Privatization of traditionally public government functions is all the rage in the second Trump administration. The news is rife with suggestions of privatizing everything from delivering the mail to keeping airplanes aloft to tracking the weather. These developments seem consistent with the Supreme Court’s longtime trends of favoring privatization of their own bread and butter—public adjudication in court. Since 1980, the Court has treated arbitration agreements with special status, pursuing a “liberal federal policy favoring arbitration agreements,” while showcasing a hostility to court litigation. Pro-arbitration policies are popular around the world for commercial contracts. But the Supreme Court’s particular flavor of arbitration favoritism has led to a certain American arbitration exceptionalism—a pro-arbitration policy not just for international commercial contracts and other business-to-business contexts, but for employment and consumer contracts (for which other countries do not countenance arbitration given the imbalance of bargaining power between the parties). Today’s legal environment might lead one to expect Supreme Court support for arbitration and privatization of dispute resolution only to grow.
But Myriam Gilles, who has been tracking and criticizing these trends for a long time, provides some reason for optimism that the Court might reverse course. Gilles’s latest article, Arbitration Exceptionalism, charts the rise and, she suggests, potential coming fall of arbitration exceptionalism, particularly since the Supreme Court’s 2022 opinion in Morgan v. Sundance.
Morgan seems to emphasize an equal-treatment policy for arbitration (arbitration contracts should be treated like any other contracts) rather than a preferential-treatment policy, or “arbitration exceptionalism.” If the Court follows this reading of Morgan, the future could hold more public litigation and possibly a rebirth for class actions in employment and consumer cases. It opens a small door towards this possible future, but it will require work to get through it. Acknowledging the challenges, Gilles lays out the path.
Morgan involved a Taco Bell employee’s putative class action against Sundance (Taco Bell’s owner), alleging violations of the Fair Labor Standards Act (“FLSA”). For a while, Sundance seemed to ignore the arbitration clause in Morgan’s job application, participating in litigation for almost eight months. Then, just before the pretrial conference, Sundance moved to compel arbitration. Morgan argued that Sundance, by litigating the claim, had waived its right to invoke arbitration. The Eighth Circuit disagreed, applying a special rule for waiving arbitration rights. In addition to showing that the defendant’s conduct was inconsistent with an assertion of the right (which is common to all waiver doctrines), the plaintiff must show that the inconsistent litigation conduct prejudiced the plaintiff. This arbitration-specific prejudice requirement, present in nine circuits, was supposed to vindicate the Supreme Court’s pro-arbitration policy.
The Supreme Court held that courts may not create special, arbitration-specific variants of federal procedural rules to support the FAA’s “policy favoring arbitration.” The federal policy, Justice Kagan explained for the Court, is about putting arbitration agreements on equal footing with other contracts, “not about fostering arbitration.”
Gilles’s prior work flagged Morgan as “big news,” because it “suggest[s] that all judge-made, arbitration-specific rules created in the service of a supposed policy favoring arbitration are ripe for reexamination.” Doctrinally, it lowers the standard in nine circuits for using waiver as a basis for resisting late attempts to pursue arbitration, by virtue of removing the prejudice requirement. Some circuits agree that Morgan overruled their previous adherence to a “strong federal policy favoring enforcement of arbitration agreements.” Others reject such a broad reading.
Arbitration Exceptionalism “undertake[s] a systematic examination” of the arbitration-specific rules that courts have developed in furtherance of the pro-arbitration policy, seeking to identify which rules may be subject to a Morgan-based retrenchment. The list provides a plan of attack for advocates who have long been challenging the pro-arbitration policy’s interference with other kinds of rights, including access to class actions. In this sense, it could play a role similar to the appendix that the DOJ affixed to its brief in Moritz v. Commissioner of Internal Revenue, which provided Ruth Bader Ginsburg with the list of federal laws that differentiated people on the basis of sex—the laws that she then systematically challenged with remarkable success.
One target is Lamps Plus v. Varela, holding that state law contract interpretation doctrine of contra proferentem (contracts should be interpreted against the drafter, which would mean, for example, against the employer in employment contracts) falls to the federal policy that contract ambiguities must be resolved in favor of arbitration. Interpreting ambiguous arbitration clauses against the drafter, as contra proferentem may instead require, could lead to fewer arbitrations. Likewise, Morgan may undermine the “arbitration-by-estoppel jurisprudence” based on Arthur Andersen v. Carlisle, which seems to favor binding third parties to arbitration agreements through expansive interpretations of state estoppel doctrine. Both cases led to more arbitration, but both “rest[] on precisely the sort of arbitration exceptionalism that Morgan disavows.”
Gilles is sensitive to the challenges of unraveling the “hegemonic arbitration edifice that has stood now for decades.” So am I. She tracks the fate of Morgan in the lower courts since 2022, finding a mixed bag. Many courts are reluctant to read Morgan as the sea change that Gilles envisions. There are also several plain vanilla instances of enforcement of arbitration clauses or applications of Supreme Court precedents that seem unlikely to be unmoored.
I would also raise some doctrinal challenges that Gilles seems to overlook in this draft. Morgan articulates an equal-treatment principle when courts are developing federal procedural rules like waiver. But most of the Court’s Federal Arbitration Act (FAA) cases have involved a pro-arbitration policy effectively preempting principles of state contract law, such as unconscionability. Part of the quandry lies in defining what it means to treat different kinds of contracts equally. After all, AT&T v. Concepcion also starts with the statement that “courts must place arbitration agreements on an equal footing with other contracts.” We may be at a particularly difficult moment for reversing course on a pro-arbitration policy, given the current political climate favoring privatization and the American public’s waning confidence in courts and waning trust in public institutions generally.
Gilles understands that taking Morgan for its fullest possible import would require educating a new generation and shifting away from assumptions of federal courts’ pro-arbitration proclivities. This would require reimagining what equal footing for arbitration means in a modern world rife with arbitration clauses in employment and consumer contracts. It may also require the public to reestablish its trust in courts. Legal change takes time. The arc of the law may bend towards justice, but it also needs to be pushed. Gilles’s work not only pushes but provides a helpful roadmap to guide the course.
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