A Pro-Congress Approach to Arbitration and Unconscionability

Stephen E. Friedman[*]

Editor's Note: This Essay is a response to an argument made by Professor David Horton in David Horton, Unconscionability Wars, 106 Nw. U. L. Rev. Colloquy 13 (2011).

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Introduction

This Essay endeavors to resolve a current controversy involving the application of the unconscionability doctrine to arbitration agreements.  The pro-arbitration policies of the Federal Arbitration Act (FAA) and the anti-arbitration instincts of the unconscionability doctrine are difficult to reconcile.  Instead of clarity in this area of law, we have a series of hints and clues, often contradictory, from the Supreme Court.  Although Professor David Horton and I share a desire to clarify this area of the law, we have nearly opposite views about how this should be accomplished.  This Essay sets forth my position and also responds to Unconscionability Wars,[1] Professor Horton's latest thoughtful effort on the subject.

Unconscionability Wars

David Horton[*]

Editor's Note: Professor Stephen Friedman responds to Professor Horton's argument regarding the application of unconscionability doctrine to arbitration agreements in Stephen E. Friedman, A Pro-Congress Approach to Arbitration and Unconscionability, 106 Nw. U. L. Rev. Colloquy 53 (2011).

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Introduction

It would be hard to exaggerate the importance of the unconscionability doctrine to federal arbitration law.  In the last three decades, as the Supreme Court has expanded the scope of the Federal Arbitration Act (FAA),[1]  arbitration clauses have become a routine part of consumer, franchise, and employment contracts.  Some companies have sought not just to funnel cases away from courts, but to tilt the scales of justice in their favor: stripping remedies, slashing discovery, selecting biased arbitrators, eliminating the right to bring a class action, and saddling adherents with prohibitive costs and fees.[2]  The unconscionability doctrine has emerged as the primary check on drafter overreaching.  The Court has repeatedly acknowledged that lower courts can invoke unconscionability to invalidate one-sided arbitration provisions,[3]  and dozens (perhaps hundreds) of judges have done exactly that.[4] 

Recently, however, a rising chorus of voices argues that the FAA allows arbitrators, but not judges, to strike down arbitration clauses as unconscionable.[5]   These critics make three main points.  First, they argue that the FAA, which limits judicial discretion, is incompatible with unconscionability, which is one of the most subjective and amorphous rules in all of law.[6]   Second, they assert that Congress recognized that the statute might allow powerful drafters to exploit weaker parties, but nevertheless concluded that its benefits outweighed these risks.[7]   Third, they seize upon a seeming discrepancy at the heart of the statute.  Section 2’s “savings clause” permits courts to invalidate arbitration clauses under “such grounds as exist at law or in equity for the revocation of any contract”[8] —a phrase that arguably encompasses all contract defenses, including unconscionability.  Yet § 4 only allows judges to hear challenges to the “making of the agreement for arbitration.”[9]   Unconscionability revolves, in part, around substantive fairness, not the “making” of the arbitration clause.  Thus, the claim proceeds, because unconscionability does not fall within § 4, judges cannot employ the rule.[10]   I will call this group of arguments the “anti-court” theory.