Stephen E Friedman

The Lost Controversy Limitation of the Federal Arbitration Act

Stephen E. Friedman — Thu, 21 Jun 2012 08:41:32 PDT

Despite Congress’s deliberate limitation of the Federal Arbitration Act (the “FAA”) to disputes arising out of a contract containing an arbitration provision, broader arbitration provisions are ubiquitous. Courts invariably enforce such provisions under the FAA. Notably, the Supreme Court has almost entirely disregarded the relevant language of the FAA and has ignored the conflict between the FAA’s narrow language and the broad language typically found in arbitration provisions. In so doing, the Court has quietly and inappropriately elevated the language of private agreements above the language of the statute.

In this article, Professor Friedman first identifies the origin of the Court’s disregard for the FAA’s language. Second, he describes the conflict between the narrow language of the statute and the broad language found in arbitration agreements. Third, Professor Friedman describes and critiques both the judicial disregard of this conflict and the corresponding expansion of the FAA’s scope. Finally, he urges courts to focus on the language of the FAA to limit the statute’s scope to only those controversies that Congress intended.

A Pro-Congress Approach to Arbitration and Unconscionability

Stephen E. Friedman — Wed, 05 Oct 2011 14:29:01 PDT

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, Professor Horton's latest thoughtful effort on the subject.

Arbitration Provisions: Little Darlings and Little Monsters

Stephen E. Friedman — Wed, 05 Oct 2011 14:09:58 PDT

This Article takes a new approach to resolving the growing tension between the Federal Arbitration Act (FAA) and the unconscionability doctrine. While arbitration provisions are favored under the FAA, they are viewed far more skeptically by courts applying unconscionability to refuse enforcement of one-sided arbitration provisions. This tension, which has increased dramatically in recent years, represents a major fault line in contract law. Jurisprudence and commentary on this issue have assumed that courts have the authority to apply the unconscionability doctrine to arbitration provisions. This Article refutes that assumption, taking the position that Congress, in passing the FAA, removed from the courts the power to use unconscionability to deny enforcement of arbitration provisions. This argument is based on the language and structure of the FAA, the FAA’s legislative history, commentary contemporaneous with the passage of the FAA, and the nature of unconscionability. To the extent it is necessary to protect vulnerable parties from one-sided arbitration provisions, judicial application of the unconscionability doctrine cannot be the solution. This Article suggests that the arbitration system itself may be capable of addressing any such overreaching.

Giving Unconscionability More Muscle: Attorney’s Fees as a Remedy for Contractual Overreaching

Stephen E. Friedman — Tue, 16 Mar 2010 12:56:07 PDT

This Article seeks to broaden the conversation about unconscionability. While most of the discussion has focused on the appropriate standard for determining unconscionability, this Article focuses on the appropriate remedy to be imposed when unconscionability is found. The current remedy for unconscionability is non-enforcement or limited enforcement of unconscionable contracts or contract terms. This remedy is inadequate and seriously undermines unconscionability’s effectiveness as a tool for policing against contractual overreaching. The Article proposes that courts be given discretion to award attorney’s fees to consumers who successfully establish the unconscionability of a standard form contract. Such a remedy would enable unconscionability to meet the challenges posed by standard form contracts and would be fully consistent with unconscionability’s nature and history.

Text and Circumstance: Warranty Disclaimers in a World of Rolling Contracts

Stephen E. Friedman — Fri, 19 Dec 2008 11:01:05 PST

The law of warranty disclaimers has failed to keep pace with the proliferation and growing acceptance of "rolling" or "layered" contracts. Courts have not adequately addressed or resolved this tension and have failed to articulate an appropriate test for assessing these disclaimers in rolling contracts. This Article provides a flexible test based on language in Article 2 of the Uniform Commercial Code that validates certain disclaimers "unless the circumstances indicate otherwise." The test would enable a trier of fact to find a disclaimer ineffective if the nature of the transaction is such that it puts the buyer off guard as to the existence or effect of a disclaimer. To illustrate the value of this test, the Article applies the test to the critical issue of disclaimers in rolling contracts involving consumer purchases.

The Article concludes that although it may be appropriate to provide some terms only after purchase or order, a warranty disclaimer in a consumer purchase is not such a term. A consumer typically expects that, although the seller may provide some minor terms after purchase, all the key product information will be presented "up front" in the transaction. A disclaimer of the implied warranty of merchantability should be considered just such key product information. Thus, when a purchase or order passes without disclosure of a disclaimer, a consumer is likely to be put off guard as to the existence or effect of a disclaimer disclosed afterwards. In short, sellers should generally not be able to "roll" warranty disclaimers into consumer transactions.

Improving the Rolling Contract

Stephen E. Friedman — Wed, 10 Dec 2008 13:14:59 PST

This article addresses the increasingly common problem of buyers finding important contract terms inside the box of a newly purchased item instead of learning about them before or during purchase. The failure of courts to develop a satisfactory approach to deciding which contact terms sellers may provide after purchase is of great significance in light of the rapid proliferation of rolling contracts. In this article, I propose a mechanism that will ensure that sellers have the flexibility to defer presentation of some terms but that will also protect purchasers against the unfair imposition of unexpected and important terms arriving at a time when purchasers are very unlikely to read or act on them.

The mechanism I propose, which I refer to as Template Notice, is an intermediate form of disclosure that meets the pressing concerns of both buyers and sellers. It would require sellers to provide the following vital information before or during purchase: a brief and clear list or summary of terms that the buyer will not see until after purchase, a statement that the buyer will have the right to reject the terms and avoid the transaction, and a description of how to exercise that right. Template Notice is a reasonable and workable restriction on the ability of sellers to defer the disclosure of contract terms. Sellers would still be able to defer terms, but to a more limited extent than is currently permitted.

Protecting Consumers from Arbitration Provisions in Cyberspace, the Federal Arbitration Act and E-Sign Notwithstanding

Stephen E. Friedman — Wed, 10 Dec 2008 11:56:35 PST

Arbitration provisions are among the most significant of boilerplate contract terms. Yet the Federal Arbitration Act, which applies to written arbitration agreements, is generally understood as leaving little room for state regulation of these provisions. This article takes the position that arbitration provisions displayed on web-sites in consumer transactions are not written for purposes of the FAA. The FAA is therefore inapplicable to such arbitration provisions and states should be free to regulate them as they see fit.

When Congress enacted the FAA in 1925, Congress excluded oral and other non-written arbitration agreements from the FAA's coverage. In the current commercial environment, arbitration provisions on consumer web-sites are the closest equivalent to what oral and other unwritten arbitration provisions were in 1925 - a form of contracting notable for its casual nature and its failure in most instances to register meaningful choice or to impart seriousness. Arbitration provisions in consumer Internet transactions are thus properly excluded from the FAA.

This interpretation of the term written in the FAA must also be reconciled with E-SIGN. E-SIGN generally ensures that electronic documents be given the same effect as written documents. E-SIGN could thus be seen as requiring that all arbitration provisions in electronic form be treated the same as those in written form. While I acknowledge and discuss that argument, I take a contrary position and argue that E-SIGN does not dictate that text on an Internet web-site must always be considered written for purposes of the FAA.

Interpreting written to exclude at least some electronically displayed text from the scope of the FAA recalibrates the balance between state and federal arbitration law in an appropriate way and in an appropriate context.