Legal Docket: Alternative dispute resolution

JENNY ROUGH, HOST: It’s Monday morning, May 13th, and you’re listening to The World and Everything in It from WORLD Radio. Good morning! I’m Jenny Rough.

NICK EICHER, HOST: And I’m Nick Eicher.

It’s time for Legal Docket. Today, arbitration as an alternative to litigation.

The U.S. Supreme Court is considering three arbitration cases this term.

Put simply, arbitration removes disputes from courtrooms and allows them to be resolved in private. Typically, an attorney or a business professional comes in to oversee an arbitration. But there’s no judge and no jury.

Courts are clogged. So arbitration helps clear some of the congestion. It also saves money and time, because it’s considerably less expensive than litigation and arbitration typically resolves more quickly.

But as we know from economics, there are always tradeoffs: Your savings in time and money come at the cost of legal protections—like rules of evidence—and the right to appeal. You don’t get that with arbitration.

ROUGH: You also don’t get what lawyers call “nuclear verdicts”—those monster damages awards of multi-millions of dollars that American juries use to send messages. So speaking of economics … there are trade-offs there, too. The nuclear verdict can and often does change behavior that needs changing for some overall benefit to society.

But the tradeoff of reasonable rewards and fair compensation may be the bigger benefit, and so arbitration has its place.

EICHER: Okay, here’s our first arbitration case: It involves truck drivers who deliver bread and other baked goods to grocery stores. The truckers operate under the terms of a contract with a baking company that produces and markets the product. Conflicts cropped up over pay, and so the company pointed to the arbitration agreement in the contract and sought to resolve things that way. But the truckers wanted the leverage of litigation and they pointed to a provision of the Federal Arbitration Act that exempts certain transportation workers, those who move goods by rail or by sea, but also this vague category, “other class of workers.” That’s where the bread truck drivers say they fit, and so despite the arbitration agreement they contend they have a right to sue.

ROUGH: Yeah, and it was hard for me to figure out why this exemption exists. The law review articles I read talked about how the Federal Arbitration Act was originally designed to manage contract disputes among merchants engaged in commerce. Not for disputes between a big business and a single employee.

So the exemption protects the individual laborer.

EICHER: Well, here, the legal question is whether the exemption applies only to the workers in the transportation industry? Or whether it speaks more to the workers’ job responsibilities?

And the court ruled on this case last month.

ROUGH: It held the right litmus test is what the workers do, not what industry they’re in. So the fact that the truckers worked for a baking company isn’t what matters. You can hear the reasoning in this comment from Justice Ketanji Brown Jackson. This is from oral argument in February.

JUSTICE JACKSON: You can have transportation workers in a different kind of industry. That's why I don't understand where the industry limitation is coming from. That's not in the statute.

EICHER: Case two: Coinbase versus Suski. Here, we enter the strange new world of cryptocurrency. The company Coinbase offers online services to support crypto transactions..

David Suski signed up for the Coinbase platform. And when he did, he entered into the kind of agreements we enter into all the time with a single click of the “OK” button, namely a User Agreement.

So we’ll call that click Contract One.

It had a clause saying that in the event of a dispute over the services Coinbase offers it’s resolved in arbitration.

ROUGH: Yes, and usually a judge decides whether any given dispute falls within the scope of the arbitration clause. That’s the default rule.

But Contact One that you referred to also had a delegation clause. Meaning, the parties delegated to an arbitrator the responsibility of who decides where the dispute goes: Does it belong in arbitration or does it remain in court?

ROUGH: But here’s what happened next: Coinbase sponsored a sweepstakes. And Suski paid $100 to enter. In doing so, he clicked another OK button and entered into another contract with Coinbase.

Contract Two, as it were.

Contract Two laid out the rules of the sweepstakes. It did not have an arbitration clause. It didn’t have a delegation clause, either. Instead, it had a provision that said California courts have jurisdiction over disputes regarding the sweepstakes.

ROUGH: So if that sounds like a contradiction between the two contracts, that’s because there is! We’re right on track.

Before we go on, I need for you to know this case has many layers, and that makes me think of a cake.

EICHER: And that makes me think of dessert.

ROUGH: Me, too. So let’s think of three components of the dessert: The cake itself. The frosting. And the candles.

Suski thought Coinbase misled users into entering the sweepstakes. So he sued and others joined with him. They told the court that Coinbase engaged in false advertising and other wrongdoing.

That’s the underlying dispute. The lawsuit is the cake.

Did Coinbase engage in false advertising?

EICHER: Now the frosting, a second dispute: The question whether the false advertising claim belongs in court or arbitration? And like frosting, it’s sticky.

Then the candles shedding light on a third question: Who decides the sticky question? We need to know where the case gets resolved, but first we have to know who decides?

ROUGH: Yes, that’s what the parties are fighting about here.

Coinbase argues the delegation clause in contract one is broad enough to sweep contract two into its scope, so an arbitrator should resolve the threshold question of where the original dispute belongs.

David Suski argues no, Contract Two supplants Contract One, so a judge is the decider.

At the Supreme Court Justice Jackson during oral argument recapped the dispute.

JUSTICE JACKSON: We have two people running in with contracts, one of which suggests that this is supposed to be decided by the court. The other suggests that this is supposed to be decided by the arbitrator. And so, in that situation, isn't the question which contract controls in this situation?

It is. And the answer will depend on whether the second contract supersedes the first one.

Both parties agree that the lower court, the Ninth Circuit, did not resolve that specific question.

EICHER: Justice Brett Kavanaugh saw that as an opportunity to quickly dispose of the matter. He asked Coinbase attorney Jessica Ellsworth …

JUSTICE KAVANAUGH: Can we just remand and say that’s for the Ninth Circuit to figure out in the first instance?

JESSICA ELLSWORTH: You can. I think it would be important -

JUSTICE KAVANAUGH And if we do that, are we done? (Laughter)

Even though the Ninth Circuit didn’t decide which contract controls, it did decide that a judge is the right person to decide.

Suski is fighting to keep that ruling.

But Justice Neil Gorsuch struggled to understand why the “who decides” question mattered so much. He asked Suski’s attorney, David Harris, why not simply let an arbitrator decide where the case goes.

Here’s an exchange between those two, with a follow up by Justice Elena Kagan.

JUSTICE GORSHUCH: Why are we litigating all the way to the Supreme Court of the United States up and down and up and down over where this goes when, frankly, I would have thought you had a really good shot of getting an arbitrator to say this belongs in court.

DAVID HARRIS: I would agree. But that wasn’t, we don't want to take this to an arbitrator.

ROUGH: Justice Gorsuch has a point. In theory, a judge and an arbitrator would apply the same law and reach the same conclusion. But as a practical matter, arbitrators and judges are human. And reasonable minds can differ.

And the real reason the parties are fighting so hard about this? Listen to this question by Justice Amy Coney Barrett, then Harris’ answer, and then Justice Kavanaugh’s response.

JUSTICE BARRETT: How much money are you seeking in your complaint for this sweepstakes entry thing?

HARRIS: So, I mean, at the time we filed, we didn't know. At the time we filed, all we knew is that entrants were manipulated into being -- into paying $100 per person or more to -- to enter the sweepstakes. We are left to estimate, you know, how -- how many people were affected by that.

JUSTICE KAVENAUGH: It's a class action, putative, right? That’s the answer, isn’t it?

A class action is a device that allows people with small dollar claims to be a part of a larger action with a lot of people who have similar claims.

EICHER: Each person on his or her own isn’t going to try to pursue a lawsuit to recover $100. But if a lawyer can represent a whole class of plaintiffs in court in front of a jury? That nuclear verdict comes into play.

ROUGH: But remember the tradeoff: Class actions aren’t allowed in arbitration. Only in court.

That’s why Suski wants litigation over arbitration.

So even though this Supreme Court case centers on who decides, what really matters in the end is where it’s decided!

If in court with a win, Suski can have his cake …

EICHER: … and eat it, too.

Our final case: another employment dispute. Here, both parties agree it belongs in arbitration. What they disagree on is what happens next.

The Federal Arbitration Act says when all claims in a lawsuit are subject to arbitration, courts shall stay the action. Meaning, keep the case on the court’s docket while the arbitration goes forward. Set the court case on the back burner, even though it’s inactive.

But the lower court here dismissed the case outright.

ROUGH: It did. But the plaintiffs argue that’s wrong.

Now, both sides think the language of the statute favors their position. But arbitration is supposed to help overburdened courts. This case might come down to which alternative creates less work.

If something improper happens at arbitration, a stay allows the parties to quickly move back to court. But if dismissed, the parties would have to file a lawsuit all over again.

Chief Justice John Roberts seemed to think dismissal was a bad idea.

JUSTICE ROBERTS: You’re saying it’s more trouble to let the thing just sit there than to file a new action? It seems to me that the alternative would be a lot more burdensome.

So those are the court’s arbitration cases this term.

To wrap up, I’ll note that arbitration falls under a larger umbrella of what’s known as Alternative Dispute Resolution including voluntary mediation and negotiation. So even though today’s use of arbitration clauses in employment contracts and user agreements raises concerns, the overall practice of alternative dispute resolution can be a healing mechanism.

And that’s this week’s Legal Docket.

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