Introducing

The Gatekeepers of the Federal Arbitration Act: An Empirical
Analysis of the FAA in the ‎Lower Courts

A guest post by Tamar Meshel (below left) and Moin Yahya (below right):

Arbitration has become a divisive issue both in the United States Supreme Court and in American society, fueling calls to restrict or entirely ban its use in certain contexts, such as employment and consumer disputes. At the same time, little empirical attention has been paid to how thousands of arbitration cases are actually argued before and decided by the lower courts. Both the FAA and the Supreme Court reserve considerable discretion for the lower courts, both state and federal, to refuse to enforce arbitration agreements. For instance, courts can do so on any state contract law ground pertaining to the existence, formation, or validity of the arbitration agreement, they can determine that a claim falls outside the scope of an arbitration agreement, or that a party has waived its right to arbitrate. The lower courts therefore effectively act as gatekeepers to the enforcement of arbitration agreements under the FAA. Yet few have examined how parties attempt to convince courts to exercise this discretion and what might prompt a court to do so.

The study

 Over a period of 12 months (June 1, 2021-May 31, 2022), Moin Yahya and I collected 1,450 contested motions to compel arbitration under the FAA decided by all state and federal courts (excluding the Supreme Court) across the United States. We then hand-coded these decisions and statically analyzed them. We examined the effect of several variables and combinations of variables on the outcome of these contested motions to compel arbitration. Some of these variables are internal to the courts—type, level, and location of the court, and the judge’s political association. Other variables are external to the courts—the type of dispute and the arguments raised by the parties.  

We do not set out to argue for or against arbitration. The goal of the study is explanatory rather than normative. We aim to provide a detailed and objective account of parties’ and lower courts’ approaches to FAA arbitration. This account, we hope, will be of interest to academic studying arbitration, parties’ involved in motions to compel arbitration, and policy-makers evaluating the FAA.

The results

We found that, overall, approximately a third of the contested motions to compel arbitration decided in our dataset were denied. The strongest predictor of the outcome of these motions was the arguments raised by the parties. Existence/formation arguments were the most commonly raised and also the most successful (albeit not in a statistically significant way). In contrast, unconscionability and scope arguments, while also raised quite frequently, were far less successful in convincing courts to deny motions to compel arbitration. In fact, both types of arguments, and particularly unconscionability, were linked to compelling arbitration in a statistically significant way. While delegation clauses present one possible explanation for the failure of scope and unconscionability arguments (as these clauses require the delegation of such arguments to the arbitrator), our study suggests that delegation is not the whole story. In most cases involving scope and unconscionability arguments a delegation clause was not invoked, and in approximately 30%-40% of cases where it was invoked the court still decided the scope or unconscionability issue.  

The second predictor of the outcome of motions to compel arbitration was the type of dispute. While all of the types of disputes that we tested (business, employment, labor, consumer, and international) were positively related to the outcome of compelling arbitration, they varied in their compel rates. International disputes were by far the most compelled, followed by employment, business and consumer (with an almost identical compel rate), and labor.

Finally, but to a much lesser extent, specific combinations of the type of court (state/federal), level of court (trial/appellate), and political association of the judge (Democratic/Republican) also impacted the outcome of motions to compel arbitration. Republican judges on states’ highest appellate courts and federal district courts, as well as Democratic judges on state trial courts, were statistically significantly linked to compelling arbitration. We also found that in the federal circuit courts of appeals, single-party Republican panels compelled arbitration far more frequently than majority-Republican panels, suggesting that the minority Democratic judge on the panel may have some influence over the outcome. However, this result was not statistically significant.

Takeaways

Our results suggest that efforts by parties to forum-shop by seeking to remove motions to compel arbitration from state to federal courts are likely not well spent, as these courts generally compel arbitration at a similar rate. For parties opposing motions to compel arbitration, our study strongly suggests that unconscionability arguments are unlikely to lead to denial of such motions in most cases, and, to a lesser extent, neither are scope arguments.

For policy-makers, our study shows that the vast majority of arbitration agreements, even in the consumer and employment context, are not generally considered “unfair” (in the sense of legally unconscionable) by the courts. Rather, it appears that the more problematic aspects of consumer and employment arbitration agreements, at least from a legal standpoint, are related to their formation. Therefore, policy-makers should focus legislative efforts on web-based and mobile-based arbitration agreements, how these agreements are presented to consumers and employees, and how they are invited to express their assent to them.  

Finally, our results should provide some comfort to both supporters and opponents of arbitration in showing that the political association of judges does not, in the vast majority of cases, impact the outcome of motions to compel arbitration in any meaningful way. This result stands in contrast to many of the Supreme Court’s FAA decisions that were divided along ideological lines. It also stands in contrast to the politicized nature of arbitration and the FAA in the scholarship and in American society generally. Our study shows that conflicting political perceptions of arbitration do not meaningfully impact the outcome of motions to compel arbitration in the lower courts. It may therefore be that a century after the enactment of the FAA a judicial consensus has emerged that arbitration, while not perfect, is simply a necessity in today’s civil justice system.

         The draft paper can be found on SSRN. The authors welcome comments and can be reached at meshel@ualberta.ca and moin.yahya@ualberta.ca.