University of California, Davis School of Law Professor David Horton has published “Infinite Arbitration Clauses,” University of Pennsylvania Law Review, Vol. 168 (Forthcoming). In his journal article, Professor Horton discusses how the court system handles broad arbitration provisions that may not be directly related to the underlying contract.
The abstract states:
For decades, the Supreme Court has expanded the Federal Arbitration Act (FAA) and companies have placed arbitration clauses in hundreds of millions of contracts. This Article examines a less obvious way in which arbitration’s tendrils are growing. Once, even the broadest arbitration provisions only governed allegations that were somehow connected to the agreement between the parties (the “container contract”). As a result, they often did not cover shocking and unforeseeable misconduct, or parties who did not sign the container contract, or claims that arose after the agreement lapsed. But now businesses are experimenting with what this Article calls “infinite” arbitration clauses: those that mandate arbitration for all disputes between any related party in perpetuity. Moreover, to cut courts out of the loop, drafters are coupling infinite provisions with so-called “delegation” clauses, which give the arbitrator the exclusive right to determine whether to send a cause of action to arbitration.
The Article reveals that courts are divided about whether to take infinite provisions literally. At first, most judges refused to allow companies to compel arbitration in such broad strokes. Yet the Court has recently decided a rash of cases that imply that the FAA overrides hostility to boundless arbitration provisions. Thus, infinite clauses are caught in a tug-of-war between state contract rules that protect individuals from overreaching and the Justices’ view that the FAA makes arbitration agreements bulletproof.
To resolve this conflict, the Article offers a theory about the limits of corporate power to opt of the judicial system. First, it argues that some infinite provisions are not valid because they attempt to impose arbitration on plaintiffs who did not truly agree to the process. Second, it contends that even when a plaintiff did agree to arbitrate, the robust federal policy in favor of arbitration does not apply to lawsuits that have no logical relationship to the container contract. Finally, the Article uses these insights to propose solutions to the numerous problems raised by ultra-broad arbitration clauses.