Supreme Court Looks to Favor Business Arbitration with Individuals Over Courts
The nine justices heard arguments in two cases testing the scope of company agreements forcing disputes to be handled by an arbitrator instead of a judge, one involving a California lamp retailer and the other involving a Texas dental equipment distributor.
In their questioning of the parties in the cases, the justices indicated a reluctance to limit the ability of companies to keep such disputes out of court. The conservative-majority Supreme Court in recent years has issued a series of decisions endorsing the power of arbitration and curbing class-action claims of various types.
Both cases heard on Oct. 29 involved appeals of lower court rulings that business groups complained would harm the ability of companies to use arbitration as a way to resolve conflicts and would undermine federal arbitration law.
Companies prefer to arbitrate claims because it is cheaper and faster than litigation in court, which carries a greater risk. Businesses also prefer to handle disputes with individuals – instead of groups in class-action lawsuits – because such litigation can result in hefty damages awards by juries and is harder to fight.
In May, the justices upheld the legality of compelling workers to sign arbitration agreements waiving their right to bring class-action claims in a blow to employee rights.
Critics have said arbitration can make it tougher to root out misconduct such as discrimination within companies because the proceedings generally are kept private, an issue that has taken on greater resonance with the #MeToo movement against sexual harassment and misconduct.
California retailer Lamps Plus Inc. sought to prevent arbitration by workers as a group instead of as individuals in a dispute in which a warehouse employee named Frank Varela filed a class action lawsuit after his and other workers’ personal information was stolen by hackers in a company data breach.
The San Francisco-based 9th U.S. Circuit Court of Appeals last year ruled that the claims had to be resolved by an arbitrator rather than a court, but agreed they could move forward as a group, prompting the company’s appeal.
At issue is whether courts can allow arbitration as a group even if an agreement does not explicitly provide for the collective arbitration of claims.
Conservative Chief Justice John Roberts said the court in prior cases found that class arbitration is inconsistent with the purpose of arbitration itself, expressing doubt that contracts should be interpreted to allow “a type of arbitration that is like a poison pill.”
Liberal Justice Stephen Breyer also raised the court’s precedents buttressing individual-only arbitration as difficult to get around.
The other case involved price-fixing claims lodged by Plano, Texas-based dental equipment distributor Archer and White Sales Inc. against other manufacturers and distributors. It centered on whether courts can prevent arbitrators from deciding if an issue can be arbitrated at all. Liberal and conservative justices expressed concern over how to determine when such a demand for arbitration is groundless.