The privatization of civil justice

Judicature

Volumn 91, Issue 6, 2008, Pages

  Murray, Peter L ^a  

^a HARVARD LAW SCHOOL   (United States)

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EID: 47949084464     PISSN: 00225800     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (26)

1. There have even been some voices calling for a move to a fully privatized justice system. Kimberlv Kovach, Privatization of Dispute Resolution: In the Spirit of Pound, 48 S. TEX. L. REV. 1003 (2007).
2. A wholesale shift of customer-broker securities litigation occurred in the 1980s when the National Association of Securities Dealers (NASD) developed an arbitration system for resolution of disputes between its member brokerages and their customers. See Jennifer H. Johnson, Wall Street Meets the Wild West: Bringing Law and Order to Securities Arbitration, 84 N. C. L. REV. 123, 127-133 (2005) The movement of disputes out of the justice system was greatly hastened by the United States Supreme Court decision in Shearson/American Express Inc. v. McMahon, 482 U.S. 220 (1987), which held that arbitration clauses in customer brokerage contracts were valid and enforceable under the Federal Arbitration Act. 9 U.S.C. §§ 1 et seq (1925).
3. In 1998, Congress passed the Alternative Dispute Resolution Act of 1998 (H.R. REP. NO. 105-487 (1998)) mandating that "Each United States district court shall devise and implement its own alternative dispute resolution program" for all civil cases. 28 U.S.C. §651(b). In 1999, 33 states ran alternative dispute resolution programs. ADR, The Judiciary, and Justice: Coming to Terms with Alternatives 113 HARV. L. REV. 1851, 1858 (2000).
4. See Shearson/American Express Inc. v. McMahon, supra n. 2, (Enforcing NASD's arbitration agreement even in the face of a RICO claim); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) (Employers may force employees to sign mandatory arbitration agreements which waive the employees' right to file suit even in the case of federal statutory claims, overruling an earlier line of cases which included Alexander v. Gardener-Denver Co., 415 U.S. 36 (1974)); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1,24 (1983) (Noting a "liberal federal policy favoring arbitration agreements" demonstrated in the FAA and applying such to state claims); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) (Enforcing an arbitration agreement on state law claim even when such an agreement would cause proceedings to continue in two forums simultaneously and inefficiently).
5. For example, the number of disputes between securities companies and their customers diverted from the court system can be estimated by numbers provided by NASD. In 2005, NASD Arbitration, Inc. concluded 9,043 disputes (including settlements). 1,671 of these were classified as customer cases. In 2000 the corresponding numbers were 5,473 and 1,396. In 1980 they were 234 and 122. Constantine N. Katsoris, Roadmap to Securities ADR, 11 FORDHAM J. CORP. & FIN. L. 413, 531 (2006).
6. See n. 5 supra. See generally Marc Galanter, The Vanishing Trial, An Examination of Trials and Related Matters in Federal and State Courts, 1 J. OF EMPIRICAL LEGAL STUD. 459 (2004).
7. Also see Peter L. Murray, The Disappearing Massachusetts Civil Jury Trial, 89 MASS. L. REV. 51 (2004).
8. The Supreme Court noted Petitioner Gilmer's argument that the lack of written opinions in arbitration will lead to a "stifling of the development of the law" in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991).
9. Many academics have called for more meaningful judicial review of the alternative dispute resolution system. See, e.g., Elizabeth A. Roma, Mandatory Arbitration Clauses in Employment Contracts and the Need for Meaningful Judicial Review, 12 AM. U. J. GENDER SOC. POL'Y & L. 519 (2004), and Johnson, supra n. 2, at 532 (suggesting"when arbitrators adjudicate statutory rights their decisions should be subject to the same type of review as are the decisions of the district courts," but notes that this will "eliminate some of the advantages of arbitration that make it an attractive substitute for the judicial forum.").
10. See Marc Galanter and Mia Cahill, "Most Cases Settle": Judicial Promotion and Regulation of Settlements, 46 STAN. L. REV. 1339 (1994), suggesting that settlement is not necessarily "better" than adjudication just because the parties finally agree to it.
11. For example, the First Circuit Court of Appeals mandates mediation of all civil appeals in a settlement program run by a judge or a person appointed by the court. See FEDERAL RULES OF APPELLATE PROCEDURE AND FIRST CIRCUIT LOCAL RULES, Rule 33, available at www.cal.uscourts.gov/files/rules/rules. pdf.
12. The activities of the National Arbitration Form are addressed in a recent report by Public Citizen, "The Arbitration Trap; How Credit Card Companies Ensnare Consumers" (September 2007).
13. Marc: Galanter famously summarized the advantages of repeat players in Why the "Haves" Come Out Ahead: Speculations on the Limits of Legal Change, 9 LAW & SOC'Y REV. 95, 98-103 (1974).
14. See, e.g., Mark Berger, Can Employment Law Arbitration Work?, 61 U. MO. KAN. CITY L. REV. 693, 714 (1993). Berger notes "arbitrators are more likely to rule in [the emplover's] favor [in an employment dispute] in order to increase their chance of being selected to arbitrate future claims."In contrast, a large portion of arbitration used to occur between employers and employees represented by a union. These unions had institutional memory that balanced the advantages of the employer. With the decline of unions, the advantage of the repeat employers has become more pronounced.
15. See, Lewis Maltby, Paradise Lost - How the Gilmer Court Lost the Opportunity for Alternative Dispute Resolution to Improve Civil Rights, 12 N.Y. L. SCH. J. HUM. RTS. 1, 7-8 (1994). See "The Arbitration Trap," supra n. 11 for a well-documented study of this phenomenon in the credit card industry.
16. See deposition testimony of National Arbitration Forum arbitrator E.B. in Andrea McQuillan et al v. Check 'N Go of North Carolina, Inc.; CNG Financial Corporation; Jared A. Davis and David Davis (N.C. New Hanover Superior Court). This case is described in some detail in "The Arbitration Trap," supra n. 11.
17. In May, 2006, the author participated in a NASD arbitrator training program in Waltham, Massachusetts. At the conclusion of the day-long program, the participants were divided into four panels of three and were asked to decide a simulated case in which it was stipulated that a broker had provided a customer with inappropriate securities recommendations by which the customer lost $15,000. Of the four panels, two awarded the customer the full $15,000 of the loss. The other two divided the damages and awarded the customer $7,500. The NASD trainers commented that the compromise award was the "usual" kind of award that would be expected in cases of this kind.
18. "The Arbitration Trap," supra n. 11.
19. This is of particular concern with consumer credit card agreements that almost universally contain mandatory arbitration agreements in their form contracts. See Samuel Issacharoff and Erin F. Delaney, Credit Card Accountability, 73 U. CHI. L. REV. 157, 159 (2006), describing these practices on the part of the credit card companies as "unscrupulous" and calling for judicial intervention. The courts have increasingly upheld form contracts of this sort, diverging from practice in the rest of the world.
20. See The Public Interest Advocacy Centre, Mandatory Arbitration and Consumer Contracts (2004), available at http://www.piac.ca/consumers/ mandatory_arbitration_and_consumer_contracts ("Non-American regulators have responded with an almost universal rejection of mandatory arbitration in consumer contracts, creating a distinct division between the U.S. and the rest of the world." at p. 8). See "The Arbitration Trap," supra n. 11, for a vivid discussion of how credit card companies enforce arbitration clauses in printed form consumer credit card agreements.
21. For efforts to detect institutional bias in various forms of mandatory binding arbitration see Michael Geist, "Fair.com?: An Examination of the Allegations of Systemic Unfairness in the ICANN UDRP", August 2001, available at http://www.udrpinfo.com/resc/fair.pdf (domain name arbitration);
22. Lisa Bingham, Employment Arbitration; the Repeat Player Effect, 1 EMPLOYEE RTS. AND EMPLOYMENT L. J. 189 (1997).
23. S. 1782 - H.R. 3010 the Arbitration Fairness Act of 2007 introduced by Senator Russell Feingold and by Representative Frank Johnson on July 12, 2007.
24. California has sought to address the problem of repeat-player arbitration and its effect on impartiality of arbitrators, by enacting a code of ethics for arbitrators under which they would be required to disclose not only their relationship to the parties, that have been traditionally disclosed, but also the number of cases previously handled involving either party to a present claim. See Jay Folberg, Arbitration Ethics: Is California the Future?, 18 OHIO ST. J. ON DISPUTE. RESOLUTION. 343 (2003). However, the Ninth Circuit has already found that the Securities and Exchange Act of 1934 preempts application of California's ethics laws to NASD arbitration. Credit Suisse First Boston v. Grunwald, 400 F.3d 1119 (2005).
25. Some states have established specialized business courts to handle the increased complexity of commercial litigation. These include the Delaware Chancery Court and the New York Commercial Division. See Diane P. Wood, Generalist Judges in a Specialized World, 50 SMU L. REV. 1755, 1763-1766 (1997).
26. The courts have numerous tools at their disposal to shield tailored portions of evidence from the public. For example, Federal Rule of Civil Procedure 26(c) allows the judge to regulate discovery to protect parties or people from "annoyance, embarrassment, oppression, or undue burden or expense" including "a trade secret or other confidential research." When creating the Federal Rules of Evidence, the Supreme Court proposed 13 rules privileging specific types of information and or people. The actually-enacted Rule 501 leaves discretion to the trial judge and state law.