In the last 20 years the Supreme Court has created a parallel judicial system to resolve disputes involving corporations that is effectively run by the very corporations whose behavior is under investigation.
Here is how that judicial coup against an independent judiciary occurred.
In 1925 Congress passed a simple 4-page law, the Federal Arbitration Act (FAA). Businesses that preferred a simpler and faster arbitration process in business-to-business transactions to costly and protracted court battles urged Congress to act because federal courts often refused to enforce many arbitration clauses.
A one court explained, “… nothing would be easier than for the more astute party to oust the courts of their jurisdiction. By first making the contract and then declaring who should construe it, the strong could oppress the weak, and in effect so nullify the law as to secure enforcement of contracts usurious, illegal, immoral, and contrary to public policy.”
The FAA was a legislative attempt to satisfy businesses’ desire for speedy and affordable dispute resolution while also satisfying the judges’ desire for justice.
The result was a law very narrowly focused on commercial contracts voluntarily entered into by businesses of relatively equal strength. In a House floor debate Representative George Scott Graham (R-PA) summed up his colleagues’ intent, “[t]his bill simply provides for one thing, and that is to give an opportunity to enforce an agreement in commercial contracts and admiralty contracts—an agreement to arbitrate, when voluntarily placed in the document by the parties to it.”
For the next 60 years the law worked as intended. Courts consistently upheld arbitration awards between businesses but also consistently held that the FAA was procedural not substantive. Arbitration did not trump federal and state laws. The FAA did not apply to employment or consumer contracts.
A New Conservative Supreme Court Steps In
And then the composition of the Supreme Court dramatically changed. Richard Nixon came to office declaring his intention “to nominate to the Supreme Court individuals who shared my judicial philosophy, which is basically a conservative philosophy” and during his first term promptly put four Justices on the Court. In his two terms Ronald Reagan also put four Justices on the Court.
In 1984 the Supreme Court flexed its new conservative muscles. In a case involving the right of Southland’s 7-11 franchisees to sue under the California Franchise Law the Court reinterpreted the 1925 law as a Congressional declaration of a “national policy favoring arbitration”. It further ruled that this national policy applied not only to federal courts but to state courts and was substantive as well as procedural. No matter how one-sided the balance of bargaining power once a business signed a contract with an arbitration clause it was forced to abide by the decision of arbiters even if they ignored relevant state and federal laws and even if the decision-making processed was biased against the complainant.
Dissenting Justices vainly pleaded with their colleagues not to ignore the clear will of Congress and derail more than a half-century of uncontroversial implementation of the FAA. As Sandra Day O’Connor observed, “One rarely finds a legislative history as unambiguous as the FAA’s.”
In 2001 the Court, by a 5-4 vote, extended the FAA to cover employment contracts. The four dissenters beseeched their brethren not only to look at the original intent of the law but to its actual text. Section 1 of the law states, “nothing herein contained shall apply to contracts of employment of seamen, railroad employees or any other class of workers engaged in foreign or interstate commerce.” The clause was inserted at the bequest of the International Seamen’s Union and the more broadly based American Federation of Labor. “History amply supports the proposition that it was an uncontroversial provision that merely confirmed the fact that no one interested in the enactment of the FAA ever intended or expected (it) would apply to employment contracts,” noted the dissenters. Continue reading