Digital Commons at St. Mary's University Faculty Articles School of Law Faculty Scholarship 2015 Courts Gone “Irrationally Biased” in Favor of the Federal Arbitrations Act?—Enforcing Arbitration Provisions in Standardized Applications and Marginalizing Consumer- Protection, Antidiscrimination, and States’ Contract Laws: A 1925–2014 Legal and Empirical Analysis Willy E. Rice St. Mary's University School of Law, [email protected] Follow this and additional works at: https://commons.stmarytx.edu/facarticles Part of the Law Commons Recommended Citation Willy E. Rice, Courts Gone “Irrationally Biased” in Favor of the Federal Arbitrations Act?—Enforcing Arbitration Provisions in Standardized Applications and Marginalizing Consumer-Protection, Antidiscrimination, and States’ Contract Laws: A 1925–2014 Legal and Empirical Analysis, 6 Wm. & Mary Bus. L. Rev. 405 (2015). This Article is brought to you for free and open access by the School of Law Faculty Scholarship at Digital Commons at St. Mary's University. It has been accepted for inclusion in Faculty Articles by an authorized administrator of Digital Commons at St. Mary's University. For more information, please contact [email protected]. COURTS GONE "IRRATIONALLY BIASED" IN FAVOR OF THE FEDERAL ARBITRATION ACT?-ENFORCING ARBITRATION PROVISIONS IN STANDARDIZED APPLICATIONS AND MARGINALIZING CONSUMER- PROTECTION, ANTIDISCRIMINATION, AND STATES' CONTRACT LAWS: A 1925-2014 LEGAL AND EMPIRICAL ANALYSIS WILLY E. RICE* ABSTRACT Spanning nearly forty years, the Supreme Court has issued multiple decisions and stated categorically that 'judicial hostility to arbitration" was the sole impetus behind Congress's decision to enact the FederalArbi- tration Act of 1925. In fact, before the FAA, systemic trade-specificproblems andpractices generated heated disputes and widespreadlitigation among merchants and trade organizations.Thus, to arrestthose constituents' con- cerns, Congress enacted the FAA. Briefly, under the FAA section 2, arbi- tration is mandatory ifa contractual arbitrationprovision is valid and a controversy "arisesout of the contract."However, common-law rules of con- tract formation are equally clear: Standing alone, standardized-preprinted applicationforms are not valid contracts; thus, they not enforceable. Yet, megacorporations,international holding companies, and internationalfinan- cial-services corporationsare increasinglyfashioning standardizedapp/ica- tion forms which contain mandatory arbitrationclauses. Put simply, the consequences of such practices are severe: Before contracts are formed, ap- plicantsfor goods, services and employment-ordinary consumers and work- ers as well as small-business owners, start-up entrepreneursand prospective franchisees are forced to relinquish their rights to litigate common-law and statutory claims in state andfederal courts. Even more unsettling, a judicialsplit has evolved: Most federal courts enforce arbitrationclauses in * Professor of Law, St. Mary's University School of Law-San Antonio. M.A., PhD.- University of North Carolina at Chapel Hill; Postdoctoral Fellow-The Johns Hopkins University; J.D.-The University of Texas at Austin; and an American Bar Foundation Scholar. The author is forever indebted to Eugene R. Anderson, Hubert M. "Tad" Blalock, Francis A. Bottini, Jr., David R. Heise, Donald E. Muir, and Forrest W. Young for sharing their collective legal and statistical acumen with the author for years. Without a doubt, those individuals' considerate assistance and vision helped to shape and improve the Article. 405 406 WILLIAM & MARY BUSINESS LAW REVIEW [Vol. 6:405 applicationsand a majority of state courts do not. Based on the compelling and unexpected legal, empirical and statistical findings surrounding the dispositions of motions to compel arbitrationin state andfederal courts, the Article encourages Congress to address the concerns raised here and enact the recently proposedArbitration Fairness Act of 2014. 2015] IRRATIONALLY BIASED IN FAVOR OF THE FAA 407 TABLE OF CONTENTS IN TR O DU C T IO N ........................................................................................ 4 0 9 I. BRIEF OVERVIEW OF PERTINENT, COMMON LAW PRINCIPLES O F C O N TR A C T ...................................................................................... 4 2 0 A. The Formationand Enforcement of Valid Contracts..................... 420 B. The Enforceability of PurportedlyLegal Rights in Written P reliminary A greements .................................................................. 422 C. The ParolEvidence Rule and the Admissibility of Standardized Application Forms to Contradictor Vary Terms in Totally Integrated Written Con tracts ............................................................................ 42 5 II. A SHORT REVIEW OF PERTINENT FEDERAL AND STATE CONSUMER PROTECTION, CIVIL RIGHTS AND ANTIDISCRIMINATION LAWS ............ 433 A. Federaland State Antidiscriminationand Civil Rights Laws ........ 433 B. Most Renowned andLitigated Federal Consumer P ro tection L aws ............................................................................... 4 36 C. State Consumer ProtectionLaws ................................................... 438 D. The Prevalence of Consumer Protectionand Irrational DiscriminationComplaints StatisticalEvidence from Federal and State Agencies, Courts and Private Research Organizations..... 440 III. A BRIEF OVERVIEW OF THE FEDERAL ARBITRATION ACT OF 1924 .... 445 IV. "IRRATIONALLY BIASED" RULINGS AND PERSISTENT JUDICIAL CONFLICTS OVER THE ENFORCEABILITY OF ARBITRATION CLAUSES IN EMPLOYEES' AND CONSUMERS' APPLICATION FORMS .................... 450 A. Judicial Conflict Whether Mandatory-ArbitrationClauses in StandardizedApplication Forms Are Enforceable "Written Provisionsin a Contract" Under the FederalArbitration Act ....... 451 B. Judicial Conflict Whether DisgruntledApplicants' Antidiscrimination, Civil Rights and HarassmentClaims Arose Out of Valid Employment Contractsor From Allegedly Unenforceable StandardizedEmployment Application Forms................................ 461 C. JudicialConflict Whether Applicants' Consumer Protection Claims and Lawsuits Arose Out of Valid and EnforceableFinancial Services Contractsor Out of Allegedly Unenforceable Standardized A pp lication F orms ........................................................................... 467 D. Judicial Conflict Whether Arbitration Clauses in Standardized Application Forms Are Enforceable Under the FAA Without Any ProbativeEvidence of Bargained-ForExchange Consideration... 476 408 WILLIAM & MARY BUSINESS LAW REVIEW [Vol. 6:405 V. EMPIRICAL AND STATISTICAL ARGUMENTS AGAINST ENFORCING MANDATORY-ARBITRATION CLAUSES IN EMPLOYMENT, FINANCIAL SERVICES AND OTHER TYPES OF STANDARDIZED APPLICATIONS-FINDINGS FROM A CASE STUDY ................................ 483 A. Data Sources and Sampling Procedures........................................ 485 B. Characteristicsof Motion to Compel ArbitrationLitigants in State and FederalCourts, 1925 2014 ............................................ 487 C. Motions to Enforce Arbitration Provisions in Applications and the Bivariate RelationshipsBetween Litigants' Characteristics and the Disposition ofMotions to Compel Arbitration in State and F edera l Courts ................................................................................. 4 9 0 D. A Two-Stage, MultivariateProbit Analysis of the Interrelationships Between Movants and Respondents'Attributesand the Dispositions of Motions to Compel Arbitrationin State andFederal Courts of Ap p eals ........................................................................................4 9 8 C O N C L U SIO N ............................................................................................ 5 0 7 2015] IRRATIONALLY BIASED IN FAVOR OF THE FAA 409 INTRODUCTION By several measures, Mitchill v. Lath1 and Lucy v. Zehmer2 are "classic contract" cases.3 For nearly sixty years, they have been prominent opinions in the overwhelming majority of contract-law casebooks.4 Quite simply, many law professors-who teach first-year students-rely heavily on Mitchill and Lucy to help explain several foundational principles of contract law. Among other reasons, Mitchill and Lucy are celebrated because the facts in both cases are remarkably familiar and captivating. In addition, those un- complicated facts help budding jurists to understand arguably the more complex and less exciting principles of contract of law. First, consider the most prominent and intriguing facts in Lucy v. Zehmer. Welford Ordway Lucy (Lucy) and John C. Lucy were brothers, lumbermen and farmers.5 They resided in Dinwiddie County, Virginia.6 Adrian Hardy Zehmer (Zehmer) and Ida S. Zehmer-husband and wife-lived in McKen- ney, Virginia-where they "operated a restaurant, filling station and motor court."7 Additionally, the Zehmers owned the Ferguson Farm-approxi- mately 472 acres of land in Dinwiddie County. 8 On a wintry evening in December 1952, Lucy and his employee visited Zehmer's restaurant.9 "Lucy took a partly filled bottle of whiskey into the 1 160 N.E. 646 (N.Y. 1928). 2 84 S.E.2d 516 (Va. 1954). 1See Lawrence A. Cunningham, Toward a Prudentialand Credibility-CenteredParol Evidence Rule, 68 U. CIN. L. REv. 269, 271 (2000) (employing "the classic case ofMitchill v. Lath to contrast ... Willistonian['s] ... four corners [doctrine] ... with Corbin's [prior-agree- ments evidence rule to determine] whether [certain] evidence is admissible"); Jean Fleming Powers, PromissoryEstoppel and