Reminder Of American Exceptionalism In Consumer Arbitration

“American exceptionalism” has been used to reference the United States’ outlier policies in various contexts, including its love for litigation.  Despite Americans’ reverence for their “day in court,” their zest for contractual freedom and efficiency has prevailed to result in U.S. courts’ strict enforcement of arbitration provisions in both business-to-business (“B2B”) and business-to-consumer (“B2C”) contracts. This is exceptional because although most of the world joins the United States in generally enforcing B2B arbitration under the New York Convention, many other countries refuse or strictly limit arbitration enforcement in B2C relationships due to concerns regarding power imbalances and public enforcement of consumer protections.  The resulting clash in arbitration policy has left consumers in cross-border cases uncertain whether they must abide by arbitration clauses in an increasingly global marketplace. 

The U.S. Congress implemented the N.Y. Convention through Chapter Two of the Federal Arbitration Act (the “FAA”) and U.S. courts have vigorously applied this law to both B2B and business-to-consumer (“B2C”) arbitration.  This coincides with the U.S.’s strict enforcement of domestic arbitration under Chapter One of the FAA.   The FAA also augments this strict enforcement with provisions for liberal venue, immediate appeal from orders adverse to arbitration, appointment of arbitrators if parties cannot do so by agreement, limited review of arbitration awards, and treatment of awards as final judgments.  Furthermore, the U.S. Supreme Court has mandated the FAA review standards be applied narrowly and has admonished states from singling out arbitration for special treatment or otherwise hindering the enforcement of arbitration in contracts affecting interstate commerce.  This leaves states with little power to regulate consumer arbitration provisions beyond the application of general contract defenses. 

Unlike the U.S., other nations do not extend strict enforcement of pre-dispute arbitration clauses to B2C or employment agreements.   France, Germany, and the United Kingdom (“U.K.”), for example, generally limit or refuse to enforce pre-dispute arbitration agreements in employment contracts with respect to employees’ wrongful dismissal claims.   Public policies in these countries protect employees’ rights to bring their dismissal claims to public tribunals or courts.   Policies in the U.K. and other European countries similarly limit or preclude enforcement of pre-dispute arbitration clauses in consumer contracts.   These policies flow from concerns regarding asymmetry of power, enforcement of public rights, and competence of private arbitrators and arbitral institutions.

Similar concerns have prompted private arbitration providers in the U.S. to suggest due process protocols for consumer and employment arbitration.   Providers have also promulgated special procedural rules that they use for small dollar cases in uneven bargaining contexts.   Policymakers in the U.S. have also become increasingly critical of FAA enforcement of arbitration awards in consumer and employment cases. This can be seen in renewed efforts to enact the FAIR Act, which would bar enforcement of pre-dispute arbitration agreements in consumer, employment, and civil rights cases.  

I wrote about this quite some time ago, but some of the themes are certainly relevant. See Schmitz, Amy J., American Exceptionalism in Consumer Arbitration (2013). Loyola University Chicago International Law Review, Vol. 10, No. 1, 2013, Available at SSRN: https://ssrn.com/abstract=2265556. It will be interesting to see how things play out in the year to come. Indeed, there are real differences in the enforcement of B2C arbitration in the U.S. versus the European Union (EU) and U.K., and this creates uncertainties regarding enforcement of pre-dispute arbitration clauses in international B2C contracts. This is especially problematic in the increasingly international online marketplace.

Amy Schmitz

Professor Amy Schmitz is the John Deaver Drinko-Baker & Hostetler Chair in Law at the Ohio State University Moritz College of Law. From 2016-2021 Professor Schmitz was the Elwood L. Thomas Missouri Endowed Professor of Law at the University of Missouri School of Law and the Center for Dispute Resolution.…