Does arbitration violate Article III? Despite the critical need for a coherent theory to answer this question, few commentators or courts have made serious attempts to provide one. For much of the country's history, federal courts conveniently could avoid this nettlesome question. Prior to the twentieth century, courts simply declined to enforce pre-dispute arbitration agreements as unenforceable attempts to appropriate their jurisdiction. From the early decades of the twentieth century (with the enactment of the Federal Arbitration Act (“FAA”) in 1925) through the 1960s, the non-arbitrability doctrine prevented arbitrators from resolving issues of federal statutory law. Notably, while both of these doctrines minimized the tension between arbitration and the Constitution, neither was anchored in Article III. Instead, the “jurisdictional ouster” argument found its roots in contract law -- essentially treating the arbitration agreement as a void contract that offended public policy. And the “non-arbitrability doctrine” operated as a statutory interpretation tool that refused to interpret the FAA to deprive a plaintiff of a federal forum on his statutory claim.
Doctrinal developments since the early 1970s, and particularly in the last two decades, have eliminated the tools that enabled the Court to sidestep the tension between arbitration and Article III. In 1974, the Court held in Scherk v. Alberto-Culver Co. that parties could agree to arbitrate a federal securities claim in an international arbitration. More recently, in a line of cases beginning with Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., the Court extended the Scherk principle to the domestic context. This line of cases has made arbitration a viable (and increasingly popular) method for resolving a variety of disputes “arising under federal law,” even though those disputes fall under a core jurisdictional grant of Article III. As Judith Resnik recently observed, “federal judges who once had declined to enforce ex ante agreements to arbitrate federal statutory rights now generally insist on holding parties to such bargains, thereby outsourcing an array of claims.”
As the jurisdictional ouster and non-arbitrability doctrines have waned, the unresolved Article III issues have grown in importance. While they have been simmering in the lower courts for several years, the pot finally boiled over in the Canadian Softwood Lumber litigation. Settlement, however, enabled the question to go away for now, but the need for a coherent theory endures.
The traditional theory used to explain arbitration's compatibility with Article III rests on the principle of waiver. In brief, parties entering into an arbitration agreement have waived their right to a federal forum, thereby eliminating any Article III concern. Part I of this Article demonstrates that waiver theory no longer can adequately reconcile arbitration with Article III. Waiver theory overlooks significant structural concerns presented by arbitration -- concerns that threaten Article III values. These structural concerns take two forms. First, in cases of voluntary arbitration (i.e., mutual submission of a dispute pursuant to an arbitration agreement), the FAA diminishes the power of the federal judiciary. It does so by mandating that federal courts confirm arbitral awards as judgments (subject to a few non-substantive exceptions). In presenting this strand of the argument, I debunk the common misconception that arbitration is no different than a settlement agreement -- a premise central to the waiver account. Second, in cases of mandatory arbitration (such as the required submission of a dispute to arbitration under NAFTA), arbitral schemes potentially aggrandize other branches' powers at the expense of the judiciary. Here, the waiver account obviously has no explanatory value, for the parties have not opted into arbitration. Thus, Part I concludes on the premise that arbitration implicates serious structural values underpinning Article III -- values that the traditional account is unable to accommodate.
Part II offers a fresh approach that pays closer attention to these structural concerns. It draws on appellate review theory to provide a more promising approach for reconciling arbitration with Article III. At its core, appellate review theory argues that a non-Article III decisionmaking mechanism is constitutional, so long as an Article III court has a sufficient opportunity to review the decision. Initially, the paper explains why appellate review theory, first developed in the administrative law context, supplies a helpful analogy for arbitration. After justifying the analogy, I consider the core question -- what constitutes a “sufficient opportunity” for Article III review. In its original formulation, appellate review theory prescribed a single standard of constitutionally required review across all cases: plenary review of all legal questions (constitutional and nonconstitutional) and, with a few exceptions, minimal review of factual findings. By contrast, this paper proposes that the standard should vary along two axes -- the voluntariness of the dispute and the presence of the sovereign in the dispute. This modified appellate review theory is entirely consistent with the original theory's underlying premises and does not upend much existing precedent. Under this modified balance, appellate review theory counsels in favor of plenary Article III review of an arbitrator's rulings on constitutional questions, more limited review of nonconstitutional questions, and minimal review of factual findings.
Part III applies this theory to various forms of arbitration: (1) private commercial arbitration under the FAA and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), (2) arbitrations under NAFTA, and (3) investment arbitrations. In brief, I conclude that, under the modified version of appellate review theory offered here, each of these systems is consistent with Article III. This conclusion is not as sexy as one that shreds the constitutional fabric of this country's dispute resolution system. While perhaps anti-climatic, this conclusion is nonetheless important. The theory offered here puts arbitration on far surer constitutional footing and provides a blueprint for the design of future dispute resolution schemes. Part III concludes by responding to potential criticisms of the theory.
Peter B. Rutledge,
Arbitration and Article III
Available at: http://digitalcommons.law.uga.edu/fac_artchop/482