The shadow terms: Contract procedure and unilateral amendments

UCLA Law Review

Volumn 57, Issue 3, 2010, Pages 605-667

  Horton, David ^a  

^a LOYOLA LAW SCHOOL   (United States)

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EID: 77951965074     PISSN: 00415650     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (612)

1. 191 PJd 845 (Wash. 2008).
2. Id. at 848-849
3. Id. at 849.
4. Id. at 850.
5. M.at 850n.2.
6. Id. at860n.13.
7. See David Marcus, The Peras of Contran Procedure: A Revised History of Forum Selection douses in the Federal Courts, 82 TUL L REV. 973,974 (2008) ('"Contract procedure' plays an increasingly central role in American civil justice.");
8. Judith Resnik, Procedure as Contract, 80 NOTRE DAME L. REV. 593, 598 (2005) (coining the term "contract procedure"). As I have explored elsewhere, dispute resolution terms are also becoming more common in wills and trusts.
9. See David Horton, Unconscionabuity m the Law of Trusts, 84 NOTRE DÄMEL REV. 1675,1682 (2009).
10. A study of contracts imposed by financial services and telecommunications firms on their customers recently found that 75 percent contained mandatory arbitration clauses and 80 percent contained class action waivers. See Theodore Eisenberg et al., Arbitration's Summer Soldiers: An Emiwical Study of Arbitration Clauses m Consumer and Nonconsumer Contracts, 41 U. MICH. J.L REFORM 871, 882-83 (2008). A whopping 93 percent of these companies employment agreements mandated arbitration.
11. Id. at 883.
12. Other studies have concluded that the prevalence of arbitration clauses varies significantly among consumer products. See Linda J. Demaine & Deborah R. Hensler, "Volunteering" to Arbitrate Through Predispute Arbitration Clauses: The Average Consumer's Experience, LAW & CONTEMP. PROBS., Winter/Spring 2004, at 55,62 (finding mandatory arbitration clauses in two-thirds of consumer contracts in the banking industry).
13. But see Florencia Marotta-Wurgler, "Unfair" Dispute Resolution Clauses: Much Ado About Nothing?, in BOILERPLATE THE FOUNDATION OF MARKET CONTRACTS 45, 48 (Omri Ben-Shahar ed., 2007) (determining that a mere 6 percent of software licenses contain mandatory arbitration clauses).
14. See Rules of Civil Procedure for the Dist. Courts of the U.S., 308 U.S. 645 (1937).
15. Not only did the Federal Rules unify procedure at the national level, but they gradually became the blueprint for many state procedural codes. See WILLIAM W. BARRON & ALEXANDER HoLTZOFF, FEDERAL PRACTICE AND PROCEDURE WITH FORMS 44-45 (Rules Ed. 1960) (observing that there is "but one procedure for state and federal courts").
16. By eliminating rigid pleading standards, vesting judges with discretion, and importing flexible tools from equity, the Federal Rules sought '"to get rid of technicalities and simplify procedure and get to the merits."' Robert L Carter, The Federal Rules of Civil Procedure as a Vindicator of Civil Rights, 137 U. PA. L. REV. 2179, 2179 (1989)
17. (quoting Rules of Civil Procedure for the District Courts: Hearings on H.R. 8892 Be/ore the H. Corran, on the Judiciary, 75th Cong. 24 (1938) (statement of William D. Mitchell, Chairman, Advisory Comm. on Rules for Civil Procedure)).
18. Resnik, supra note 7, at 597.
19. See infra notes 90-111 and accompanying text.
20. Federal Arbitration Act, Pub. L. No.68-401, 43 Stat. 883 (1925)
21. (codified as amended at 9U.S.C.§§1-16(2006)).
22. Chief Justice Urges Greater Use of Arbitration, N.Y. TIMES, Aug. 22, 1985, at A21.
23. See, e.g., Jean R. Sternlight, Creeping Mandatory Arbitration: Is It Just?, 57 STAN. L REV. 1631, 1648 (2005) ("Empirical studies have shown that only a minute percentage of consumers read form agreements, and of these, only a smaller number understand what they read.").
24. See, e.g., Paul D. Carrington & Paul H. Haagen, Contran and Jurisdiction, 1996 SUP. Cr. REV. 331, 401 ("[AJrbitration and forum selection clauses in contracts of adhesion are sometimes a method for stripping people of dieir rights." (emphasis omitted)).
25. Since arbitration is a competitive industry, arbitrators "have a financial incentive to make sure that the company is pleased with the results in arbitration." Sternlight, supra note 16, at 1650. A recent lawsuit by the San Francisco City Attorney against the National Arbitration Forum (NAF), for example, alleged that "creditors win 99.998% of the time in NAF cases that are decided by arbitrators on the merits."
26. Robert Berner & Brian Grow, Banks vs. Consumers (Guess Who Wins), BUS. WK., June 16,2008, at 72.
27. See infra notes 131-132.
28. I focus on unilateral changes to dispute resolution terms - as opposed to "substantive" terms diat dictate the parties' rights and duties - for several reasons. For one, businesses do not change substantive terms nearly as frequently as they do procedural terms. Cf. infra Part II.B. In addition, although courts often enforce unilaterally modified procedural terms, see infra Part I.C.2, unilateral changes to substantive terms often must satisfy heightened regulatory and judicial scrutiny.
29. See Rossman v. Fleet Bank (R-I.) Nat'l Ass'n, 280 FJd 384, 400 (3d Or. 2002) (holding that the plaintiff stated a cause of action under the Truth in Lending Act by alleging that her credit card company reneged on its promise of "no annual fee");
30. C.F.R. §238.0 (2006) (FTC regulation forbidding "bait and switch" tactics).
31. Unilateral amendments to procedural terms have yet to receive sustained scholarly attention. See Myriam Gilles, Opting Out of Liability: The Forthcoming, Near-Total Demise of the Modern Class Action, 104 MICH. L. REV. 373, 424-25 (2005) (briefly noting that courts have disagreed over whether the ex post addition of an arbitration clause to a consumer contract is valid);
32. Peter A. Alces & Jason M. Hopkins, Carrying a Good Joke Too Far, 83 CHI.-KENT L REV. 879, 887-88 (2008) (also briefly noting the split in authority);
33. see also Eric Andrew Horwitz, Comment, An Analysis of Changeof-Tetms Provisions as Used in Consumer Service Contracts of Adhesion, 15 U. MIAMI BUS. L REV. 75 (2006) (surveying the doctrinal and regulatory framework that goveinschangei-tenris révisions generally).
34. I owe this phrase and an intellectual debt to Michelle E Boardman, Contra Proferentem: The Allure of Ambiguous Boilerplate, 104 MICH. L REV. 1105, 1105 (2006) (arguing that insurance companies do not change ambiguous policy provisions because of the certainty that comes with language that has been widely interpreted).
35. See infra notes 24-34 and accompanying text.
36. For surveys of arbitration during its infancy, see DEREK ROEBUCK, ANCIENT GREEK ARBITRATION (2001);
37. Paul L Sayre, Development of Commercial Arbitration Law, 37 YALE L.J. 595, 597 (1927) ("There was a partially developed system of arbitration in Roman law, both during the classical period and under Justinian.").
38. See MICHAEL HICKS, ENGUSH POLITICAL CULTURE IN THE FIFTEENTH CENTURY 113 (2002) ("Arbitration was adapted to the full range of possible quarrels.");
39. Earl S. Wolaver, The Historical Background of Commercial Arbitration, 83 U. PA. L REV. 132, 136-37 (1934) (noting that traveling merchants sought "a simple and speedy determination of a cause, without reference to a formal procedure but in accord with customs of a trade").
40. See Richard C. Reuben, Public Justice: Toward a State Action Theory of Alternative Dispute Resolution, 85 CAL. L REV. 577,599 (1997) (noting that medieval arbitration was self-regulating).
41. See RICHARD GRASSBY, THE BUSINESS COMMUNITY OF SEVENTFÍNTH-CENTURY ENGLAND 217-18 (1995) (tracing increased use of arbitration to growth in the insurance and lending industries and dissatisfaction among merchants with the speed of formal court process);
42. Bruce H. Mann, The Formalization of Informal Law: Arbitration Before the American Revolution, 59 N.Y.U. L. REV. 443,446 (1984) (describing the use of deeds to secure performance of agreements to arbitrate).
43. See Reuben, supra note 26, at 599-600 ("[T]he process included no procedural safeguards to prevent bias in the determination of rights and duties.").
44. See id. at 600 (describing this as "a more cynical" view).
45. For example, under the doctrine of revocability, parties could disavow their consent to arbitrate at any time. See, e.g., Vynior's Case, (1609) 77 Eng. Rep. 597 (K.B.).
46. (1746) 95 Eng. Rep. 532 (K.B.).
47. Id.
48. See Ernest G. Lorenzen, Validity and Effects of Contracts m the Conflict of Laws, 30 YALE L.J. 565, 572-573 (1921).
49. See Robinson v. Bland, (1760) 97 Eng. Rep. 717, 718 (holding that parties can trump local law by entering into transactions "with an express view to the law of another country");
50. PAVEL KALENSKY, TRENDS OF PRIVATE INTERNATIONAL LAW 64-65 (1971) (crediting Dumoulin for recognizing an express choice-of-law provision as a unique issue and not merely part of the general conflict-of-laws analysis).
51. See Wayman v. Southard, 23 U.S. (10 Wheat.) 1, 48 (1825) (declaring that an agreement "is governed by the law with a view to which it was made");
52. see also Pritchard v. Norton, 106 U.S. 124, 129 (1882) ("[I] case of contract, the foreign law may, by the act and will of the parties, have become part of their agreement.").
53. Joseph H. Beale, What Law Governs the Validity of a Contract, 23 HARV. L REV. 260, 261 (1909).
54. Potomac Steamboat Co. v. Baker Salvage Co., 123 U.S. 40,51 (1887).
55. Ins. Co. v. Morse, 87 U.S. (20 Wall.) 445, 451 (1874). State courts, however, were less suspicious.
56. See, e.g., Neely v. Buford, 65 Mo. 448, 451 (1877) (noting that arbitration "prevent[s] litigation in courts and (is] less expensive and dilatory").
57. See, e.g., Nute v. Hamilton Mut. Ins. Co., 72 Mass. (6 Gray) 174,184-85 (1856) (voiding a clause requiring the insured to sue in a particular county);
58. Benson v. E. Bldg. & Loan Ass'n, 66 N.E 627, 628 (N.Y. 1903) ("[T] he jurisdiction of the court is beyond the agreement of the parties.");
59. Eaton v. Int'l Travelers' Ass'n, 136 S.W. 817,818 (Tex. Civ. App. 1911) (voiding a term that required insured to sue in Dallas).
60. But see Marcus, supra note 7, at 999-1000 (noting that federal courts sitting in admiralty were more receptive).
61. For example, in Riddlesbarger v. Hartford Ins. Co., 74 U.S. (7 Wall.) 386 (1868), the Supreme Court upheld a term in an insurance contract that required the insured to bring a claim within twelve months. Although the issue had little resemblance to arbitration, the Court went to great lengths to explain why the ouster doctrine did not apply.
62. See id. at 390-391 ("[T]he condition in the policy in this case does not interfere with the authority of the courts.").
63. See, e.g., IAN R. MACNEIL, AMERICAN ARBITRATION LAW: REFORMATION, NATIONALIZATION, INTERNATIONALIZATION 41-47 (1992) (describing statutes in New York, New Jersey, Massachusetts, and Oregon that paved the way for the FAA).
64. See, e.g., JULIUS HENRY COHEN, COMMERCIAL ARBITRATION AND THE LAW 281 (1918) (criticizing the ouster doctrine);
65. Julius Henry Cohen, The Law of Commercial Arbitration and the New York Statute, 31 YALEL.J. 147,149(1921) (same).
66. 43 Stat. 883 (1925).
67. 9 U.S.C. §§1-16 (2006).
68. Id. §2.
69. Compare id. §1 ("'[C]ommerce\ as herein defined, means commerce among the several States----"), with U.S. Const. Art. VIII, §8, cl. 3 ("The Congress shall have power... [t]o regulate commerce ... among the several states....").
70. See Hammer v. Dagenhart, 247 U.S. 251, 272-273 (1918).
71. See Wickard v. Filburn, 317 U.S. 111, 129 (1942).
72. See Bernhardt v. Polygraphic Co., 350 U.S. 198, 199-201 (1956) (holding that the FAA did not govern a contract between a Vermont citizen and a New York corporation).
73. See, e.g., John W. Johnson, Inc. v. 2500 Wis. Ave., Inc., 231 F.2d 761, 764 (D.C. Cir. 1956) ("[W]e cannot say that a contract to paint a building in the District [of Columbia] is a 'transaction involving commerce' within the meaning of § 2 of the [FAA], and neither party so contends.");
74. Livingston v. Shreveport-Tex. League Baseball Corp., 128 F. Supp. 191, 202 (W.D. La. 1955) (holding that minor league baseball manager's contract "does not involve interstate [c]ommerce" even though it was clear that his job required him to travel from state to state);
75. Coles v. Redskin Realty Co., 184 A.2d 923, 927 (D.C. Ct. App. 1962) (holding that settlement agreement stemming from sophisticated real estate deal bore only a "remote" connection to interstate commerce).
76. 346 U.S. 427, 438 (1953).
77. See, e.g., McDonald v. City of West Branch, 466 US. 284, 292 (1984) (holding that the FAA did not apply to claim under Section 1983);
78. Barrentine v. Ark.-Best Freight Sys., Inc., 450 US. 728, 736-37 (1981) (holding that the FAA did not apply to claim under Fair Labor Standards Act);
79. Alexander v. Gardner-Denver Co., 415 U.S. 36, 56-58 (1974) (same for Title VII);
80. Criswell v. W. Airlines. Inc., 709 F.2d 544, 547 (9th Cir. 1983) (same for the ADEA);
81. Applied Digital Tech., Inc. v. Cont'l Cas. Co., 576 F.2d 116, 117 (7th Cir. 1978) (same for antitrust);
82. Hanes Corp. v. Millard, 531 F.2d 585, 593 (D.C. Cir. 1976) (same for patent issues);
83. Lewis v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 431 F. Supp. 271, 277 (ED. Pa. 1977) (same for ERISA).
84. See, e.g., Ross v. Twentieth Century-Fox Film Corp., 236 F.2d 632, 634 (9th Cir. 1956) (looking to California law to determine whether arbitration clause was "formal" enough to be valid);
85. Pullman, Inc. v. Phoenix Steel Corp., 304 A.2d 334, 338 (Del. Super. Ct. 1973) (refusing to apply the FAA);
86. Wilson & Co. v. Fremont Cake & Meal Co., 43 N.W.2d 657, 665 (Neb. 1950) ("[A] provision in a contract requiring arbitration... will not be enforced.").
87. See, e.g., Recent Cases, 73 HARV. L REV. 1382, 1383 (1960) ("[T]he House committee report indicated that the act was to apply only in the federal system.").
88. There are just five known instances of parties asking state courts to apply the FAA in the first thirty-four years of its existence. MACNEIL, supra note 41, at 127-128
89. See, e.g., CAL. CORP. CODE § 31512 (West 2006) (exempting franchise agreements from arbitration clauses);
90. UTAH CODE ANN. § 78-31-1 (West 1953) (providing that only contracts to submit existing disputes to arbitration are enforceable) (repealed 1986);
91. see also supra note 53.
92. See, e.g., CHARLES L. KNAPP ET AL., PROBLEMS IN CONTRACT LAW: CASES AND MATERIALS 21 (6th ed. 2007) (discussing the classical model).
93. See, e.g., Liverpool & G.W. Steam Co. v Phenix Ins. Co., 129 US. 397, 441 (1889) (involving a standardized bill of lading and noting that customers often have "no alternative but to [sign] this, or to abandon his business");
94. Briggs v. Rumely Co., 64 N.W. 784, 784-785 (Iowa 1895) (dealing with boilerplate warranty accompanying sale of thresher).
95. Edwin W. Patterson, The Delivery of a Life Insurance Policy, 33 HARV. L REV. 198, 222 (1919) (internal quotation marks omitted).
96. Friedrich Kessler, Contracts of Adhesion - Some Thoughts About Freedom of Contract, 43 COLUM. L. REV. 629, 631 (1943).
97. KARL LLEWELLYN, THE COMMON LAW TRADITION: DECIDING APPEALS 362 (1960).
98. W. David Slawson, Standard Form Contracts and Democratic Control of Lawmaking Power, 84 HARV. L REV. 529, 529-530 (1971).
99. See, e.g., Karl Llewellyn, The Standardization of Commercial Contracts in English and Continental Law, 52 HARV. L REV. 700, 700-701 (1939) (voicing concern about the non-negotiability of standard form terms) (book review).
100. See Kessler, supra note 60, at 632 ("Standard contracts are typically used by enterprises with strong bargaining power.").
101. See LLEWELLYN, supra note 61, at 370 (noting the lack of true "assent" to boilerplate).
102. See ROBERT COOTER & THOMAS ULEN, LAW AND ECONOMICS 10 (2d ed 1996) ("[c]onsumers maximize utility (i.e. happiness or satisfaction), firms maximize profits, politicians maximize votes, bureaucracies maximize revenues, [and] charities maximize social welfare.");
103. RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 3 (6th ed. 2003) ("The task of economics, so defined, is to explore the implications of assuming that man is a rational maximizer of his ends in life, his satisfactions....").
104. See STEPHEN A. SMTTH, CONTRACT THEORY 100 (2004) ("Arguably the most fundamental idea underlying efficiency theories of contract law is that if two persons make a voluntary exchange the exchange will make each better off.").
105. See MICHAEL J. TREBILCOCK, THE LIMITS OF FREEDOM OF CONTRACT 7 (1993) (noting that "monopoly, externalities, [and] information failures" can undermine the assumption that transactions are Pareto superior).
106. See Alan Schwartz & Louis L Wilde, Intervening in Markets on the Basis of Imperfect Information: A Legal and Economic Analysis, 127 U. PA. L REV. 630 (1979) [hereinafter Schwartz & Wilde, Imperfect Information I];
107. Alan Schwartz & Louis L. Wilde, Imperfect Information in Markets for Contract Terms: The Examples of Warranties and Security Interests, 69 VA. L REV. 1387 (1983) [hereinafter Schwartz & Wilde, Imperfect Information II];
108. Alan Schwartz, A Reexamination of Nonsubstantive Unconscionability, 63 VA. L. REV. 1053 (1977);
109. George L Priest, A Theory of the Consumer Product Warranty, 90 YALE L.J. 1297 (1981).
110. See Schwartz, supra note 69, at 1072.
111. See id. at 1072 n.38.
112. See id. This argument is widely cited today.
113. See, e.g., R. Ted Cruz & Jeffrey J. Hinck, Not My Brother's Keeper: The Inability of an Informed Minority to Correct for Imperfect Information, 47 HASTINGS L.J. 635, 638 (1996) ("[A] rational monopolist would simply extract monopoly profits directly through the price.");
114. Russell Korobkin, Bounded Rationality, Standard Form Contracts, and Unconscionability, 70 U. CHI. L REV. 1203, 1212 (2003) ("By first providing efficient terms and then raising price above its competitive-market level, sellers can maximize total profits.");
115. Eric A. Posner, Economic Analysis of Contract Law After Three Decades: Success or Failure?, 112 YALE L. J. 829, 843 (2003) ("Even if the seller or creditor has market power, it has the right incentive to supply the terms that parties desire.").
116. See, e.g., Schwartz, supra note 69, at 1057-1058
117. Id.
118. Id. Five years later, Priest provided some empirical support for Schwartz's theoretical intuitions. Analyzing sixty-two consumer product warranties, Priest found little evidence that firms use fine print to "limit their legal obligations to consumers as much as possible."
119. See Priest, supra note 69, at 1301, 1319-1325
120. See Schwartz & Wilde, Imperfect Information I, supra note 69;
121. Schwartz & Wilde, Imperfect Information II, supra note 69.
122. See Schwartz & Wilde, Imperfect Information I, supra note 69, at 632-33;
123. Schwartz & Wilde, Imperfect Information II, supra note 69, at 1390-1391
124. See Schwartz & Wilde, Imperfect Information II, supra note 69, at 1389-1390
125. See Schwartz & Wilde, Imperfect Information I, supra note 69, at 638. Schwartz and Wilde construct a model where the only variation between products is the price.
126. Id. at 642 (assuming that "consumers are interested primarily in prices [and] that the goods are homogeneous"). Although they then extrapolate it to a situation where contracts terms also vary, they note that the analogy is not perfect.
127. See id. at 660-61 ("Evaluating terms is more costly than evaluating prices or search characteristics such as color, size or fit; some comparison shoppers in consequence may devote little time to examining terms.").
128. See id. at 638.
129. See id. at 639;
130. Schwartz & Wilde, Imperfect Information II, supra note 69, at 1414. Schwartz and Wilde conclude that the best method of intervention when consumers are unaware of the full range of market offerings is for the government to take steps to increase the amount of comparison shopping.
131. See Schwartz & Wilde, Imperfect Information I, supra note 69, at 651;
132. Schwartz & Wilde, Imperfect Information II, supra note 69, at 1461-1462
133. See Siegelman v. Cunard White Star Ltd., 221 F.2d 189, 204-05 (2d Cir. 1955) (Frank, J., dissenting) (reasoning that a choice-of-law clause in form steamship ticket should be unenforceable because "the idea of 'freedom of contract[]' cannot be applied rationally" to a standard form contract);
134. Albert A. Ehrenzweig, Adhesion Contracts in the Conflict of Laws, 53 COLUM. L REV. 1072, 1073 (1953) (noting that courts go to great lengths to ignore choice-of-law clauses in form employment agreements);
135. Note, Determining the Scope of Choice of Law Provisions in Steamship Tickets: Adhesion Contracts and the Conflict of Laws, 65 YALE L.J. 553, 561-63 (1956) (noting that many passengers do not read a choice-of-law clause in a steamship ticket and "[a]t other times [their] inexpertness may prevent [them] from comprehending the significance of [their] agreement").
136. See Player v. George M. Brewster & Son, Inc., 96 Cal. Rptr. 149, 156 (Q. App. 1971) ("We think the courts would and should scan closely contracts which bear facial resemblance to contracts of adhesion and which contain cross-country arbitration clauses before giving them approval.");
137. Barnhart v. Civil Serv. Emp. Ins. Co., 398 P.2d 873, 877 (Utah 1965) (invalidating an arbitration clause in an insurance policy because "[w]ith respect to [the] arbitration [clause], even if it were discovered, its meaning and effect are somewhat uncertain even to lawyers and judges, and presumably would be more so to laymen").
138. See supra notes 46-56 and accompanying text.
139. See Marc Galanter, Reading the landscape of Disputes: What We Know and Don't Know (and Think We Know) About Our Allegedly Contentious and Litigious Society, 31 UCLA I. REV. 4, 37 (1983).
140. See, e.g., Marc Galanter, The Turn Against Law: The Recoil Against Expanding Accountability, 81 TEX. L. REV. 285, 292 (2002) (tracing the development of this phrase).
141. See Galanter, supra note 85, at 6 n.4, 8 n.20
142. (citing The Chilling Impact of Litigation, BUS. WK., June 6, 1977, at 58,
143. and Too Much Law?, NEWSWEEK, Jan. 10, 1977).
144. A frequently voiced argument was that the expansion of regulation in the 1960s had prompted individuals to "defin[e] as legal problems more and more forms of the distresses, anxieties, and wounds they once regarded as ... the responsibility of institutions other than the courts." Maurice Rosenberg, Let's Everybody Litigate?, 50 TEX. L. REV. 1349, 1350 (1972).
145. John H. Barton, Behind the Legal Explosion, 27 STAN. L REV. 567, 567 (1975).
146. See, e.g., Gerald Aksen, Private Dispute Settlement, 70 COLUM. L REV. 178, 185 (1970) ('"Arbitration is an expanding area of the law reaching constantly into new fields. It deserves serious study and discriminating use."'
147. (quoting and reviewing MERTON C. BERNSTEIN, PRIVATE DISPUTE SETTLEMENT vii (1968)));
148. Irving R. Kaufman, Judicial Reform in the Next Century, 29 STAN. L REV. 1, 13 (1976) (calling for compulsory arbitration of certain insurance claims).
149. In 1976, Chief Justice Burger gave the keynote address at conference honoring Roscoe Pound and asked the assembled members of the legal intelligentsia to "reapprais[e]... the values of the arbitration process." Warren E Burger, Agenda for 2000 A.D. - A Need for Systematic Anticipation, in Addresses Delivered at the National Conference on the Causes of Popular Dissatisfaction With the Administration of Justice, 70 F.R.D. 83, 94 (1976).
150. In his 1982 State of the Judiciary speech, he touted arbitration as "a better way to do it." Warren E Burger, Isn't There a Better Way?, 68 A.B.A. J. 274, 276 (1982).
151. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).
152. 465 U.S. 1 (1984).
153. Id. at 11.
154. 482 US. 483 (1987).
155. Id. at 492.
156. 473 U.S. 614 (1985).
157. Id. at 628 ("Having made the bargain to arbitrate, the party should be held to it....").
158. Id.
159. 9 U.S.C. § 2 (2006).
160. Mitsubishi, 473 U.S. at 627.
161. 482 U.S. 220 (1987).
162. Id. at 227.
163. 490 U.S. 477 (1989).
164. Id. at 484.
165. See, e.g., Hal Davis, Banks Follow Brokerages: Arbitrate Yes, Litigate No, NAT'L L.J., Sept. 12, 1994, at B1 ("[T]he retail brokerage industry... has made arbitration the exclusive forum for customer complaints.");
166. David Satterfield, Brokers and Brokerages Feeling Some Pain: Lawsuits and Arbitration Cases Begin to Roll in, MIAMI HERALD, Dec 21, 1987, at 7BM (noting that most cases from the October market crash that year "[would] end up in arbitration").
167. 500 US. 20 (1991).
168. Id. at 35.
169. The FAA expressly does not cover "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." 9 U.S.C. § 1 (2006). The plaintiff in Gilmer did not argue below that this language categorically excludes all employment contracts, and thus the Court refrained from deciding the issue.
170. See Gilmer, 500 U.S. at 25 n.2. A decade later, the Court definitively rejected that theory, construing Section 1 narrowly to "exempt[] from the FAA only contracts of employment of transportation workers." Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001).
171. See Gilmer, 500 U.S. at 30-32.
172. Id. at 32-33.
173. The Court would later underscore this point in Green Tree Financial Corp.-Alabama, v. Randolph, 531 U.S. 79, 90 (2000), holding that the mere fact that an arbitration clause did not say who would pay for the proceeding did not prove that the plaintiff could not vindicate her rights.
174. 499 US. 585 (1991).
175. Id. at 594.
176. See, e.g., Christopher R. Drahozal, "Unfair" Arbitration Clauses, 2001 U. ILL. L. REV. 695, 771 ("[R]efusing to enforce arbitration clauses containing 'unfair' provisions will give a windfall to individuals with disputes and impose costs on everyone else.");
177. Clayton P. Gillette, Rolling Contracts as an Agency Problem, 2004 WIS. L REV. 679, 698-99 ("Each of the limitations on the options available to purchasers in the event of a transactional breakdown reduces costs to sellers. In competitive markets, that reduction should redound to the benefit of buyers by reducing the cost of goods.");
178. Keith N. Hylton, Agreements to Wave or Arbitrate Legal Claims: An Economic Analysis, 8 SUP. CT. EOON. REV. 209, 263 (2000) ("Waiver and arbitration agreements, like all contracts, will be attractive to potential plaintiffs and defendants when they can enhance the joint wealth of the contracting parties.");
179. Stephen J. Ware, The Case for Enforcing Adhesive Arbitration Agreements - With Particular Consideration of Class Actions and Arbitration Fees, 5 J. AM. ARB. 251, 255 (2006) [hereinafter Ware, Adhesive Arbitration Agreements] ("[W]hatever lowers costs to businesses tends over time to lower prices to consumers.");
180. Stephen J. Ware, Paying the Price of Process: Judicial Regulation of Consumer Arbitration Agreements, 2001 J. DISP. RESOL 89, 89 [hereinafter Ware, Price of Process] ("[A]rbitration lowers the prices (and interest rates) consumers pay because competition forces businesses to pass their cost-savings on to consumers.").
181. Badie v. Bank of Am., 79 Cal. Rptr. 2d 273, 277 (Ct. App. 1998);
182. see also Jennifer Thelen, Millions at Stake as BofA's ADR Clause Goes on Trial, RECORDER (S.F.), July 12, 1993, at 1. The clause also instituted "judicial reference" for class actions, a procedure in which a judge appoints an arbitrator who oversees the aggregated claims.
183. Bank of America Rewrites Policy So It Avoids Court on Customer Disputes, CHARLOTTE OBS., June 3, 1992, at 2D.
184. As the defendant bank explained, the move was necessary in light of the fact that it had recently "faced dozens of multimillion-dollar[] class-action lawsuits." Arbitration to Be the Rule at BofA, S.F. CHRON., June 3, 1992, at C1.
185. Indeed, Bank of America had placed compulsory arbitration clauses in its credit instruments since 1986.
186. See David K. Rubenstein, How the Bank of America Manages Litigation, CORP. LEGAL TIMES, Feb. 1992, at 6.
187. James Bates, BofA to Impose Arbitration in Customer Disputes, LA. TIMES, June 3, 1992, at 1 (referring to the fact that some customer agreements may be twenty years old).
188. See Wells Joins Trend Against Jury Trials, S.F. CHRON., July 7, 1992, at C1.
189. 79 Cal. Rptr. 2d 273.
190. See Bank of America Is Sued Over Arbitration Policy, WALL ST. J., Aug. 5, 1992, at A6;
191. Consumer Group Sues BofA Over Arbitration, S.F. CHRON., Aug. 5, 1992, at B1;
192. Stephen G. Hirsch, Trial Lawyers Sue BofA Over Arbitration Policy, RECORDER (S.F.), Aug. 5, 1992, at 4.
193. Badie, 79 Cal. Rptr. 2d at 277-78. Ironically, however, as the litigation progressed, it became clear that Bank of America had revised this very clause.
194. Id. at 278. Thus, it was unclear which version of the unilateral amendment provision governed the bank's unilateral amendment of the plaintiffs' contracts. The common thread in the multiple versions of the contract was that they permitted the bank to "change" its "terms."
195. Id. at 277-78.
196. Badie v. Bank of Am., No. 944916, 1994 WL 660730, at *2, *6 (Cal. Super. Ct. Aug. 18, 1994).
197. Badie, 79 Cal. Rptr. 2d at 285.
198. Id. at 284.
199. A "rolling contract" - also sometimes called a "layered" or "shrinkwrap" contract - is embedded in a product's packaging and sets forth additional terms that become effective unless the consumer returns the product within a set period of time. See, e.g., KNAPP ET AL, supra note 57, at 193-94.
200. 105 F.3d 1147 (7th Cir. 1997).
201. Id. at 1148.
202. See id. at 1150.
203. UNIF. CONSUMER CREDIT CODE § 3.205 (1974) (allowing creditors to "change the terms of an open-end credit account," but requiring creditors to give notice before revising finance charges and interest rates). Similarly, the Truth in Lending Act and its implementing provision, Regulation Z, require creditors to disclose changes to fees and interest rates, but do not mention changes to procedural terms.
204. See 15 U.S.C. § 1601(a) (2006); 12 C.F.R. § 226.1 (2006).
205. See UNIF. CONSUMER CREDIT CODE § 3.205, comm. 1 ("This provision is designed to allow creditors to change the terms of their open-end accounts in a manner which is feasible from their standpoint but which safeguards the interests of their customers.").
206. Delaware, Rhode Island, Utah, and Virginia expressly permit lenders to include or change "arbitration or other alternative dispute resolution mechanisms." DEL CODE ANN. tit. 5, § 952(a) (2001);
207. R.I. GEN. LAWS § 6-26.1-11(a) (Supp. 2008) (same as Delaware);
208. UTAH CODE ANN. § 70C-4-102(2)(b) (Supp. 2008) (requiring the original contract to grant the drafter the power to enact ex post revisions);
209. VA. CODE ANN. § 6.1-330.63(D) (Supp. 2009) (allowing the addition of "arbitration or other alternative dispute resolution mechanisms, or other matters of any kind whatsoever"). Other jurisdictions' versions give lenders the power to "modify any term" but differ in subtle ways from each other.
210. See, e.g., ALA. CODE § 5-20-5 (1996) (requiring thirty days notice of changes);
211. FLA. STAT. ANN. § 658.995(4) (West 2004) (requiring only "prior written notice");
212. GA. CODE ANN. § 7-5-4(c) (2004) (same as Florida);
213. IOWA CODE ANN. § 537.3205(1) (West 1997) (requiring sixty days notice);
214. KAN. STAT. ANN. § 16a-3-204(2)-(3)(b) (2007) (requiring thirty days notice but not for changes that "involve[] no significant cost" to the debtor);
215. ME REV. STAT. ANN. tit. 9-A, § 3-204(2) (1999) (same as Kansas);
216. NEV. REV. STAT. ANN. § 97A.140(4) (LexisNexis 2007) (same);
217. N.D. CENT. CODE § 51-14-02 (2007) (requiring twenty-five days notice);
218. OHIO REV. CODE ANN. § 1109.20(D) (West Supp. 2009) (providing merely that "a bank and a borrower may specify in their agreement any terms and conditions for modifying or amending the agreement");
219. S.D. CODIFIED LAWS § 54-11-10 (2006) (requiring twenty-five days notice);
220. TENN. CODE ANN. § 45-2-1907(a) (2007) (requiring notice if mandated by federal law).
221. See, e.g., UNIF. CONSUMER CREDIT CODE § 3.205 (allowing unilateral changes "[w]hether or not a change is authorized by prior agreement");
222. ALA. CODE § 5-20-5 (remaining silent on the issue of whether the underlying contract must authorize the changes);
223. DEL. CODE ANN. tit. 5, § 952(a) (allowing unilateral changes "whether or not the amendment or the subject of the amendment was originally contemplated or addressed by the parties");
224. IOWA CODE ANN. § 537.205(1) (West 1997) ("[W]hether or not a change is authorized by prior agreement, a creditor may make a change in the terms....");
225. KAN. STAT. ANN. § 16a-3-204(2) (2007) ("A creditor may change the terms, including the finance charge, of an open end credit account whether or not the change is authorized by prior agreement.");
226. ME REV. STAT. ANN. tit. 9-A § 3-204(2) (1999) (same as Kansas);
227. R.I. GEN. LAWS § 6-26.1-11(a) (Supp. 2008) (same as Delaware);
228. VA. CODE ANN. § 6.1-330.63(C) (Supp. 2008) (authorizing lenders "to modify or delete terms, or to add new terms, which new or modified terms and amendment need not be of a kind previously included in or contemplated by [the] contract").
229. 994 F. Supp. 1410 (M.D. Ala. 1998).
230. See id. at 1416-17.
231. Id. at 1412-13. As in Badie, the original contract expressly permitted the drafter to "change" its terms.
232. Id. at 1412.
233. Id. at 1413-14.
234. Id. at 1413.
235. Id. at 1418.
236. See id. at 1417-18.
237. See id. at 1413, 1417-18.
238. 125 F. Supp. 2d 819 (S.D. Miss. 2001).
239. Id. at 826.
240. Id. at 831. Notably, like Stiles, and unlike Badie, the original contract included a choice-of-law clause.
241. See id. at 830. Thus, even if the underlying agreement did not specifically mention arbitration, contract procedure was not completely foreign terrain.
242. Cf. Badie v. Bank of Am., 79 Cal. Rptr. 2d 273, 284 (Ct. App. 1998) (voiding arbitration clause that did not comport with "any subject, issue, right, or obligation addressed in the original contract"). Then again, because choice-of-law clauses have non-litigation-related purposes (i.e., providing background rules for the contractual relationship), the mere existence of a choice-of-law-clause may not place an adherent on notice that the drafter may later introduce an arbitration clause into the contract. Coates did not distinguish Badie on those grounds, but rather because the Badie "plaintiffs were not given the option of rejecting the arbitration clause."
243. Coates, 125 F. Supp. 2d at 833.
244. Coates, 125 F. Supp. 2d at 831.
245. Id.
246. For similar cases, see South Trust Bank v. Williams, 775 So. 2d 184, 190-91 (Ala. 2000) (noting that the Alabama statute allows lenders to amend contracts "based upon the apparent acquiescence of the cardholder, with or without a change-in-terms clause such as the ones involved in this case");
247. Marsh v. First USA Bank, N.A., 103 F. Supp. 2d 909, 915 (N.D. Tex. 2000) (holding that under the Delaware statute, "each Plaintiff was statutorily and contractually bound by a valid amendment by virtue of the use of the credit card");
248. Joseph v. M.B.N.A. Am. Bank, N.A., 775 N.E.2d 550, 553 (Ohio Ct. App. 2002) (also relying on the Delaware statute);
249. Fields v. Howe, No. IP-01-1036-C-B/S, 2002 U.S. Dist. LEXIS 4515, at *12 (S.D. Ind. Mar. 14, 2002) (same);
250. Bank One, N.A. v. Harris, No. 3:00CV-665LN, 2001 U.S. Dist. LEXIS 9615, at *34-36 (S.D. Miss. Jan. 2, 2001) (relying on the Ohio statute).
251. 214 F. Supp. 2d 679, 683 (S.D. Miss. 2001).
252. Id.
253. See id. at 683-84. Although the underlying contract included a Delaware choice-of-law clause, it is unclear whether the new arbitration clauses superseded this term.
254. See id. at 684. Choice-of-law plays no part in the court's analysis.
255. Id. at 686.
256. Id. at 687.
257. 113 F. Supp. 2d 1026 (S.D. Miss. 2000).
258. See id. at 1028.
259. Id. at 1029.
260. Id. at 1031.
261. Id.
262. See id. at 1031-32;
263. cf. Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 668 (6th Cir. 2003) (enforcing an arbitration clause inserted by the employer under its power to amend the terms of employment on a specified day each year);
264. Pierce v. Kellogg, Brown & Root, Inc., 245 F. Supp. 2d 1212, 1215 (E.D. Okla. 2003) (reaching the same result where the company gave employees ten days notice that all claims were subject to arbitration).
265. 829 A.2d 626 (Md. 2003).
266. Id. at 628.
267. Id. at 629.
268. Id. at 634-35.
269. 341 F. Supp. 2d 189 (E.D.N.Y. 2004).
270. Id. at 197-98.
271. Id. at 191. The court did not address the fact that, unlike Badie, the change-of-terms provision specifically allowed the bank to "add" terms.
272. Id. at 191-92.
273. Id. at 196.
274. The court did not consider whether the choice-of-law clause in the original contract put adherents on notice that the bank might add other procedural terms in the future.
275. See Stone, 341 F. Supp. 2d at 197-98 ("[T]he Customer Agreement as a whole defines the key financial aspects of the relationship between the cardholder and the Bank. The Court agrees with the Badie court that the terms discussed in the change-in-terms clause must supply the universe of terms which could be altered or affected pursuant to the clause.").
276. For similar cases, see Long v. Fid. Water Sys., Inc., No. C-97-20118, 2000 U.S. Dist. LEXIS 7827, at *7-8 (N.D. Cal. May 24, 2000) ("Defendants never obtained any affirmative consent from [plaintiff] regarding incorporation of the arbitration clause as part of the existing contract.");
277. Perry v. FleetBoston Fm. Corp., No. 04-507, 2004 U.S. Dist. LEXIS 12616, at *12 (ED. Pa. July 6, 2004) ("[T]his Court finds that the unilateral Change in Terms authority applies only to those terms already contained or contemplated in the original agreement....");
278. Sears Roebuck & Co. v. Avery, 593 S.E2d 424, 432 (N.C. Ct. App. 2004) (following Badie and applying Arizona law);
279. Martin v. Comcast, 146 P.3d 380, 389 (Or. Ct. App. 2006) (refusing to enforce an arbitration clause imposed in "bill stuffer" because "a subscriber could easily have continued using Comcast's service without ever being aware of the arbitration clause").
280. See supra notes 157-167 and accompanying text.
281. See supra notes 146-156 and accompanying text.
282. See Davis, supra note 105 (citing an interview with Patricia Sturdevant).
283. Id.
284. A common critique of class certification standards is that because they forbid the judge from evaluating a case's merits, they "invit[e] frivolous class action suits." Robert G. Bone & David S. Evans, Class Certification and the Substantive Merits, 51 DUKE L.J. 1251, 1254 (2002). Similar concerns prompted Congress to pass two wide-ranging class action reform statutes in the last fifteen years.
285. See Private Securities Litigation Reform Act of 1995, Pub. L No. 104-67, 109 Stat. 737 (1995);
286. Class Action Fairness Act of 2005, 28 U.S.C. §§ 1332(d), 1453, 1711-15 (2006).
287. See In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1298 (7th Cir. 1995
288. (quoting HENRY J. FRIENDLY, FEDERAL JURISDICTION: A GENERAL VIEW 120 (1973)).
289. See Champ v. Siegel Trading Co., 55 F.3d 269, 275 (7th Cir. 1995) (holding that the Federal Arbitration Act "forbids federal judges from ordering class arbitration where the parties' arbitration agreement is silent on the matter");
290. Med Ctr. Cars, Inc. v. Smith 727 So. 2d 9, 20 (Ala. 1998) ("[T]o require class-wide arbitration would alter the agreements of the parties, whose arbitration agreements do not provide for class-wide arbitration.");
291. see also Herrington v. Union Planters Bank, N.A., 113 F. Supp. 2d 1026, 1034 (S.D. Miss. 2000);
292. Howard v. Krynveld Peat Marwick Goerdeler, 977 F. Supp. 654, 665 n.7 (S.D.N.Y. 1997);
293. Gammaro v. Thorp Consumer Disc Co., 828 F. Supp. 673, 674 (D. Minn. 1993).
294. But see Blue Cross v. Superior Court, 78 Cal. Rptr. 2d 779, 790 (Ct. App. 1998) (allowing classwide arbitration);
295. Dickler v. Shearson Lehman Hutton, Inc. 596 A.2d 860, 866 (Pa. Super. Ct. 1991) (also allowing classwide arbitration).
296. See Class Action Complaint, Ross v. Bank of Am., N.A., at ¶¶ 97-118, No. 05-Civ.-7116 (S.D.N.Y. Aug. 11, 2005) (seeking antitrust liability based on roughly twenty meetings in which the firms discussed, among other things, "adopting set criteria for their arbitration clauses");
297. In re Currency Conversion Fee Antitrust Litig. No. 05-Civ.-7116, 2009 WL 151168, at *2 (S.D.N.Y. Jan. 21, 2009) (rejecting a motion to dismiss these claims);
298. Gilles, supra note 24, at 398 (providing more detail about the case).
299. See Edmund Sanders, American Express Plans Arbitration Rule, L.A. TIMES, May 12, 1999, available at http://articles.latimes.com/1999/may/12/business/fi- 36424;
300. Joan Lowy & Scripps Howard, Consumers Losing Right to Sue Without Knowing It, CLEVELAND PLAIN DEALER, May 14, 2000, at 5L (noting that MBNA gave its customers three weeks to opt out).
301. See Jess Bravin, Banks Seek to Halt Suits by Cardholders, WALL ST. J., May 2, 2001, at B1 ("[A]s many as 9 million holders of MasterCard and Visa cards issued by FleetBoston Financial Corp. who discarded a recent 'Important Legal Notice' may have unwittingly thrown away their right to participate in class-action lawsuits....");
302. Christine Dugas, More Credit Card Issuers Requiring Arbitration, USA TODAY, May 25, 1999, at 2B (noting that First USA "added an arbitration clause to card agreements, barring class-action lawsuits");
303. Aossatou Sidimii, Capital One Takes Away Most of Cardholders' Rights to Sue, SAN ANTONIO EXPRESS-NEWS, Dec. 18, 2001, available at 2001 WLNR 7625283.
304. Mark Curriden, A Weapon Against Liability: Fine Print Often Removes Jury Resolution as Option for Complaints, DALLAS MORNING NEWS, May 7, 2000, at 25A (noting that over a thousand companies had made arbitration clauses "part of routine sales deals," including MCI WorldCom, Dell Computer Corp., Gateway, Inc., health insurers, Circuit City, Red Lobster, J.C. Penny, and Cigna);
305. Charles Haddad & Aixa M. Pascual, When You Want to Sue - But Can't, BUS. WK., June 10, 2002, at 46 (adding Sears, Roebuck & Co., Alltel Corp., and Country Wide Home Loans to the list);
306. Lowy & Howard, supra note 176 ("Businesses as varied as the Hooters restaurant chain, retailer Best Buy and the tax preparation firm H&R Block are part of the trend.").
307. See, e.g., No Suits for You, U.S. NEWS &. WORLD REP., June 7, 1999, at 58 ("Many arbitration clauses state that consumers cannot file class-action lawsuits - a key reason the clauses are spreading so quickly.").
308. 539 U.S. 444 (2003) (plurality opinion).
309. See id. at 447-48.
310. See id. at 451-52.
311. See id. at 454-55 (Stevens, J., concurring) (reading the plurality's holding to mean that "nothing in the Federal Arbitration Act... precludes [class-wide arbitration]").
312. In fact, at oral argument, Justice Stevens asked: "Does this case have any future significance, because isn't it fairly clear that all the arbitration agreements in the future will prohibit class actions?" Transcript of Oral Argument, Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003) (No.02-634), 2003 WL 1989562, at *55.
313. Nora Lockwood Tooher, Plaintiffs Wrestle With Class Action Arbitration Bans, ALL BUS., Nov. 19, 2007, available at http://www.allbusiness.com/legal/ legal-services-litigation/8921629-l.html.
314. See infra notes 189-194 and accompanying text.
315. See infra notes 195-200 and accompanying text.
316. For example, compare Discover Bank v. Shea, 827 A.2d 358, 362 (N.J. Super. Ct. Law Div. 2001) ("Applying the persuasive reasoning of the Badie case, Discovers unilateral attempt to amend its original cardholder agreement to include an arbitration clause is ineffective."),
317. with Discover Bank v. Superior Court, 113 P.3d 1100, 1108 (Cal. 2005) (analyzing the exact same clause but concluding only that "when[ ] a consumer is given an amendment to its cardholder agreement in the form of a 'bill sniffer' that he would be deemed to accept if he did not close his account, an element of procedural unconscionability is present"),
318. and Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862, 867 (Q. App. 2002) (also framing the issue in terms of unconscionability).
319. 743 So. 2d 570 (Fla. Dist. Ct. App. 1999).
320. See id. at 575.
321. See id. at 572.
322. Id. at 575.
323. See id. at 574-576
324. See id. at 576.
325. 693 N.W.2d 918 (N.D. 2005).
326. Id. at 925 (quoting N.D. CENT. CODE § 51-14-102 (2003)).
327. Id.
328. See id. at 925-926
329. Id. at 926-927
330. See id. at 927.
331. See Blaz v. Belfer, 368 F.3d 501, 504-05 (5th Cir. 2004) (opining that there is no "substantive right to pursue a class action");
332. Snowden v. Checkpoint Check Cashing, 290 F.3d 631, 638 (4th Cir. 2002) (rejecting plaintiffs' argument that an arbitration clause was unconscionable because it foreclosed her ability to pursue class relief);
333. Randolph v. Green Tree Fin. Corp.-Al., 244 F.3d 814, 818 (11th Cir. 2001) (same);
334. Johnson v. W. Suburban Bank, 225 F.3d 366, 374 (3d Cir. 2000) (enforcing a class arbitration waiver);
335. Arnold v. Goldstar Fin. Sys., Inc., No. 01-C-7694, 2002 WL 1941546, at *9 (N.D. III. Aug. 22, 2002) ("As a general matter, the right to bring a class action in federal court is a procedural right[.]");
336. Sagal v. First U.S.A. Bank, N.A., 69 F. Supp. 2d 627, 631-632 (D. Del. 1999) (same).
337. See, e.g., Homa v. Am. Express Co., 558 F.3d 225, 230 (3d Cir. 2009) (striking down a class arbitration waiver);
338. Lowden v. T-Mobile USA, Inc., 512 F.3d 1213, 1218-19 (9th Cir. 2008) (same);
339. Dale v. Comcast Corp., 498 F.3d 1216, 1224 (11th Cir. 2007) (same);
340. Discover Bank v. Superior Court, 113 P.3d 1100, 1109-10 (Cal. 2005) (same);
341. Kinkel v. Cingular Wireless LLC, 857 N.E.2d 250, 274-75 (III. 2006) (same);
342. Muhammad v. County Bank, 912 A.2d 88, 99-100 (N.J. 2006) (same);
343. Scott v. Cingular Wireless, 161 P.3d 1000, 1007 (Wash. 2007) (same).
344. See cases cited supra note 202. These cases often reason that discouraging plaintiffs from pursuing "negative-value" claims - those that will not be tried at all unless they can be tried en-masse -insulates corporations from wrongdoing.
345. See, e.g., Discover Bank, 113 P.3d at 108-09 ("[B]ecause... [a] company which wrongfully exacts a dollar from each of millions of customers will reap a handsome profit, the class action is often the only effective way to halt and redress such exploitation."
346. quoting Linder v. Thrifty Oil Co., 23 Cal. 4th 429, 446 (2000)));
347. see also Meredith R. Miller, Contracting Out of Process, Contracting Out of Corporate Accouniability: An Argument Against Enforcement of PreDispute Limits on Process, 75 TENN. L. REV. 365, 405 (2008) ("[P]re-dispute limitations have the potential to weaken the deterrent and remedial aims of the underlying substantive law-----");
348. Jean R. Sternlight & Elizabeth J. Jensen, Using Arbitration to Eliminate Consumer Class Actions: Efficient Business Practice or Unconscionable Abuse?, LAW & CONTEMP. PROBS., Winter/Spring 2004, at 75, 103 (arguing that class arbitration waivers "are preventing the law from being adequately enforced");
349. Daniel R. Higginbotham, Note, Buyer Beware: Why the Class Arbitration Waiver Clause Presents a Gloomy Future for Consumers, 58 DUKE L.J. 103, 105 (2008) (arguing that class arbitration waivers let "businesses engage in unfair and potentially illegal activities").
350. Moreover, because the litigation of certain kinds of statutory claims (for example, antitrust) is notoriously costly and protracted, some courts have voided class arbitration waivers on the grounds that they prevent plaintiffs from effectively vindicating their rights. See, e.g., In re Am. Express Merchants' Litig., 554 F.3d 300, 317-318 (2d Cir. 2009) (voiding class arbitration waiver because it prevented plaintiffs from pursuing statutory antitrust claims);
351. Kristian v. Comcast Corp., 446 F.3d 25, 59 (1st Cir. 2006) (same).
352. Although this inquiry is similar to the test for substantive unconscionability, it differs in that it does not require any element of procedural unconscionability to be present. See In re Am. Express Merchants' Litig., 554 F.3d at 320.
353. Rule v. Sears Roebuck & Co., No.3:00-cv-390WS, 2001 U.S. Dist. LEXIS 25749, at *9 (S.D. Miss. Mar. 30, 2001).
354. Vigil v. Sears Nat'l Bank, 205 F. Supp. 2d 566, 572-573 (ED. La. 2002).
355. Hutcherson v. Sears Roebuck & Co., 793 N.E2d 886, 900 (III. App. Ct. 2003).
356. Sears Roebuck & Co. v. Avery, 593 S.E2d 424, 433 (N.C. Ct. App. 2004).
357. For other situations in which courts have split over the enforceability of a single term, compare Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159, 174-75 (5th Cir. 2004) (upholding Cingular's class arbitration waiver),
358. with Kinkel v. Cingular Wireless LLC, 857 N.E.2d 250, 274-275 (III. 2006) (noting that "the arbitration clause at issue in Iberia Credit Bureau is the same clause that is at issue in the present case" and yet voiding it).
359. Firchow v. Citibank, No. B187081,2007 WL 64763, at *2 (Cal. Ct. App. Jan. 10, 2007).
360. Jones v. Citigroup, Inc., 38 Cal. Rptr. 3d 461, 465 (Ct. App. 2006), vacated by 135 P.3d 2 (2006).
361. Firchow, 2007 WL 64763, at *9.
362. Id.
363. Citibank v. Walker, No. Al 17770, 2008 WL 4175125, at *6 (Cal. Ct. App. Sept 11, 2008).
364. 546 F.3d 1078 (9th Cir. 2008) (per curiam).
365. See id. at 1083-1084
366. Id. at 1086 (Trott, J., concurring).
367. Charles M. Tiebout, A Pure Theory of Local Expenditures, 64 J. POL. ECON. 416, 418 (1956).
368. ERIN A. O'HARA& LARRY E. RIBSTEIN, THE LAW MARKET 65 (2009).
369. 12 U.S.C. § 85 (2006).
370. See Marquette Nat'l Bank v. First of Omaha Serv. Corp., 439 US. 299, 313 (1978) ("Since Omaha Bank and its BankAmericard program are 'located' in Nebraska, the plain language of [the National Bank Act, 12 U.S.C.] § 85 provides that the bank may charge 'on any loan' the rate 'allowed' by the State of Nebraska.");
371. Smiley v Citibank, 517 U.S. 735, 744-745 (1996) (extending Marquette to late fees and other penalties).
372. See, e.g., Elizabeth R. Schlitz, The Amazing, Elastic, Ever-Expanding Exportation Doctrine and Its Effect on Predatory Lending Regulation, 88 MINN. L. REV. 518, 552 (2004) ("After Marquette,... states such as South Dakota, Delaware, and Utah amended their laws to deregulate interest rates on credit cards for the express purpose of attracting nonpolluting, labor-intensive credit card operations to their states.");
373. David Lazarus, Loophole Lets Rates Rise on Credit Cards, L.A. TIMES, Feb. 18, 2009, at Cl (listing "[o]ther states with nonexistent or weak usury laws").
374. See, e.g., Mark Furletti, The Debate Over the National Bank Act and the Preemption of State Efforts to Regulate Credit Cards, 77 TEMP. L. REV. 425, 443 (2004) (noting that as of 2003, banks located in "Delaware, South Dakota, Nevada, Arizona, Rhode Island, and New Hampshire - six states that are home to four percent of the country's population ... were owed over $350 billion of the $490 billion in U.S. consumer credit card loans").
375. RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187(2)(a) (1971).
376. 341 F.Supp. 2d 189 (E.D.N.Y. 2004);
377. see also supra notes 161-167.
378. VA. CODE ANN. § 6.1-330.63(C), (D) (Supp. 2009).
379. See UTAH CODE ANN. §§ 70C-3-104, 70C-4-105 (Supp. 2008).
380. See, e.g., Aviation Data, Inc. v. Am. Express Travel Related Servs. Co., 62 Cal. Rptr. 3d 396, 404 (Ct. App. 2007).
381. Drafters commonly choose Delaware and New York, which generally uphold class arbitration waivers. See, e.g., Sagal v. First USA Bank, N.A., 69 F. Supp. 2d 627, 631-32 (D. Del. 1999);
382. Edelist v. MBNA Am. Bank, 790 A.2d 1249, 1260-61 (Del. Super. Ct. 2001);
383. Hayes v. County Bank, 811 N.Y.S.2d 741,743 (App. Div. 2006).
384. Virginia, another oft-designated jurisdiction, has no class action device. See, e.g., Am. Online, Inc. v. Superior Court, 108 Cal. Rptr. 2d 699, 711 (Ct. App. 2001).
385. RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187(2)(b) (1971).
386. The rule also requires that the state with the "fundamental policy" be the state whose law would apply in the absence of a choice-of-law clause. Id.
387. See id. at cmt (g) ("Fulfillment of the parties' expectations is not the only value in contract law; regard must also be had for state interest and for state regulation.").
388. To be fair, my research did not uncover many instances of unilaterally added choice-of-law clauses. Cf. Douglas v. District Court, 495 F.3d 1062 (9th Cir. 2007).
389. In that case, the Ninth Circuit struck down a unilaterally added choice-of-law clause because the drafter, a long distance telephone provider, merely posted it on its website, rather than providing written notice. Id. at 1065-1067 However, there was no indication that the parties' original contract even included a unilateral change-of-terms clause.
390. See Wash. Mut. Bank, FA v. Superior Court, 15 P.3d 1071, 1079 (Cal. 2001 ) (rejecting the argument that the Restatement test does not apply to standard form consumer contracts);
391. In re Detwiler, 305 Fed. Appx. 353, 356, No.08-72823, 2008 WL 5213704, at *2 (9th Cir. Dec. 12, 2008) ("[T]o render the choice-of-law provision unenforceable on th[e] basis [of unconscionability] would subvert the Restatement section 187 analysis. . . . ");
392. William J. Woodward, Jr., Finding the Contract in Contracts for Law, Forum, and Arbitration, 2 HASTINGS BUS. L.J. 1, 33 (2006) ("[P]arties and courts ... almost invariably[ ] assume that the choice-of-law clause is binding as a matter of contract law.").
393. RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187(2)(b) (1971).
394. Compare Kaltwasser v. Cingular Wireless, LLC, 543 F. Supp. 2d 1124, 1128-29 (N.D. Cal. 2008) (holding that judicial opinions that class arbitration waivers are unconscionable can reveal a "fundamental" policy),
395. with Halprin v. Verizon Wireless Servs., LLC, No.07-4015, 2008 WL 961239, at *5 (D. N.J., Apr. 8, 2008) ("[T]he unconscionability of [a] particular class action waiver discussed in [a] particular case... is not evidence of a fundamental public policy. . . . ").
396. See also James J. Healy, Note, Consumer Protection Choice of Law: European Lessons for the United States, 19 DUKE J. COMP. & INT'L L. 535, 545 (2009) (collecting examples of "the unpredictable nature of the fundamental public policy exception").
397. 118 Cal. Rptr. 2d 862 (Ct. App. 2002).
398. Id. at 866 n.3 ("To the extent Delaware law is more favorable, Discover has waived this argument by failing to brief the choice of law issue.").
399. See id. at 867-868
400. Discover Bank v. Superior Court, 113 P.3d 1100, 1003 (Cal. 2005).
401. See id. at 1117-1118
402. Discover Bank v. Superior Court, 36 Cal. Rptr. 3d 456, 461 (Ct. App. 2005).
403. U.S. CONST, amend. VII ("In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved.");
404. Curtis v. Loether, 415 U.S. 189, 193 (1974) ("[T]he thrust of the Amendment was to preserve the right to jury trial as it existed in 1791----").
405. This guarantee also extends to statutory claims "that are analogous to common-law causes of action." Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42 (1989). All fifty states have similar constitutional or statutory provisions.
406. See, e.g., Jean R. Sternlight, Mandatory Binding Arbitration and the Demise of the Seventh Amendment Right to a Jury Trial, 16 OHIO ST. J. ON DISP. RESOL. 669, 671 n.8 (2001).
407. Leasing Serv. Corp. v. Crane, 804 F.2d 828, 833 (4th Cir. 1986);
408. see also K.M.C. Co., Inc. v. Irving Trust Co., 757 F.2d 752, 755-56 (6th Cir. 1985) (holding that jury trial waivers must be "done knowingly, voluntarily, and intentionally");
409. Nat'l Equip. Rental, Ltd. v. Hendrix, 565 F.2d 255, 257-258 (2d Cir. 1977) (voiding a jury trial waiver that was not "knowing and intentional").
410. See, e.g., Mowbray v. Zumot, 536 F. Supp. 2d 617, 621 (D. Md. 2008) (enforcing a jury trial waiver that was "set off in its own paragraph");
411. FGDI, Inc. v. Bombardier Capital Rail, Inc., 383 F. Supp. 2d 1350, 1352 n.2 (M.D. Fla. 2005) (voiding a waiver where "the title... Governing Law and Venue, would [not] put the typical reader on notice that jury waiver language may be stated therein");
412. Allyn v. W. United Life Assur. Co., 347 F. Supp. 2d 1246, 1252 (M.D. Fla. 2004) (enforcing a jury trial waiver that "is set forth in its own paragraph in boldface, uppercase font");
413. Whirlpool Fin. Corp. v. Sevaux, 866 F. Supp. 1102, 1106 (N.D. Ill. 1994) (voiding a waiver because "although the provision was printed in capital letters, it was not so conspicuous as to insure a knowing and voluntary waiver").
414. See, e.g., Coop. Fin. Ass'n v. Garst, 871 F. Supp. 1168, 1172 (N.D. Iowa 1995) ("Garst has freely admitted that he is a sophisticated and experienced businessman, and nothing in the record suggests that Garst could not have negotiated any provision of the contract.");
415. In re Reggie Packing Co., 671 F. Supp. 571, 573 (N.D. Ill. 1987) (enforcing a waiver where plaintiff "requested revision of two clauses that were at least as inconspicuous as the waiver").
416. See, e.g., Solutia Inc. v. FMC Corp., 456 F. Supp. 2d 429, 454 (S.D.N.Y. 2006) (enforcing a waiver that "was fully negotiated by both sides with the assistance of counsel").
417. 164 F. Supp. 2d 660 (ED. Pa. 2001).
418. In a remarkable passage, the court reasoned: Despite the fact that Mr. Casagrande's deposition testimony often appeared to be vague and evasive, and thus suggestive of some level of sophistication in the business world, he nevertheless testified that he executed the signature pages to the [contract] alone, without seeing or reading the actual documents themselves. These actions are indeed contrary to what would normally be expected from a sophisticated businessman and thus we cannot find Mr. Casagrande to have the level of sophistication necessary to satisfy the test for a knowing and intelligent waiver. Id. at 665.
419. 103 F. Supp. 2d 909 (N.D. Tex. 2000).
420. See id. at 918.
421. See id. at 918-919
422. See Sternlight, supra note 241, at 726 (contending that this divergence "makes no sense").
423. But see Stephen J. Ware, Arbitration Clauses, Jury-Waiver Clauses, and Other Contractual Waivers of Constitutional Rights, LAW & CONTEMP. PROBS., Winter/Spring 2004, at 167, 198 ("Rather than arbitration law conforming to jury-waiver cases, perhaps jury-waiver cases should conform to arbitration law....").
424. 512 F.3d 989 (7th Cir. 2008).
425. See id. at 993.
426. See IFC Credit Corp. v. United Bus. & Indus. Fed. Credit Union, 474 F. Supp. 2d 945, 954 (N.D. Ill. 2006).
427. Id. at 993. Pointing to the fact that under Federal Rule of Civil Procedure 38, a party can waive the jury trial right by failing to request it in a complaint, Chief Judge Easterbrook reasoned that "[i]f accidental forfeitures can blot out any right to a jury trial... then there is no federal rule that benchtrial agreements must be attended by extra negotiation...."
428. Id. This logic equates two extremely different forms of conduct: a lawyer's waiver of a client's right to a jury trial in the heat of litigation and a consumer's waiver of their own right to a jury trial in a nonadversarial, transactional setting.
429. See id. at 993-994
430. H.R. 1020, 111th Cong. § 4 (2009).
431. See S. 1782, 110th Cong. § 4 (2007);
432. H.R. 3010, 110th Cong. § 4 (2007). Republicans countered by introducing the Stop Trial Lawyer Pork Act in September 2008.
433. See H.R. 7080, 110th Cong. (2008). The bill provides, among other things, that the Arbitration Fairness Act will "have no force or effect."
434. Id. at § 102.
435. See, e.g., David S. Schwartz, Mandatory Arbitration and Fairness, 84 NOTRE DAME L. REV. 1247, 1250 n.6 (2009) (claiming that the bill's passage "appears promising").
436. See, e.g., Eisenberg et al., supra note 8, at 885-886 (noting that most firms currently rely on mandatory arbitration clauses - rather than jury trial waivers - to avoid trying cases to a jury).
437. See, e.g., id. at 884-885 (finding that 60 percent of the consumer contracts studied provided that the arbitration clause would be invalid in the event that a court struck down the class arbitration waiver).
438. See, e.g., Samuel Issacharoff & Erin F. Delaney, Credit Card Accountability, 73 U. CHI. L. REV. 157, 179 (2006) (arguing that these non-severability provisions prove that "[c]redit card companies [are]... even less enthusiastic about classwide arbitration than about class action litigation"). Many cell phone service providers also include a non-severable class arbitration provision.
439. See AT&T Wireless Service Agreement, http:// www.wireless.att.com/ cell-phone-service/legal/service-agreement.jsp?q-termsKey= postpaidServiceAgreement&q-termsName=Service+Agreement (last visited Jan. 7, 2010);
440. Verizon Wireless Customer Agreement, http://www.verizonwireless.com/b2c/ globalText?textName=CUSTOMER-AGREEMENT&jspName=footer/customerAgreement.jsp (last visited Jan. 7, 2010);
441. T-Mobile Terms and Conditions, http://www.t-mobile.com/Templates/Popup. aspx?PAsset=Ftr-Ftr-TermsAndConditions&print=true (last visited Jan. 8, 2010).
442. But see Christopher R. Drahozal & Quentin R. Wittrock, Is There a Flight From Arbitration?, 37 HOFSTRA L. REV. 71,115 (2008) (finding non-severability clauses in only 10.7 percent of franchise contracts).
443. Jarod S. Gonzalez, A Tale of Two Waivers: Waiver of the Jury Waiver Defense Under the Federal Rules of Civil Procedure, 87 NEB. L. REV. 675, 676 (2009).
444. This is especially true in the employment context. See, e.g., Michael H. LeRoy, Jury Revival or Jury Reviled? When Employees Are Compelled to Waive Jury Trials, 7 U. PA. J. LAB. & EMP. L. 767, 769 (2005) ("Remarkably, some employers are discarding arbitration to return to court, but with a condition: employees must waive access to a jury and agree to a bench trial.");
445. Henry S. Noyes, If You (Re)Build It, They Will Come: Contracts to Remake the Rules of Litigation in Arbitration's Image, 30 HARV. J.L. & PUB. POL'Y 579, 587 n.23 (2007) (collecting sources).
446. Noyes, supra note 264, at 587 n.24 (collecting data on JAMS arbitrators' fees in San Francisco and Washington, D.C.).
447. 204 P.3d 693 (Mont. 2009).
448. See id. at 700-01;
449. see also MONT. CONST, art. 2, § 26 ("The right of trial by jury is secured to all and shall remain inviolate.");
450. id. § 16 ("Courts of justice shall be open to every person. "). The Seventh Amendment has not been incorporated into the Due Process clause of the Fourteenth Amendment.
451. See, e.g., Minneapolis & St. Louis R.R. Co. v. Bombolis, 241 U.S. 211, 217 (1916). Thus, the Amendment does not apply in state court, requiring states to apply their own constitutional jury trial guarantees.
452. Kortum-Managhan, 204 P.3d at 699.
453. Id. at 700. Kortum-Managhan is striking because it employs the blunt instrument of the state constitution rather than a fact-specific defense such as unconscionability to void the unilaterally added arbitration clause.
454. Cf. Aaron-Andrew P. Bruhl, The Unconscionability Game: Strategic Judging and the Evolution of Federal Arbitration Law, 83 N.Y.U. L REV. 1420, 1449-1451 (2008) (arguing that state courts strategically use unconscionability because it is harder for pro-FAA federal judges to overrule such a contextualized determination).
455. Schwartz & Wilde, Imperfect Information II, supra note 69, at 1414.
456. See supra notes 77-81 and accompanying text.
457. See Korobkin, supra note 72, at 1209-10 ("If one seller ('Firm') were to provide a low-quality [term] but not reduce its price, no buyers would choose to purchase from Firm.");
458. Michael I. Meyerson, The Efficient Consumer Form Contract: Law and Economics Meets the Real World, 24 GA. L. REV. 583, 592 (1990) (noting that a firm can lure customers by charging the same amount for a product accompanied by a contract that omits a pro-seller clause).
459. See POSNER, supra note 66, at 116 ("If one seller offers unattractive terms, a competing seller, wanting sales for himself, will offer more attractive terms.").
460. Russell Korobkin, A "Traditional" and "Behavorial" Law-and-Economics Analysis of Williams v. Walker-Thomas Furniture Company, 26 U. HAW. L. REV. 441, 449 (2004);
461. see also Robert A. Hillman & Jeffrey J. Rachlinski, Standard-Form Contracting in the Electronic Age, 77 N.Y.U. L. REV. 429, 439 (2002) ("Uniformity of terms within an industry, in fact, might indicate that the industry is highly competitive."). One weakness with this hypothesis is that it does not seem to be falsifiable: whether a market contains pro-drafter or pro-adherent terms, the economic model concludes that it reflects adherents' preferences.
462. Schwartz & Wilde, Imperfect Information II, supra note 69, at 1450.
463. See id. at 1451-1452 (postulating both that "most consumers probably do know what the warranty terms in their contracts are" and that "all consumers seem aware of security interest terms").
464. Id. at 1450 (noting that the fact "that nonshoppers fail to read makes it more likely that firms will degrade contract content").
465. See id. at 1446 ("[T]here is no reason to think that these mistakes lead to a systematically optimistic bias.").
466. See, e.g., Christine Jolls et al., A Behavorial Approach to Law and Economics, in BEHAVIORAL LAW AND ECONOMICS 13, 47 (Cass R. Sunstein ed., 2000) ("[O]veroptimism leads most people to believe that their own risk of a negative outcome is far lower than the average person's.");
467. Neil D. Weinstein, Unrealistic Optimism About Future Life Events, 39 J. PERSONALITY & SOC. PSYCHOL. 806, 809-812 (1980) (same).
468. See Schwartz & Wilde, Imperfect Information II supra note 69, at 1429 ("Markets may correct poorly for consumer optimism.").
469. See JAMES G. MARCH & HERBERT A. SIMON, ORGANIZATIONS 140-41 (1958) ("[M]ost human decision-making,... is concerned with the discovery and selection of satisfactory alternatives; only in exceptional cases is it concerned with the discovery and selection of optimal alternatives.");
470. Korobkin, supra note 72, at 1223. A selective decisionmaker focuses exclusively on a few product attributes (for example, shopping for a cellular service provider based solely on the price, look, and size of the devices each offers).
471. See id. at 1220. A noncompensatory decisionmaker does not contrast each similar product aspect (for instance, selecting a provider that offers an iPhone because of the "look," although it scores lower on the "size," and "price" categories).
472. See id. at 1223.
473. See Korobkin, supra note 72, at 1225.
474. See Gillette, supra note 114, at 698 ("We would be surprised to hear that a firm advertised that its customers can sue it in the event of defective performance, rather than proceed to arbitration, because firms will be reluctant to suggest that they may breach their contracts.").
475. See Korobkin, supra note 72, at 1243 (noting that price is nearly always a salient factor in consumer decisionmaking);
476. Ware, Price of Process, supra note 114, at 92 (noting that under the rate-of-return equalization principle, "whatever increases an industry's profits ultimately attracts additional capital to that industry, causing an increase in that industry's output and therefore a reduction in its price").
477. Of course, adherents as a class likely do not have homogeneous preferences: some likely prefer to pay more and be rid of harsh procedural terms. If the market does drive companies toward harsh terms and lower prices, these adherents will not be able to find procedural terms that accord with their preferences.
478. 197 F.R.D. 574 (W.D.N.C. 2000).
479. Id. at 576.
480. See id.
481. See id. at 577.
482. Jeff Sovern, Toward a New Model of Consumer Protection: The Problem of Inflated Transaction Costs, 47 WM. & MARY L. REV. 1635, 1661 (2006).
483. In a similar context, Clayton Gillette argues that terms in "rolling contracts" - which arrive after the sale - are no less problematic than standard form terms generally because the fact that many buyers ignore the fine print anyway means that "presentation through [a rolling contract] imposes no harm."
484. Gillette, supra note 114, at 696. As Gillette acknowledges, however, any tactic that reduces readership rates also reduces the market pressure that firms experience to cater to majoritarian tastes.
485. See id. at 696-697
486. See supra notes 208-215 and accompanying text.
487. Two well-documented cognitive biases also reduce the probability that adherents will defect to a new company over a modified procedural clause. Under the "status quo bias" and the "endowment effect," "the initial allocation of legal entitlements can affect preferences for those entitlements." Russell Korobkin, Behavorial Economics, Contract Formation, and Contract Law, in BEHAVIORAL LAW AND ECONOMICS,
488. supra note 279, at 116. Thus, a desire to preserve things as they are makes adherents more likely to shop for a credit card or a service provider before, as opposed to after, they have signed a deal.
489. See, e.g., David Coursey, Verizon: $350 Early Termination Fee Covers More Than Phone, PCWORLD.COM, Dec. 18, 2009, http://www.pcworld.com/ businesscenter/article/185125/verizon-350-early-termination-fee-covers-more- than-phones.html.
490. Kaltwasser v. Cingular Wireless LLC, 543 F. Supp. 2d 1124, 1130 n.5 (N.D. Cal. 2008).
491. See Oren Bar-Gill, The Behavioral Economics of Consumer Contracts, 92 MINN. L. REV. 749, 779 (2008).
492. For example, even Richard Epstein-an outspoken proponent of classical law and economics and limited state intervention in markets - has recognized the barriers to switching between credit cards: Switching a credit card company involves more than filing a new application. There may be lag in getting the response, and furthermore, canceling an existing card can be risky if there are disputed or outstanding charges, or if the credit card is used to pay off certain monthly bills on a regular basis. Any shift in card companies goes on the general credit record, which could lead other companies to turn down an applicant who is known regularly to switch. Richard A. Epstein, The Neoclassical Economics of Consumer Contracts, 92 MINN. L. REV. 803, 823 (2008).
493. For an isolated exception, see Stiles v. Home Cable Concepts, Inc., 994 F. Supp. 1410, 1413 (M.D. Ala. 1998) (discussing a credit card issuer that would have reduced plaintiffs interest rate by two points if he accepted a unilaterally added arbitration clause).
494. Admittedly, if unilateral revisions reduce the cost of doing business, they may (over time in a competitive market) drive prices down. Thus, although a current credit card customer may experience a welfare loss due to a unilateral revision, a future customer may enjoy a lower interest rate. However, there is anecdotal evidence that firms do not respond in this manner. For example, when Wells Fargo followed Bank of America's lead and first added an arbitration clause to its contracts in 1992, it candidly admitted that it had "no current plans to lower rates or fees as a result of the program." Kathleen Sullivan, Wells' Plan on Disputes Draws Fire, S.F. EXAMINER, July 7, 1992, at Dl.
495. See Badie v. Bank of America, 79 Cal. Rptr. 2d 779, 803 (Ct. App. 1998).
496. 829 A.2d 626 (Md. 2003).
497. Id. at 628.
498. See supra notes 281-282.
499. Indeed, some scholars have expressed doubts about whether many adherents can even understand fixed, static procedural terms.
500. See, e.g., Stemlight, supra note 16, at 1648-49. Having to imagine what procedural terms a drafter might insert only raises the risk of misunderstanding and misperception.
501. Cf. Oren Bar-Gill & Elizabeth Warren, Making Credit Safer, 157 U. PA. L. REV. 1, 38 (2008) (noting that complexity in the market for home loans "undoubtedly increase[s] the opportunities for [consumer] errors").
502. Consider a rough analogy from the credit card industry. Banks typically offer "teaser" interest rates, which begin quite low and then spike at a predetermined date.
503. See, e.g., Oren Bar-Gill, Seduction by Plastic, 98 Nw. U. L. REV. 1373,1392 (2004) (noting that teaser rates typically last for six months and can be as low as 0 percent interest).
504. Although consumers know every important variable in this scheme - what the new high rate will be and when it will kick in - many "still underestimate the cost of lock-in." Id. at 1407.
505. See supra note 132.
506. It is unclear whether a court would ever hold that a state has a
507. See supra notes 157-167.
508. See supra notes 141-156.
509. In addition, under Badie v. Bank of America, a unilateral amendment is not a valid "change" of "terms" if it is "an entirely new term" that does not comport with "any subject, issue, right, or obligation addressed in the original contract." 79 Cal. Rptr. 2d 273, 284 (Ct. App. 1998). Because most consumer, franchise, and employment contracts now include arbitration clauses, the Badie rule may no longer be an effective limiting principle. Indeed, a harsh, remedy-stripping arbitration clause inserted into a contract that already contains an arbitration clause would not be "an entirely new term" - and would thus be valid under Badie.
510. See, e.g., Kristián v. Comcast Corp., 446 F.3d 25, 52-53 (1st Cir. 2006) (invalidating a portion of an arbitration clause that "unmistakably places the burden of a plaintiffs costs and attorney's fees squarely on him or her").
511. See, e.g., Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 894 (9th Cir. 2002) (voiding a clause that "imposes a strict one year statute of limitations on arbitrating claims").
512. See, e.g., Ting v. AT&T, 319 F3d 1126, 1152 (9th Cir. 2003) (striking down a confidentiality clause because it allowed me drafter to "ensur[e] that none of its potential opponents have access to precedent while, at the same time,... accumulating] a wealth of knowledge on how to negotiate the terms of its own unilaterally crafted contract").
513. See supra note 203.
514. See supra note 203.
515. See T-Mobile Terms and Conditions, supra note 262 (offering to pay reasonable attorneys' fees and costs to prevailing parties and waiving T-Mobile's right to seek attorneys' fees and costs for non-frivolous claims);
516. Verizon Wireless Customer Agreement, supra note 262 (offering a bounty of $5000 and attorneys' fees for plaintiffs who recover less than $5000 but more than Verizon's settlement offer);
517. AT&T Wireless Service Agreement (discussed in detail infra notes 317-321).
518. See, e.g., McKee v. AT&T Corp., 191 P.3d 845, 849 (Wash. 2008).
519. See id. at 850.
520. See Plaintiffs Brief in Support of Motion to Declare Class Action Waiver Unlawful at 1, Francis v. AT&T Mobility, L.L.C., No.2:07cv14921 (ED. Mich. Jan. 16, 2008), 2008 WL 393981.
521. See AT&T Mobility's Brief in Support of Motion to Compel Arbitration and to Dismiss Action at 3, Francis v. AT&T Mobility, L.L.C, No.2:07cv14921 (ED. Mich. Jan. 25, 2008), 2008 WL 393982 (claiming that "[t]he revised arbitration provision is, to ATTM's knowledge, the most pro-consumer arbitration provision in the country").
522. Coneff v. AT & T Corp., 620 F. Supp. 2d 1248, 1257 (W.D. Wash. 2009) (quoting the same paragraph of Nagareda's declaration);
523. Laster v. T-Mobile USA, Inc., No. 05cv1167 DMS, 2008 WL 5216255, at *13 (S.D. Cal. Aug. 11, 2008) (same);
524. Brief of Defendant-Appellee AT&T Mobility LLC f/k/a Cingular Wireless LLC. at 9, Cruz v. Cingular Wireless, LLC, No. 08-16080CC ( 11th Cir. Feb. 5,2009), 2009 WL1674426 (same);
525. Opening Brief of Cingular Wireless, Kaltwasser v. Cingular Wireless, L.LC, No. 08-15962 (9th Cir. Aug. 14,2008), 2008 WL 4298012 (same).
526. AT&T Wireless Service Agreement, supra note 262.
527. Cf. Boardman, supra note 22, at 1105-1106 (noting that insurance companies "cling for decades" to ambiguous policy language because "courts know what it means" (emphasis omitted)).
528. United States v. Vallejo, 237 F.3d 1008, 1019 (9th Cir. 2001).
529. For example, in Sparm v. American Express Travel Related Services Co., 224 S.W.3d 698 (Tenn. Ct. App. 2006), a credit card company revised its class arbitration waiver "to make it more equitable to cardholders in response to court decisions striking down other arbitration provisions as unconscionable ...."
530. Id. at 704.
531. Id. at 703 n.3.
532. Id. at 712.
533. See McKee v. AT&T Corp., 191 P.3d 845, 849-50 (Wash. 2008) ("We detail the specifics of the declarations because AT&T later repudiated the declarations it filed and the agreement it sought to enforce.");
534. Trujillo v. Apple Computer, Inc., 578 F. Supp. 2d 979,983 (N.D. Ill. 2008).
535. See 191 P.3d at 850 n.2.
536. 578 F. Supp. 2d 979.
537. See id. at 983.
538. The court was incredulous: AT[&T] also included in its supplemental submission a footnote (!!) in which it stated, contrary to the clear import of [its lawyer's] initial affidavit, that a person who searched online for its terms of service as of July 2007 would not have found the version of those terms of service upon which AT[&T] premised its motion to compel arbitration.
539. Id.
540. McKee, 191 P.3d at 860 n.13.
541. See, e.g., Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 YALE L.J. 87, 93 (1989) (noting that judicial intervention may be costly);
542. Richard A. Posner, The Law and Economics of Contract Interpretation, 83 TEX. L REV. 1581, 1583 (2005) (discussing the costs of judicial error).
543. For surveys of these issues, see Bruhl, supra note 269, at 1438-39;
544. Jeffrey W. Stempel, Arbitration, Unccirisdonability, and Equilibrium: The Return of Unconscionabilty Analysis as a Counterweight to Arbitration Formalism, 19 OHIO ST. J. ON DlSP. RESOL 757, 804-807 (2004).
545. Anders v. Hometown Mortgage Servs., Inc., 346 F.3d 1024, 1026 (11th Cir. 2003).
546. I generated these results by running the search di(arbitrat /s unconscionab! invalid! unenforc! enforc! vindicat! % award) & da([year]) in the all-cases database on Westlaw for each of the last fifteen years. Cf. Bruhl, supra note 269, at 1440 n.85 (using a similar search string to determine the number of unconscionability challenges to arbitration clauses). I added the limitation "% award" (but not award) to root out cases that involved a challenge to an atbitrator's decision, not the validity of the arbitration clause.
547. Of course, there are many other potential causes for this apparent increase, including fluctuations in the amount of litigation or the coverage of the Westlaw database.
548. I reached this result by using the search string di(contract /10 invalid! unenforc! enforc! void! % arbitrat!) & da([year]) in the all-cases database on Westlaw for each year since 2001. The same disclaimers as in the footnote above apply.
549. Brühl, supra note 269, at 1489.
550. Cf. id. at 1440. Again, both data sets are imprecise, and I hesitate to draw sweeping conclusions from them.
551. See supra note 320 and accompanying text.
552. See supra note 320 and accompanying text.
553. See Coneff v. AT&T Corp., 620 F. Supp. 2d 1248, 1257 (W.D. Wash. 2009) (voiding AT&T's class arbitration waiver despite noting that it provides "a guaranteed minimum recovery of at least $5,000 under certain conditions");
554. Stiener v. Apple Computer, Inc., 556 F. Supp. 2d 1016,1019, 1030 (N.D. Cal. 2008) (same).
555. But see Francis v. AT&T Mobility, LLC, No. 07-CV-14921, 2009 WL 416063, at *9 (ED. Mich. Feb. 18, 2009) (enforcing the clause).
556. See, e.g., Hall v. AT&T Mobility, LLC, 608 F. Supp. 2d 592, 595, 603-604 (D.N.J. 2009) (noting that the "alternative payment" is $7,500 but still invalidating the clause);
557. Laster v. T-Mobile USA, Inc., No.05CV-1167 DMS, 2008 WL 5216255, at *2, *14 (S.D. Cal. Aug. 11, 2008) (same).
558. See AT&T Wireless Service Agreement, supra note 262.
559. AT&T has roughly seventy million customers.
560. See Coneff, 620 F. Supp. 2d at 1258.
561. See, e.g., Schwartz & Wilde, Imperfect Information II, supra note 69, at 1460;
562. Lauren E Willis, Against Financial-Literacy Education, 94 IOWA L REV. 197, 200-201 (2008) ("Largely unfettered consumer choice paired with seller disclosure has been the dominant model of credit, insurance, and investment-product regulation for decades in the United States.").
563. See supra note 131.
564. Pub. L No. 111-24, § 101(a)(2), 123 Stat. 1734,1735 (2009).
565. The statute requires the Board of Governors of the Federal Reserve System to determine what constitutes a "significant change."
566. Id.
567. See Korobkin, supra note 72, at 1244 (suggesting a similar alternative).
568. In 1995, Montana passed a statute requiring "[n]otice that a contract is subject to arbitration... [t]o be typed in underlined capital letters on the first page of the contract." MONT. CODE ANN. §27-5-114(4) (1995).
569. In Doctor's Associates, Inc. v. Cosorotto, 517 U.S. 681, 688 (1996), the Court found that the FAA preempted the statute, noting that the strong federal policy in favor of arbitration is "antithetical to threshold limitations placed specifically and solely on arbitration provisions." It is unclear whethet a state disclosure statute that applied to procedural terms generally would survive an FAA preemption analysis. Although such a statute, unlike the one in Cosorotto, would not apply "specifically and solely" to arbitration clauses, companies unilaterally amend arbitration clauses far more often than any other procedural term.
570. See supra Part I.C.2.
571. Korobkin, supra note 72, at 1247.
572. See id. at 1227.
573. See, e.g., Price v. Taylor, 575 F. Supp. 2d 845, 852 (N.D. Ohio 2008) (holding that an arbitration clause was not procedurally unconscionable when it was "typed in twelve-point font, and placed directly above Price's signature on a separate page");
574. Carideo v. Dell, Inc., 520 F. Supp. 2d 1241, 1249 (W.D. Wash. 2007) (refusing to find an arbitration clause procedurally unconscionable because it "was not hidden in a maze of fine print, but was presented in all capital letters in the fourpage agreement").
575. See, e.g., Cowin Equip. Co., Inc. v. Gen. Motors Corp., 734 F.2d 1581, 1582 (11th Cir. 1984) ("[T]he cases which have addressed the issue have consistently rejected the theory that damages may be collected for an unconscionable contract provision....");
576. Whitman v. Conn. Bank & Trust Co., 400 F. Supp. 1341, 1346 (D. Conn. 1975) ("The 'unconscionability' provision of the Uniform Commercial Code... carries no provision for damages.");
577. Richard Craswell, Property Rules and Liability Rules in lAicorisdonobtlity and Related Doctrines, 60 U CHI. L REV. 1, 7 (1993) (noting that in contract law, property rules safeguard parties from being held to duties to which they did not properly consent);
578. Korobkin, supra note 72, at 1289 ("[C]ourts should recognize a right of buyers to be free of unconscionable contracting behavior, and this right should be protected with a 'property rule' rather than a 'liability rule.").
579. CAL CIV. CODE § 1750 (West 2009).
580. Id. § 1780(a). The contract must be for "the sale or lease of goods or services to any consumer."
581. Id. § 1770(a).
582. Id.§ 1780(a)(19).
583. FIA. STAT. ANN. §§ 501.204(a)(1), 501.207(3) (West 2006 & Supp. 2009) (allowing state officials "to reimburse consumers... found to have been damaged... [and] to strike or limit the application of clauses of contracts to avoid an unconscionable result"). It is unclear whether the Horida Deceptive and Unfair Trade Practices Act permits consumers suing on their own behalf to seek damages simply for being subject to an unconscionable term.
584. David J. Federbush, The Undear Scope of Unconscionability in FDUTPA, 74 FLA. B.J. 49, 53 (2000) (arguing that consumers can probably seek the full range of non-monetary remedies).
585. See, e.g., UTAH CODE ANN. § 70C-7-106(4) (2001) (permitting courts to award "not less than $100 nor more than $5000; and die cost of the action together with a reasonable attorney's fee" if the court "finds a consumer credit agreement of any part of the agreement to have been unconscionable");
586. COL. REV. STAT. ANN. §5-5-109(5) (West 2008) (allowing a court to award attorney's fees to a consumer who has proven that a creditor's contract is unconscionable).
587. Meyer v. Sprint Spectrum LP., 200 PJd 295, 299 (Cal. 2009). In Meyer, the California Supreme Court also held that a plaintiff lacks standing to bring a "preemptive" challenge to an allegedly unconscionable term that the drafter has never tried to use against her.
588. See id. at 301. Lower courts had generally reached the same conclusion, casting these challenges to the bare existence of a dispute resolution term as lawyer-generated litigation.
589. See Lee v. Capital One Bank, No.C 074599 MHP, 2008 WL 648177, at *4 (N.D. Cal. Mar. 5, 2008) ("The obvious architect of this illconceived suit is plaintiffs attorney, who, not incidentally, also represented plaintiff in his materially identical claims against American Express and Chase Manhattan Bank.").
590. See Sisley v. Sprint Commc'ns Co., 284 Fed. Appx. 463,466 (9th Cir. 2008).
591. See Schwartz & Wilde, Imperfect Information I, supra note 69, at 679 (noting that piecemeal litigation cannot "encourage markets to move toward competitive equilibria").
592. See Horton, supra note 7, at 1697 (noting how the unconscionability defense is an "exercise in accommodation" between economic and liberal-individualistic values);
593. Korobkin, supra note 72, at 1207 ("[T]he factual circumstances that trigger findings of unconscionability under the doctrine are, at best, weakly correlated with the main cause of inefficiency in form terms.").
594. Federal legislation would be the best way to implement this norm. For one, it would avoid the FAA preemption issue that would likely arise if a state attempted to curtail unilateral revisions to procedural terms.
595. See supra note 350. Moreover, because many state laws permit unilateral changes in credit transactions, federal legislation would be an effective way of leaving those laws intact but limiting them to nonprocedural terms.
596. To be clear, I do not purport to bar firms from changing the terms of their revolving or periodic accounts when the accounts come up for renewal. For example, suppose a customer's credit card expires in 2012. Under my proposal, the lender may inform the customer that she must agree to arbitrate disputes starting in 2012 in order to renew the card. In 2012, the customer is going to incur search and perhaps switching costs anyway; thus, the lender would not be imposing these expenses upon her in a strategic effort to get her to acquiesce to the new term. What the lender cannot do is give the customer thirty days in 2010 to decide whether to either accept the term in 2012 or cancel her account in 2012. Search and switching costs (plus the fact that the customer cannot know whether other companies will soon impose the same clause) make this a Hobson's choice.
597. See, e.g., Richard A. Epstein, Behavioral Economics: Human Errors and Market Corrections, 73 U. CHI. L REV. 111,131 (2006) (accusing "aggressive regulations that ban interest above certain levels or impose fixed public maximums on who can borrow or how much" of being "meat-cleaver measures").
598. See, e.g., Korobkin, supra note 274, at 450-51 (noting that outlawing terms leads to some marginal consumers being priced out of the market);
599. Schwartz & Wilde, Imperfect Information II, supra note 69, at 1457-1458 ("[GJeneral bans of terms on information grounds seem without justification.").
600. Horton, supra note 7, at 1689;
601. see also supra notes 277-279.
602. See, e.g., McCallum Highlands, Ltd. v. Wash. Capital Dus, Inc., 66 F.3d 89, 93 (5th Cir. 1995).
603. RESTATEMENT (SECOND) OF CONTRACTS § 69 cmt. a ("Acceptance by silence is exceptionaL").
604. But see Circuit City Stores, Inc. v. Najd, 294 F.3d 1104, 1109 (9th Cir. 2002) (reasoning that the fact that employer asked employee to review a newly added arbitration clause and acknowledge receipt in writing meant that employee accepted the clause by failing to opt out). In addition, in an oft-cited and thoughtful essay, James J. White notes that allowing credit card companies to assume that debtors "accept" changes in terms by silence saves "disproportionate transaction costs (individual verbal affirmations by millions of cardholders) that would otherwise be imposed on the system."
605. James J. White, Autistic Contracts, 45 WAYNE L REV. 1693, 1701 (2000). This prudential exception to the presumption that acceptance by silence is invalid may make sense for unilateral changes to substantive terms, which are often necessary for a lender to stay abreast of market conditions. However, it is unclear why any exception is necessary for unilateral changes to procedural terms, which have no similar social value.
606. See, e.g., RESTATEMENT (SECOND) OF CONTRACTS § 77 cmt. a (1981) ("Words of promise which by their terms make performance entirely optional with the 'promisor' do not constitute a promise.").
607. See Badie v. Bank of Am., 79 Cal. Rptr. 2d 273, 284-285 (Cr. App. 1998) ("Moreover, permitting the Bank to exercise its unilateral rights under the change of terms provision, without any limitation on the substantive nature of the change permitted, would open the door to a claim that the agreements are illusory.").
608. See supra Part I.C.2.
609. For a striking (and humorous) illustration of why unilateral amendments allow drafters to deviate from traditional contract law (and thus confer a subsidy upon them) consider Thompson v. Chase Bank USA, NA., No. H-07-1642, 2009 WL 290186 (S.D. Tex. Feb. 5, 2009). In Thompson, the plaintiff wrote a letter to his credit card company purporting to change the terms of its contract and giving it ten days to reject the changes in writing.
610. Id. at *1. The court held that the purported amendment was invalid because it lacked consideration.
611. See id. at *2. Although the court noted that it was "seemingly unfair... to give credit card companies like Chase the right to unilaterally amend credit card agreements while simultaneously denying cardholders the same right," it instructed the plaintiff to "direct his efforts to the legislative branch instead of the courts."
612. Id.