A Consent-Based Framework
for Enforcing Arbitration Awards
Enforcing Arbitration Agreements to Promote Arbitration
The purposes and objectives of the FAA are the same whether the question is whether arbitration should be compelled, litigation should be stayed or an award confirmed or vacated. The cornerstone of the FAA is the enforcement mandate of Section 2, which says: “A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Section 2 establishes federal substantive law mandating that arbitration agreements be placed on an “equal footing” with other contracts. The other provisions of the FAA implement Section 2’s enforcement command.
The U.S. Supreme Court has repeatedly said “that the central or primary purpose of the FAA is to ensure that private agreements to arbitrate are enforced according to their terms.” An important corollary to the FAA’s enforcement purpose is “the basic precept that arbitration ‘is a matter of consent, not coercion’. . .” While the courts have extensive coercive powers over persons and disputes within their statutory and constitutional personal and subject matter jurisdiction, “[a]rbitration is simply a matter of contract between the parties; it is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration.” And to that end, “[w]hether enforcing an agreement to arbitrate or construing an arbitration clause,” the FAA requires “courts and arbitrators . . . [to] give effect to the contractual rights and expectations of the parties.”
The Supreme Court in AT&T Mobility LLC v. Concepcion recently explained that the objective of the FAA is to “promote arbitration.” The Court did not say that the FAA was supposed to promote arbitration for arbitration’s own sake or simply to promote the rigorous enforcement of arbitration agreements according to their terms. The Court’s point was that the FAA “promote[s] arbitration” by lending judicial support and assistance to an alternative to litigation that is party driven and more cost-effective, less time consuming, less formal, and more confidential than litigation, and which offers the added benefit of party autonomy, including the right to specify the substantive and procedural rules of decision and the opportunity to select specialized decision makers to decide particular disputes.
The Court was not suggesting that the FAA “promotes” arbitration simply because arbitration is – or at least can be – a more party-friendly way of resolving disputes, or because arbitration is somehow inherently superior to court adjudication. What it meant was that the FAA should be interpreted to encourage parties to agree to it, and thus opt out of the court system.
Though courts only rarely acknowledge it expressly, the reason the Supreme Court, most or all other federal courts, and probably the vast majority of state courts want to encourage parties to arbitrate their disputes is pragmatic and based on simple economics. For many decades, state and federal courts have been overburdened by the number of criminal and civil cases they must hear. That imposes significant costs not only on the courts themselves, but on private and public litigants – who suffer from delays and other resulting inefficiencies – and on the tax payers who foot the bill. Arbitration mitigates some of these burdens and costs by shifting them to private sector, and thus is beneficial not only to the court system, but to the public at large. Continue Reading »