What is “Arbitration”?

The New York Times had a major investigative series last week exposing companies’ extensive use of arbitration clauses to keep disputes out of court.

The journalists Michael Corkery, Robert Gebeloff and Jessica Silver-Greenberg have done a major service showing how churches force their parishioners and employees to use “Christian” arbitration, how doctors and hospitals use their own procedures for disputes with patients and staff, and financial services firms require arbitration for conflicts with customers.

In the wake of the series, friends and family that have long struggled to understand my research on investor-state dispute settlement arbitration (or ISDS) have told me they “get it now”.

But there is no single definition of arbitration, or of what separates it from normal courts. In Marty Shapiro’s (1986) classic typology, arbitrators differ from judges in that the former are un-tenured, chosen by the disputing parties, and pick and impose a solution that is only binding on those same parties. In contrast, judges are tenured and empowered by sovereigns to settle disputes through the making of legal decisions that often set rules also for non-disputants. Lower down on Shapiro’s sliding scale of “triadic conflict resolvers” are “go-betweens” (which transmit messages between disputing parties), and “mediators” (who find a middle solution between the parties’ positions).

But no sooner is this typology than it becomes complicated. Shapiro notes that a lot of what judges do is mediation: forcing parties to take their dispute out of courts. Moreover, when judges are hearing cases where the state is a defendant or prosecutor, the “triad” threatens to collapse into two, as the judge is a part of the state. Barbara Koremenos, while hewing to Shapiro’s typology fairly closely, notes that international arbitrators and international judges aren’t that different – both rely on some national authority to enforce their decisions. Meanwhile, both domestically and internationally, Erik Voeten notes that judges may lack sufficient competence, independence or legitimacy to play their ideal type role.

Just as judges slide away from their ideal type role, arbitrators can often come quite close to judges’ role. In my own work, I have argued that investment arbitrators do many of the things more often associated with judges. Namely, they demonstrate substantial independence (despite lacking tenure). They make law-like pronouncements, and write public-facing written decisions that become highly influential.

In the end, much depends on the rules in a particular adjudication forum. For instance, another emerging type of international arbitration is tax arbitration. This dispute settlement mechanism is triggered when two countries lay claim to the same bit of revenue by a multinational company or taxpayer. Say both the US and Canada want to tax the same bit of income by Budweiser. Under new arbitration rules, the countries could go to arbitration. But unlike investor-state dispute settlement, tax arbitration does not produce written awards. Indeed, all the arbitrators do is pick which proposal (US or Canadian) will prevail. This methodology is called baseball arbitration, after its roots in disputes between labor and management in US baseball. Compared with the relative autonomy of ISDS, tax arbitration seems to be much closer to what Eric Posner and John Yoo call state-dependent international tribunals.

So what, if anything, is the common denominator tying different forms of arbitration together?

I prefer a more limited two-pronged definition. First, arbitration is dispute settlement by un-tenured deciders, who are appointed on a case by case basis.

Second, arbitration requires the collaboration of domestic courts. While the NYT called domestic arbitration the “privatization of justice”, I don’t see it that way. In their own reporting, arbitral decisions were only made effective because courts deferred to and enforced them. Likewise, ISDS decisions only matter because domestic courts help enforce them. Much of this enforcement obligation comes in the same federal statute – the Federal Arbitration Act, which is yet another point of commonality.

On this second prong, arbitration is not a world apart from domestic courts, who also don’t have their own police force and require executive branches to help enforce their decisions. As President Andrew Jackson once said of the Supreme Court chief justice, “John Marshall has made his decision; now let him enforce it!” But arbitration requires the additional first step of domestic court enforcement.

And standing over both arbitration and judging, I prefer the umbrella term “adjudication”. The Oxford English Dictionary defines “to adjudge” as “to pronounce or decree by judicial sentence or by a similar legal or official ruling”. Many of the examples in the etymology include cases from mixed arbitral commissions – suggesting a common tie.

In the end, what the NYT series (and friends’ reactions to it) show is how attached Americans are to a specific vision of the domestic legal system. One would think that access to courts (and class action lawsuits) is the only way that underdogs can get justice. But there are other ways. As Robert Kagan argues, European democracies do a much better job at achieving through regulation what America attempts (badly) to achieve through litigation. But, as Kagan also notes,  with the serious political barriers that exist to getting comprehensive welfare protections in place, adversarial legalism may be all we have. In that context, it is not surprising that readers would be outraged by these shifts – by whatever name they go by.

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