Japan in accordance with the rules and regulations of the Japan Commercial Arbitration Association.'" Id. at 617 (citing the parties' sales agreement). When a dispute arose, Mitsubishi sued Soler seeking an order compelling arbitration. See id. at 618-19. Soler counterclaimed, asserting a variety of claims including one alleging that Mitsubishi had violated the Sherman Act. See id. at 619-20. The Supreme Court held that Soler's antitrust claim was arbitrable. In doing so, it considered the possibility that "the arbitrators could consider Soler's [antitrust claim] to fall within the purview of th[e] choice-of-law provision, with the result that it would be decided under Swiss law rather than the U.S. Sherman Act." Id. at 637 n.19. The Court said this was unlikely to occur because "counsel for Mitsubishi conceded that American law applied to the antitrust claims." Id. Thus the Court believed that, in the case at hand, little danger existed that the arbitrators would interpret the arbitration clause, in combination with the Swiss choice-of-law clause, as contracting out of the Sherman Act. See id. As guidance for future cases, however, the Court cautioned that "in the event the choice-of-forum [arbitration] and choice-of-law clauses operated in tandem as a prospective waiver of a party's right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy." Id. Finally, "courts of the United States will have the opportunity at the award-enforcement stage to ensure that the legitimate interest in the enforcement of the antitrust laws has been addressed." Id. at 638.
85. Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 (1974).
86. See, e.g., Johnston County v. R.N. Rouse & Co., 414 S.E.2d 30, 33 (N.C. 1992). See also Leandra Lederman, Note, Viva Zapata!: Toward a Rational System of Forum-Selection Clause Enforcement in Diversity Cases, 66 N.Y.U. L. REV. 422, 423 n.10 (1991).
87. See R.N. Rouse & Co., 414 S.E.2d at 33.
88. See id.
89. "[D]istinctions do not lack respectability because they are not absolute: substance and procedure differ even if, at the margin, they become difficult to distinguish." Paul D. Carrington, "Substance" and "Procedure" in the Rules Enabling Act, 1989 DUKE L.J. 281, 284.
90. See supra notes 63-67 and accompanying text.
91. See supra notes 62-63 and accompanying text.
92. 482 U.S. 220 (1987).
93. Id. at 232. "The literal impact of this language would require a court to assess whether a securities arbitrator has complied with the various securities statutes applicable to the dispute." Edward Brunei, Toward Changing Models of Securities Arbitration, 62 BROOK. L. REV. 1459, 1474 (1996).
94. Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 229 (1987); see also Montes v. Shearson Lehman Bros., Inc., 128 F.3d 1456, 1459 (11th Cir. 1997) (quoting this statement to support the proposition that "[w]hen a claim arises under specific laws . . . the arbitrators are bound to follow those laws in the absence of a valid and legal agreement not to do so"); Michael A. Scodro, Note, Arbitrating Novel Legal Questions: A Recommendation for Reform, 105 YALE L.J. 1927, 1946 (1996) (noting that the Supreme Court's view that arbitration does not alter substantive rights "is in keeping with the courts' expectation that arbitrators will follow applicable legal rulings").
95. See supra notes 64-68 and accompanying text.
96. Leading arbitration scholars seem to share this view. See III MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 36.3.2.2, at 36:30 (noting that there is "no justification for interpreting an ordinary arbitration clause as a waiver of substantive rights - it is a waiver of the right to normal judicial processes, and that is all").
97. EUGENE F. SCOLES & PETER HAY, CONFLICT OF LAWS 1-3 (2d ed. 1992). Many choice-of-law "rules" are flexible enough that the law a court would apply" will often depend on which court hears a particular case. See id. § 2.11. For example, given a particular set of facts, a New York court would apply New York law while, given the same set of facts, an Alabama court would apply Alabama law. See Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 24-25 (1988).
98. The Court may envision arbitrators applying the choice-of-law rules of the forum state, just as a federal court does. A federal court sitting in Delaware, for example, applies Delaware's choice-of-law rules to determine what government's substantive law to apply. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Perhaps the Court envisions an arbitrator sitting in Delaware doing the same thing.
99. Soia Mentschikoff, Commercial Arbitration, 61 COLUM. L. REV. 846, 861 (1961). The practice of commercial arbitration in the United States is indeed that the arbitrator has the freedom of determining the disputed questions according to his sense of the justice of the case. Unless parties expressly or impliedly wish the arbitrator to determine the question by application of a specific law, the arbitrator appears free to resolve the dispute on the basis of his just and fair appreciation.
100. I GABRIEL M. WILNER, DOMKE ON COMMERCIAL ARBITRATION § 25.01, at 391 (rev. ed. 1995).
101. Dean B. Thomson, Arbitration Theory and Practice: A Survey of AAA Construction Arbitrators, 23 HOFSTRA L. REV. 137, 154-55 (1994).
102. MURRAY, RAU & SHERMAN, supra note 12, at 636; see also IV MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 40.5.2.4, at 40:47; Harry T. Edwards, Arbitration of Employment Discrimination Cases: An Empirical Study, in PROCEEDINGS OF THE TWENTY-EIGHTH ANNUAL MEETING OF THE NATIONAL ACADEMY OF ARBITRATORS 59 (1975);
103. Patricia A. Greenfield, How Do Arbitrators Treat External Law?, 45 INDUS. & LAB. REL. REV. 683, 688 (1992).
104. MURRAY, RAU & SHERMAN, supra note 12, at 514; accord Edward Brunet, Arbitration and Constitutional Rights, 71 N.C. L. REV. 81, 85 (1992) ("The weight of authority permits an arbitrator to 'do justice as he sees it' and fashion an award that embodies the individual justice required by a given set of facts."); Mentschikoff, supra note 78, at 867 (stating that arbitrators "must make their own selection of the most appropriate norms for the particular dispute").
105. See, e.g., Bowles Fin. Group, Inc. v. Stifel, Nicolaus & Co., 22 F.3d 1010, 1011 (10th Cir. 1994) ("Arbitration provides neither the procedural protections nor the assurance of the proper application of substantive law offered by the judicial system. . . . One choosing arbitration should not expect the full panoply of procedural and substantive protection offered by a court of law."); Stroh Container Co. v. Delphi Indus., 783 F.2d 743, 751 n.12 (8th Cir. 1986) ("[T]he arbitration system is an inferior system of justice, structured without due process, rules of evidence, accountability of judgment and rules of law."); In re Sprinzen and Nomberg, 415 N.Y.S.2d 974, 976 (1979) ("[T]he arbitrator is not bound to abide by, absent a contrary provision in the arbitration agreement, those principles of substantive law or rules of procedure which govern the traditional litigation process."); Lentine v. Fundaro, 278 N.E.2d 633, 635 (N.Y. 1972) ("Absent provision to the contrary in the arbitration agreement, arbitrators are not bound by principles of substantive law."); Aimcee Wholesale Corp. v. Tomar Prod., Inc., 237 N.E.2d 223, 225 (N.Y. 1968) ("Arbitrators are not bound by rules of law."); Moncharsh v. Heily & Blase, 832 P.2d 899, 919 (Cal. 1992) ("[T]he existence of an error of law apparent on the face of the award that causes substantial injustice does not provide grounds for judicial review."); see also Wilko v. Swan, 201 F.2d 439, 444 (2d Cir. 1953) ("[W]hile it may be true that arbitrators do not ordinarily consider themselves bound to decide strictly according to legal rules, there can be no doubt that they are so bound if the arbitration agreement so provides."), rev'd, 346 U.S. 427 (1953), overruled in part by Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989); Sobel v. Hertz, Warner & Co., 469 F.2d 1211, 1214 (2d Cir. 1972) (noting that arbitration involves a "sacrifice . . . in terms of legal precision").
106. "It is often said that the parties do not expect the arbitrators to make their decision according to rules but rather, especially when the arbitrators are not lawyers, on the basis of their experience, knowledge of the customs of the trade, and fair and good sense for equitable relief." See WILNER, supra note 78, § 25:01, at 391. For a more negative characterization of arbitrators' failure to apply the law, see generally Heinrich Kronstein, Arbitration Is Power, 38 N.Y.U. L. REV. 661 (1963).
107. For a discussion of judicial review of arbitration decisions, see infra notes 85-100.
108. See I MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 3.2.3, at 3:13; III id. § 37.4.1, at 37:10. "Only in a few, specialized types of arbitrations do arbitrators routinely craft written decisions - labor arbitrations, international commercial arbitrations, and maritime arbitrations." EDWARD BRUNET & CHARLES B. CRAVER, ALTERNATIVE DISPUTE RESOLUTION: THE ADVOCATE'S PERSPECTIVE 324 (1997).
109. MURRAY, RAU & SHERMAN, supra note 12, at 640.
110. Perini Corp. v. Great Bay Hotel & Casino, Inc., 610 A.2d 364, 392 (N.J. 1992) (Wilentz, C.J., concurring).
111. The FAA provides: (a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration - (1) Where the award was procured by corruption, fraud, or undue means. (2) Where there was evident partiality or corruption in the arbitrators, or either of them. (3) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced. (4) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. (5) Where an award is vacated and the time within which the agreement required the award to be made has not expired the court may, in its discretion, direct a rehearing by the arbitrators. 9 U.S.C. § 10(a)(1994).
112. "The conventional wisdom is that successful challenges to arbitration awards are rare." MURRAY, RAU & SHERMAN, supra note 12, at 624. Accord IV MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 40.1.4, at 40:13 ("Over the years, the courts have taken a fairly uniform approach to awards: Awards should be confirmed and enforced as is unless there is clear evidence of a gross impropriety."). The law may be changing so that the absence of reasoned opinions hinders, rather than helps, the finality of arbitration awards. See, e.g., Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 204 (2d Cir. 1998) ("[W]here a reviewing court is inclined to find that arbitrators manifestly disregarded the law or the evidence and that an explanation, if given, would have strained credulity, the absence of explanation may reinforce the reviewing court's confidence that the arbitrators engaged in manifest disregard.").
113. See Sargent v. Paine Webber Jackson & Curtis, Inc., 882 F.2d 529, 532-33 (D.C. Cir. 1989) ("The absence of a duty to explain is presumably one of the reasons why arbitration should be faster and cheaper than an ordinary lawsuit." The interest "in assuring that judgment be swift and economical . . . must generally prevail" over any interest "in rooting out possible error."); Sobel v. Hertz Warner & Co., 469 F.2d 1211, 1214 (2d Cir. 1972) ("[A] requirement that arbitrators explain their reasoning in every case would help to uncover egregious failures to apply the law to an arbitrated dispute. But such a rule would undermine the very purpose of arbitration, which is to provide a relatively quick, efficient and informal means of private dispute settlement."); MURRAY, RAU & SHERMAN, supra note 12, at 623 (asserting that if arbitration is "to function as an efficient process of private dispute resolution - to realize the benefits of expert decision-making with reduced cost and delay - litigation challenging the process, or aimed at upsetting the resulting award, must be minimized").
114. See, e.g., Todd Shipyards Corp. v. Cunard Line, 943 F.2d 1056, 1060 (9th Cir. 1991) ("[C]onfirmation is required even in the face of erroneous . . . misinterpretations of law. . . . It is not enough that the Panel may have failed to understand or apply the law. . . . An arbitrator's decision must be upheld unless it is completely irrational, or it constitutes a manifest disregard for the law.") (internal citations omitted); Advest, Inc. v. McCarthy, 914 F.2d 6, 8 (1st Cir. 1990) (stating that courts are not authorized to reconsider the merits of arbitration awards "[e]ven where such error is painfully clear"); Miller v. Prudential Bache Secs., 884 F.2d 128, 130 (4th Cir. 1989) (holding that "mere" error of law is insufficient to set aside arbitrator's award); Moseley, Hallgarten, Estabrook & Weeden, Inc. v. Ellis, 849 F.2d 264, 272 (7th Cir. 1988) (holding that "mistake" of law is insufficient to vacate arbitration award); Siegel v. Titan Indus. Corp., 779 F.2d 891, 892-93 (2nd Cir. 1985) (per curiam) (stating that erroneous application of rules of law is not a ground for vacating an arbitrator's award"); Collins v. Aikman Floor Coverings, 736 F. Supp. 480, 485-86 (S.D.N.Y. 1990) (holding that error of law was not "manifest"). But see Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465, 1487 (D.C. Cir. 1997) (holding that courts have the authority to review arbitrator's award). See also infra notes 163-69 and accompanying text.
115. Health Servs. Management Corp. v. Hughes, 975 F.2d 1253, 1267 (7th Cir. 1992).
116. See infra note 98.
117. See Wilko v. Swan, 346 U.S. 427, 436-37 (1953) ("[I]nterpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation."), overruled by Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989). See generally IV MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 40.7, at 40:80-40:96; Stephen L. Hayford, Law in Disarray: Judicial Standards for Vacatur of Commercial Arbitration Awards, 30 GA. L. REV. 731, 774-78 (1996).
118. IV MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 40.7.1, at 40:85; accord THOMAS OEHMKE, COMMERCIAL ARBITRATION § 4.28, at 103 (1987).
119. Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986). The Second Circuit may have recently strayed from this view of "manifest disregard." See infra note 169.
120. See Hayford, supra note 94, at 817-18.
121. See id. at 784; IV MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 40.8.1, at 40:96-40:98 (explaining the public policy defense).
122. See generally IV MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 40.8, at 40:96-40:104.
123. See supra note 91.
124. See Shearson/Am. Express, Inc., v. McMahon, 482 U.S. 220, 232 (1987); see also Carrington & Haagen, supra note 33, at 349 ("No matter how frequently the Court may insist on this view, it is, for the reasons stated, simply false doctrine.").
125. Stephen J. Ware, Punitive Damages in Arbitration: Contracting Out of Government's Role in Punishment and Federal Preemption of State Law, 63 FORDHAM L. REV. 529, 541-42 (1994).
126. See TOM CARBONNEAU, CASES AND MATERIALS ON COMMERCIAL ARBITRATION 224 (1997) ("In a practical and very real sense, unlimited arbitrability amounts to the 'deconstruction' of law; it privatizes an entire range of formerly public juridical responsibilities."); I MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 3.2.1, at 3:4 ("Carried to extremes, arbitration permits the disputants to contract out of the judicial process and even from the law of liability and remedy governing litigants in courts."); Carrington & Haagen, supra note 33, at 338 (arbitration allows parties "to contract out of effective private enforcement of regulations adverse to their interests"); Schwartz, supra note 61, at 121 (noting that there is a "degree to which even a facially-neutral arbitration clause works a prospective waiver of substantive rights").
127. LEONARD RISKIN & JAMES WESTBROOK, DISPUTE RESOLUTION AND LAWYERS 564 (2d ed. 1997).
128. 128 F.3d 1456 (11th Cir. 1997).
129. Id. at 1459.
130. Id. at 1460.
131. "[I]f arbitrators are to be bound by law, their application of that law must be subject to review. Without such review, the fetters that bind them would be loose indeed." Stewart E. Sterk, Enforceability of Agreements to Arbitrate: An Examination of the Public Policy Defense, 2 CARDOZO L. REV. 481, 484 (1981).
132. See supra notes 85-100 and accompanying text.
133. See supra note 64 and accompanying text.
134. See Sterk, supra note 108, at 491.
135. This is better than no menu at all. See, e.g., Larry Ribstein, Choosing Law by Contract, 18 J. CORP. L. 245, 250 (1993) ("Permitting contracting parties to choose their governing law gives states an incentive to compete for law business by providing efficient legal rules.").
136. Some legal rules are treated as mandatory in all contexts except arbitration and choice-of-law clauses. Just as the law allows parties to contract out of otherwise mandatory rules through arbitration clauses, it allows parties to contract out of otherwise mandatory rules through choice-of-law clauses. See Michael J. Whincop & Mary E. Keyes, Statutes' Domains in Private International Law: An Economic Theory of the Limits of Mandatory Rules, 20 SYDNEY L. REV. 435, 437 (contrasting "rule default" with "choice of law default"). Larry Ribstein supports courts' practice of "enforc[ing] choice-of-law clauses even in situations in which they would refuse to enforce direct evasion of the mandatory rule." Ribstein, supra note 112, at 255-56;
137. see also Bruce Kobayashi & Larry Ribstein, Federalism, Efficiency and Competition 34 (Nov. 16, 1997)
138. (unpublished manuscript, on file with the Minnesota Law Review). Ribstein's primary reason is that the "use of choice-of-law clauses to avoid mandatory rules is constrained by the fact that avoidance requires applying a state law rather than solely the voluntary act of contracting parties. In other words, the parties cannot enter into a contract that is condemned by all jurisdictions." Ribstein, supra, at 255-56. This reason emphatically does not apply to arbitration clauses.
139. This conclusion applies to international, as well as domestic, arbitration. But it leads to different results because courts treat some rules that are mandatory in the domestic context as default in the international context. Consider, for example, the Securities Act, with its non-waiver provision expressly stating that the Act consists of mandatory rules, see supra note 61. Despite that provision, most courts allow parties to contract out of the Securities Act with clauses providing that, for example, English law, rather than United States law, shall govern. See Haynsworth v. The Corporation, 121 F.3d 956, 965-69 (5th Cir. 1997); Allen v. Lloyd's of London, 94 F.3d 923, 928-30 (4th Cir. 1996); Bonny v. Society of Lloyd's, 3 F.3d 156, 160-62 (7th Cir. 1993); Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1361-66 (2d Cir. 1993). But see Richards v. Lloyd's of London, 107 F.3d 1422, 1426-28 (9th Cir.) (stating that the clauses were unenforceable), opinion withdrawn and superseded on reh'g, 135 F.3d 1289 (9th Cir. 1997), cert. denied, 119 S. Ct. 365 (1998). On arbitrability in international arbitration, see, for example, William W. Park, National Law and Commercial Justice: Safeguarding Procedural Integrity in International Arbitration, 63 TUL. L. REV. 647, 699-705 (1989);
140. William W. Park, Private Adjudicators and the Public Interest: The Expanding Scope of International Arbitration, 12 BROOK. J. INT'L L. 629, 664-71 (1986).
141. See MURRAY, RAU & SHERMAN, supra note 12, at 275 ("The law governing the enforcement and effect of settlement agreements is for the most part ordinary contract law.").
142. See Judith A. McMorrow, Who Owns Rights: Waiving and Settling Private Rights of Action, 34 VILL. L. REV. 429, 463-65 (1989). All rights, insofar as they are vindicated through private rights of action, are alienable post-dispute. The rights-holder can simply refrain from suing until the limitations period expires. See id.
143. There is no ground for making rights less alienable through arbitration than through other means.
144. See Stephen J. Ware, Arbitration and Unconscionability After Doctor's Associates, Inc. v. Casarotto, 31 WAKE FOREST L. REV. 1001, 1002-06 (1996).
145. 9 U.S.C. § 2 (1994).
146. See Doctor's Assocs. v. Casarotto, 517 U.S. 681, 686 (1996).
147. See Ware, supra note 118, at 1012.
148. Doctor's Assocs., 517 U.S. at 685.
149. See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 282 (1995) (preempting an Alabama state law denying enforcement to all pre-dispute arbitration agreements); Perry v. Thomas, 482 U.S. 483, 490-91 (1987) (preempting state law denying enforcement of agreements to arbitrate California Labor Code claims); Southland Corp. v. Heating, 465 U.S. 1, 16 (1984) (preempting state law denying enforcement of an agreement to arbitrate California Franchise Investment Law claims). See generally Ware, supra note 118, at 1035 & n.72 (discussing arbitration and the relationship between federal and state law). I have argued that parties can contract out of FAA preemption of state law but that typical choice-of-law clauses do not do that. See Ware, supra note 102, at 551-58.
150. See Ware, supra note 118, at 1012.
151. See supra notes 98-99 and accompanying text.
152. See FARNSWORTH, supra note 21, §§ 5.1-5.9.
153. This reasoning is not beyond criticism. If the test is whether law "singles out" arbitration, does that mean law becomes consistent with the FAA by "doubling out" arbitration, i.e., precluding enforcement of arbitration agreements as just one other type of contract? If so, the FAA can be evaded just by finding some obscure, trivial type of contract and making it, along with arbitration agreements, unenforceable.
154. See supra notes 45-55 and accompanying text.
155. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985). See generally II MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 16.2.2, at 16:20-16:23 (discussing Dean Witter Reynolds, Inc. v. Byrd and the intertwining of arbitrable and inarbitrable claims).
156. See Thomas E. Carbonneau, Arbitration and the U.S. Supreme Court: A Plea for Statutory Reform, 5 OHIO ST. J. ON DISP. RESOL. 231, 273 (1990) (proposing amendment to FAA and arguing that "[c]ases involving the enforcement of fundamental statutory rights cannot be the subject of an arbitration agreement or of an arbitral proceeding"); Schwartz, supra note 61, at 125-27 (proposing to not "enforce adhesive arbitration clauses for non-contract claims" and to "create a presumption against compelled arbitration of statutory claims");
157. Richard E. Speidel, Arbitration of Statutory Rights Under the Federal Arbitration Act: The Case for Reform, 4 OHIO ST. J. ON DISP. RESOL. 157, 206 (1989) ("[U]nlike commercial arbitration, where the limitations of arbitration may be strengths, statutory rights pose issues of public law which require a vindication that arbitration may be unable consistently to provide."); see also CARBONNEAU, supra note 103, at 117-257 (chapter discussing arbitration and statutory rights). A distinction between federal and state law is plausible given the concern, discussed above, that making any type of claim inarbitrable is in some tension with the FAA. One might argue that, given this tension, the FAA preempts state inarbitrability law by virtue of the Constitution's Supremacy Clause, U.S. CONST. art. VI, cl. 2., but that the FAA does not overcome federal inarbitrability law. Federal inarbitrability law survives its tension with the FAA under the ordinary principles by which courts reconcile conflicts between two statutes. This is because "a more specific statute will be given precedence over a more general one, regardless of their temporal sequence." Busic v. United States, 446 U.S. 398, 406 (1980); accord Edmond v. United States, 117 S.Ct. 1573, 1578 (1997) ("Ordinarily, where a specific provision conflicts with a general one, the specific governs."). So a distinction between federal and state law is plausible but its persuasiveness depends on the degree of tension one sees between inarbitrability and the FAA.
158. The mandatory/default distinction can be profitably compared with the arbitrability distinction advocated by Edward M. Morgan, Contract Theory and the Sources of Rights: An Approach to the Arbitrability Question, 60 S. CAL. L. REV. 1059, 1082 (1987) (advocating a "distinction between those rights which flow naturally from one person's interaction with another and those which are imposed by the state in furtherance of the collective interest"). While these two approaches might now reach similar conclusions about what claims are arbitrable, Morgan's approach rests on Kantian philosophy, while the mandatory/default distinction is descriptive and positivist so its conclusions will change as positive law changes. The mandatory/default distinction also avoids the flaw of the old "public policy" approach in which courts invaded the province of the legislature by deciding which statutes are arbitrable. See Stempel, supra note 12, at 283-335.
159. "A growing number of companies want their arbitrators to 'apply the law' to reward the companys effort to follow the law strictly in business transactions. These firms seek to reduce the risk of an arbitrator deciding the case 'equitably' or arbitrarily." BRUNET & CRAVER, supra note 85, at 427; see also Edward Brunet & Walter E. Stern, Drafting the Effective ADR Clause for Natural Resources and Energy Contracts, 11 NAT. RESOURCES & ENV'T. 7 (1996). Whether a particular agreement requires the arbitrator to apply the law is, like any question of contract interpretation, case-specific. It is unlikely though, that an agreement containing an ordinary choice-of-law clause, e.g., "this contract shall be governed by the laws of the State of New York," should be interpreted to require arbitrators to apply the law. To be so interpreted, a clause should explicitly state that it is a directive to the arbitrator, rather than to a court.
160. The law/fact distinction, like the substance/procedure distinction, is useful although it is not absolute. Judicial review would have to extend to arbitrators' factual rulings to the extent necessary to prevent a dishonest arbitrator from making incorrect factual findings that compel the arbitrators' desired legal rulings.
161. See Lapine Tech. Corp. v. Kyocera Corp., 130 F.3d 884, 888-90 (9th Cir. 1997); Syncor Int'l Corp. v. McLeland, No. 96-2261, 1997 WL 452245, at *6-7 (4th Cir. Aug. 11, 1997) (unpublished) (per curiam); Gateway Techs., Inc. v. MCI Telecomms. Corp., 64 F.3d 993, 996-97 (5th Cir. 1995); Tretina Printing, Inc. v. Fitzpatrick & Assocs., 640 A.2d 788, 793 (N.J. 1994) (per curiam); Fils et Cables d'Acier de Lens v. Midland Metals Corp., 584 F. Supp. 240, 244 (S.D.N.Y. 1984).
162. See Lapine Tech. Corp. v. Kyocera Corp., 909 F. Supp. 697 (N.D. Cal. 1995), rev'd, 130 F.3d 884 (9th Cir. 1997); cf. Western Employers Ins. Co. v. Jefferies & Co., 958 F.2d 258, 261 (9th Cir. 1992) ("[C]ourts will not heighten their otherwise deferential review of arbitral awards even where the arbitrators misapplied the law. . . . The fact that a court has access to detailed findings of fact and conclusions of law does not alter this deferential review."); Chicago Typographical Union No. 16 v. Chicago Sun-Times, Inc., 935 F.2d 1501, 1505 (7th Cir. 1991) ("If the parties want, they can contract for an appellate arbitration panel to review the arbitrator's award. But they cannot contract for judicial review of that award; federal jurisdiction cannot be created by contract."); Tom Cullinan, Note, Contracting for an Expanded Scope of Judicial Review in Arbitration Agreements, 51 VAND. L. REV. 395 (1998). In neither Western Employers nor Chicago Typographical did the arbitration agreement require the arbitrator to apply the law, so these two cases are hardly on point. For a criticism of Chicago Typographical, see BRUNET & CRAVER, supra note 85, at 436-37.
163. See Ware, supra note 102, at 542 n.50 ("[P]arties to such an agreement have contractually reinstated their substantive rights, which otherwise would have been contractually waived by agreeing to arbitrate."); Cullinan, supra note 135, at 421-22 ("[T]he grounds for vacatur enumerated in the FAA actually are codified forms of contractual interpretation. They serve only to aid the court in determining exactly for what the parties contracted, by representing implicit limitations on the contractual obligation."). Kenneth Davis argues that parties to arbitration agreements should be able to choose among varying levels of judicial review. See Kenneth R. Davis, When Ignorance of the Law Is No Excuse: Judicial Review of Arbitration Awards, 45 BUFF. L. REV. 49, 123-32 (1997). Similarly, I argue here that contracts for de novo judicial review of legal questions should be enforced. The difference is in how we treat parties who do not opt for de novo judicial review. Davis argues, on freedom of contract grounds, that agreements by such parties to arbitrate any and all claims should be enforced. See id. That is, he would permit arbitration agreements to privatize vast areas of law. However appealing that is as a normative matter, it cannot be reconciled with a legal system permeated by mandatory rules. It is inconsistent to enforce predispute agreements contracting out of a law through arbitration but not enforce other pre-dispute agreements contracting out of the same law. See supra note 113 and accompanying text. My own desire to see virtually all claims arbitrable, see Ware, supra note 19, at 101-02, follows from a view that there should be little mandatory law.
164. Lapine Tech. Corp. v. Kyocera Corp., 130 F.3d 884, 891 (9th Cir. 1997) (Kozinski, J., concurring). Judge Kozinski's reasoning is phrased in terms of federal courts, but it applies equally to state courts.
165. See I MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 7.40.2, at 7:70-7:73; see also RICHARD A. BALES, COMPULSORY ARBITRATION: THE GRAND EXPERIMENT IN EMPLOYMENT 134 (1997) ("A reviewing court cannot ascertain whether the arbitrator correctly followed the law unless the arbitrator states the law in writing and applies it to the facts of the case. Written opinions are critical to any meaningful judicial review of the substantive matters at issue in a case."); GOLDBERG, SANDER & ROGERS, supra note 38, at 217 ("[Without a written opinion] it may be difficult for the reviewing court to know whether the arbitrator has complied with the requirements of the statute at issue. . . . [T]he Supreme Court [should] insist on written opinions as a condition to sending statutory claims to arbitration.").
166. See FRIEDENTHAL ET AL., supra note 13, § 12.3, at 543-56.
167. See, e.g., Neely v. Martin K. Eby Constr. Co., 386 U.S. 317 (1967); Montgomery Ward & Co. v. Duncan, 311 U.S. 243 (1940).
168. See, e.g., Glass v. Philadelphia Elec. Co., 34 F.3d 188 (3d Cir. 1994) (reversing judgment based on evidentiary ruling for which district court did not set forth reasons); Spiegel v. Trustees of Tufts College, 843 F.2d 38 (1st Cir. 1988) (overturning grant of Rule 54(b) certification; district court did not set forth reasons for its order).
169. See Wilko v. Swan, 346 U.S. 427, 440 (1953), overruled by Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989) (Frankfurter, J., dissenting) (to ensure that arbitrators do not disregard the law, "appropriate means for judicial scrutiny must be implied, in the form of some record or opinion, however informal, whereby such compliance [with the law] will appear, or want of it will upset the award").
170. Arbitration rules typically allow a party to hire a stenographer or other means of transcribing the arbitration hearing. If both parties choose not to do so, they waive their opportunity to create a record of testimony. A party challenging an award arising out of such an arbitration has only itself to blame for deficiencies in the record available to a reviewing court. If no transcript is prepared in litigation, the trial court's judgment is unlikely to be reversed on appeal. See 4 C.J.S. Appeal and Error § 507 (1993) ("Where a stenographic transcript or a substitute therefor is required to raise an issue on appeal and such transcript or substitute is not prepared, the appeal should be dismissed, or the decision should be affirmed, and a party need not be given a second opportunity to create a record.") (footnotes omitted). A court's review of an arbitration award in the absence of a transcript is analogous. So the question should not be whether there is a thorough record of the arbitration hearing but, if there is no such record, whether the party opposing enforcement of the award could have ensured an adequate record.
171. CARBONNEAU, supra note 103, at 260.
172. See GOLDBERG, SANDER & ROGERS, supra note 38, at 217 (under a more exacting standard of review than manifest disregard, "the policies underlying [the FAA] will suffer to some extent"); Hayford, supra note 94, at 814 ("Any application of the 'manifest disregard" of the law standard that permits a reviewing court to delve into the merits of the arbitrator's award is not legitimate."); see also International Standard Elec. Corp. v. Bridas Sociedad Anonima Petrolera, Industrial y Comercial, 745 F. Supp. 172, 178 (S.D.N.Y. 1990) ("The whole point of arbitration is that the merits of the disputes will not be reviewed in the courts . . . .").
173. Courts may vacate arbitrators' awards "[w]here the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced." Federal Arbitration Act, 9 U.S.C. § 10(a)(3) (1994) (emphasis added).
174. BRUNET & CRAVER, supra note 85, at 411-12.
175. Stephen Hayford argues that "[a]ttempts to seek vacatur based on a claim that the arbitrator committed an error of law are not proper under the 'exceeded powers' clause of section 10(a)(4)." Stephen L. Hayford, A New Paradigm for Commercial Arbitration: Rethinking the Relationship Between Reasoned Awards and the Judicial Standards for Vacatur, 66 GEO. WASH. L. REV. 443, 456 (1998). This is because of the correct "judicial belief that the arbitrator's 'powers' referred to in . . . section 10(a)(4) are contractual in nature." Id. at 455. While the arbitrator's powers derive from the parties' contract, the parties lack the power to contract out of a mandatory law prior to a dispute. Even if the parties can delegate all their power to the arbitrator, they should not be able to delegate more power than they have. Nemo dat qui non habet (He who hath not cannot give). Compare id. at 455-60 with IV MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 40.5.1.3, at 40:37-40:40.
176. See GOLDBERG, SANDER & ROGERS, supra note 38, at 216 (predicting that the Supreme Court "will ultimately adopt a meaningful review standard, something more than the 'manifest disregard' standard . . . [because manifest disregard] . . . provides insufficient protection for statutory rights created by Congress"); IV MACNEIL, SPEIDEL & STIPANOWICH, supra note 12, § 40.7.2.5, at 40:94 ("Current manifest disregard doctrine confers arbitrary powers on arbitrators that should not be tolerated in a society based on the rule of law."); John R. Allison, Arbitration Agreements and Antitrust Claims: The Need for Enhanced Accommodation of Conflicting Public Policies, 64 N.C. L. REV. 219, 271-74 (1986);
177. Robert N. Covington, Employment Arbitration After Gilmer: Have Labor Courts Come to the United States?, 15 HOFSTRA LAB. & EMP. L.J. 345, 410 (1998) ("Whenever an award infringes the protections provided by public law to those who are not parties, due regard for the public decisions made by the Congress requires that a reviewing court see to it that the interpretations of public law reached by the arbitrator are not merely debatable but are, in the court's judgment, correct.");
178. Samuel Estreicher, Predispute Agreements to Arbitrate Statutory Employment Claims, 72 N.Y.U. L. REV. 1344, 1350-51 n.22 (1997) ("Framed for contractual disputes, the 'manifest disregard' standard may be too deferential for arbitration of public law claims.");
179. Martin H. Malin & Robert F. Ladenson, Privatizing Justice: A Jurisprudential Perspective on Labor and Employment Arbitration from the Steelworkers Trilogy to Gilmer, 44 HASTINGS L.J. 1187, 1230 (1993) ("[C]ourts should subject employment arbitrators' interpretations of statutes to de novo review.");
180. John F.X. Peloso & Stuart M. Sarnoff, A Discussion of Whether Arbitrators Have a Duty to Apply the Law, N.Y.L.J., Apr. 18, 1996, at 1, 3 ("Where there are securities law claims, there are compelling reasons for the arbitrators to make an effort to understand and apply substantive law. Perhaps the time is ripe to define that obligation more clearly and develop standards for review that make such a duty more meaningful."); Speidel, supra note 130, at 157 ("[C]ourts should have clear authority, when statutory claims are involved, to vacate or modify an arbitrator's award where arbitral procedures denied an adequate hearing or where the arbitrator made a [sic] error of law."); Stempel, supra note 12, at 283-335 (concluding that instead of inarbitrability, a "[c]ourt might preferably, for example, make more aggressive use of the 'manifest disregard of law' rationale for vacating arbitration awards that do not resolve disputes in accordance with statutory goals");
181. Jean R. Sternlight, Panacea or Corporate Tool?: Debunking the Supreme Court's Preference for Binding Arbitration, 74 WASH. U. L.Q. 637, 711 (1996) ("Although courts should refuse to conduct de novo review on many arbitration decisions, they should not be reluctant to set aside arbitral awards that are clearly un" founded and inconsistent with applicable law.");
182. Ronald Turner, Compulsory Arbitration of Employment Discrimination Claims with Special Reference to the Three A's - Access, Adjudication, and Acceptability, 31 WAKE FOREST L. REV. 231, 293 (1996);
183. U.S. DEP'TS OF COMMERCE AND LABOR, COMMISSION ON THE FUTURE OF WORKER-MANAGEMENT RELATIONS, REPORT AND RECOMMENDATIONS 31-33 (1994).
184. This is precisely what makes such rules default rules. See supra notes 5-10 and accompanying text.
185. See Ware, supra note 102, at 542 n.50. ("In agreeing to arbitrate, par" ties trade their substantive rights for the arbitrator's decision as constrained by the agreement and the limited judicial review of arbitral awards.").
186. See supra notes 5-10 and accompanying text.
187. Cf. MURRAY, RAU & SHERMAN, supra note 12, at 637-38: Of course, in thinking about judicial review [of arbitration] on matters of 'law' we should distinguish between mere rules of construction, which come into play in the absence of a contrary agreement, and mandatory rules. . . . Where the parties have bargained for dispute resolution through arbitration, the method they have chosen to fill any gaps in the agreement is the arbitrator's interpretation. His interpretation is their bargain. In contrast, legal 'rules' in other areas may reflect stronger and overriding governmental or societal interests.
188. See Hayford, supra note 94, at 833 ("Many members of the federal judiciary are simply unwilling to foreclose all possibility of overturning commercial arbitration awards they perceive to be grossly in error. These judges are in the business of ensuring that justice prevails.").
189. See supra notes 85-87, 138-43 and accompanying text.
190. Even under judicial review of arbitrators' legal rulings, "many claims that are sent to arbitration will not return for judicial review, as both parties will be satisfied with the arbitrator's decision." GOLDBERG, SANDER & ROGERS, supra note 38, at 217. A similar point can be made about inarbitrability. Even if claims under mandatory law are inarbitrable, many of them will still go to arbitration because neither party insists on litigating rather than arbitrating. In effect, the parties make a post-dispute agreement to arbitrate all claims, mandatory and default.
191. See supra text accompanying notes 118-143.
192. See supra text accompanying notes 56-58.
193. There are cases holding Title VII claims inarbitrable but they rely on the Civil Rights Act of 1991, which is irrelevant to the arbitrability of other claims. See supra note 57 and accompanying text.
194. 346 U.S. 427 (1953).
195. Hayford, supra note 94, at 811.
196. Statistics might never show this if arbitrators learn of tightening judicial review and respond to it by focusing more on applying the law.
197. 105 F.3d 1465 (D.C. Cir. 1997). Judge Harry Edwards authored this opinion and has written several law review articles on arbitration. See, e.g., Harry T. Edwards, Judicial Review of Labor Arbitration Awards: The Clash Between the Public Policy Exception and the Duty to Bargain, 64 CHI.-KENT L. REV. 3 (1988); Edwards, supra note 12.
198. 105 F.3d at 1487.
199. Id.
200. Judge Edwards enacted into law views he had previously espoused in a law review: In strictly private disputes, ADR mechanisms such as arbitration often are superior to adjudication. . . . However, if ADR is extended to resolve difficult issues of constitutional or public law - making use of nonlegal values to resolve important social issues or allowing those the law seeks to regulate to delimit public rights and duties - there is real reason for concern. An oft-forgotten virtue of adjudication is that it ensures the proper resolution and application of public values. Edwards, supra note 12, at 676. "So long as we restrict arbitrators to the application of clearly defined rules of law, and strictly confine the articulation of public law to our courts, ADR can be an effective means of reducing mushrooming caseloads." Id. at 680.
201. Cole aggravates the worry, discussed above, that courts will miss the distinction between mandatory and default rules. Rather than using the mandatory/default distinction, Cole apparently uses either the statutory/common law distinction or the public law/private law distinction.
202. Tom Carbonneau suggests that, in Cole "[t]he court appears torn between its desire to invalidate an obviously unfair [arbitration] agreement and its obligation to follow Supreme Court precedent on the validity of arbitration agreements." CARBONNEAU, supra note 103, at 26 (Supp. 1998).
203. Cole's message was recently picked up by the Second Circuit. See Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 204 (2d Cir. 1998) (vacating, for manifest disregard of law, award for employer in discrimination case). Halligan's application of "manifest disregard" seems far less deferential to the arbitrator than the Second Circuit's 1986 application of it in Bobker. See supra note 96.
204. See supra notes 4-9 and accompanying text.
205. See Barnett, supra note 8, at 822 ("Because [parties drafting a contract] cannot foresee every future event or know precisely how their own purposes may change, they cannot negotiate terms specifically to cover all contingencies.").
206. See id. at 823-26.
207. See Lisa Bernstein, Social Norms and Default Rules Analysis, 3 S. CAL. INTERDISC. L.J. 59, 81 n.78 (1994) ("conceiv[ing] of ADR as a way of filling contractual gaps ex post"); MURRAY, RAU & SHERMAN, supra note 12, at 637-38 ("[W]here the parties have bargained for dispute resolution through arbitration, the method they have chosen to fill any gaps in the agreement is the arbitrator's interpretation.").
208. See supra notes 78-83 and accompanying text.
209. FRIEDRICH A. HAYEK, THE ROAD TO SERFDOM 72 (1944);
210. see also LON L. FULLER, THE MORALITY OF LAW 38-39 (rev. ed. 1969) ("[T]he attempt to create and maintain a system of legal rules may miscarry in at least eight ways . . . . The first and most obvious lies in a failure to achieve rules at all, so that every issue must be decided on an ad hoc basis.").
211. See, e.g., Executive Life Ins. Co. v. Alexander Ins. Ltd., 999 F.2d 318, 319 (8th Cir. 1993) (per curiam) (noting that the arbitration agreement provided that the arbitrators "shall be free to reach their decision from the standpoint of equity and customary practices of the insurance and reinsurance industry rather than from that [of] strict law").
212. See, e.g., Lisa Bernstein, Merchant Law in a Merchant Court: Rethinking the Code's Search for Immanent Business Norms, 144 U. PA. L. REV. 1765, 1771-73 (1996) (noting that National Grade and Feed Association arbitrators apply four sets of substantive trade rules). Bernstein cites the following associations that have codified their norms into written trade rules: American Cotton Shippers Association, American Fats and Oils Association, American Peanut Shellers Association, American Seed Trade Association, American Spice Trade Association, American Tin Trade Association, Association of Food Industries, Binding Industries of America, Burlap and Jute Association, Cocoa Merchants' Association of America, Colorado Grain and Feed Association, Diamond Dealers Club, General Arbitration Council of the Textile and Apparel Industries (Worth Street Rules), Green Coffee Association of New Orleans, Green Coffee Association of New York, Kansas City Board of Trade, Memphis Cotton Exchange, Merchants Exchange of Portland, Mid-America Commodity Exchange, National Cottonseed Products Association, National Hay Association, National Institute of Oilseed Products, North American Wholesale Lumber Association, Pacific Coast Coffee Association, Pacific Northwest Grain and Feed Association, Pennsylvania Rice Millers' Association, Rubber Trade Association, Specialty Coffee Association of America, Tea Association of the USA, Texas Cotton Association, and the Texas Grain and Feed Association. See id. at 1805 n.134.
213. See Ribstein, supra note 112, at 251-52 (suggesting reasons why parties may prefer government default rules to private ones).
214. See, e.g., Bernstein, supra note 177, at 1771-73; see also Bernstein, supra note 12, at 150-51.
215. Alan Rau points out the following: [reasoned arbitrator] opinions may be especially valuable to disputants who are parties to a continuing relationship, where arbitration can fill gaps in open-ended arrangements and send signals that help the parties adjust their behavior in future interactions. Opinions may equally be useful for parties to standardized transactions that may be expected to give rise to a number of similar and often-recurring disputes, and where reasoned opinions may play a role in developing a general consensus on industry standards. So it would be natural to find that a practice of giving reasoned awards has developed in collective bargaining cases as well as in a wide range of trade association arbitrations. In such cases it is likely, too, that reasoned opinions will be increasingly relied on both by disputants and by subsequent arbitrators - so that despite a general understanding that stare decisis does not operate here, a sort of "common law" may emerge. But outside of these areas, the continuing and inevitable question is why contracting parties would at all choose ex ante to bear the costs of reasoned opinions - merely in order to convey such external benefits on third party free riders. Alan Scott Rau, Integrity in Private Judging, 38 S. TEX. L. REV. 485, 536-37 (1997) (footnotes omitted); see also Landes & Posner, supra note 12, at 248-49. On the virtues of reasoned opinions, see Hayford, supra note 94.
216. See, e.g., Gary Spitko, Gone but Not Conforming: Protecting the Abhorrent Testator from Majoritarian Cultural Norms Through Minority-Culture Arbitration, 49 CASE W. RES. L. REV. 1 (1998) (positing that cultural minorities can use arbitration to avoid the majoritarian bias of the court system).
217. Such copying will be more likely to the extent different lawmakers make their substantive law publicly available. It is possible that the Widget Dealers Association, for example, tries to keep its law secret from all those who do not incorporate it into their contracts. The amount of copying will also depend on the extent to which market pressures lead toward standardization, or convergence in the laws of various groups. The tradeoffs between standardization and individual tailoring apply here as they apply to contract terms generally.
218. Cf. Edward Brunet, Questioning the Quality of Alternative Dispute Resolution, 62 TUL. L. REV. 1, 7 (1987) ("Competition and the values underlying competition should play a major role in shaping future dispute resolution mechanisms. . . . Competition produces shifts towards efficiency and creates a healthy environment in which rival dispensers of dispute resolution seek to satisfy perceived demands.").
219. Applying these principles to law enforcement, as opposed to lawmaking, is more complicated. See supra note 4.
220. See infra notes 186-92 and accompanying text.
221. Barnett, supra note 8, at 822-23 (summarizing "prevailing wisdom" of contract theory).
222. 7d. at 864.
223. Id. at 864-67. Steven Burton "do[es] not think the full range of default rules can be legitimated by the parties' consent, however. To support the contract's legitimate authority, consent must be voluntary, knowing, and deliberate." Steven J. Burton, Default Principles, Legitimacy, and the Authority of a Contract, 3 S. CAL. INTERDISC. L.J. 115, 154 (1993). This raises timeless philosophical issues about the circumstances that deprive consent of its moral and legal significance. I have argued that to retain its significance, consent must be voluntary, see Ware, supra note 19, at 103-08, 138-41, but that it does not have to be knowing or deliberate. See Ware, supra note 9, at 200-05. The great virtue of the objective theory of contract is that it disregards claims about subjective knowledge and deliberation. See id. at 204-05.
224. JULES COLEMAN, RISKS AND WRONGS 171-72 (1992).
225. Randy E. Barnett, Rational Bargaining Theory and Contract: Default Rules, Hypothetical Consent, the Duty to Disclose, and Fraud, 15 HARV. J.L. & PUB. POL'Y 783, 792 (1992).
226. See supra note 177; see also Edward Brunet, Replacing Folklore Arbitration with a Contract Model of Arbitration 16-24 (1998)
227. (unpublished manuscript, on file with the Minnesota Law Review).
228. COLEMAN, supra note 189, at 172.
229. Bernstein, supra note 173, at 84. Bernstein uses the term "ADR," rather than "arbitration," in this passage. But earlier in the same article, she refers to "binding private ADR" as the ADR with "important implications for . . . the default rules debate." Id. at 81. These qualifiers, "binding" and "private," are crucial. Non-binding methods of ADR, such as negotiation and mediation, resolve disputes contractually, but the contracts are formed post-dispute so they do not implicate the distinction between mandatory and default rules. See supra notes 115-17 and accompanying text. Even rights arising out of mandatory rules are alienable, post-dispute. See id. Of course, ADR must be private, as opposed to court-annexed, see supra note 16, to facilitate anything like a competitive market in authoritative jurisdictions. So it is not ADR facilitating such a market, but binding, private ADR. The paradigmatic form of binding, private ADR, perhaps the only form of it, is arbitration. Arbitration, rather than ADR, is facilitating the market in default rules.
230. Randy E. Barnett, . . . And Contractual Consent, 3 S. CAL. INTERDISC. L.J. 421, 431-32 (1993). Barnett, like Bernstein, refers to "alternative dispute resolution" rather than "arbitration." See supra note 193 for the significance of this distinction.
231. There is some competition among various governments. The benefits of competition among governments seem most thoroughly acknowledged with respect to corporate shopping for law under which to incorporate. See gener" ally Kobayashi & Ribstein, supra note 113, at 12; Lucian A. Bebchuk, Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law, 105 HARV. L. REV. 1435, 1442-43 (1992);
232. Roberta Romano, Law As a Product: Some Pieces of the Incorporation Puzzle, 1 J.L. ECON. & ORG. 225 (1985).
233. This may be another way of asking whether law can exist without government. For impressive answers, see BARNETT, supra note 4, and BENSON, supra note 4.
234. Barnett, supra note 8, at 905.
235. "[B]efore implementing any default standard, courts need to establish, as a logically prior matter, rules for deciding . . . what is sufficient to contract around a default." Ayres & Gertner, supra note 8, at 119-20.
236. This point has implications for arbitration law's separability doctrine, discussed infra note 203.
237. Government enforcement of a private judge's decision "no more compromises the private nature of the adjudication system . . . than the law of trespass compromises the private property rights system." Landes & Posner, supra note 12, at 237.
238. See supra Part II.
239. See supra Part II.
240. Nor would it encompass all contract claims. Contract law itself has many mandatory rules, see Slawson, supra note 9, at 32, and parties should not be able to avoid these by agreeing to arbitrate. In an earlier article I criticize arbitration law's separability doctrine on the ground that it permits parties to avoid mandatory law regarding the formation of enforceable contracts. See Ware, supra note 19, at 128-38 & n.270. As Alan Rau puts it, "[t]here is simply no agreement to anything, for example, where a signature has been forged, or where an authentic signature was obtained at gunpoint." Alan Rau, The New York Convention in American Courts, 7 AM. REV. INT'L ARB. 213, 253 n.173 (1996). This can be read as saying that the contract formation requirement of manifestations of assent and the contract defense of duress are both mandatory rules, rules which cannot be contracted around. In contrast, the misrepresentation defense may be a default rule, at least in certain types of transactions. Cf., e.g., the majority and dissenting opinions in Danann Realty Corp. v. Harris, 184 N.Y.S.2d 599 (1959).
241. See, e.g., Slawson, supra note 9, at 30 ("[M]ost of the common law consists of rules that could be preempted by a contract.").
242. With this scenario, compare BARNETT, supra note 4, at 284-97, with Carbonneau, supra note 44, at 20-22.
243. Negligence law consists largely of default rules. See FARNSWORTH, supra note 21, § 5.2, at 353 ("[A] party generally can exempt itself from liability or limit its liability in tort for harm caused by negligence, as long as the provision is not unconscionable.").
244. Landes & Posner, supra note 12, at 237.
245. Id.
246. Landes and Posner acknowledge this "when both parties to the dispute are members of the same (private) group or association." Id. at 238. I am merely explaining how such groups could encompass more people.
247. Cf. William J. Woodward, Jr., "Sale" of Law and Forum and the Widening Gulf Between "Consumer" and "Nonconsumer" Contracts in the UCC, 75 WASH. U. L.Q. 243, 257 n.59 (1997) ("The very idea that people do - or should - go shopping for law and forum has a surreal character to it. The vision that comes to my mind is our consumer (or, perhaps, CEO or her lawyer) with a shopping cart ambling down one aisle with products liability 'products,' another with disclaimer 'products,' and perhaps a third with unconscionability 'products.").
248. As the Supreme Court said in the context of labor arbitration: [T]he specialized competence of arbitrators pertains primarily to the law of the shop, not the law of the land. Parties usually choose an arbitrator because they trust his knowledge and judgment concerning the demands and norms of industrial relations. On the other hand, the resolution of statutory or constitutional issues is a primary responsibility of courts . . . . Alexander v. Gardner-Denver, 415 U.S. 36, 57 (1974) (citations omitted).
249. Some will worry that those with "economic power" will use "adhesion contracts" to "impose" private law on consumers, employees, etc. These concerns are now addressed by the application of various contract law doctrines to arbitration agreements. Such doctrines include those relating to the formation and interpretation of contracts and defenses to their enforcement. See Ware, supra note 9, passim (arguing that contract law doctrines are the best way to address these concerns).
250. See generally George L. Priest, The History of the Postal Monopoly in the United States, 18 J.L. & ECON. 33 (1975). There is "little evidence to support [the] claim of natural monopoly conditions in the postal industry." Id at 76.