Arbitration and the Federal Balance

Mandatory arbitration of statutory rights in contracts between parties of unequal bargaining power has drawn political attention at both the federal and state level. The importance of such reforms has only been heightened by the Supreme Court's expansion of preemption under the FAA and of arbitral authority. This case law creates incentives for courts at all levels to prefer expansive readings of an arbitration clause. As attempts at federal regulation have stalled, state legislatures and regulatory agencies can expect to be subject to renewed focus. If state legislatures cannot easily limit arbitrability, an alternative is to try reforms that seek to make arbitration more closely resemble judging. Some common reforms that have been proposed or adopted at the state level include conflict-of-interest rules for arbitrators, default process rules, and publication requirements. These proposals might bring arbitration more in line with the processes and outcomes one might expect from a state court. Reform along these lines is worth pursuing, but faces two significant problems. The first is federal preemption. Most prior cases have focused on state law controls before an arbitration gets started. State laws implemented during and after arbitration may avoid the same fate. A less obvious problem comes from the degree certain state reforms aim to treat arbitration as a substitute for court. Arbitrators lack the authority that judges have to develop the law, creating a further due process problem for parties who expect to be operating in a common law system. Accommodating arbitration may mean moving further from a model of common law adjudication