North Carolina Law Review

University of North Carolina School of Law

160 Ridge Road

Chapel Hill, NC 27514

Conspiracy to Arbitrate

January 17, 2018

96 N.C. L. Rev. 381 (2018) 

 

Beginning in the 1980s, the Supreme Court has ushered in a new Age of Arbitration in which firms can use arbitration clauses to include otherwise unenforceable terms in their contracts. This has allowed defendants to shorten statutes of limitations, to limit damages, and to prevent injunctive remedies altogether. Given the pro- business nature of arbitration clauses, mandatory arbitration clauses have become standard in some industries. Some industries may transition to market-wide mandatory arbitration, in part, through conspiracies to arbitrate. A conspiracy to arbitrate exists when the competing firms in a market illegally agree that they will all impose mandatory arbitration on their consumers. 

 

This Article highlights the dangers of conspiracies to impose arbitration, their illegality, and their utility in concealing and protecting price-fixing conspiracies. Despite the fact that conspiracies to arbitrate violate antitrust law, courts have misapplied arbitration law in ways that make such conspiracies profitable and perhaps inevitable in some markets. Relying on the false premise that Congress created a federal policy favoring arbitration, federal courts have employed seemingly neutral doctrines in ways that actively implement conspiracies to arbitrate. For example, courts have compelled antitrust plaintiffs to arbitrate their claims that defendants have conspired to impose arbitration, which means courts are enforcing—instead of condemning—the very agreement among competitors that they are supposed to adjudicate. Courts have also misapplied equitable doctrines and have given retroactive effect to arbitration clauses. These judicial decisions protect both conspiracies to arbitrate and price-fixing cartels.

 

The Article then presents a case study of recent litigation involving an alleged conspiracy among banks that issue credit cards to impose arbitration clauses on their customers. Following a bench trial, the federal trial judge held—and the Second Circuit affirmed—that the plaintiffs failed to prove an agreement among the defendants to impose arbitration clauses. In reaching this conclusion, the court committed a litany of mistakes and ultimately failed to recognize that it did, in fact, actually find an illegal conspiracy to arbitrate. These errors flowed from the court’s incorrect belief that Congress intended courts to favor arbitration over litigation.

 

The Article concludes by proposing changes to the way that courts evaluate conspiracy-to-arbitrate claims. Federal courts are essentially complicit in antitrust violations when they compel compliance with arbitration clauses that are the product of alleged illegal conspiracies. The Supreme Court’s rush to encourage and enforce arbitration clauses should not blind lower courts to the possibility that conspiracies to arbitrate are preventing the free market from operating properly to protect consumer interests. 

 

Download

Please reload