OHIO STATE JOURNAL ON DISPUTE RESOLUTION VOLUME 19 2004 NUMBER 3 Arbitration, Unconscionability, and Equilibrium: The Return of Unconscionability Analysis as a Counterweight to Arbitration Formalism JEFFREY W. STEMPEL* I. INTRODUCTION The legal Zeitgeist of the past 20 years-with the United States Supreme Court providing most of the tail wind-has strongly favored enforcement of arbitration agreements,1 largely without regard to the quality of consent attending those agreements 2 and arguably in direct contravention of statutory * William S. Boyd Professor of Law, William S. Boyd School of Law, University of Nevada Las Vegas. Special thanks to Jennifer Brown, Ian Ayres, and participants at the Yale-Quinnipiac Dispute Resolution Workshop discussing this Article. Thanks also to Jean Braucher, Ann McGinley, Jean Sternlight, Elizabeth Thornburg, Dean Richard Morgan, and especially to Russell Korobkin, who provided many helpful comments although we continue to disagree about the market's production (or nonproduction) of beneficial arbitration terms and the proper extent of the judicial role in regulating arbitration clauses. Preparation of this Article was supported by a grant from the James E. Rogers Research Fund. 1 See CHRISTOPHER R. DRAHOZAL, COMMERCIAL ARBITRATION: CASES AND PROBLEMS, Chs. 2 & 3 (2002); Thomas E. Carbonneau, The Reception of Arbitration in United States Law, 40 ME. L. REv. 263, 263-66 (1988) (describing historical development and growth of arbitration); Jean R. Sternlight, Mandatory Binding Arbitration and the Demise of the Seventh Amendment Right to a Jury Trial, 16 OQuo ST. J. ON DIsP. RESOL. 669 (2001) (criticizing the Court's enthusiasm for compelling arbitration and arguing that the Court has overlooked serious Seventh Amendment and due process concerns); see also Jeffrey W. Stempel, Pitfalls of Public Policy: The Case of Arbitration Agreements, 22 ST. MARY'S L.J. 259, 334-54 (1990) [hereinafter Stempel, Public Policy] (criticizing perceived zeal of some courts in striking down arbitration agreements on grounds of public policy); Jeffrey W. Stempel, Bootstrapping and Slouching Toward Gomorrah: Arbitral Infatuation and the Decline of Consent, 62 BROOK. L. REv. 1381, 1412-28 (1996) [hereinafter Stempel, Consent] (arguing that the Court has uncritically embraced arbitration as an unalloyed social benefit). 2 See Richard E. Speidel, Contract Theory and Securities Arbitration: Whither Consent?, 62 BROOK. L. REv. 1335, 1339-45 (1996); Stempel, Consent, supra note 1, at OHIO STATE JOURNAL ON DISPUTE RESOLUTION [Vol. 19:3 2004] language that seemingly removes employment agreements from the reach of the Federal Arbitration Act (FAA).3 This sometimes uncritical embrace of arbitration by Justices quite removed from the actual operation of arbitration has attracted considerable academic criticism as well as protests from those who see themselves as forced into mandatory arbitration. 4 In addition, many 1389-1412; Stephen J. Ware, Arbitration and Unconscionability After Doctor's Associates, Inc. v. Casarotto, 31 WAKE FOREST L. REV. 1001, 1032-34 (1996). 3 See Federal Arbitration Act of 1925, 9 U.S.C. § 1 (2000); Samuel Estreicher, Predispute Agreements to Arbitrate Statutory Employment Claims, 72 N.Y.U. L. REV. 1344, 1363-72 (1997) (criticizing the Court for supporting the enforcement of mandatory arbitration agreements required of workers in view of the language of 9 U.S.C. § 1, which states that the Act's power of specific enforcement of predispute arbitration agreement does not extend to a "contract of employment"); Matthew W. Finkin, "Workers' Contracts" Under the United States ArbitrationAct: An Essay in HistoricalClarification, 17 BERKELEY J. OF EMP. & LAB. L. 282 (1996) (same); Jeffrey W. Stempel, Reconsidering the Employment Contract Exclusion in Section 1 of the Federal Arbitration Act: Correcting the Judiciary's Failure of Statutory Vision, 1991 J. DISP. REOL. 259, 263-79 (same); Jeremy Kennedy, Comment, The Supreme Court Swallows a Legal Fly: Consequences for Employees as the Scope of the Federal Arbitration Act Expands, 33 TEX. TECH L. REV. 1137, 1153-64 (2002) (same); see also Richard C. Reuben, ConstitutionalGravity: A Unitary Theory of Alternative Dispute Resolution and Public Civil Justice, 47 UCLA L. REV. 949, 1019-46 (2000); Richard C. Reuben, Public Justice: Toward a State Action Theory of Alternative Dispute Resolution, 85 CAL. L. REV. 577, 607-12 (1997) (contending that courts should not enforce arbitration provisions in a manner inconsistent with statutory rights). 4 See Sen. Russell D. Feingold, Mandatory Arbitration: What Process is Due?, 39 HARV. J. ON LEGIS. 281, 283-84 (2002) (criticizing Court's preference for arbitration); Larry J. Pittman, The FederalArbitration Act: The Supreme Court's ErroneousStatutory Interpretation,Stare Decisis, and a Proposalfor Change, 53 ALA. L. REV. 789, 811-20 (2002) (same); Linda Alle-Murphy, Comment, Are Compulsory Arbitration Clauses in Consumer Contracts Enforceable? A ContractualAnalysis, 75 TEMP. L. REV. 125, 129- 37 (2002) (same); Cameron L. Sabin, Note, The Adjudicatory Boat Without a Keel: Private Arbitration and the Need for Public Oversight of Arbitrators, 87 IOWA L. REV. 1337, 1341-46 (2002) (same); see also Kenneth S. Abraham & J.W. Montgomery, I, The Lawlessness of Arbitration, 9 CONN. INs. L.J. 355, 357 (2003) (observing the disadvantages of arbitration as a method of dispute resolution: "the legal system should reconsider the highly favorable stance that it takes toward mandatory, binding arbitration in general, so as to take account of the negative effects of arbitration lawlessness. A neutral legal and judicial stance toward binding arbitration would be more appropriate."); Michelle Andrews, For Patients, Unpleasant Surprises in Arbitration, N.Y. TIMES, Mar. 16, 2003, § 3, at B8 (describing the increasing use of arbitration agreements in medical services agreements, suggesting that the manner of contracting leaves prospective patients little choice so that the significance of the arbitration provision frequently is not appreciated by the patient); Scott Atlas, Have You Ever Tried to Make Up Your Mind- About Arbitration?, 29 L1TIG., Fall 2002, at 1, 1 (describing the change in the opinion of the Chair of the ABA Litigation Section, initially an enthusiast for arbitration as means of ARBITRATION UNCONSCIONABILITY have come to question the fulcrum on which much of modem arbitration leverage rests-the Supreme Court's view that the FAA creates substantive federal law that ousts any contrary state law that targets arbitration.5 Only general state contract law applies to construction and enforcement of arbitration agreements. As long as the requisite nexus exists with interstate commerce, state legislation aimed specifically at perceived problems of 6 arbitration is preempted by the FAA. alternative dispute resolution, who now expresses mixed feelings about the efficacy of arbitration); Mary P. Gallagher, AAA's Impartiality Challenged by Lawyer Seeking Alternate Forum, N.J. L.J., Oct. 22, 2002, at 1; Joanne Gordon, Here Come Da Judge: Usually It's Plaintiffs' Attorneys Whining About Mandatory Arbitration. Now It's the Corporate Lawyers, FORBES, Dec. 9, 2002, at 60 (noting increasing business dissatisfaction with arbitration, finding it slower, less decisive, and less substantively favorable than anticipated); Jackson Williams, Mandatory Arbitration: Ganging up on Little Guys, NAT'L L.J., Jul. 22, 2002, at A24. The Supreme Court's strong support of arbitration has been met with both praise and scorn. Compare Bruce M. Selya, Arbitration Unbound?: The Legacy of McMahon, 62 BROOK. L. REV. 1433, 1454-57 (1996) (approving of arbitration generally and expressing concern over the tendency to require arbitration to mimic the judicial process once arbitration has become widespread) and Marc I. Steinberg, Securities Arbitration:Better for Investors than the Courts?, 62 BROOK. L. REV. 1503, 1505-06 (1996) (approving of arbitration in general and finding its outcomes more pro-consumer than many court decisions) with Paul D. Carrington, Self-Deregulation, the "National Policy" of the Supreme Court, 3 NEV. L.J. 259, 284-86 (2002/2003) (comparing the Court's rush toward arbitration as jurisprudential equivalent of tulip bulb craze of 17th century Holland) and Jean R. Sternlight, Rethinking the Constitutionality of the Supreme Court's Preference for Binding Arbitration: A Fresh Assessment of Jury Trial, Separation of Powers, and Due Process Concerns, 72 TUL. L. REV. 1, 7-14 (1997). 5 See Carrington, supra note 4 at 264-65 (arguing that FAA was intended as a procedural rule for federal courts rather than as statute creating substantive law). But see Christopher R. Drahozal, In Defense of Southland: Reexamining the Legislative History of the Federal ArbitrationAct, 78 NOTRE DAME L. REV. 101, 105-08 (2002) (defending the correctness of Court decisions characterizing the FAA as creating substantive law overriding contrary state law). 6 The Federal Arbitration Act provides that a written agreement to arbitration "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2 (2000). This section has been interpreted to forbid application of any state contract law that singles out arbitration clauses for any special treatment. However, the validity of an arbitration term may be examined according to a state's general contract law regarding formation, enforcement, breach, and rescission.