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Review of Mandatory Arbitration
Mandatory arbitration effectively cuts off the parties’ access to a trial court. Many courts have held that mandatory arbitration statutes that close the courts to litigants are void as against public policy and are unconstitutional. The arguments against enforcing mandatory arbitration statutes include:
- they deprive one of property and liberty of contract without due process of law;
- they violate the litigant’s 7th Amendment right to a jury trial and or state’s constitutional access to courts; and
- they result in the unconstitutional delegation of legislative or judicial power in violation of state constitutional separation of powers provisions.
Mandatory arbitration is generally deemed constitutional if fair procedures are provided by the legislature and ultimate judicial review is available. As such, statutorily mandated arbitration requires a higher level of access to judicial review of the awards by the court. If a party can reject the arbitrator’s award and seek de novo judicial review, mandatory arbitration is generally considered constitutional. The right to reject the award and to proceed to trial is the sole remedy of the parties. If a party rejects an arbitrator’s award and challenges the case at trial, the court may impose sanctions on the party who fails to improve its position. Also, failing to attend the arbitration could forfeit the right of a party to reject the award and proceed to trial.
Discussion: What is your opinion with regard to the above-mentioned arguments against mandatory arbitration? Do you think that allowing a party to refuse an arbitrator’s award makes mandatory arbitration constitutional? Why or why not?
Practice Question: Brad and Angela have a dispute that is subject to a state law requiring mandatory arbitration. At the end of the arbitration, Angela is not happy with the award handed down by the arbitrators. What are her options for challenging the arbitration?
- Generally, mandatory arbitrations are subject to the Constitutional right to a trial by jury. Under most state laws, Angela would be able to refuse or reject the arbitration award. There are procedural downsides to this right. Generally, if Angela does not prevail or improve her position at trial, she must pay the litigation fees and potentially attorney’s fees of the other party. Also, state law generally allows into trial the evidence introduced during the arbitration proceeding.
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Stanford, Matthew and Carrillo, David, Judicial Resistance to Mandatory Arbitration as Federal Commandeering (November 16, 2017). Florida Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3072518 or http://dx.doi.org/10.2139/ssrn.3072518
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Nehf, James P., The Impact of Mandatory Arbitration on the Common Law Regulation of Standard Terms in Consumer Contracts (February 25, 2017). 85 Geo. Wash. Law Review (2017). Available at SSRN: https://ssrn.com/abstract=2923746 or http://dx.doi.org/10.2139/ssrn.2923746
Ware, Stephen J., Contractual Arbitration, Mandatory Arbitration and State Constitutional Jury-Trial Rights. University of San Francisco Law Review, Vol. 38, No. 39, Fall 2003. Available at SSRN: https://ssrn.com/abstract=992804
Pratt, David A., Focus on . . . Mandatory Arbitration of ERISA Disputes (August 15, 2017). Vol. 24 (no. 3) Journal of Pension Benefits 14 (Spring 2017). Available at SSRN: https://ssrn.com/abstract=3019410