The Case for Enforcing Adhesive Arbitration Agreements --With Particular Consideration of Class Actions and Arbitration Fees. Journal of American Arbitration, Vol. 5, No. 2, p. 251.

1. Stephen J. Ware
Professor of Law
University of Kansas
ware@ku.edu
785-864-9209

2. The Case for Enforcing Adhesive
Arbitration Agreements

3. Federal Arbitration Act § 2
"written provision . . . to settle by arbitration
a controversy thereafter arising out of such
contract or transaction . . . shall be valid,
irrevocable, and enforceable, save upon
such grounds as exist at law or in equity
for the revocation of any contract."

4. Tension between:
Arbitration Law
&
(Freedom of Contract)
Employment Law
(Restricts Contract)

5. The Case for Enforcing Adhesive
Arbitration Agreements
- Libertarian: Autonomy (Freedom of
Contract) over Parentalism
- Utilitarian: Benefits to Adhering Parties
Outweigh Costs

6. The Case for Enforcing Adhesive
Arbitration Agreements

7. The Case for Enforcing Adhesive Arbitration
Agreements - with Particular Consideration of
Class Actions and Arbitration Fees
I. The Basic Analysis of Adhesive Arbitration
Agreements
II. The Unconscionability and “Effectively Vindicate”
Doctrines
III. Class Actions
IV. Arbitration Fees
V. Conclusion

8. I. The Basic Analysis of Adhesive Arbitration
Agreements
A. Reducing Costs and Passing on the Savings
B. The Source(s) of the Cost Reduction
C. Empirical Studies and their Inherent Limits
D. The Importance of Enforcing Pre-Dispute
Agreements to Arbitrate

9. Premise:
businesses using adhesive arbitration
agreements do so because those
businesses generally find that those
agreements lower their dispute-resolution
costs

10. cost-savings to business yield:
lower prices

11. cost-savings to business yield:
lower prices
even if consumers do not notice
arbitration clause
because above-normal
profits attract investment that
causes an increase in supply

12. cost-savings to business yield:
lower prices
even if consumers do not notice
arbitration clause
even if “perfect competition” is
lacking
under all conditions, even
monopoly,

13. Regulation of consumer arbitration
• looks like lots of other consumer regulation
– protects consumer from harsh contract
term,
– but
– raises prices, and
– limits consumer choice (prohibits
choice of low price/harsh term
combination)

14. cost-savings to business yield:
lower prices
are cost-savings due to:
- lower awards,
- lower process costs,
or
- some combination of the
two?

15. Empirical studies:
• consumers/employees win a higher
percentage of cases in arbitration
• winning consumers/employees win lower
awards in arbitration
• reduced process costs are a significant
source of the cost-savings businesses derive
from arbitration

16. Enforcement of Consumer
Arbitration Agreements
Winners
- Consumers w/o disputes
- Consumers w/ meritorious,
but low $ claims
Losers
- Consumers who would win big jury $
- Lawyers who litigate such cases

17. Importance of enforcing pre-dispute
arbitration agreements:
Social gains from arbitration’s process-cost
reduction

18. Enforcement of Employment
Arbitration Agreements
Winners
- Employees w/o disputes
- Employees w/ meritorious,
but low $ claims
Losers
- Employees who would win big jury $
- Lawyers who litigate such cases

19. See Christine Jolls, Accommodation,
Mandates and Antidiscrimination Law, 53
Stan. L. Rev. (2000).

20. I. The Basic Analysis of Adhesive Arbitration
Agreements
A. Reducing Costs and Passing on the Savings
B. The Source(s) of the Cost Reduction
C. Empirical Studies and their Inherent Limits
D. The Importance of Enforcing Pre-Dispute
Agreements to Arbitrate

21. II. The Unconscionability and “Effectively Vindicate”
Doctrines
A. Unconscionability Generally: Ex Ante, Not Ex
Post

22. II. The Unconscionability and “Effectively Vindicate”
Doctrines
A. Unconscionability Generally: Ex Ante, Not Ex
Post
B. The “Effectively Vindicate” Doctrine

23. III. Class Actions
A. Arbitration Agreements that Prohibit Class
Actions

24. III. Class Actions
A. Arbitration Agreements that Prohibit Class
Actions
B. The Unconscionability Doctrine

25. III. Class Actions
A. Arbitration Agreements that Prohibit Class
Actions
B. The Unconscionability Doctrine
C. The “Effectively Vindicate” Doctrine

26. IV. Arbitration Fees
1.
The Fundamental Error: Looking at
Forum Fees in Isolation

27. IV. Arbitration Fees
1.
pursuing
The Fundamental Error: Looking at
Forum Fees in Isolation
a. courts should compare total cost of
pursuing claim in arbitration with
it in litigation
b. costs-based challenge should fail unless
the former is significantly higher
c. this will be rare

28. IV. Arbitration Fees
1.
The Fundamental Error: Looking at
Forum Fees in Isolation
2.
The Error of Treating Contingent-Fee
Cases Differently
a. Sixth Circuit (Morrison) says employee’s
only cost is arbitrator because attorney
covers fees of litigation
b. counterargument: costs to plaintiff’s
attorney are costs to plaintiff

29. Stephen J. Ware
Professor of Law
University of Kansas
ware@ku.edu
785-864-9209

30. No.
of
Cases
litig.
arb.
$ of award

31. Drafting Party
form
manifestation of assent
Non-Drafting Party