Co-presenters for this Continuing Legal Education program: Law Professor Sarah Cole, Ohio State, and Law Professor Imre Szalai, Loyola University

1. Is Arbitration 'Fair'?
Stephen J. Ware
Professor of Law
University of Kansas
ware@ku.edu

4. Partisan divide on adhesive arbitration
evident throughout:
1.SCOTUS
2.Congress
3.Executive agencies

5. Stephen J. Ware, The Politics of Arbitration
Law and Centrist Proposals for Reform, 53
HARVARD J. ON LEGISLATION 711 (2016).
http://papers.ssrn.com/sol3/papers.cfm?abstra

6. The partisan divide over adhesive
arbitration is basically about the level of
consent the law should require before
enforcing an arbitration agreement against
an individual.
Progressives generally would require higher
levels of consent than arbitration law
currently requires, while conservatives
generally defend current arbitration law’s
low standards of consent.

7. A. The meaning of “fairness” in dispute resolution.
B. When does arbitration provide more or less fairness
than litigation?
C. When is arbitration more or less costly than
litigation?
D. The role of arbitration institutions and arbitrators in
promoting fairness and minimizing costs.
E. To the extent that changes of some type in today’s
arbitration system are warranted, what should they
be?
F. Realistically, what is the likely future direction of
arbitration in light of recent case law and business
trends?

8. A. The meaning of “fairness” in dispute resolution.
1.Process of reaching outcome; and
2.Outcome (“resolution”) itself.
Both 1 and 2 can be assessed in terms of quality and
cost.
Those assessments may not be the same for each party.
To what extent should those assessments be made by
lawmakers (legislature, courts, agencies like the CFPB) or
by parties (pre or post dispute)?

9. B. When does arbitration provide more or less fairness
than litigation?
Fairness for whom?
Are we concerned only about fairness for adhering
parties (consumers, employees, etc.),
or also for the businesses that draft adhesive arbitration
agreements?

10. In comparing fairness of arbitration with litigation, are
we comparing it to an individual action or class action?
These two types of cases ought, IMHO, to be analyzed
separately.

11. Class claims may be more important
CFPB “preliminarily finds that the relatively small number
of arbitration, small claims, and Federal court cases
reflects the insufficiency of individual dispute resolution
mechanisms alone to enforce effectively the law ….
Some stakeholders claim that the low total volume of
individual claims, in litigation or arbitration, found by
the Study is attributable not to inherent deficiencies in
the individual dispute resolution systems but rather to
the success of informal dispute resolution mechanisms in
resolving consumers’ complaints.”
CFPB-2016-0020, at 99
http://files.consumerfinance.gov/f/documents/CFPB_Arbitration_Agreements_Notice_o
f_Proposed_Rulemaking.pdf

12. “Holy war” over class actions transcends
battle over arbitral class waivers.
As Professor Deborah Hensler et al. explain,
whether the benefits of class actions outweigh their
costs “is a deeply political question, implicating
fundamental beliefs about the structure of the
political system, the nature of society, and the roles
of courts and law in society. . . . [T]his political
question is . . . unlikely to be resolved soon.”
DEBORAH HENSLER ET AL., CLASS ACTION DILEMMAS 471 (2000).

13. Rather than remain in the crossfire of the war over class
actions and the battle over class waivers, arbitration law
should leave the battlefield.
My articles argue:
1.Arbitral class-waivers should be as enforceable (neither
more nor less enforceable) than non-arbitrable class
waivers, but
2.SCT’s (Concepcion and Amex) interpretation of the FAA
is quite defensible, so
3.Congress or agencies can change the law.
4.CFPB’s rule goes too far in outright prohibiting arbitral
class waivers.

14. Individual (non-class) claims.
Do comparisons of comparable cases show a difference
in outcomes between arbitration and litigation of
individual (non-class) consumer cases?
Tentative answer: probably not, but the question is
difficult because no empirical study can eliminate the
possibility that differences between the arbitration cases
studied and the litigation cases studied might explain any
differences in outcomes between the two sets of cases.

15. As the CFPB’s March 2015 report puts it,
the disputes that are filed in arbitration differ from the disputes that
are filed in litigation. ... [T]hese differences result from decisions that
the parties make about arbitration and litigation, such as the
company’s decision to have an arbitration clause, the consumer’s
willingness to initiate either arbitration or litigation, the company’s or
consumer’s decision to invoke the arbitration clause in a given
litigation, and the parties’ decision to settle or litigate. Disputes, in
short, are not randomly assigned to the two different fora. They exist
in one forum or the other because of purposeful decisions by one or
both parties. And the known outcomes—principally the cases
resolved through an arbitrator’s or court’s decision—likewise reach
that form of outcome, at least in part because of purposeful decisions
by one or both parties.
CFPB Report, Section 5, page 7. http://files.consumerfinance.gov/f/201503_cfpb_arbitration-
study-report-to-congress-2015.pdf

16. Perhaps the most apples-to-apples study of comparable cases,
Drahozal & Zyontz, Creditor Claims in Arbitration and in Court, 7
Hastings Bus. L.J. 77, 80 (2011), found:
• In the court cases studied, creditors won some relief as often, or
more often, than in the arbitration cases studied (i.e., consumers
prevailed more often in arbitration than in court). ...
• In the court cases studied, prevailing creditors were awarded as
high a percentage, or a higher percentage, of what they sought than
in the arbitration cases studied (i.e., consumers fared better, or at
least no worse, by this measure in arbitration than in court).
• The rate at which debt collection cases were disposed of other than
by award or judgment (e.g., by dismissal, withdrawal, or settlement)
did not appear to differ systematically between arbitration and
litigation.
• The rate at which consumers responded (i.e., did not default) also
did not appear to differ systematically between arbitration and
litigation.

17. C. When is arbitration more or less costly than litigation?
Less costly for whom?
Are we concerned only about costs for adhering parties
(consumers, employees, etc.),
or also the businesses that draft adhesive arbitration
agreements?
Again, separately analyze individual and class cases.

18. D. The role of arbitration institutions and arbitrators in
promoting fairness and minimizing costs.
Compare actual arbitration with actual courts (not
hypothetical ideal courts).
Unlike litigation, arbitration does not receive a subsidy
from the taxpayer, so litigation starts not with lower
costs, but with costs shifted to non-parties (taxpayers).
For arbitrators and courts (judges/juries), consider
incentives and ethics.

19. Big picture:
Promoting fairness and minimizing costs through
competition in markets (arbitration) or competition in
the public sector (courts).

20. E. To the extent that changes of some type in today’s
arbitration system are warranted, what should they be?
Some answers for law reform:
Stephen J. Ware, The Politics of Arbitration Law and
Centrist Proposals for Reform, 53 HARVARD J. ON
LEGISLATION 711 (2016).
http://papers.ssrn.com/sol3/papers.cfm?
abstract_id=2799429

21. Left (Progressive) Right (Conservative)
Don’t enforce consumers’
adhesive arbitration
agreements.
Enforce consumers’
adhesive arbitration
agreements.
But if they are enforced, courts
should hear defenses to
enforcement like fraud, duress
& unconscionability.
Arbitrators, rather than
courts, should hear
defenses. (Separability
doctrine.)
Don’t enforce class waivers.* Enforce class waivers.
Courts should vacate legally-
erroneous arbitration awards.
Courts should confirm
legally-erroneous
arbitration awards.

22. F. Realistically, what is the likely future direction of
arbitration in light of recent case law and business
trends?
Partisan voting on SCT and Congress.

23. Rulemaking initiative by CFPB.
While statute creating the CFPB, made its director
removable only for “inefficiency, neglect of duty, or
malfeasance in office,” DC Circuit held that removal
provision unconstitutional.
PHH Corp. v. CFPB, 839 F.3d 1 (2016)(2-1 decision).
Full D.C. Circuit?

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