Darling, It's Over: Posner on Arbitration

Yesterday, in what otherwise might have been a garden-variety opinion enforcing an arbitration agreement, Judge Richard Posner of the U.S. Court of Appeals for the Seventh Circuit had some striking things to say about arbitration. His opinion sarcastically pooh-poohed the idea that arbitration agreements are "darlings" of the law and went on to question whether arbitration "should be preferred to litigation." Provocative asides in a Posner opinion are nothing new—he never hesitates to point out that an emperor has no clothes—and his comments here had no bearing on the outcome of the case. Still, that this icon of the law-and-economics movement went out of his way (a little) to question the benefits of arbitration seems worth noting.

The case, Andermann v. Sprint Spectrum, was a putative class action under the Telephone Consumer Protection Act (TCPA) brought by former U.S. Cellular customers who received marketing calls from Sprint after U.S. Cellular assigned their contract to Sprint. Sprint made the calls because its network was supposedly incompatible with the consumers' phones, and it was going to terminate their contract unless they bought new phones from it (which it obviously wanted them to do). The arbitration issues that went up on appeal to the Seventh Circuit involved nuts-and-bolts questions: whether Sprint, as assignee of a cell phone contract with an arbitration clause, could invoke it against the cell-phone subscribers who originally entered into the contract with U.S. Cellular; and whether the TCPA claims at issue arose from the contractual relationship.

Posner wasted little time holding that Sprint could invoke the arbitration agreement and that it covered the dispute. Having done so, however, he couldn't resist chiding Sprint for going on ad nauseam about how much federal law favors arbitration:

Sprint gilds the lily, however, in telling us that arbitration is a darling of federal policy, that there is a presumption in favor of it, that ambiguities in an arbitration clause should be resolved in favor of arbitration, and on and on in this vein. It’s true that such language (minus the "darling") appears in numerous cases. ... But the purpose of that language is to make clear, as had seemed necessary because of judges’ historical hostility to arbitration, that arbitration was no longer to be disfavored—especially in labor cases, ... where arbitration is now thought a superior method of dispute resolution to litigation.

Posner pointed out, however, that the Federal Arbitration Act "merely makes clauses providing for the arbitration of disputes arising out of transactions involving interstate or foreign commerce, as the dispute in this case is conceded to arise, enforceable in federal and state courts," and whether a clause applies to a particular dispute therefore ought to be just a question of contract interpretation with no particular thumb on the scales. He went on:

It’s not clear that arbitration, which can be expensive because of the high fees charged by some arbitrators and which fails to create precedents to guide the resolution of future disputes, should be preferred to litigation. And it’s not clear why, so far as eliciting the meaning of a given arbitration clause is concerned, such a clause should be distinguished from any other clause in a contract. The cases do say that arbitration clauses are to be "generously construed," ... but we take that to mean that judges should not allow any preference they might have for judicial resolution of a legal dispute to override the parties’ dispute-resolution preferences as embodied in an arbitration clause.

Judge Posner was quick to point out that all this was just "an aside," because Sprint didn't need any special judicial favoritism toward arbitration to win this particular case. He also made clear that his comments on arbitration weren't in any way motivated by any sympathy for the claims of the plaintiffs. Indeed, he went on to say that it is a bid "odd" that Sprint even "wants arbitration" because, in his view, Sprint has an open-and-shut defense under the TCPA (established business relationship) that is "at least as likely to persuade a judge as an arbitrator."

Of course, Posner knew perfectly well why Sprint (and other corporate defendants) wants to arbitrate, so he immediately let the reader in on the secret:

[D]oubtless [Sprint] wants arbitration because the arbitration clause disallows class action arbitration. If the Andermanns’ claims have to be arbitrated all by themselves, they probably won’t be brought at all, because the Andermanns if they prevail will be entitled only to modest statutory damages.

Doubtless.

Having said all that, Judge Posner went on to spend two more pages explaining, for the arbitrator's benefit, why the plaintiffs should, in his view, lose their case if they ever actually seek to arbitrate. But, of course, "[w]e don’t want to step on the arbitrator’s toes." God forbid!

All in a days work for the inimitable Judge Posner: Dispose of the actual issue in the case in a terse three paragraphs, criticize both parties' briefing, throw in some skeptical comments about something the Supreme Court thinks is sacrosanct, and finish by deciding the merits that you've just ruled are not yours to decide. Still, as long as he wants to lob a few grenades at sacred cows, I'll be happy to read what he has to say.