On the Web
Over on the Contracts Law Jotwell, Dean Eboni Nelson has posted a review of The Small Business Dilemma, 81 Wash. & Lee L. Rev. 1939 (2025), by Rachel G. Ngo Ntomp (below). I read this piece in draft, and I am happy to see it now in print. Professor Ngo’s key insight is that small businesses are treated as “big fish,” perhaps appropriately, when they contract with consumers, but they are, inappropriately, not protected as “small fish” when they interact with large business entities. One has to think only of American Express Co. v. Italian Colors and one should credit the force of Professor Ngo’s intuition.
She then operationalizes this intuition, after surveying the approaches of jurisdictions ranging from the Netherlands and Australia to Texas, and argues for an amendment to the UCC’s definition of unconscionability. The UCC should define “small businesses” in Article 1 and then amend UCC § 2-302 to protect not only consumers but also small businesses from unconscionable terms.
We have called attention to Dave Hoffman’s Substack, Contracts’ Empire before here and here. The posts are always stimulating. In his latest post, Professor Hoffman weighs in on controversies near to my heart regarding mandatory arbitration.
Professor Hoffman bucks the conventional wisdom in the academy that arbitration motivates lawbreaking. Notwithstanding strong reasons to think that mandatory arbitration can affect firm behavior, “at least at the margins,” Professor Hoffman offers two reasons to resist the strong version of the conventional wisdom: insurance, and better outcomes for plaintiffs in arbitration as compared to litigation.
As to insurance, Professor Hoffman draws on his recent work with Rick Swedloff. Professor Hoffman points out that insurers, rather than firms, pay the costs of dispute resolution. If arbitration really deterred claims, insurers should promote arbitration, but in his interviews with underwriters, insurance lawyers, and brokers, he found that insurers do not think that arbitration clauses save costs.
Professor Hoffman (below) has less robust empirical evidence for his second claim: although mandatory arbitration reduces the total number of claims, plaintiffs are more likely to prevail or get a higher recovery in the claims that are brought.
I have no reason to doubt Professor Hoffman’s conclusions. He has data; I just have hunches and my haphazard interaction with cases that come across my feed. I have just two observations. First, if the world is as Professor Hoffman describes it, the world is deeply irrational. Plaintiffs (or their attorneys) hate mandatory arbitration; defendants do not benefit from it. Insurers do not have to invoke arbitration clauses on behalf of the firms. They can waive arbitration, and if they don’t like arbitration, they should do so. Professor Hoffman acknowledges that firms’ preferred preferences are informative and revealing. They reveal a preference for arbitration, so there must be some reason why they prefer it.
That brings me to my second observation. There are likely benefits to the firms beyond costs saved on arbitration, such as costs associated with adverse publicity that comes with public records generated by litigation. There may also be costs associated with losing the in terrorem effect of one-sided terms that can only be challenged through class actions. Insurers may not be able to place a value on the ability of firms to retain such terms, which they can do, even if an arbiter or several arbiters strike the term, as the arbitrations are unpublished and have no value as precedent. Professor Hoffman wants to see if arbitration reduces costs, and he thinks he can find the answer through data on the financial performance of insurers. That research would be invaluable, but it might provide an incomplete picture of why firms favor arbitration, even if their insurers do not.