Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985)
Relevant Facts: An auto dealership sued Mitsubishi Motors under the Sherman Act, a federal anti-trust law. Mitsubishi moved to compel arbitration under an arbitration clause in the contract. Neither party disputed that the arbitration agreement was valid, but the question of arbitrability arose because the contract also contained a choice-of-law clause which provided that the arbitration would occur in Japan. The dealership argued that because the Sherman Act is designed to protect businesses like theirs, the federal anti-trust act required a court, not an arbitrator, to enforce it and, as such, the Sherman Act claims were non-arbitrable.
Question Before The Court: Whether claims alleging violations of federal statutes are “arbitrable” under the Federal Arbitration Act.
The Opinion: In a monumental decision, the Court held for the first time that federal statutory claims may be compelled into arbitration, despite the fact that arbitrators hold only the power to enforce contracts, not the law at large. The Court declared, “The ‘liberal federal policy favoring arbitration agreements’ manifested by [the FAA] is at bottom a policy guaranteeing the enforcement of private contractual arrangements: the Act simply creates a body of federal substantive law establishing and regulating a duty to honor an agreement to arbitrate. . .. There is no reason to depart from these guidelines where a party bound by an arbitration agreement raises claims founded on statutory claims.”
The Court continued, “By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits their resolution in an arbitral, rather than a judicial forum. It trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration. We must assume that if Congress intended the substantive protection afforded by a given statute to include protection against waiver of the right to a judicial forum, that intention will be deducible from a text or legislative history.”
Indeed, the Court determined that even “the potential complexity” of the antitrust claim at issue “should not suffice to ward off arbitration.” Casting arbitration clauses as “a specialized kind of forum-selection clause that posits not only the sitis of suit but also the procedure to be used in resolving the dispute,” the Court showed little concern for the potential obstacles to civil law enforcement such a restricted forum might present. “The Bremen [inter alia] established a strong presumption in favor of enforcement of freely negotiated contractual choice-of-forum provisions. . . . That presumption is reinforced by the emphatic federal policy in favor of arbitral dispute resolution.”
Ultimately, the Court established that determining the arbitrability of a federal statutory claim only requires a two-step inquiry: first, ascertain whether the parties’ agreement to arbitrate reached the statutory issue; then, upon finding it did, consider whether legal constraints external to the parties’ agreement foreclosed arbitration of those claims. Citing The Bremen, the Court allowed that “[a] party resisting arbitration may attack directly the validity of the agreement to arbitrate. Moreover, the party may attempt to make a showing that would warrant setting aside the forum-selection clause – that the agreement was affected by fraud, undue influence, or overweening bargaining power, that enforcement would be unreasonable and unjust, or that proceedings in the contractual forum will be so gravely difficult and inconvenient that the resisting party will for all practical purposes be deprived of his day in court. But, absent such a showing . . . there is no basis for assuming the forum inadequate or its selection unfair. . . And so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.”
With this decision, all statutory claims – federal and state – are now presumed arbitrable, with a high bar for challenging arbitration of any statutory claims. Practically speaking, once this decision came down, big, powerful companies started drafting contracts of adhesion that include extremely broad language requiring all statutory claims against them to be resolved solely in binding arbitration – a move that essentially allows them to avoid the American judicial system with the stroke of a pen.
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