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2761
GIVING ARBITRATION SOME CREDIT: THE
ENFORCEABILITY OF ARBITRATION CLAUSES
UNDER THE CREDIT REPAIR
ORGANIZATIONS ACT
Genevieve Hanft*
In today’s economy, the effects of a bad credit report are devastating to
consumers. Individuals with poor credit history are often crippled in their
ability to purchase even the smallest item, and consequently turn for help to
credit repair organizations advertising services that cure bad credit.
Frequently, however, these organizations merely accept high fees from
customers already in dire financial straits, without improving their
financial standing. To combat these predatory practices, Congress passed
the Credit Repair Organizations Act (CROA), which imposes several
requirements on credit repair organizations. One such provision mandates
that credit repair organizations give a form to each consumer that clearly
explains their specific rights before any contract is signed. This required
disclosure form notifies consumers that they have “the right to sue” a
credit repair organization that violates any provision of the CROA.
References to this right, however, appear nowhere else in the statute.
Many credit repair organizations include mandatory arbitration clauses
in their contracts with consumers. As a result, consumers who have
received a form notifying them of a “right to sue” may be told, by both
companies and courts, that they may not seek redress in a court of law.
Circuit courts have split on the enforceability of these arbitration
agreements.
In the context of both consumer protection law and recent arbitration
jurisprudence, this Note examines the purported collision between the
CROA and the longstanding Supreme Court policy in favor of enforcing
arbitration agreements pursuant to the Federal Arbitration Act. After
examining the passage of the CROA and the history of arbitration as a
mechanism for dispute resolution, this Note analyzes the divergent
approaches taken by the U.S. Courts of Appeals for the Third, Ninth, and
Eleventh Circuits in addressing this conflict. Ultimately, this Note
* J.D. Candidate 2012, Fordham University School of Law; B.A. 2009, Bowdoin College. I
would like to thank Professor Jacqueline Nolan-Haley for her guidance and all my friends
and family, especially my grandparents and step-parents, for their patience, love, and
support. Special thanks to Mom, Dad, Ali, and Liz for their endless confidence in me.
2762 FORDHAM LAW REVIEW [Vol. 79
recommends that courts enforce these arbitration clauses in order to
preserve the viability of arbitration as an effective method of dispute
resolution.
T
ABLE OF CONTENTS
I
NTRODUCTION ........................................................................................ 2763
I.
THE CREDIT REPAIR ORGANIZATIONS ACT ........................................ 2765
A. From Caveat Emptor to Meaningful Disclosure: The
Origins and Development of the Consumer Protection
Movement .............................................................................. 2765
1. Truth in Lending Act ....................................................... 2766
2. Fair Credit Reporting Act ................................................ 2767
3. Equal Credit Opportunity Act .......................................... 2768
B. Increased Protection Leads to Increased Predation .............. 2768
1. The Development of Credit Repair Organizations .......... 2768
2. Passage of the Credit Repair Organizations Act .............. 2769
C. Shelter from Harmful Repair: The CROA ............................. 2770
1. What a Credit Repair Organization Is .............................. 2771
2. What a Credit Repair Organization Does ........................ 2771
3. Substantive Violations of the CROA ............................... 2772
4. Technical Violations of the CROA .................................. 2772
D. Local Protection: Similar State Enactments ......................... 2773
II.
THE PRACTICE OF ARBITRATION, THE FEDERAL ARBITRATION
ACT, AND HOW THE SUPREME COURT HAS SHAPED
ARBITRATION ............................................................................... 2774
A. Beyond the Courthouse: The Origins and Objectives of
Alternative Dispute Resolution ............................................. 2774
B. “The Most Venerable ADR Mechanism”: Arbitration in
Practice ................................................................................. 2776
C. The Evolution of Arbitration Jurisprudence ........................... 2778
1. Early Arbitration Agreements in the Courts .................... 2778
2. Arbitration Is Federalized: The Passage of the Federal
Arbitration Act ................................................................ 2779
3. An Initial Rejection .......................................................... 2780
4. “A Healthy Regard” for Arbitration................................. 2782
5. Total Enforcement: The Supreme Court’s Treatment of
Arbitration Since 2000 .................................................... 2786
D. Federal Statutory Claims, the FAA, and the Courts .............. 2789
III. THE CREDIT REPAIR ORGANIZATIONS ACT IN COURT: THE SPLIT
OVER WHETHER A COURT MAY COMPEL A CONSUMER TO
ARBITRATE CLAIMS UNDER THE CREDIT REPAIR
ORGANIZATIONS ACT ................................................................... 2791
A. Under the CROA, Mandatory Arbitration Clauses Are
Enforceable ........................................................................... 2792
2011] GIVING ARBITRATION SOME CREDIT 2763
1. The Third Circuit ............................................................. 2792
2. The Eleventh Circuit ........................................................ 2794
3. The Sixth Circuit .............................................................. 2795
4. The Eighth Circuit............................................................ 2796
5. In Favor of Enforceability ................................................ 2796
B. Under the CROA, Mandatory Arbitration Clauses Are Not
Enforceable ........................................................................... 2797
1. The Fifth Circuit .............................................................. 2798
2. The Ninth Circuit ............................................................. 2799
3. Against Enforceability ..................................................... 2801
IV.
WHY COURTS SHOULD FIND THAT THE CROA DOES NOT
PRECLUDE ARBITRATION ............................................................. 2803
A. Lower Courts Should Uphold The Supreme Court’s Strongly
Expressed Policy in Favor of Arbitration ............................. 2803
B. Consumer Protection Is Supplied By Alternative Channels ... 2805
1. Institutions Reject Arbitration Agreements ..................... 2805
2. The Legislative Branch Seeks to Modify Arbitration ...... 2806
3. A New Agency Reconsiders Arbitration ......................... 2807
C. A Simple Solution: Outlaw Credit Repair Organizations...... 2807
C
ONCLUSION ........................................................................................... 2807
I
NTRODUCTION
In 2001, Richard Schreiner faced massive debt obligations.
1
At a loss for
how to fix it on his own, Schreiner contacted Credit Advisors, Inc., a
business offering debt management services.
2
He signed an agreement with
the company to resolve his $15,392 debt in exchange for monthly payments
of $400.
3
After five years of these monthly payments, Schreiner still owed
over $5000 of his original debt.
4
Believing that Credit Advisors had deceived him, Schreiner decided to
bring his claims to court.
5
He filed suit in the United States District Court
for the District of Nebraska
6
for violations of the federal Credit Repair
Organizations Act (CROA).
7
But Schreiner never got his day in court.
8
1. See Schreiner v. Credit Advisors, Inc., No. 8:07CV78, 2007 WL 2904098, at *1 (D.
Neb. Oct. 2, 2007).
The agreement he had signed with Credit Advisors contained an arbitration
2. See id.
3. See id.
4. See id. at *3.
5. See id. at *4.
6. See id.
7. See 15 U.S.C. § 1679 (2006).
8. See Schreiner, 2007 WL 2904098, at *12.
2764 FORDHAM LAW REVIEW [Vol. 79
agreement, and the district court issued an order compelling Schreiner to
submit his claims to arbitration.
9
In urging the court to deny arbitration and allow him to bring his claims
in court, Schreiner pointed to a provision in the CROA that informs
customers of credit repair organizations that “[y]ou have a right to sue a
credit repair organization that violates the Credit Repair Organization[s]
Act.”
10
How could it be possible, argued Schreiner, that he could be barred
from court when the statute under which he was suing specifically informed
him that he had a right to sue?
11
The answer lies in the perceived conflict between the Federal Arbitration
Act (FAA)
12
and the CROA. The FAA requires courts to enforce
arbitration agreements “save upon such grounds as exist at law or in equity
for the revocation of any contract.”
13
The U.S. Supreme Court has
interpreted the FAA as manifesting a “liberal federal policy favoring
arbitration agreements” and has consistently compelled arbitration of a
diverse array of claims.
14
This Note addresses the unresolved question of the enforceability of
arbitration agreements under the Credit Repair Organizations Act. While
the U.S. Courts of Appeals for the Third and Eleventh Circuits have
enforced such agreements, finding that the CROA does not preclude
arbitration,
But what of the CROA’s declaration of a “right
to sue?”
15
the U.S. Court of Appeals for the Ninth Circuit has refused to
enforce these arbitration clauses, finding that the CROA entitles plaintiffs to
a judicial forum.
16
This conflict arises against a backdrop of debate over all mandatory
arbitration agreements between consumers and businesses.
17
Scholars and
legislators alike have argued that such agreements are unjust.
18
9. See id.
A refusal to
10. See id. at *9–10; see also 15 U.S.C. § 1679c(a).
11. See Schreiner, 2007 WL 2904098, at *10–11.
12. 9 U.S.C. §§ 1–16 (2006).
13. Id. § 2.
14. Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983); see
also infra Part II.C–D.
15. See, e.g., Picard v. Credit Solutions, Inc., 564 F.3d 1249, 1256 (11th Cir. 2009); Gay
v. CreditInform, 511 F.3d 369, 395 (3d Cir. 2007).
16. See, e.g., Greenwood v. CompuCredit Corp., 615 F.3d 1204, 1205 (9th Cir. 2010).
17. See generally Richard M. Alderman, Why We Really Need the Arbitration Fairness
Act: It’s All About Separation of Powers, 12 J.
CONSUMER & COM. L. 151 (2009); Mark E.
Budnitz, The High Cost of Mandatory Consumer Arbitration, 67 L
AW & CONTEMP. PROBS.
133 (2004); infra Part III.B.3.
18. See generally Senator Russell D. Feingold, Mandatory Arbitration: What Process is
Due?, 39
HARV. J. ON LEGIS. 281 (2002); Shelly Smith, Mandatory Arbitration Clauses in
Consumer Contracts: Consumer Protection and the Circumvention of the Judicial System,
50 D
EPAUL L. REV. 1191 (2001); Jean R. Sternlight, Creeping Mandatory Arbitration: Is It
Just?, 57
STAN. L. REV. 1631 (2005).
2011] GIVING ARBITRATION SOME CREDIT 2765
enforce such agreements, however, would fly in the face of the Supreme
Court’s clear mandate to lower courts to enforce arbitration agreements.
19
This Note examines the current circuit split over the enforceability of
arbitration agreements under the CROA in the context of both consumer
protection law and relevant arbitration jurisprudence. Part I discusses the
development of consumer protection law and the enactment of the CROA
and examines the statute in detail. Part II describes the history and
procedure of arbitration and examines the development of the Supreme
Court’s policy regarding arbitration. Part III then analyzes the circuit split
over the enforceability of arbitration agreements under the CROA and the
arguments for and against enforcing mandatory consumer arbitration
clauses. Part IV advocates for the enforcement of such arbitration clauses,
presenting several reasons why consumers are not harmed by the
enforcement of such agreements. Finally, Part IV proposes a simple
solution to the problem: the elimination of credit repair organizations.
I.
THE CREDIT REPAIR ORGANIZATIONS ACT
This part introduces the origins and developments of consumer protection
law. Next, it discusses the passage of the CROA and examines the CROA
in detail. Finally, it highlights comparable statutes enacted under state law.
A. From Caveat Emptor to Meaningful Disclosure: The Origins and
Development of the Consumer Protection Movement
The American legal system has provided protection to consumers for
centuries, albeit not always in the form of a comprehensive, effective legal
framework.
20
The common law protected consumers by applying to
consumer disputes legal principles such as warranty obligations stemming
from a contractual relationship and deceit actions grounded in tort law.
21
Any government involvement in consumer issues generally flowed from a
desire to maintain market stability.
22
Statutory protection of consumers began with the establishment of the
Federal Trade Commission (FTC) in 1914.
23
19. See generally Thomas E. Carbonneau, Arguments in Favor of the Triumph of
Arbitration, 10 C
ARDOZO J. CONFLICT RESOL. 395 (2009) [hereinafter Carbonneau,
Triumph]; Thomas E. Carbonneau, The Revolution in Law Through Arbitration, 56 C
LEV.
ST. L. REV. 233 (2008) [hereinafter Carbonneau, Revolution]; Richard E. Speidel, Consumer
Arbitration of Statutory Claims: Has Pre-Dispute [Mandatory] Arbitration Outlived Its
Welcome?, 40
ARIZ. L. REV. 1069 (1998).
Originally enacted to monitor
only “unfair methods of competition,” Congress amended the Federal Trade
20. See Robert B. Reich, Toward a New Consumer Protection, 128 U. PA. L. REV. 1, 5
(1979) (“The American economy has paid lip service for two hundred years to the twin
laissez-faire principles of vigorous competition and consumer self-reliance, the latter
embodied in the maxim caveat emptor.”).
21. See J
OHN A. SPANOGLE ET AL., CONSUMER LAW: CASES AND MATERIALS 1 (3d ed.
2007).
22. Reich, supra note 20, at 9.
23. See 15 U.S.C. §§ 41–58 (2006); S
PANOGLE ET AL., supra note 21, at 35.
2766 FORDHAM LAW REVIEW [Vol. 79
Commission Act in 1938 to extend the Act’s scope to cover “unfair or
deceptive acts or practices.”
24
Subsequently, American consumer
protection law underwent an expansion in the 1960s.
25
Currently, this area
of the law reflects an amalgamation of principles from contract, tort,
criminal, property, business, corporate, constitutional, and civil rights law.
26
1. Truth in Lending Act
From 1950 to 1980, the amount of credit extended to individuals by
financial institutions increased nearly fifteen fold.
27
With this expansion in
the use of credit,
28
the law began to provide comprehensive protection to
consumers in various aspects of credit transactions, most notably with the
enactment of the Truth in Lending Act (TILA) in 1968.
29
TILA is a section
of the Consumer Credit Protection Act (CCPA), the purpose of which is to
provide meaningful disclosure of credit terms to consumers.
30
TILA was
the first federal law aimed at protecting consumers in obtaining credit,
31
and the law was thought to improve the inadequacies of consumer
protection at the state level.
32
Consumer protection at the federal level has
continued to expand since TILA’s passage, with the enactment of numerous
federal statutes designed to protect consumers from deceptive practices.
33
24. See 15 U.S.C. § 45; SPANOGLE ET AL., supra note
21, at 35.
25. See Alderman, supra note 17, at 152 n.16 (arguing that consumer protection was
“[l]imited” until the 1950s and early 1960s, when President John F. Kennedy outlined four
basic consumer rights in an address to Congress); see also Mark E. Budnitz, The
Development of Consumer Protection Law, the Institutionalization of Consumerism, and
Future Prospects and Perils, 26 G
A. ST. U. L. REV. 1147, 1151 (2010) (discussing how the
expansion of consumer protection law occurred as a result of the civil rights movement and
the effort by lawyers to alleviate poverty).
26. See R
ONALD D. COLEMAN, AMERICAN BAR ASSOCIATION, GUIDE TO CONSUMER LAW
4–9 (1997).
27. See D
AVID G. EPSTEIN, CONSUMER LAW IN A NUTSHELL 40 (2d ed. 1981).
28. See J
OAN M. BURDA, AN OVERVIEW OF FEDERAL CONSUMER LAW 5 (1998) (“[C]redit
is no longer a luxury but a necessity . . . . The credit industry is a multibillion-dollar
operation, and credit permeates every facet of daily life.”).
29. 15 U.S.C. §§ 1601–1667f; see H.R. R
EP. NO. 90-1040, at 3 (1967), reprinted in 1968
U.S.C.C.A.N. 1962, 1965 (“Consumer credit has become an essential feature of the
American way of life.”).
30. See 15 U.S.C. §§ 1601–1693r.
31. See id. § 1601(a) (describing the purpose of the Truth in Lending Act (TILA) as
“assur[ing] a meaningful disclosure of credit terms so that the consumer will be able to . . .
avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair
credit billing and credit card practices”).
32. See Budnitz, supra note 25, at 1154.
33. See generally B
URDA, supra note 28 (excerpting and discussing numerous consumer
protection statutes, for example the Fair Credit Billing Act, 15 U.S.C. §§ 1666–1666j);
Alderman, supra note 17, at 152.
2011] GIVING ARBITRATION SOME CREDIT 2767
2. Fair Credit Reporting Act
Numerous problems and inconsistencies in the credit business arose with
the increased use of credit.
34
The credit reporting industry became
increasingly important, given that obtaining a credit report on each loan
applicant is a prerequisite to lending.
35
Therefore, an inaccurate or
unfavorable credit report came to be potentially devastating to consumers.
36
Common law, however, provided little protection to those who were injured
by an inaccurate credit report.
37
As a result, Congress enacted the Fair
Credit Reporting Act (FCRA)
38
in 1970 “to insure that consumer reporting
agencies exercise their grave responsibilities with fairness, impartiality, and
a respect for the consumer’s right to privacy.”
39
The FCRA sought to
regulate consumer reporting agencies
40
and provided consumers with the
right to dispute incorrect information about their credit history.
41
The Act
thus gives consumers the right to access their credit file after being denied
credit based on information from a credit report.
42
Upon receiving a claim from a consumer disputing the accuracy of her
report, an agency must conduct a “reasonable reinvestigation” free of
charge to the consumer.
43
Usage of inaccurate information is a violation of
the FCRA.
44
Nevertheless, although designed to combat “unfair credit
reporting methods,”
45
the FCRA instead created a new loophole for
questionable business practices—and a new channel by which consumers’
credit may be damaged—by enabling the operation of credit repair
organizations.
46
34. See EPSTEIN, supra note
27, at 213 (attributing the increase in consumer credit to a
greater supply of “high priced items that a consumer could use while paying for them”).
35. See id. at 53–55.
36. See 136 C
ONG. REC. 18,766 (1990) (“Consumers with bad credit histories can find it
impossible to borrow to buy a car, purchase a home, or even . . . to rent an apartment.”)
(statement of Rep. Annunzio).
37. See E
PSTEIN, supra note 27, at 55–57 (discussing why consumers rarely triumphed in
common law causes of action disputing an inaccurate credit report); see also S
PANOGLE ET
AL
., supra note 21, at 280 (“Neither the marketplace nor the common law created a reliable
mechanism for correcting inaccurate credit reports.”).
38. 15 U.S.C. § 1681–1681(x).
39. Id. § 1681(a)(4).
40. Id. § 1681(a)(2)–(3) (“An elaborate mechanism has been developed for investigating
and evaluating the credit worthiness, credit standing, credit capacity, character, and general
reputation of consumers. Consumer reporting agencies have assumed a vital role in
assembling and evaluating consumer credit and other information on consumers.”).
41. Id. § 1681m; see also 134 C
ONG. REC. 21,394–95 (1988).
42. 15 U.S.C. § 1681j. If consumers have not yet been denied credit based on a credit
report, credit bureaus are authorized to charge a small fee for access to a credit file. Id.
§ 1681j(f).
43. Id. § 1681i(a)(1)(A). Once the information is verified as accurate, there is no way to
remove it from an individual’s credit report. See Leonard Sloane, Need Credit? Be Wary of
Clinics Offering Help, N.Y.
TIMES, July 23, 1988, at 52.
44. See E
PSTEIN, supra note 27, at 66.
45. See 15 U.S.C. § 1681(a).
46. See 134 CONG. REC. 21,395 (1988); see also infra Part I.B.1.
2768 FORDHAM LAW REVIEW [Vol. 79
3. Equal Credit Opportunity Act
In yet another affirmation of the importance of credit in American
society, Congress enacted the Equal Credit Opportunity Act (ECOA) in
1974.
47
The ECOA prohibits lenders from discriminating against
applicants on any basis other than creditworthiness.
48
Originally written to
prohibit discrimination in lending based on sex or marital status,
49
amendments made in 1975 rendered it a violation of the ECOA to
discriminate on the basis of, among other things, race, age, color, religion,
and national origin.
50
The ECOA makes the inability to repay a loan the
only legal basis for the denial of credit.
51
B. Increased Protection Leads to Increased Predation
1. The Development of Credit Repair Organizations
Despite these efforts to resolve the problems facing consumers in credit
transactions, the statutory protections of TILA, the FCRA, and the ECOA
did not have a wholly protective effect.
52
The provisions of the FCRA that
allow consumers to dispute unfavorable credit reports led to the creation of
organizations seeking to profit from these new rights.
53
These credit repair
agencies advertise themselves as being a quick fix for those thwarted by bad
credit.
54
47. 15 U.S.C. §§ 1691–1691f (2006). A study showing that lenders discriminated
against women in granting credit precipitated the passage of this act. Pub. L. No. 93-495,
§ 502, 88 Stat. 1500, 1521 (codified as amended at 15 U.S.C. § 1691); see E
PSTEIN, supra
note
They attempt to provide this rapid credit improvement by taking
advantage of a provision within the FCRA which states that disputed
information that cannot be verified within thirty days must be deleted from
27, at 72.
48. See E
PSTEIN, supra note 27, at 72; see also BURDA, supra note 28, at 5–7.
49. See Pub. L. No. 93-495, § 502, 88 Stat. at 1521 (finding that the economy would be
improved by “an absence of discrimination on the basis of sex or marital status”).
50. See S. Rep. No. 94-589 (1976), reprinted in 1976 U.S.C.C.A.N. 403, 405 (“[T]his
bill identifies characteristics of applicants which the Committee believes are, and must be,
irrelevant to a credit judgment, and prohibits or curtails their use.”).
51. See B
URDA, supra note 28, at 5.
52. See James P. Nehf, A Legislative Framework for Reducing Fraud in the Credit
Repair Industry, 70 N.C. L. REV. 781, 783–87 (1992) (discussing problems arising from the
operation of the Fair Credit Reporting Act (FCRA)); Credit Repair? Buyer Beware!, F
ED.
TRADE COMM’N (Mar. 5, 1998), http://www.ftc.gov/opa/1998/03/eraser.shtm [hereinafter
Buyer Beware] (discussing the Federal Trade Commission’s (FTC) “Operation Eraser,”
aimed at cracking down on the predatory practices of credit repair organizations).
53. See 134 C
ONG. REC. 21,394–95 (1988); see also Eugene J. Kelley, Jr. et al., The
Credit Repair Organization Act: The “Next Big Thing?”, 57
CONSUMER FIN. L. Q. REP. 49,
49 (2003) (“Consumer concern over the negative impact of adverse credit ratings has given
birth to a new industry . . . . [that] offer[s] seemingly quick and easy ways for subprime
consumers to ‘repair’ their credit.”).
54. One organization advertises on its website that “[o]ur typical customer sees an
increase of 40–50 points in his or her credit score in just over a month.”
C
REDITREPAIRCLINIC.COM, http://www.creditrepairclinic.com (last visited Apr. 20, 2011).
2011] GIVING ARBITRATION SOME CREDIT 2769
the consumer’s file.
55
Because of the damaging effect of a negative credit
report on an individual,
56
consumers reacted positively to the ability to
“establish . . . . positive credit.”
57
The success of these enterprises flows
from the quantity of business obtained: the companies “inundat[e]
consumer reporting agencies with so many challenges to consumer reports
that the reinvestigation system breaks down, and the adverse, but accurate,
information is deleted.”
58
This approach does not have a high success rate,
so credit repair clinics often obtain fees from consumers without having any
impact on the client’s credit report.
59
Thus, credit repair organizations
profit whether successful or not and do so by collecting fees charged to
those already in weak financial straits.
60
2. Passage of the Credit Repair Organizations Act
To combat this problem, Congress passed the Credit Repair
Organizations Act as Title IV of the Omnibus Consumer Credit Protection
Act in 1996, which took effect on April 1, 1997.
61
The CROA’s legislative
history reveals that its main goal is information dissemination.
62
Supporters of the bill frequently expounded on the harm posed to
consumers by credit repair clinics,
63
55. See 15 U.S.C. § 1681i(a)(1)(A) (2006). Section 1681i(a)(5)(A) requires credit
reporting agencies to delete the information that cannot be verified after a reasonable
reinvestigation and then to notify the consumer of the modification in her credit report. See
also supra Part I.A.2.
as well as the extreme importance of
56. See Kelley et al., supra note 53, at 49 (“‘Bad credit,’ which may result from a variety
of sources, including unemployment, divorce, illness, a lack of financial discipline, or simply
‘too many’ bills, often seems an insurmountable roadblock for individuals seeking to do
anything from purchasing a car to refinancing their home.”).
57.
DSISOLUTIONS, http://www.repairyourbadcredit.com/ourservice.htm (last visited Apr.
20, 2011).
58. H.R.
REP. NO. 103-486, at 57 (1994).
59. In one notable case, 9000 people lost $2 million to one credit repair clinic in New
Jersey. The clinic charged customers up to $2000 in exchange for a promise to remove
unfavorable credit information from the individual’s files. After obtaining payment from
customers, the company did nothing to clear the clients’ credit histories or extend their
available credit. See Sloane, supra note 43; see also John L. Ropiequet & Jason B. Hirsh,
The Credit Repair Organizations Act: Recent Developments, 64 C
ONSUMER FIN. L. Q. REP.
13, 13 (2010) (“[W]hile some credit repair organizations genuinely seek to help cure poor
credit scores, others may victimize consumers by making fantastic and baseless promises
that any type of bad credit can be legally repaired, for a price.”).
60. See 136 C
ONG. REC. 18,766 (1990) (“[Credit repair organizations] prey on
consumers whose dreams of a better life and desperate situation make them susceptible to
the false promises of unscrupulous credit repair operators.”); Kelley et al., supra note 53, at
49 (referring to those who utilize credit repair organizations as “unsophisticated and
financially vulnerable”); Sloane, supra note 43 (describing credit repair clinics as “profit-
making ventures that, by their very nature, often operate at the edge of the law, thwarting the
maintenance of orderly credit records [o]n behalf of clients who have bad credit histories”).
61. 15 U.S.C. § 1679 (2006).
62. See H.R.
REP. No. 103-486, at 57 (1994) (“This title seeks . . . to ensure that
consumers are provided with necessary information about credit repair organizations so that
they can make informed decisions regarding the purchase of their services . . . .”).
63. See 136 C
ONG. REC. 18,766 (1990) (“[T]he only thing that most credit repair clinics
clean out are consumers’ checkbooks.”).
2770 FORDHAM LAW REVIEW [Vol. 79
an individual’s credit history in today’s society.
64
The legislative history of
the CROA manifests a desire to stop the frequent offers by credit repair
organizations to “fix” unfixable credit histories and to make consumers
more aware of the limitations of credit repair organizations.
65
The legislative history of the CROA suggests that credit repair
organizations bring little value to the credit reporting industry and also
conveys a strong impression that those enacting the CROA believed that
credit repair organizations pose a greater threat than they are worth.
66
Indeed, even the former owner of a credit repair clinic has acknowledged
the misconduct of his previous business.
67
C. Shelter from Harmful Repair: The CROA
This section provides an examination of the CROA and the different
forms of consumer protection that the statute offers. The CROA begins by
discussing the type of entity that is considered a credit repair organization.
68
It then delineates the disclosures it requires, outlines the requirements it
imposes on contract formation, and explains the consumer’s right to cancel
a contract.
69
Finally the CROA describes the effect of contracts or
agreements not in compliance with the CROA, civil liability for violations
of the Act, administrative enforcement of the CROA, the statute of
limitations, and the CROA’s relation to state law.
70
The FTC, state
attorneys general, or private citizens who have been misled by a credit
repair organization may enforce the CROA.
71
64. See id. (“Credit is the lifeblood of the American consumer society. . . . A poor credit
history is the ‘Scarlet Letter’ of 20th century America.”).
65. See 140 CONG. REC. 8,999 (1994) (statement of Sen. Reigle) (“[T]he representations
of these so-called credit doctors prove misleading, deceiving consumers into paying higher
fees or causing credit bureaus to waste time and money on spurious disputes.”); 136 C
ONG.
REC. 18,766 (1990) (“Credit repair organizations hold out the promise of a quick credit fix at
a high cash price.”); id. at 3,821 (referring to the legislation as “critically needed” to help
protect consumers from credit repair organizations.).
66. See Buyer Beware, supra note 52 (“The FTC has never seen a legitimate credit
repair company.”).
67. See Credit Repair Organizations Act: Hearing Before the Subcomm. on Consumer
Affairs and Coinage of the Comm. on Banking, Fin., and Urban Affairs, 100th Cong. 18
(1988) [hereinafter Hearing] (statement of Jeffrey Roberts) (“In my opinion, there is no such
thing as credit repair, so instead of being regulated, the industry should be outlawed. If not,
the regulation should be so tough and the bond so high that people are discouraged from
going into the business.”); see also Sloane, supra note 43 (“Credit-repair clinics . . . operate
at the edge of the law . . . .”).
68. See 15 U.S.C. § 1679a(3).
69. See id. §§ 1679b–e.
70. See id. §§ 1679f–j.
71. See id. § 1679h; Kelley et al., supra note 53, at 52.
2011] GIVING ARBITRATION SOME CREDIT 2771
1. What a Credit Repair Organization Is
The exact definition of a credit repair organization is vague.
72
As
defined by the CROA, a credit repair organization is an organization
dealing in interstate commerce that accepts money in exchange for
“improving any consumer’s credit record, credit history, or credit rating; or
. . . providing advice or assistance to any consumer with regard to any
activity or service described” elsewhere in the statute.
73
The CROA
specifically exempts certain entities.
74
Courts have grappled with the issue of whether certain types of
professionals, including attorneys and banks, fall within the ambit of the
CROA when these entities provide credit counseling services.
75
The U.S.
District Court for the Central District of California found that an attorney
fell within the definition of a credit repair organization when he issued
advertisements saying “BAD CREDIT REPORT . . . Improve Your Credit
Score Now!”
76
Although the attorney argued that in dealings with the
client, he acted as a lawyer and not as a credit repair organization, the court
held that because he performed services with the intention of improving the
client’s credit rating, the CROA encompassed his actions.
77
2. What a Credit Repair Organization Does
A business that meets the statutory definition of a credit repair
organization comes within the ambit of the CROA only if it engages in
certain conduct specified in the CROA.
78
Actions that constitute offering a
service under the CROA must relate to improving a consumer’s “credit
record, credit history, or credit rating.”
79
The parameters of this provision
are rather broad.
80
Courts assessing whether or not an entity provided
services as intended under the CROA look to representations that the entity
has made to its clients.
81
72. In clarifying the definition of a credit repair organization, one court has analogized
these clinics to “a person who offers to improve a golfer’s score after a round is over by . . .
making changes to the golfer’s scorecard . . . . By contrast, a person who offers to give a
golfer swing tips to improve his score . . . is not a CRO.” See Hillis v. Equifax Consumer
Servs., Inc., 237 F.R.D. 491, 514 (N.D. Ga. 2006).
For example, the U.S. District Court for the
Northern District of Georgia held that an online credit guide, which
73. See 15 U.S.C. § 1679a(3)(A).
74. See id. § 1679a(3)(B)(i)–(iii) (exempting, for example, nonprofit organizations,
depository institutions, and government credit unions).
75. See, e.g., Rannis v. Fair Credit Lawyers, Inc., 489 F. Supp. 2d 1110, 1114 (C.D. Cal.
2007).
76. See id. at 1114–15.
77. Id. at 1115.
78. See 15 U.S.C. § 1679a(3)(A)(i)–(ii).
79. Id. § 1679a(3)(A)(i).
80. See, e.g., Hillis v. Equifax Consumer Servs., Inc., 237 F.R.D. 491, 511 (N.D. Ga.
2006) (finding the CROA’s definition of a credit repair organization “sweeping”).
81. See Lori J. Parker, Annotation, Proof of Claim Involving Violation of Credit Repair
Organizations Act, 15 U.S.C.A. §§ 1679 et seq., or Similar State Enactment, 111 A
M. JUR. 3D
Proof of Facts § 4 (2010).
2772 FORDHAM LAW REVIEW [Vol. 79
defendants sought to define as a product, constituted a service subject to the
CROA.
82
Similarly, the U.S. District Court for the District of New Jersey
determined that a company offering an analysis of credit reports designed to
improve customers’ credit offered a service that fell within the CROA.
83
3. Substantive Violations of the CROA
The CROA sets forth four substantive actions that render an entity liable
for violations of the CROA.
84
Section 1679b(a)(1) prohibits the making of
untrue or misleading statements about a consumer’s credit standing or
credit capacity to a consumer reporting agency or to anyone who has
extended credit to the consumer or from whom the consumer seeks an
extension of credit.
85
Misleading statements to an organization not
providing credit to the client-consumer, however, do not fall under the
CROA.
86
Next, section 1679b(a)(2) makes it illegal to alter information about a
consumer’s identity and to conceal adverse information about a consumer’s
creditworthiness.
87
This section includes counseling or advising a
consumer to make a statement intended to prevent accurate reporting of the
consumer’s credit record as an aspect of the prohibition.
88
Section
1679b(a)(3) prohibits making misleading representations of the services of
which a credit repair organization is capable.
89
Similarly, any practice that
constitutes fraud on any person involved in the offer or sale of the services
of a credit repair organization violates the CROA pursuant to section
1679b(a)(4).
90
4. Technical Violations of the CROA
Failure to follow the technical requirements of the CROA constitutes a
violation of the Act, regardless of whether the credit repair organization
engaged in fraudulent behavior or committed any substantive violation of
the CROA.
91
These technical conditions require that agreements with
consumers be in the form of a written contract.
92
82. See Hillis, 237 F.R.D. at 509–10.
The contract must include
83. See In re Nat’l Credit Mgmt. Grp., LLC, 21 F. Supp. 2d 424, 457 (D.N.J. 1998)
(“Although the Defendants do not provide services to repair credit histories, they do
represent that they will perform services, monitor, and provide advice to assist consumers
[with] improv[ing] their credit ratings.”).
84. See 15 U.S.C. § 1679b.
85. Id. § 1679b(a)(1).
86. See Whitley v. Taylor Bean & Whitacker Mortg. Corp., 607 F. Supp. 2d 885, 899
(N.D. Ill. 2009).
87. 15 U.S.C. § 1679b(a)(2).
88. Id.
89. Id. § 1679b(a)(3).
90. Id. § 1679b(a)(4).
91. See id. §§ 1679c–d.
92. See id. § 1679d(a).
2011] GIVING ARBITRATION SOME CREDIT 2773
the terms of payment and the services to be provided.
93
Additionally, the
CROA requires that a specific written disclosure be made to consumers
prior to the formation of an agreement.
94
Credit repair organizations must
provide this disclosure as a document separate from the contract,
95
and the
organization must retain the consumer’s signed acknowledgement of receipt
of the disclosure.
96
The CROA explicitly provides that these requirements
cannot be waived.
97
D. Local Protection: Similar State Enactments
Several states have enacted legislation to serve the same purposes as the
CROA under the auspices of state law.
98
Several states have deemed violations of the state law regulating credit
repair organizations a criminal offense.
These statutes represent some of
the more unique and noteworthy approaches to protecting consumers from
credit repair organizations. An examination of these statutes reveals an
effort to provide consumers with information and to penalize credit repair
organizations for misconduct.
99
These statutes provide that
violations of the statute constitute a misdemeanor, and some classify repeat
offenses as a felony.
100
Notably, Georgia’s relevant statute makes any
operation of a credit repair organization whatsoever a misdemeanor.
101
Several states make an organization’s failure to post bond a violation of the
statute.
102
Another common provision in state statutes requires credit repair
organizations to register with the state before conducting business.
103
Many state statutes provide for injunctive relief against a credit repair
clinic.
104
93. See id. § 1679d(b).
Some states place the burden of proof on the defendant to prove
94. See id. § 1679c(a). The aspect of the disclosure requirements most pertinent to this
Note is the portion stating that “[y]ou have the right to sue a credit repair organization that
violates” the CROA. Id. The only time a “right to sue” is mentioned in the statute is in this
required disclosures section. Id.
95. See id. § 1679c(b).
96. Id. § 1679c(c).
97. Id. § 1679f.
98. See Parker, supra note 81, at 237.
99. See, e.g., A
RK. CODE. ANN. § 4-91-104 (2001); COLO. REV. STAT. ANN. § 12-14.5-
110 (West 2010); 815 I
LL. COMP. STAT. 605/13 (1993); IOWA CODE ANN. § 538A.12 (West
1997); K
AN. STAT. ANN. § 50-1113 (West 1994).
100. See, e.g., 815 I
LL. COMP. STAT. 605/13 (“Upon conviction of a second or subsequent
offense the violator is guilty of a . . . felony.”).
101. See G
A. CODE ANN. § 16-9-59 (2007). The statute provides that any organization that
seeks to improve a buyer’s credit history, to obtain an extension of credit, or to provide
advice on the aforementioned subjects is guilty of a misdemeanor. Id. § 16-9-59(c). The
statute exempts several professionals from the statute, however, including real estate brokers,
attorneys, and consumer reporting agencies. Id. § 16-9-59(a)(2)(B)(iv)–(vii).
102. See, e.g., A
RIZ. REV. STAT. ANN. § 44-1703 (2003); IOWA CODE ANN. § 538A.4; KAN.
STAT. ANN. § 50-1104.
103. See, e.g., C
AL. CIV. CODE § 1789.25 (West 2009); DEL. CODE ANN. tit. 5, § 2404
(2010).
104. See, e.g., IOWA CODE ANN. § 538A.10; KAN. STAT. ANN. § 50-1110.
2774 FORDHAM LAW REVIEW [Vol. 79
exemption from the statute,
105
and some explicitly restrict the amount of
fees an organization qualifying under the statute can charge.
106
Oklahoma’s statute entitles the Administrator of Consumer Credit to free
access to inspect a credit repair organization’s books and records.
107
Puerto
Rico’s statute requires any individual operating a credit repair service to
have certain credentials,
108
and bars credit repair services from transferring
funds without prior authorization from the Commissioner of Financial
Institutions.
109
Several of these statutes contain disclosure requirements
mirroring that of the CROA, including the required disclosure that
individuals have “a right to sue.”
110
II. THE PRACTICE OF ARBITRATION, THE FEDERAL ARBITRATION ACT, AND
HOW THE SUPREME COURT HAS SHAPED ARBITRATION
These statutes reflect an awareness by
state legislators that the danger inherent in the operation of credit repair
organizations requires stringent rules to prevent wrongdoing.
This part first discusses the origins and various forms of alternative
dispute resolution. It then examines the practice of arbitration and analyzes
the significant body of case law regarding arbitration that has developed
since the passage of the FAA.
A. Beyond the Courthouse: The Origins and Objectives of Alternative
Dispute Resolution
Alternative dispute resolution (ADR) is a term that encompasses several
methods of conflict resolution,
111
many of which have been used for
centuries.
112
Evidence of the usage of negotiation, mediation, and
arbitration in ancient times abounds.
113
In addition to these roots, interest
in ADR has burgeoned in recent years.
114
105. See, e.g., CAL. CIV. CODE § 1789.19.
Since the 1960s, usage,
106. See, e.g., KAN. STAT. ANN. § 50-1105.
107. See O
KLA. STAT. ANN. tit. 24, § 146 (West 1998).
108. See P.R. L
AWS ANN. tit. 7, § 630e (2006) (“Any [credit repair agent] shall have a
bachelor’s degree and two . . . years of experience in the area of credit granting and analysis
with a financial institution or five . . . years of experience in said market if he/she lacks the
bachelor’s degree.”).
109. See id. § 630n.
110. See, e.g., C
AL. CIV. CODE § 1789.15.
111. See O
SCAR G. CHASE, LAW, CULTURE, AND RITUAL: DISPUTING SYSTEMS IN CROSS-
C
ULTURAL CONTEXT 95 (2005) (“In the United States [Alternative Dispute Resolution
(ADR)] has included a potpourri of processes . . . . Although alike in that they do not
contemplate a judicial determination of a dispute, these are very different processes . . . .”).
112. See J
EROME T. BARRETT WITH JOSEPH P. BARRETT, A HISTORY OF ALTERNATIVE
DISPUTE RESOLUTION XXV, 1–18 (2004) (identifying 1800 B.C. as the first instance of the
practice of mediation and arbitration).
113. See, e.g., id. at 2–18 (describing the usage of ADR in ancient societies, including
Confucius’s use of mediation in China in 500 B.C. and Ancient Greek arbitration in 400
B.C.).
114. See I
AN R. MACNEIL, AMERICAN ARBITRATION LAW: REFORMATION—
N
ATIONALIZATION—INTERNATIONALIZATION 3 (1992) (“ADR . . . has for a number of years
been one of the hottest of all hot topics in the legal academy. As with each new generation
2011] GIVING ARBITRATION SOME CREDIT 2775
discussion, and criticism of ADR within the U.S. legal system have
intensified.
115
The central premise of ADR emerges from the limitations inherent in the
litigation process.
116
The common thread among all ADR methods is an
effort to avoid the delay, expense, and rigidity of litigation.
117
These
methods fall along a spectrum of varying formality and compulsion.
118
Negotiation combines elements of informality and privacy that are not
available in a traditional trial,
119
mediation involves a third-party neutral
moderator but entrusts a final decision to the parties themselves,
120
and
arbitration involves the use of a private third party neutral who renders an
award that is typically binding.
121
Falling in between these three methods
on the ADR spectrum are hybrid methods including, for example, the mini-
trial,
122
Med-Arb,
123
bracketed arbitration,
124
and facilitative mediation.
125
The widespread use of these methods has strongly impacted traditional
litigation over the past forty years.
126
and sex, so too this academic generation and ADR: it thinks it discovered the whole thing.
Like sex, however, ADR is as old as humanity itself, and the academic ADR movement is
largely one of rediscovery by the academy.”).
ADR methods are now used in
115. See JAY FOLBERG ET AL., RESOLVING DISPUTES: THEORY, PRACTICE, AND LAW 5
(2005)
(discussing societal forces that led to the increased use of ADR, including new
legislation, increased prosecution of drug crimes, and numerous domestic relations case
filings).
116. See id. at 2–7, 19.
117. See id. at 5.
118. See id. at 3.
119. See id. at 19 (describing negotiation as a “process of communication used to get
something we want when another person has control over whether or how we can get it”).
120. See id. at 223 (“Mediation . . . involves the participation of an impartial third
party. . . . [I]t is consensual, informal, and usually private: The participants need not reach
agreement, and the mediator has no power to impose an outcome.”).
121. See id. at 453.
122. See S
TEPHEN B. GOLDBERG ET AL., DISPUTE RESOLUTION: NEGOTIATION, MEDIATION,
AND
OTHER PROCESSES 230 (2d ed. 1992). A mini-trial is a process in which neutral advisors
and executives hear presentations by each party and negotiate a resolution. Id.
123. In Med-Arb, a third party serves as a mediator initially, switching gears into the role
of an arbitrator issuing a binding decision should mediation fail during the process. See id. at
226; see also F
OLBERG ET AL., supra note 115, at 647 (describing Arb-Med, a process by
which a neutral third party acts as an arbitrator until she has decided upon an award, at which
point the award is sealed and she can engage in mediation between the parties, with the
sealed award serving as a last resort should mediation fail).
124. See F
OLBERG ET AL., supra note 115, at 496. Bracketed arbitration is a process in
which the parties identify a range of recovery prior to arbitration, and the arbitrator’s
decision is binding only in the event that it falls within this range. Id.
125. See id. at 4, Fig. 1.1; see also ADR Glossary, JAMS:
THE RESOLUTION EXPERTS,
http://www.jamsadr.com/adr-glossary (last visited Apr. 20, 2011) (describing facilitative
mediation as a process whereby the parties largely control the outcome and the mediator
simply enhances communication and information exchange between the parties).
126. See Courtroom Use: Access to Justice, Effective Judicial Administration, and
Courtroom Security: Hearing Before the H. Subcomm. on Courts and Competition Policy of
the H. Comm. on the Judiciary, 111th Cong. 72 (2010) [hereinafter Resnik Testimony]
(statement of Judith Resnik, Professor, Yale Law School) (noting that the 20th century began
with 30,000 federal cases pending, ended with 300,000 cases pending, and although the
2776 FORDHAM LAW REVIEW [Vol. 79
business, family, “toxic tort, farmer-lender, and doctor-patient” disputes, to
name a few.
127
In 1998, Congress passed the Alternative Dispute
Resolution Act, requiring federal district courts to utilize some form of
ADR program in all civil actions.
128
While the number of cases filed in
court has increased, the number of cases tried has drastically decreased,
leading some scholars to deliberate over the benefits and disadvantages of
“the vanishing trial” on our legal system.
129
B. “The Most Venerable ADR Mechanism”: Arbitration in Practice
Arbitration sits closest to a formal trial on the spectrum of dispute
resolution processes.
130
Broadly, arbitration is “any process in which a
private third party neutral renders a judgment, or ‘award,’ regarding a
dispute after hearing evidence and argument, like a judge.”
131
A wide array
of practices can be characterized as arbitration.
132
This Note is primarily
concerned with pre-dispute mandatory arbitration,
133
Long Range Plan of the Federal Courts anticipated that by 2010 this number would exceed
600,000, the number has stayed near 350,000).
in which parties agree
127. See GOLDBERG ET AL., supra note 122, at 10; see also Jean R. Sternlight, Consumer
Arbitration, in A
RBITRATION LAW IN AMERICA: A CRITICAL ASSESSMENT 127, 129 (Edward
Brunet et al. eds., 2006) (“Arbitration has even been mandated in connection with games
sponsored by the McDonald’s hamburger chain and with respect to a mail-in on a Cheerios
cereal box.”).
128. 28 U.S.C. §§ 651–658 (2006). This statute joins several ADR statutes passed by
Congress in the last thirty years requiring various branches of government to institute ADR
programs. See Administrative Dispute Resolution Act of 1990, 5 U.S.C. §§ 571–584 (2006)
(requiring administrative agencies to utilize ADR); Civil Justice Reform Act of 1990, 28
U.S.C. §§ 471–482 (requiring district courts to devise programs that will lead to reduced
costs and delay within four years); Judicial Improvements and Access to Justice Act, Pub. L.
No. 100-702, 102 Stat. 4642 (1988) (codified as amended in scattered sections of 28 U.S.C.)
(authorizing certain federal district courts to employ arbitration referral programs); Dispute
Resolution Act of 1980, Pub. L. No. 96-190, 94 Stat. 17 (encouraging the creation of ADR
mechanisms in state and local governments).
129. See James E. McGuire, Some Questions About “The Vanishing Trial”, D
ISP. RESOL.
MAG., Winter 2004, at 17 (“[O]nly where important interests or needs are not being met
should we look for solutions to the ‘vanishing trial.’”). But see Resnik Testimony, supra note
126, at 84 (“[P]ublic adjudicatory procedures make important contributions to functioning
democracies.”); Deborah R. Hensler, Our Courts, Ourselves: How the Alternative Dispute
Resolution Movement is Reshaping our Legal System, 108 P
ENN. ST. L. REV. 165, 196–97
(2003) (“[T]he visible presence of institutionalized and legitimized conflict, channeled
productively, teaches citizens that it is not always better to compromise and accept the status
quo because, sometimes, great gains are to be had by peaceful contest.”).
130. See F
OLBERG ET AL., supra note 115, at 4.
131. Id. at 453; see also B
LACK’S LAW DICTIONARY 119 (9th ed. 2009) (defining
arbitration as “[a] method of dispute resolution involving one or more neutral third parties
who are usu[ally] agreed to by the disputing parties and whose decision is binding”).
132. Indeed, one scholar has even suggested that Virgil’s Aeneid is a tale of “arbitration
gone awry.” B
ARRETT, supra note 112, at 6–7.
133. Even the moniker given to this form of arbitration is debated. See Stephen J. Ware,
Contractual Arbitration, Mandatory Arbitration, and State Constitutional Jury-Trial Rights,
38 U.S.F.
L. REV. 39, 41 (2003) (“What [some call] mandatory arbitration is better called
contractual arbitration because . . . [a]rbitration is not mandatory when it arises out of a
contract, because contracts are formed voluntarily. . . . In the absence of duress, it is
2011] GIVING ARBITRATION SOME CREDIT 2777
to arbitrate prior to entering into, or as part of, an agreement.
134
Traditionally, the hallmarks of arbitration are its binding nature and its
adversarial quality.
135
Parties choose arbitration over other forms of
dispute resolution because arbitration affords a speedy, less expensive, and
more confidential resolution of disputes.
136
Additionally, because
arbitration is held in private and arbitrators need not issue written decisions,
no precedent results from arbitration proceedings.
137
Arbitration may come about either as a result of a prior agreement to
arbitrate or as a court-ordered process.
138
Some courts
139
now require
arbitration of certain kinds of disputes before those claims proceed to
litigation.
140
Most arbitrations occur under the auspices of one of several
arbitration associations.
141
These organizations promulgate procedures,
rules, and limitations that govern arbitration proceedings.
142
Many pre-
dispute arbitration agreements include a reference to which association will
govern the dispute.
143
When parties have signed a pre-dispute arbitration
agreement, upon the development of a dispute, one party may initiate
proceedings, the parties will select an arbitrator, and the process will
proceed.
144
When a party has filed suit despite the existence of an arbitration
agreement, a court usually takes four steps in determining whether to order
inaccurate, as well as overly dramatic, to say that a contract containing an arbitration clause
results in arbitration that is involuntary or mandatory.”).
134. See LAURIE S. COLTRI, CONFLICT DIAGNOSIS AND ALTERNATIVE DISPUTE
RESOLUTION 431, tbl. 19-1 (2004) (describing the different forms of arbitration by means of
a diagram).
135. See F
OLBERG ET AL., supra note 115, at 453.
136. See id.; see also C
HASE, supra note 111, at 95 (“Arbitration has often been embraced
by business interests for its supposed cost savings over adjudication, because the results can
be shielded from public exposure, and because of its reliance on decision makers
knowledgeable about the type of dispute to be resolved.”).
137. See C
HASE, supra note 111, at 95; see also Alderman, supra note 17, at 155 (“[M]ost
decisions of arbitrators are secret, and are often not even accompanied by a written opinion.
Even when published and made available to the public, the decision of one arbitrator . . . is in
no way binding on any other arbitrator or panel.”).
138. See F
OLBERG ET AL., supra note 115, at 464.
139. See supra note 128 and accompanying text.
140. See F
OLBERG ET AL., supra note 115, at 464 (mentioning medical malpractice claims
and suits involving less than $50,000 in damages as examples of suits that courts require to
be arbitrated prior to the commencement of formal litigation proceedings); see also Wayne
D. Brazil, Why Should Courts Offer Non-Binding ADR Services?, 16 A
LTERNATIVES 65, 75
(1998) (pointing to the importance of relationship building, as well as the provision of
mechanisms for less affluent plaintiffs to vindicate claims, as reasons for court-annexed
ADR services).
141. See F
OLBERG ET AL., supra note 115, at 466.
142. See id. (“[T]here are literally dozens of different arbitration rules for different trade
groups or practice areas . . . .”); Consumer-Related Disputes Supplementary Procedures,
A
MERICAN ARBITRATION ASSOCIATION, http://www.adr.org/sp.asp?id=22014 (last visited
Apr. 20, 2011); JAMS Policy on Consumer Arbitrations Pursuant to Pre-Dispute Clauses:
Minimum Standards of Procedural Fairness, JAMS:
THE RESOLUTION EXPERTS,
http://www.jamsadr.com/consumer-arbitration/ (last visited Apr. 20, 2011).
143. See F
OLBERG ET AL., supra note 115, at 466.
144. See id. at 467.
2778 FORDHAM LAW REVIEW [Vol. 79
arbitration.
145
The court first decides if the parties formed an agreement to
arbitrate.
146
If an agreement exists, the court then examines the scope of
that agreement.
147
Next, the court determines, in the case of federal
statutory claims, if Congress intended these claims to be resolved solely in
litigation.
148
Finally, the court decides whether to stay the remainder of the
proceedings pending arbitration if it decides that not all the claims are
arbitrable.
149
Under the FAA, an arbitration award may be vacated only in a narrow set
of circumstances.
150
Arbitrators have extensive discretion, do not need to
explain decisions, and do not make findings of fact.
151
Vacatur of an
arbitrator’s award is granted only if one of four statutory grounds are met:
the award reflects fraud; clear bias on the part of the arbitrator; procedural
misconduct on the part of the arbitrator; or that the arbitrators have
“exceeded their powers, or . . . imperfectly executed them.”
152
C. The Evolution of Arbitration Jurisprudence
1. Early Arbitration Agreements in the Courts
Arbitration as a method of conflict resolution has a long and fraught
history. Some of the first known arbitrators and users of arbitration include
King Solomon,
153
Philip II of Macedonia,
154
and George Washington.
155
Despite these esteemed origins, arbitration has not always been treated as
the “valid, irrevocable, and enforceable”
156
145. Several circuits adhere to this four-part test. See, e.g., Guyden v. Aetna, Inc., 544
F.3d 376, 382 (2d Cir. 2008); Glazer v. Lehman Bros., Inc., 394 F.3d 444, 451 (6th Cir.
2005). The test is taken from language within Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, Inc., 473 U.S. 614, 628 (1985).
proceeding that most courts
consider it today. English courts did not hesitate to invalidate arbitration
146. See Glazer, 394 F.3d at 451.
147. See id.
148. See id.
149. See id.
150. See 9 U.S.C. §§ 1–16 (2006); see also infra Part II.C.5.
151. See T
HOMAS E. CARBONNEAU, THE LAW AND PRACTICE OF ARBITRATION 48–51 (3d
ed.
2009).
152. 9 U.S.C. § 10.
153. See RICHARD A. BALES, COMPULSORY ARBITRATION: THE GRAND EXPERIMENT IN
EMPLOYMENT 5 n.30 (1997) (citing a verse of the King James Bible in which Solomon uses
arbitration to resolve a conflict over the motherhood of a baby).
154. See id. at 5 (“Philip II of Macedonia, the father of Alexander the Great, specified the
use of arbitration in disputes arising under his peace treaty with the city-states of southern
Greece.”).
155. See id. (“George Washington provided that any disputes concerning his intentions in
his will would be resolved by a panel of three arbitrators, and that the decision of those
arbitrations would be ‘as binding on the Parties as if it had been given in the Supreme Court
of the United States.’”); see also B
ARRETT, supra note 112, at 46 (excerpting Washington’s
will).
156. 9 U.S.C. § 2; see also B
ALES, supra note 153, at 4 (“[F]inality distinguishes
arbitration from mediation . . . . Arbitration ends the dispute.”).
2011] GIVING ARBITRATION SOME CREDIT 2779
agreements into which parties had entered.
157
Moreover, courts often
rescinded the authority given to arbitrators and at most granted only
nominal damages for breach of an agreement to arbitrate.
158
Commentators
and courts have explained this entrenched hostility toward arbitration as
stemming from a belief that arbitration was ineffective when
unsupervised.
159
There is some evidence, however, that English courts
were concerned about losing money and business if arbitration became too
popular and caused courts to be used less frequently.
160
An English statute
passed by Parliament in 1889 led to increased enforcement of arbitration
awards in English courts.
161
American courts, however, continued to treat
arbitration agreements as suspect.
162
A brief period of time followed
during which courts invalidated arbitration agreements but did so
reluctantly.
163
2. Arbitration Is Federalized: The Passage of the Federal Arbitration Act
In 1925, Congress passed the United States Arbitration Act “[t]o make
valid and enforceable written provisions or agreements for arbitration of
disputes arising out of contracts, maritime transactions, or commerce
among the States or Territories or with foreign nations.”
164
While the
passage of this Act was generally lauded in the legal community,
165
157. See Kill v. Hollister, (1746) 95 Eng. Rep. 532 (K.B.) (stating that “the agreement of
the parties cannot oust this Court”).
some
were hesitant about the benefits of using arbitration in a broader array of
158. See Paul L. Sayre, Development of Commercial Arbitration Law, 37 YALE L.J. 595,
604–05 (1928).
159. See, e.g., Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978, 983 (2d
Cir. 1942).
160. See id. at 983 n.14 (quoting Lord Campbell as saying “the emoluments of the Judges
depended mainly, or almost entirely, upon fees, and as they had no fixed salaries, there was
great competition to get as much as possible of litigation into Westminster Hall . . . for the
division of the spoil”).
161. See Arbitration Act, 1889, 52 & 53 Vict., c. 49 (Eng.). The Act required courts to
enforce arbitration. See B
ALES, supra note 153, at 16; see also Austrian Lloyd S.S. Co. v.
Gresham Life Assurance Soc’y, Ltd., [1903] 1 K.B. 249 (holding that an agreement to
arbitrate was enforceable).
162. See, e.g., Ins. Co. v. Morse, 87 U.S. (20 Wall.) 445, 458 (1874) (holding that a state
statute enacted to enforce arbitration agreements “is repugnant to the Constitution of the
United States . . . and is illegal and void”).
163. See, e.g., U.S. Asphalt Ref. Co. v. Trinidad Lake Petroleum Co., 222 F. 1006, 1012
(S.D.N.Y. 1915) (“[T]he Supreme Court has laid down the rule that such a complete ouster
of jurisdiction . . . is void in a federal forum. . . . Inferior courts may fail to find convincing
reasons for it; but the rule must be obeyed.”).
164. 43 Stat. 883 (1925).
165. See Arbitration May Cure Law’s Delay and Result in More Exact Justice, N.Y.
TIMES, Apr. 8, 1923, at X15.
2780 FORDHAM LAW REVIEW [Vol. 79
disputes.
166
Nevertheless, in 1947, this statute was reenacted and codified
as the Federal Arbitration Act.
167
The FAA makes enforceable written arbitration agreements,
168
specifically including maritime and interstate commerce transactions while
expressly excluding “contracts of employment of seamen, railroad
employees, or any other class of workers engaged in foreign or interstate
commerce.”
169
The FAA sets out two methods by which agreements to
arbitrate may be enforced. Section 3 provides that federal courts may issue
stays of proceedings when an issue falls within the bounds of an arbitration
agreement.
170
Section 4 provides that federal courts may issue orders
compelling arbitration should a party to an arbitration agreement refuse to
submit the issue to arbitration.
171
A federal court may make these determinations only if a federal question
is at issue or the parties meet the requirements of diversity jurisdiction.
172
Yet parties that do not meet the requirements of diversity jurisdiction
173
do
not face a different body of arbitration law. The Supreme Court has
repeatedly held that the FAA preempts any state law that may be
inconsistent with the federal statute’s provisions or purposes.
174
3. An Initial Rejection
Congress’s passage and reenactment of the FAA evidenced an increased
approval of arbitration. Yet the Supreme Court’s first decision after the
passage of the FAA concerning the enforceability of an arbitration clause
reflected a step back from the expected liberal endorsement of arbitration.
In Wilko v. Swan,
175
166. See Arbitration is Not Always Best—Though Correct in Principle, It Has Numerous
Pitfalls for Unwary Importers,
N.Y. TIMES, Aug. 3, 1924, at E10. The article argues that
arbitration, while beneficial in some areas of conflict, is an inadequate method of conflict
resolution for certain types of disputes. See id.
the Supreme Court considered a clash created by what
it viewed as two conflicting policies: the FAA and the Securities Act of
167. 9 U.S.C. §§ 1–16 (2006). One author has described arbitration as particularly well
suited to American culture because it “involves a competitive process of dispute resolution,
yet it allows disputants to resolve their differences outside the legal system.” See COLTRI,
supra note 134, at 426.
168. See B
ALES, supra note 153, at 17 (“The FAA creates a body of federal substantive
law permitting judicial enforcement of agreements to arbitrate in connection with commerce
and maritime transactions.”).
169. 9 U.S.C. § 1.
170. Id. § 3.
171. Id. § 4.
172. See Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32
(1983) (“[The Arbitration Act] creates a body of federal substantive law establishing and
regulating the duty to honor an agreement to arbitrate, yet it does not create any independent
federal-question jurisdiction.”).
173. See 28 U.S.C. § 1332 (2006).
174. See Moses H. Cone, 460 U.S. at 24 (“Section 2 is a congressional declaration of a
liberal federal policy favoring arbitration agreements, notwithstanding any state substantive
or procedural policies to the contrary.”); see also Southland Corp. v. Keating, 465 U.S. 1, 16
(1984) (holding that the FAA preempts inconsistent state arbitration laws).
175. 346 U.S. 427 (1953).
2011] GIVING ARBITRATION SOME CREDIT 2781
1933.
176
After the plaintiff filed suit in the U.S. District Court for the
Southern District of New York, the defendant moved to stay the
proceedings pursuant to section 3 of the FAA and submit the claims to
arbitration.
177
The district court denied the motion,
178
and a divided U.S.
Court of Appeals for the Second Circuit reversed.
179
The conflict arose from a provision of the Securities Act voiding any
waiver of rights granted to consumers by the Act.
180
The plaintiff argued
that an agreement to arbitrate a future controversy constituted a waiver of
compliance with the Act, because of language in the Act declaring that
“[t]he district courts of the United States . . . shall have jurisdiction of
offenses and violations under this subchapter.”
181
Additionally, the Act provided that for claims brought in federal court,
“the purchaser has a wide choice of venue, the privilege of nation-wide
service of process and the jurisdictional $3,000 requirement of diversity
cases is inapplicable.”
182
The plaintiff argued that these provisions of the
Act indicated that Congress sought to ensure that the right of buyers to
recover not be weakened, and that arbitration would not vindicate his rights
as certainly as would a judicial forum.
183
The defendant argued that there
was no conflict between the Securities Act and the FAA because
“arbitration is merely a form of trial to be used in lieu of a trial at law.”
184
The Supreme Court ultimately sided with the plaintiff.
185
The Court
found that the Securities Act was primarily concerned with protecting
buyers from certain disadvantages inherent in transactions, and that the
rights bestowed upon the plaintiff by the Securities Act are less effectively
vindicated in arbitration.
186
176. See 15 U.S.C. §§ 77a–aa (2006). It is a violation under the Securities Act of 1933 to
sell a security by means of fraud. The plaintiff in this case alleged that the seller
misrepresented the value of the stock being sold. See Wilko, 346 U.S. at 429.
The unequal bargaining positions of the parties
177. Wilko, 346 U.S. at 429.
178. See Wilko v. Swan, 107 F. Supp. 75, 79 (S.D.N.Y. 1952) (finding that “arbitration of
the issues at bar is [not] consistent with the policy and language as expressed by Congress in
the Securities Act”).
179. See Wilko v. Swan, 201 F.2d 439, 445 (2d Cir. 1953) (“[W]e do not find in the
purpose or in the language of the statute, any policy argument strong enough to override the
policy of the Arbitration Act.”).
180. See 15 U.S.C. § 77n (“Any condition, stipulation, or provision binding any person
acquiring any security to waive compliance with any provision of this subchapter . . . shall
be void.”).
181. Id. § 77v.
182. Wilko, 346 U.S. at 431.
183. See id. at 432.
184. Id. at 433.
185. See id. at 434–35 (“This arrangement to arbitrate is a ‘stipulation,’ and we think the
right to select the judicial forum is the kind of ‘provision’ that cannot be waived under
section 14 of the Securities Act.”).
186. See id.
2782 FORDHAM LAW REVIEW [Vol. 79
and the consequences of waiving a right to a judicial forum played
significant roles in the Court’s ultimate decision.
187
The Wilko decision came to stand for the proposition that if a “pervasive
public interest” was at stake, arbitration agreements should not be
enforced.
188
After the Supreme Court decided Wilko, lower courts
generally decided cases upon the premise that arbitration was an inadequate
form of conflict resolution.
189
Despite the passage of the FAA, judicial
hostility toward arbitration remained a governing theory, particularly in
terms of the arbitration of statutory claims.
190
4. “A Healthy Regard” for Arbitration
Eventually the rationale of the FAA, that arbitration is an adequate forum
for the vindication of statutory rights, prevailed in court. In 1985, the
Supreme Court in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc.
191
held that arbitration was an adequate method for resolution of claims
arising under the Sherman Act.
192
Writing for the majority, Justice Harry
A. Blackmun adhered to the common law contractual policy of giving force
to the intentions of parties
193
and held that the existence of a statute upon
which claims were predicated did not change this principle.
194
Blackmun
did, however, caution against ignoring legitimate reasons for the
invalidation of an arbitration agreement, and the Court did not formally
overturn Wilko.
195
187. See id. at 435 (“When the security buyer, prior to any violation of the Securities Act,
waives his right to sue in courts, he gives up more than would a participant in other business
transactions.”).
The proposition that emerged from Mitsubishi, as
applied by lower courts, was that parties to an arbitration agreement would
be required to arbitrate “unless Congress itself has evinced an intention to
188. See Am. Safety Equip. Corp. v. J.P. Maguire & Co., 391 F.2d 821, 827–28 (2d Cir.
1968); see also B
ALES, supra note 153, at 19 (stating that the public policy defense created
in Wilko presumed that “(1) a judicial forum was superior to arbitration for enforcing
statutory rights; (2) compulsory arbitration constituted a waiver of the statutory right to a
judicial forum, which contravened public policy; and (3) the informality of arbitration made
it difficult for courts to correct errors in statutory interpretation”).
189. See, e.g., Laupheimer v. McDonnell & Co., 500 F.2d 21, 25–26 (2d Cir. 1974).
190. In addition to Wilko, the Supreme Court decided three cases in which it found that in
enacting certain statutes, Congress did not intend the protections afforded by the statute to be
administered by a private arbitrator. McDonald v. City of W. Branch, 466 U.S. 284, 290
(1984) (holding that claims under the Ku Klux Klan Act of 1871 should not be arbitrated);
Barrentine v. Ark.-Best Freight Sys., Inc., 450 U.S. 728, 745 (1981) (Fair Labor Standards
Act); Alexander v. Gardner-Denver Co., 415 U.S. 36, 59–60 (1974) (Title VII of the Civil
Rights Act of 1964).
191. 473 U.S. 614, 640 (1985).
192. See 15 U.S.C. §§ 1–7 (2006).
193. Mitsubishi, 473 U.S. at 625 (calling the FAA “at bottom a policy guaranteeing the
enforcement of private contractual arrangements”).
194. See id. at 626–27 (“[W]e are well past the time when judicial suspicion of the
desirability of arbitration and of the competence of arbitral tribunals inhibited the
development of arbitration as an alternative means of dispute resolution.”).
195. See id. at 627.
2011] GIVING ARBITRATION SOME CREDIT 2783
preclude a waiver of judicial remedies for the statutory rights at issue.”
196
The principle announced by the Court in Moses H. Cone Memorial Hospital
v Mercury Construction Corp.
197
two years earlier, that “questions of
arbitrability must be addressed with a healthy regard for the federal policy
favoring arbitration,”
198
was, for the first time, expanded to reach claims
based on federal statutes as well.
199
After upholding an agreement to arbitrate claims arising under the
Racketeer Influenced Corrupt Organizations Act (RICO) in 1987,
200
the
Court expressly overruled Wilko v. Swan in 1989.
201
Writing for a 5-4
majority, Justice Kennedy wrote, “To the extent that Wilko rested on
suspicion of arbitration as a method of weakening the protections afforded
in the substantive law to would-be complainants, it has fallen far out of step
with our current strong endorsement of the federal statutes favoring this
method of resolving disputes.”
202
The Court rejected the plaintiff’s
argument that arbitration proceedings force participants to forgo substantive
rights afforded by the statute upon which they bring their claim,
203
and
noted that the enforcement of arbitration agreements produces a result by
which both the policies of the FAA and the relevant statute are
implemented.
204
With this decision, the Court’s approach to arbitration
became one of deference and enforcement.
205
In 1995, in Allied-Bruce Terminix Cos. v. Dobson, the Supreme Court
further considered the FAA’s reach in analyzing whether the FAA applied
to a contract containing a mandatory arbitration agreement between an
Alabama homeowner and the local office of the Allied-Bruce Terminix
Companies.
206
The plaintiff argued that the agreement fell within the scope
of an Alabama statute providing that written pre-dispute arbitration
agreements are invalid and unenforceable.
207
196. Id. at 628.
The Supreme Court of
Alabama agreed with the plaintiff, finding that although the FAA preempts
197. 460 U.S. 1 (1983).
198. Id. at 24.
199. Mitsubishi, 473 U.S. at 625–26.
200. Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220, 242 (1987). The claims in
this case were predicated on both the Racketeer Influenced Corrupt Organizations Act
(RICO), 18 U.S.C. §§ 1961–1968 (2006), and Section 10(b) of the Securities Exchange Act
of 1934, 15 U.S.C. § 78 (2006). McMahon, 482 U.S. at 222. This case also marked the first
time that the Supreme Court found claims arising under statutory rights to be arbitrable in a
domestic context. See Katherine Van Wezel Stone, Rustic Justice: Community and Coercion
Under the Federal Arbitration Act, 77 N.C.
L. REV. 931, 951 (1999).
201. Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 485 (1989).
202. Id. at 481.
203. Id.
204. Id. at 485.
205. See Jean R. Sternlight, Panacea or Corporate Tool?: Debunking the Supreme
Court’s Preference for Binding Arbitration, 74 W
ASH. U. L.Q. 637, 674 (1996).
206. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 268 (1995).
207. See id.
2784 FORDHAM LAW REVIEW [Vol. 79
conflicting state law, the FAA did not apply to the contract at hand because
the contract did not concern interstate commerce.
208
The Court reversed, finding that even if the parties did not intend the
contract to have a connection to interstate commerce, the transaction need
only “in fact involve interstate commerce” to be within the reach of the
FAA.
209
Writing for the majority, Justice Breyer concluded that the term
“involving commerce” in section 2 of the FAA “signals an intent to
exercise Congress’ commerce power to the full.”
210
With this holding, the
Court brought any transaction with connections to interstate commerce
within the scope of the FAA. In addition, Justice Breyer, in dicta, extolled
the virtues of arbitration in the realm of consumer protection.
211
He
rejected the view espoused by an amicus curiae brief that disallowing
arbitration would more adequately protect the interests of consumers
signing form contracts, and instead found that “arbitration’s advantages
often would seem helpful to individuals . . . who need a less expensive
alternative to litigation.”
212
This remark evinces the complete shift in the
Court’s approach to arbitration since the period following the passage of the
FAA, when the Court’s position was that, despite the passage of the Act,
arbitration inadequately shielded consumers from unfair business
practices.
213
In another purported collision between the FAA and statutory rights, the
Supreme Court in Gilmer v. Interstate/Johnson Lane Corp.
214
held that
claims arising under the Age Discrimination in Employment Act (ADEA)
were subject to mandatory arbitration.
215
Gilmer, a signatory to an
employment agreement providing for arbitration of future controversies
with the employer, was fired at the age of sixty-two, and argued primarily
that mandatory arbitration would both impede the important social policies
behind the ADEA and deprive him of a right to a judicial forum guaranteed
under the ADEA.
216
The Court rejected both of these contentions.
217
208. See Allied-Bruce Terminix Cos. v. Dobson, 628 So. 2d 354, 356 (1993) (“[T]he
evidence adduced by the Terminix companies does not establish that the parties
contemplated substantial interstate activity when they entered the termite bond.”).
Writing for the
majority, Justice Byron R. White found that arbitration of Gilmer’s claims
would just as adequately enforce the policies for which the ADEA was
209. Allied-Bruce, 513 U.S. at 279. The transaction at issue ultimately involved interstate
commerce to the extent that Allied-Bruce and Terminix had an interstate relationship and the
materials used by Allied-Bruce were imported into Alabama from out of state. See id. at 282.
210. Id. at 277.
211. See id. at 280–81.
212. Id. at 280.
213. See Wilko v. Swan, 346 U.S. 427, 435 (1953).
214. 500 U.S. 20 (1991).
215. Id. at 23.
216. See id. at 27–29.
217. Id.
2011] GIVING ARBITRATION SOME CREDIT 2785
enacted as would a judicial forum.
218
The Court also rejected the idea that
the ADEA required that claims be heard in a judicial forum, especially
considering the statute’s reference to the use of out-of-court methods to
resolve disputes.
219
This decision explicitly departed from the principle,
articulated first in Wilko and upheld in the Alexander v. Gardner-Denver
Co. cases,
220
that public policy concerns provide a reason to withhold
claims from the arbitration system.
221
In 1996, in what one scholar describes as the “devastati[on of] virtually
all state attempts to protect consumers, franchisees, and other weaker
parties,”
222
the Supreme Court, in Doctor’s Associates, Inc. v. Casarotto,
223
expanded its holding from Southland Corp. v. Keating
224
to find that the
FAA preempted a state statute that imposed specific typographical
requirements on arbitration agreements.
225
Writing for the majority, Justice
Ginsburg found that under section 2 of the FAA, courts could not refuse to
enforce arbitration agreements on account of laws that apply only to
arbitration.
226
By imposing a requirement on arbitration agreements that
was not imposed on other types of contracts, the Montana statute in
question violated section 2 of the FAA, which expressed Congress’s goal of
placing arbitration agreements “‘upon the same footing as other contracts,’”
and was thus preempted.
227
This holding greatly limited the requirements
that state arbitration statutes may place on arbitration clauses.
228
218. Id. at 28 (“Both of these dispute resolution mechanisms . . . can further broader
social purposes.”).
219. Id. at 29; see also 29 U.S.C. § 626(b) (2006) (encouraging the resolution of Age
Discrimination in Employment Act (ADEA) claims through “informal methods of
conciliation, conference, and persuasion”).
220. See 415 U.S. 36, 59–60 (1974); supra note 190 and accompanying text.
221. See Sternlight, supra note 205, at 671. The Court in Gilmer did not overturn the
Alexander-Gardner holding, but merely pointed to disparities between that case and the case
at hand. See Gilmer, 500 U.S. at 35; M
ACNEIL, supra note 114, at 76–77.
222. See Sternlight, supra note 205, at 667.
223. 517 U.S. 681, 688 (1996).
224. 465 U.S. 1, 16 (1984) (holding that the Federal Arbitration Act (FAA) preempts
inconsistent state arbitration laws); see also supra note 174 and accompanying text.
225. Montana’s arbitration statute required an arbitration clause to be typed in underlined
capital letters on the front page of the contract to be enforceable upon the naissance of a
dispute. Doctor’s Assocs., 517 U.S. at 684.
226. See id. at 687.
227. Id. (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 511 (1974)).
228. See Sternlight, supra note 205, at 668. Sternlight points out that a state may be able
to provide for protective measures against arbitration agreements perceived as unfair by
enacting blanket prohibitions against certain practices in all contracts, as long as arbitration
agreements are not singled out. See id. at 668 n.176; see also Larry J. Pittman, The Federal
Arbitration Act: The Supreme Court’s Erroneous Statutory Interpretation, Stare Decisis,
and a Proposal for Change, 53 A
LA. L. REV. 789, 880 (2002) (“[S]tates cannot give
consumers the level of protection that their public policies might warrant.”); Van Wezel
Stone, supra note 200, at 948 (“State law contract defenses to arbitration can only be raised
if they are matters of general law, not if they are provisions directed at arbitration.”).
2786 FORDHAM LAW REVIEW [Vol. 79
5. Total Enforcement: The Supreme Court’s Treatment of Arbitration
Since 2000
The Supreme Court in the last few years has decided several cases that
have had a significant impact on the legal environment surrounding
arbitration. These decisions reflect a continuation of the policy in favor of
the enforcement of arbitration agreements in numerous contexts.
In 2000, in Green Tree Financial Corp.-Alabama v. Randolph,
229
the
Court rejected a consumer’s argument that an arbitration agreement that
failed to indicate which party would be responsible for arbitration costs was
not enforceable.
230
Larketta Randolph argued that the agreement, silent as
to costs, would prevent her from adequately vindicating her rights, because
she might face a situation in which the costs of arbitration were too
steep.
231
Writing for the majority, Chief Justice William H. Rehnquist
asserted that invalidation of the agreement would violate the Court’s policy
in favor of arbitration.
232
Similarly, the Court found that invalidation of the
agreement would also violate the Court’s requirement that the party seeking
to avoid an arbitration agreement prove that arbitration is inappropriate.
233
With this decision the Court began the new millennium reasserting its
belief that an arbitral tribunal is as suitable a forum as a judicial tribunal for
the vindication of consumers’ rights.
234
The Court continued to enforce
aspects of arbitration in 2003 in Green Tree Financial Corp. v. Bazzle,
235
holding that when an arbitration clause was silent on the issue of class-wide
arbitration, the decision of whether class claims could be compelled into
arbitration was for the arbitrator.
236
This holding greatly increased the
authority granted to arbitrators.
237
In 2008, the Court limited judicial review of an arbitration award in Hall
Street Associates, LLC v. Mattel, Inc.
238
The parties in this case, a landlord
and tenant, had included a clause in the arbitration agreement between them
providing that an arbitrator’s award could be reviewed for error by a
court.
239
229. 531 U.S. 79 (2000).
The Court held that parties could not contract around the FAA’s
provisions for review, as the grounds delineated in the FAA were the sole
230. See id. at 89–92.
231. Id. at 90.
232. Id. at 91.
233. Id. at 91–92.
234. See id. at 90; see also Pittman, supra note 228, at 882 (“To the extent that a
consumer purchaser is less likely to meet the burden of proving that the arbitration costs are
prohibitive, Green Tree is a pro-arbitration decision.”).
235. 539 U.S. 444 (2003).
236. See id. at 447.
237. See C
ARBONNEAU, supra note 151, at 244 (noting that the holding in Bazzle “extends
the reach of the arbitrator’s discretion, limits the role of the courts in regard to the arbitral
process, and enhances the systemic autonomy of arbitration”).
238. 552 U.S. 576, 584 (2008).
239. See id. at 579–80; see also C
ARBONNEAU, supra note 151, at 253 (noting that the
ruling in Hall Street was expected “to resolve the split between the federal circuits regarding
the validity and enforceability of opt-in provisions”).
2011] GIVING ARBITRATION SOME CREDIT 2787
means for obtaining review.
240
This decision reaffirmed the supremacy of
the FAA by limiting the ability of parties voluntarily to opt out of the
FAA’s requirements.
241
In June 2010, the Court again weighed in on the enforceability of specific
provisions in arbitration clauses in Rent-a-Center, West, Inc. v. Jackson.
242
In an employment discrimination suit in which the plaintiff alleged
violations of the Civil Rights Act of 1991,
243
the parties had signed an
arbitration clause that included a provision mandating that any question
about the interpretation or applicability of the arbitration agreement be
resolved by the arbitrator.
244
The employee, Antonio Jackson, argued that
the agreement was unconscionable.
245
In response, Rent-a-Center argued
that the question of the unconscionability of the agreement could not
properly be heard by the court but must be decided by the arbitrator.
246
The
Court rejected Jackson’s argument, finding that only the arbitrator, and not
the court, could decide the question of unconscionability of the
agreement.
247
Because the Court found that the plaintiff was challenging
the validity of the contract as a whole, the challenge was properly before the
arbitrator and not a court.
248
In April 2010, the Court decided Stolt-Nielsen S.A. v. AnimalFeeds
International Corp.,
249
a decision that emphasized the necessity of consent
in agreements to arbitrate.
250
Evaluating an arbitration clause silent on the
issue of class arbitration,
251
the Court held that the defendant company
could not compel the plaintiffs to arbitrate as a class because the parties had
not previously agreed to class arbitration.
252
The Court repeatedly referred
to “the consensual nature” of arbitration and the importance of the parties’
intent.
253
Notably, the Court also held that the arbitration panel “exceeded
its powers,” which was grounds for vacatur under section 10(a)(4) of the
FAA.
254
Because the Court found that the panel ignored relevant law and
instead “imposed its own conception of sound policy,” the Court vacated
the award.
255
240. See Hall Street, 552 U.S. 585–89.
241. See id.; see also CARBONNEAU, supra note 151, at 254 (“Hall Street Associates is
unquestionably a favorable-to-arbitration ruling. . . . There is . . . no question about the
legitimacy of arbitration or its function in either the majority or dissenting opinions.”).
242. 130 S. Ct. 2772, 2779 (2010).
243. 42 U.S.C. § 1981 (2006).
244. Rent-a-Center, 130 S. Ct. at 2775.
245. Id.
246. Id.
247. Id. at 2779.
248. Id. The Court pointed out, however, that if a party challenges the validity of the
agreement to arbitrate in particular, judicial review is required. Id. at 2778.
249. 130 S. Ct. 1758 (2010).
250. See id. at 1774.
251. Id. at 1766.
252. Id. at 1775.
253. See id. at 1774.
254. Id. at 1770.
255. Id. at 1776.
2788 FORDHAM LAW REVIEW [Vol. 79
In November 2010, the Supreme Court heard arguments in the case of
AT & T Mobility LLC v. Concepcion.
256
The case addressed a conflict
between the FAA and a California state court’s decision that an arbitration
agreement prohibiting class arbitration was unconscionable.
257
Some
commentators have expressed that a potential win for AT & T would be
“grossly unfair,”
258
while others have touted the virtues of finding in favor
of AT & T and therefore in favor of the supremacy of the FAA.
259
A recent case in the Southern District of New York demonstrates the
compliance of lower courts with the Supreme Court’s current arbitration
policy. In November 2010, a federal judge upheld a record-setting
judgment of $20.6 million against Goldman Sachs,
260
rejecting the
defendant’s argument that the arbitration panel had exceeded its powers in
granting such a large award.
261
Similarly, the Dodd-Frank Act,
262
enacted in July 2010, is another recent
development in arbitration law.
263
Concern about financial customs in the
current economy led to the enactment of this legislation in an effort to
proscribe numerous practices considered problematic.
264
Among other
things, the Act created a new Bureau of Consumer Financial Protection.
265
The Act explicitly grants the new agency the power to prohibit or impose
conditions or limitations on the use of mandatory pre-dispute arbitration
agreements.
266
256. See Laster v. AT & T Mobility LLC, 584 F.3d 849 (9th Cir. 2009), cert. granted sub
nom. AT & T Mobility LLC v. Concepcion, 130 S. Ct. 3322 (2010); Oral Argument,
AT & T Mobility LLC v. Concepcion, 130 S. Ct. 3322 (No. 09-893), available at
http://www.oyez.org/cases/2010-2019/2010/2010_09_893.
Specifically, the Act requires the agency to study “the use
257. See Laster, 584 F.3d at 854–55.
258. Editorial, The Arbitration War, N.Y.
TIMES, Nov. 27, 2010, at A18.
259. See Robin Conrad, AT & T Mobility v. Concepcion: Preserving Arbitration for
Businesses and Consumers, NAT’L REV. ONLINE (Nov. 9, 2010, 12:54 PM),
http://www.nationalreview.com/bench-memos/252893/iatt-mobility-v-concepcioni-
preserving-arbitration-businesses-and-consumers-robin# (“Consumers who have legitimate
grievances deserve access to the expedient and user-friendly system that Congress has
already declared should be available as a contractual alternative to litigation.”).
260. See Goldman Sachs Execution & Clearing, L.P. v. Official Unsecured Creditors’
Comm. of Bayou Grp., LLC, No. 10 Civ. 5622 (JSR), 2010 WL 4877847, at *5 (S.D.N.Y.
Nov. 30, 2010).
261. See id.; see also Susanne Craig, Judge Upholds Award Against Goldman, N.Y.
TIMES DEALBOOK (Nov. 8, 2010, 11:29 AM),
http://dealbook.nytimes.com/2010/11/08/judge-upholds-award-against-goldman/?scp=
1&sq=rakoff%20arbitration&st=cse.
262. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203,
124 Stat. 1376 (2010) (codified in scattered sections of tits. 7, 12, and 15 U.S.C.).
263. See id. § 1028, 124 Stat. at 2003 (providing for analysis and rulemaking in the field
of mandatory consumer arbitration).
264. Brady Dennis, Congress Passes Financial Reform Bill, W
ASH. POST (July 16, 2010),
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/15/AR2010071500464.
html?sid=ST2010071504699.
265. See Dodd-Frank Act § 1011, 124 Stat. at 1964.
266. See id. § 1028, 124 Stat. at 2003–04; see also Budnitz, supra note 25, at 1204–05
(“[T]he new agency should determine if arbitrations ‘promote fair adjudication and effective
redress’ and should ban the clauses if necessary.” (quoting D
EP’T OF THE TREASURY,
FINANCIAL REGULATORY REFORM, A NEW FOUNDATION: REBUILDING FINANCIAL
2011] GIVING ARBITRATION SOME CREDIT 2789
of agreements providing for arbitration of any future dispute . . . in
connection with the offering or providing of consumer financial products or
services.”
267
Based on the results of the study, the agency may decide to
impose limitations on pre-dispute consumer arbitration agreements, but may
not impose restrictions on voluntary post-dispute consumer arbitration
agreements.
268
D. Federal Statutory Claims, the FAA, and the Courts
As discussed above, the Supreme Court has subjected claims under
numerous federal statutes to arbitration.
269
Courts examining whether or
not arbitration agreements are enforceable when dealing with such claims
typically apply the test delineated by the Supreme Court in Shearson/Am.
Express, Inc. v. McMahon.
270
There, the Court held that to overcome the
presumption in favor of arbitrability, the relevant statute must indicate
Congressional intent to prohibit arbitration.
271
Such intent is to be
determined by examination of the text and legislative history of the statute,
as well as a consideration of whether an inherent conflict exists between the
underlying purposes of the statute and arbitration.
272
While the Supreme Court has held that the statutory rights of consumers
are protected equally by arbitration and litigation,
273
some federal statutes
explicitly limit the enforceability of arbitration provisions in consumer
agreements.
274
For example, the John Warner National Defense
Authorization Act prohibits the enforcement of an arbitration clause in a
consumer credit agreement signed by a covered member of the armed
forces or the member’s dependent.
275
Similarly, in 2002, Congress passed
the Motor Vehicle Franchise Contract Dispute Resolution Process Act.
276
SUPERVISION AND REGULATION 62, available at http://permanent.access.gpo.gov/
LPS113933/LPS113933/www.financialstability.gov/docs/regs/FinalReport_web.pdf (last
visited Apr. 20, 2010))).
This statute requires the written consent of all parties to a dispute to submit
their claims to arbitration, regardless of whether the parties had already
267. Dodd-Frank Act § 1028(a), 124 Stat. at 2003–04.
268. Id. § 1028(b)–(c), 124 Stat. at 2004.
269. See supra Part II.C.
270. See Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220, 227 (1987); see also
supra note 200 and accompanying text.
271. See McMahon, 482 U.S. at 227.
272. Id.
273. See Speidel, supra note 19, at 1086 (“[M]ost statutory claims . . . are capable of final
settlement by private agreement . . . . The decision to withhold a statutory claim from
arbitration should be made by Congress at the time the right is created . . . .”); supra Part
II.C.4–5.
274. See F.
PAUL BLAND, JR. ET AL., CONSUMER ARBITRATION AGREEMENTS:
ENFORCEABILITY AND OTHER TOPICS app. A.2, at 278 (5th ed. 2007).
275. 10 U.S.C. § 987(f)(4) (2006).
276. Pub. L. No. 107-273, § 11028, 116 Stat. 1835, 1835–36 (2002) (codified at 15
U.S.C. § 1226 (2006)).
2790 FORDHAM LAW REVIEW [Vol. 79
entered into a pre-dispute agreement to arbitrate.
277
The Act applies to
contracts between car dealers and franchisors.
278
While these provisions clearly limit the enforcement of arbitration
clauses, ambiguity exists as to whether claims arising under other statutes
can be forced into arbitration pursuant to a signed arbitration agreement.
279
For example, the Magnuson-Moss Warranty—Federal Trade Commission
Improvement Act (MMWA),
280
designed to protect consumers in signing
agreements for product warranties,
281
allows warrantors to mandate that
consumers submit claims arising under the MMWA to informal dispute
resolution mechanisms.
282
The MMWA expressly states that these
informal processes must be non-binding and that consumers retain the right
to bring MMWA claims in court.
283
For this reason, some courts have held
that the MMWA prohibits binding arbitration.
284
Two appellate courts,
however, have reversed lower court decisions precluding binding arbitration
of MMWA claims and have held that arbitration agreements under the
MMWA are enforceable.
285
A clash between the FAA and the U.S. Bankruptcy Code raises similar
questions.
286
The Bankruptcy Code grants to district courts original and
exclusive jurisdiction over certain matters.
287
A conflict has developed
over whether this means that all claims under the Bankruptcy Code must be
heard in a district court and therefore that all relevant arbitration provisions
are unenforceable.
288
277. 15 U.S.C. § 1226(a)(2).
Most courts have compelled arbitration of claims
278. Id. § 1226(a)(1)(B); see also BLAND ET AL., supra note 274, app. A.2.2, at 279.
279. See B
LAND ET AL., supra note 274, § 4.2.1.1, at 56–57.
280. 15 U.S.C. §§ 2301–2312.
281. See Andrew P. Lamis, The New Age of Artificial Legal Reasoning as Reflected in the
Judicial Treatment of the Magnuson-Moss Act and the Federal Arbitration Act, 15 L
OY.
CONSUMER L. REV. 173, 184 (2003) (describing the statute as “a reaction to the inability of
consumers to bargain over and meaningfully consent to the terms of a product warranty”).
282. See B
LAND ET AL., supra note 274, § 4.2.2.1, at 58; see also 15 U.S.C. § 2310(a)(3).
283. See 15 U.S.C. § 2310(a)–(d).
284. See, e.g., Browne v. Kline Tysons Imps., Inc., 190 F. Supp. 2d 827, 831 (E.D. Va.
2002) (“Any informal dispute settlement procedure that may be utilized to resolve written
warranty disputes under the [Magnuson-Moss Warranty—Federal Trade Commission
Improvement Act (MMWA)] must be a non-binding mechanism, which serves as a
prerequisite, and not a bar, to relief in court.”); Pitchford v. Oakwood Mobile Homes, Inc.,
124 F. Supp. 2d 958, 964–65 (W.D. Va. 2000) (“The clear intent of Magnuson-Moss . . . is
to encourage alternate dispute settlement mechanisms, but to not deprive any party of their
right to . . . a judicial forum.”).
285. See Davis v. S. Energy Homes, Inc., 305 F.3d 1268, 1273–77 (11th Cir. 2002)
(looking at the text, legislative history, and underlying purposes of the MMWA and finding
that none of these factors indicated Congress’s intent to prohibit binding arbitration); Walton
v. Rose Mobile Homes LLC, 298 F.3d 470, 478 (5th Cir. 2002) (“Consumers can still
vindicate their rights under warranties in an arbitral forum . . . . Arbitration is not inherently
unfair to consumers.”).
286. See B
LAND ET AL., supra note 274, § 4.2.3, at 70–73.
287. See 28 U.S.C. § 1334 (2006).
288. See B
LAND ET AL., supra note 274, § 4.2.3.2–4, at 70–72; see also Mette H. Kurth,
Comment, An Unstoppable Mandate and an Immovable Policy: The Arbitration Act and the
Bankruptcy Code Collide, 43 UCLA L. REV. 999, 1002 (1996) (“The cases [addressing
2011] GIVING ARBITRATION SOME CREDIT 2791
relating to non-core matters of bankruptcy issues,
289
while granting that
courts have discretion over the enforceability of arbitration of core
matters.
290
Similar conflicts have developed in relation to the False Claims
Act (FCA)
291
and the Uniformed Services Employment and Reemployment
Rights Act of 1994 (USERRA).
292
III. THE CREDIT REPAIR ORGANIZATIONS ACT IN COURT: THE SPLIT OVER
WHETHER A COURT MAY COMPEL A CONSUMER TO ARBITRATE CLAIMS
UNDER THE CREDIT REPAIR ORGANIZATIONS ACT
This part examines the circuit split over the enforceability of arbitration
agreements under the CROA. It analyzes the different approaches taken by
courts, as well as scholarly opinions supporting each side.
While the Supreme Court has decided many cases concerning the
arbitrability of rights granted by federal statutes,
293
few federal circuit
courts have weighed in on whether claims under the CROA specifically are
arbitrable. In addition to those circuit courts that have addressed the split, a
number of cases in district courts have dealt with the issue as well. Those
courts that have confronted the issue have resolved it in one of two
conflicting ways: compelling arbitration
294
or prohibiting arbitration.
295
The controversy springs from the CROA’s mandated disclosure that
consumers have the “right to sue”
296
and its repeated references to courts,
but its lack of explicit language mandating that claims be heard in a judicial
forum.
297
whether bankruptcy claims can be arbitrated] differ markedly in their treatment of core
proceedings, policy, efficiency concerns, and balancing tests.”).
289. See Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1157
(3d Cir. 1989) (holding that “the text of the Bankruptcy Code embodies the principle that
pre-petition contract rights are enforceable in a bankruptcy proceeding” and enforcing
arbitration of claims). But see In re Guild Music Corp., 100 B.R. 624, 628 (Bankr. D.R.I.
1989) (holding that the court has discretion to refuse to enforce the arbitration of non-core
matters).
290. See MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104, 110–11 (2d Cir. 2006) (denying
motion to compel arbitration). But see James P. Barkman, Inc. v. Granger Constr. Co. (In re
James P. Barkman, Inc.), 170 B.R. 321, 323 n.1 (Bankr. E.D. Mich. 1994) (noting in dicta
that the core/non-core distinction is irrelevant).
291. 31 U.S.C. § 3730(h)(2) (2006). Compare Nguyen v. City of Cleveland, 121 F. Supp.
2d 643, 644 (N.D. Ohio 2000) (declining to compel arbitration of FCA claims), with United
States v. Bankers Ins. Co., 245 F.3d 315, 325 (4th Cir. 2001) (compelling arbitration of FCA
claims).
292. 34 U.S.C. § 4302(b) (2006). Compare Lopez v. Dillard’s, Inc., 382 F. Supp. 2d
1245, 1248 (D. Kan. 2005) (refusing to compel arbitration of Uniformed Services
Employment and Reemployment Rights Act of 1994 (USERRA) claims), with Landis, O.D.
v. Pinnacle Eye Care, LLC, 537 F.3d 559, 562–63 (6th Cir. 2008) (enforcing arbitration of
USERRA claims, largely because the language and legislative history of the statute is silent
as to arbitration, and there is no inherent conflict between arbitration and the purposes of
USERRA), and Garrett v. Circuit City Stores, Inc., 449 F.3d 672, 681 (5th Cir. 2006).
293. See supra Part II.C.
294. See infra Part III.A.
295. See infra Part III.B.
296. 15 U.S.C. § 1679c(a) (2006).
297. See Ropiequet & Hirsh, supra note 59, at 14, 18–20.
2792 FORDHAM LAW REVIEW [Vol. 79
A. Under the CROA, Mandatory Arbitration Clauses Are Enforceable
Before August 2010, the only circuit courts to address this conflict had
compelled arbitration of CROA claims.
298
1. The Third Circuit
This section examines the cases
that have produced these decisions and analyzes the reasoning that has led
these courts to hold that the CROA does not prohibit mandatory arbitration.
The first circuit court to weigh in on the issue of the arbitrability of
claims under the CROA was the Third Circuit in 2007 in Gay v.
CreditInform.
299
Mary Gay purchased credit repair services from
CreditInform and Intersections, Inc., seeking to monitor and improve her
credit history.
300
After eight months of making monthly payments of $4.99
to Intersections,
301
she received no services or benefits.
302
Gay sued
Intersections for violations of the CROA, specifically for requiring payment
before services were rendered and for requiring a waiver of rights to which
Gay was entitled under the CROA.
303
Additionally, Gay argued that
Intersections failed to make the required disclosures under the CROA.
304
Intersections filed a motion to stay proceedings and compel arbitration, in
accordance with an arbitration agreement Gay had signed upon purchasing
Intersections’s services.
305
The district court granted the defendants’
motion in light of the arbitration agreement, stayed the case, and ordered the
parties to arbitrate the claims in question on an individual basis.
306
Gay contended that by means of the nature of her claims under the
CROA, she had an automatic right to sue in court.
307
She asserted that
references in section 1679g of the CROA to a “court” confirmed her right to
avoid arbitration.
308
298. See id. at 21 (“[T]here is a much clearer trend in favor of finding that CROA claims
are arbitrable . . . .”).
She identified section 1679c(a), which requires a
299. 511 F.3d 369, 375 (3d Cir. 2007) (“The Supreme Court and, as far as we are aware,
no court of appeals has addressed the issues that we now address under the CROA.”).
300. See id.
301. Id. CreditInform is a registered trademark of Capital One, used to market products
and services of Capital One, which are ultimately provided by Intersections. Although the
suit initially named CreditInform as a defendant along with Intersections, Gay voluntarily
dismissed CreditInform from the suit. See id. at 374 n.1.
302. See id. at 375.
303. See id. at 374–75.
304. See id. at 375.
305. The arbitration agreement stated, “Any claim arising out of or relating to the Product
shall be settled by binding arbitration in accordance with the commercial arbitration rules of
the American Arbitration Association on an individual basis not consolidated with any other
claim.” Id.
306. See id.
307. See id. at 376–78.
308. See id. For example, the statute states that punitive damages are awarded “as the
court may allow”; that class actions are calculated by an amount which “the court may
allow”; and that the “court shall consider” several factors in determining the amount of
punitive damages to be awarded. See 15 U.S.C. § 1679g (2006).
2011] GIVING ARBITRATION SOME CREDIT 2793
credit repair organization to inform consumers that they have a “right to
sue” for any violation of the CROA, as additional support for this claim.
309
Intersections argued that the CROA does not provide a right to sue in a
judicial forum and that even if this right did exist, the statute does not
prevent a consumer from waiving such right under the statute.
310
According to this reasoning, when Gay signed the agreement to arbitrate,
she lost any right she may have had to sue in a judicial forum.
311
The Third Circuit agreed with Intersections and rejected Gay’s claims.
312
The court followed its holding in Johnson v. West Suburban Bank
313
in
resolving the dispute. There, having found that the legislative history of
TILA did not demonstrate an intent to preclude arbitration, the court held
that there was no irreconcilable conflict between TILA’s purposes and
arbitration of such claims.
314
Similarly, the court in Gay found that even
though the CROA’s language reflects an assumption that claims will be
brought in a judicial forum, the statute does not create an independent right
to such forum nor does it indicate that such a right cannot be waived by an
arbitration agreement.
315
The Third Circuit also based its decision on Supreme Court precedent,
finding that the anti-waiver provision in the CROA is equivalent to those in
both RICO and the Securities Exchange Act.
316
As a result, the court held
that the anti-waiver provision of the CROA covered only the substantive
obligations imposed by the statute and not the procedural requirements.
317
Based on this reasoning, the court affirmed the district court’s order
compelling arbitration of Gay’s CROA claims.
318
309. See Gay, 511 F.3d at 377 n.4. The court dispensed with this argument in a footnote,
because “the section does not specify the forum for the resolution of the dispute and
therefore does not support Gay’s argument that the CROA provides a consumer with the
right to bring suit in a judicial, rather than arbitral, forum for CROA violations.” Id.
310. See id. at 378.
311. Id.
312. Id. at 385.
313. 225 F.3d 366 (3d Cir. 2000). This case considered the issue of whether claims
arising under TILA, see supra Part I.A.1, may be subject to mandatory arbitration in lieu of
class action litigation. The plaintiff argued that repeated references to “class actions” within
the statute granted to consumers the right to file claims as class actions and overrode
agreements to arbitrate on an individual basis. See id. at 369, 371, 377–78; see also Gay, 511
F.3d at 379.
314. See Gay, 511 F.3d at 381 (“‘The notion that there is a meaningful distinction
between vindicating a statute’s social purposes and adjudicating private grievances for the
purposes of determining whether a statute precludes compelling arbitration under a valid
arbitration clause was rejected by the Supreme Court in Gilmer v. Interstate/Johnson Lane
Corp.’” (quoting Johnson, 225 F.3d at 374)).
315. See id. at 382. The court called this assumption “hardly surprising,” as an individual
who believes she is the victim of a wrong will ordinarily have a right to sue in court. Id.
316. See Rodriguez de Quijas v. Shearson/Am. Express Inc., 490 U.S. 477, 482–83
(1989); Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220, 231–34 (1987); supra Part
II.C.4.
317. See Gay, 511 F.3d at 382–85.
318. See id. at 395.
2794 FORDHAM LAW REVIEW [Vol. 79
2. The Eleventh Circuit
In 2009, the Eleventh Circuit addressed this conflict in Picard v. Credit
Solutions, Inc.
319
and followed the Third Circuit’s lead, holding that the
CROA does not preclude arbitration.
320
The plaintiff in the case was a
customer of Credit Solutions (CSA), a company purporting to lower clients’
debts by negotiating with unsecured creditors.
321
Picard, facing increasing
debt and persistent creditors, electronically entered into an agreement for
CSA’s services, which contained a mandatory arbitration clause.
322
Less
than a month later, creditors began calling Picard to report that she had
defaulted on her accounts.
323
She filed for Chapter 7 bankruptcy and filed
suit against CSA in the U.S. District Court for the Northern District of
Alabama.
324
The district court rejected CSA’s motion to compel
arbitration, finding that the arbitration clause was void under the CROA.
325
On appeal, CSA argued that the CROA does not preclude arbitration,
326
while Picard argued that she should not be forced to arbitrate because the
CROA entitled her to a suit in court.
327
The Eleventh Circuit found that the CROA does not create a
contractually unwaivable right to sue in court.
328
The court acknowledged
its adherence to Supreme Court holdings indicating an inclination to
enforce arbitration clauses, and noted that the clause at hand was
unenforceable only upon a finding that Congress had intended to prohibit
waiver of a judicial forum.
329
In resolving this question, the court followed
the lead of the Third Circuit in adhering to the decisions interpreting
arbitration clauses under the Securities Act and RICO, finding that these
cases supported the defendant’s position that the statute in question did not
prohibit arbitration.
330
Additionally, the court held that the only right created in the disclosure
provision of the CROA was the right to be told certain information.
331
Because the “right to sue” was not mentioned in the civil liability section of
the CROA, the statute placed no limitation on arbitration.
332
319. 564 F.3d 1249, 1254 (11th Cir. 2009) (“Whether CROA prohibits arbitration is an
issue of first impression in this Court.”).
The court
found that even if a statute requires organizations to inform consumers of
320. Id. at 1255. With this holding, the U.S. Court of Appeals for the Eleventh Circuit
reversed a district court’s contrary holding. Id., rev’g Reynolds v. Credit Solutions, Inc., 541
F. Supp. 2d 1248, 1258–60 (N.D. Ala. 2008).
321. See id. at 1251.
322. See id.
323. See id. at 1251–52.
324. See id. at 1252.
325. See id.
326. See id.
327. See id.
328. See id. at 1255.
329. See id. at 1253.
330. See id. at 1255; supra Part II.C.4.
331. See Picard, 564 F.3d at 1255.
332. Id.
2011] GIVING ARBITRATION SOME CREDIT 2795
the right to a private action, such disclosure does not preclude waiver of
that right.
333
The court overturned the district court’s refusal to compel
arbitration and ordered Picard to submit her claims to arbitration.
334
3. The Sixth Circuit
A case from the U.S. District Court for the Western District of Michigan
followed this line of reasoning, holding that CROA claims are arbitrable
pursuant to a mandatory arbitration agreement.
335
The case involved a debt
settlement company that entered into an agreement with the plaintiff,
Revialo Rex, to provide debt settlement services.
336
Instead of receiving
the repair to his credit that he sought, Rex learned of two lawsuits filed
against him by Citibank stemming from his failure to make payments.
337
Rex filed a complaint with the Better Business Bureau, at which point CSA
offered to refund the fees Rex had already paid.
338
Because Rex agreed to
this settlement with CSA, the Bureau closed the investigation;
339
thereafter
Rex filed suit for violations of the CROA.
340
Noting the federal policy of resolving disputes in favor of arbitration,
341
the district court embarked on an evaluation of the statute’s text and
legislative history, and an examination of whether there was an inherent
conflict between arbitration and the statute’s purposes.
342
The court
observed that the civil liability section of the CROA establishes no
particular forum in which claims should be brought.
343
Furthermore, the
court explicitly rejected the opinion of a district court in Texas that the
mention of a “right to sue” in section 1679c—the required disclosures
provision of the CROA—sets forth an independent right.
344
The court
stated that the disclosure requirements do not provide consumers with any
rights beyond that of the required disclosures, which merely establish
wording that must be employed in communicating with consumers and
describing their rights under other sections of the CROA.
345
333. Id. (stating that the CROA “simply does not create a right to sue only in a judicial
forum”).
For these
334. Id. at 1256. The Court explicitly stated that “[t]he substantive rights created in
CROA are entirely preserved in an arbitral forum.” Id. at 1255.
335. Rex v. CSA-Credit Solutions of Am., Inc., 507 F. Supp. 2d 788, 800 (W.D. Mich.
2007).
336. See id. at 792.
337. See id. Citibank prevailed against Rex in both lawsuits. See id.
338. See id.
339. See id.
340. See id.
341. See id. at 793 (arbitration clauses should be enforced “‘unless it may be said with
positive assurance that the arbitration clause is not susceptible of an interpretation that
covers the asserted dispute’” (quoting Highlands Wellmont Health Network, Inc. v. John
Deere Health Plan, Inc., 350 F.3d 568, 576–77 (6th Cir. 2003))).
342. See id. at 797.
343. See id. at 798.
344. See id. at 798–99; Alexander v. U.S. Credit Mgmt, 384 F. Supp. 2d 1003, 1010
(N.D. Tex. 2005); see also infra Part III.B.1.
345. See Rex, 507 F. Supp. 2d at 799.
2796 FORDHAM LAW REVIEW [Vol. 79
reasons, the court found that nothing in the text of the statute indicated that
arbitration of CROA claims was prohibited.
346
The court did not examine the legislative history of the CROA, as neither
party had pointed to language in the legislative history to illuminate the
issue.
347
In analyzing whether the goals of the statute and arbitration
conflicted, the court found that no conflict existed because the Supreme
Court had enforced arbitration of claims under statutes whose intent was to
provide increased consumer protection.
348
The Western District of Michigan followed this reasoning in Vegter v.
Forecast Financial Corp.,
349
4. The Eighth Circuit
holding that under the CROA, a mandatory
arbitration agreement with a debt reduction company was enforceable.
Without a decision from the Sixth Circuit on the issue, however, these
district court cases have narrow precedential value.
The only court within the Eighth Circuit to confront this issue has held
that arbitration agreements may be enforced under the CROA.
350
In 2007,
the U.S. District Court for the District of Nebraska examined plaintiff
Richard Schreiner’s claim of CROA violations against Credit Advisors, a
debt-management service operating in Omaha.
351
Quoting the language of
the Western District of Michigan in Rex that the use of separate sections
setting forth required disclosures and civil liability indicated that the
disclosures did not constitute an independent right, the court stated that the
only evidence of congressional intent to void arbitration clauses under the
CROA was “the word ‘sue’ and the reference to district courts.”
352
Thus,
the court “adopt[ed] the analysis and conclusion in Rex v. CSA that claims
brought under the CROA are arbitrable.”
353
5. In Favor of Enforceability
Those courts that have held that the CROA does not preclude arbitration
have generally based their holdings on both the lack of explicit language to
the contrary and the similarity of the conflict to existing Supreme Court
precedent, finding that fidelity to such precedent mandates allowing
arbitration agreements in credit repair contracts. Several scholars who
advocate for the continued enforcement of consumer arbitration clauses
346. See id. at 799.
347. See id. at 800.
348. See id. (“‘[T]he Supreme Court has repeatedly enforced arbitration of statutory
claims where the underlying purpose of the statutes are to protect and inform consumers.’”
(quoting Davis v. S. Energy Homes, Inc., 305 F.3d 1268, 1276 (11th Cir. 2002))).
349. No. 1:07-CV-279, 2007 WL 4178947, at *5 (W.D. Mich. Nov. 20, 2007).
350. Schreiner v. Credit Advisors, Inc., No. 8:07CV78, 2007 WL 2904098, at *11 (D.
Neb. Oct. 2, 2007); see also supra notes 1–19 and accompanying text.
351. See Schreiner, 2007 WL 2904098 at *1.
352. See id. at *11.
353. See id.
2011] GIVING ARBITRATION SOME CREDIT 2797
support this policy. Arguments in support of pre-dispute consumer
arbitration include cost-saving contentions
354
and freedom of contract
logic.
355
These scholars argue that arbitration enables businesses to save
money on the costs of resolving disputes, and as a result of competition
between companies, these savings are passed on to consumers.
356
Others
point out that principles of contract law invalidating adhesionary or
unconscionable contracts adequately protect consumers from being
compelled to arbitrate in unfair situations.
357
Consequently, there should be
no other grounds to invalidate agreements that meet the requirements of
fairness under contractual principles.
358
Scholars also point to the original impetus for the widespread use of
arbitration, arguing that the delays, expense, and rigidity of judicial
tribunals repel many from seeking legal recourse.
359
They argue that the
Supreme Court has made a value judgment that arbitration is an adequate
solution to these problems, a decision stemming purely from a belief in the
merits of arbitration,
360
and that the problems inherent in arbitration remain
problematic in judicial proceedings as well.
361
B. Under the CROA, Mandatory Arbitration Clauses Are Not Enforceable
The Ninth Circuit is the only circuit court to hold that mandatory
arbitration agreements under the CROA are void and unenforceable.
Similarly, a district court in the U.S. Court of Appeals for the Fifth Circuit,
the first court to address the conflict, held that claims under the CROA are
354. See Brief of Consumer Data Industry Association as Amicus Curiae Supporting
Petitioners at 16, CompuCredit Corp. v. Greenwood, 615 F.3d 1204 (9th Cir. 2010) (No. 10-
948) (“[A]rbitration agreements permit [businesses] to predictably manage their litigation
costs for any disputes related to their products and services.”); Stephen J. Ware, Paying the
Price of Process: Judicial Regulation of Consumer Arbitration Agreements, 2001
J. DISP.
RESOL. 89, 90 (“[J]udicial regulation of consumer arbitration agreements imposes costs on
consumers.”).
355. See Stephen J. Ware, Consumer Arbitration as Exceptional Consumer Law (With a
Contractualist Reply to Carrington & Haagen),
29 MCGEORGE L. REV. 195, 211–12 (1998)
(“Companies using arbitration are exploiting consumers. . . . [T]he company is exploiting the
consumer’s desire for something the company has in order to get . . . a promise to arbitrate.
And the consumer is exploiting the company’s desire for something the consumer has
(typically money) in order to get something from the company.”).
356. See generally Ware, supra note 354.
357. See Carbonneau, Triumph, supra note 19, at 400 (“Parties in the marketplace should
be at liberty to agree to any exchange to which they mutually consent . . . . Coerced
agreements are not consensual undertakings; the authority of law cannot be used to give
them effect.”).
358. See id. at 414–17 (suggesting ways to ensure that arbitration agreements meet
contract fairness requirements).
359. See Carbonneau, Revolution, supra note 19, at 265.
360. See id. at 264 (“Neither quiet moneyed interests nor vocal special interests groups
have imposed an agenda on, or influenced, the Court. The policy favoring arbitration
appears to be a purely judicial policy, instituted to achieve the ends of the legal system.”).
361. See Carbonneau, Triumph, supra note 19, at 413 (“[Party inequality problems] are
not exclusive to arbitration—they exist among unequal parties in the process of judicial
litigation . . . .”).
2798 FORDHAM LAW REVIEW [Vol. 79
not subject to mandatory arbitration. This section considers the reasoning
followed by these courts in finding that the CROA precludes arbitration.
1. The Fifth Circuit
In 2005, the U.S. District Court for the Northern District of Texas
decided Alexander v. U.S. Credit Management, Inc.,
362
holding that claims
under the CROA cannot be forced into arbitration. A class of customers
brought suit against U.S. Credit Management (USCM) for violations of the
CROA disclosure and fee payment requirements.
363
While the court
acknowledged the policy established by the Supreme Court in favor of
arbitration and that the arbitration agreement met the first step of the
circuit’s two-step evaluation of arbitration,
364
the court found merit in the
plaintiffs’ argument that an intention of Congress to prevent the waiver of
judicial remedies can override the policy of the FAA.
365
The court stated that the CROA grants four rights, one of which is “the
right to sue.”
366
The court read this term in the disclosure provision
alongside the non-waiver provision to find that a waiver of judicial
remedies is unenforceable under the CROA, determining that mention of
the “right to sue” demonstrates Congress’s intent to preclude arbitration.
367
In explaining why a “right to sue” is not provided by mandatory
arbitration, the court identified arbitration and litigation as fundamentally
distinct.
368
Using the definitions of both “arbitration” and “sue” stated in
Black’s Law Dictionary and Corpus Juris Secundum, the court emphasized
that a lawsuit is defined as a proceeding occurring “in a court of law,” and
that “arbitration is not a judicial proceeding.”
369
The court maintained that
Congress would not require rights to be explained to consumers and then
allow the waiver of such rights.
370
The court distinguished the Supreme Court precedent upholding the
arbitration of statutory claims.
371
The court referred to the “right to sue”
language in the statute as “express language” indicating a clear intent to bar
the enforcement of arbitration agreements.
372
362. 384 F. Supp. 2d 1003, 1016 (N.D. Tex. 2005).
The court used its own
363. See id. at 1004–05.
364. See id. at 1006 (“First, courts determine whether the parties agreed to arbitrate their
disputes, considering (a) the validity of the agreement to arbitrate, and (b) whether the
agreement encompasses the dispute between the parties. Second, courts ‘must consider
whether any federal statute or policy renders the claims nonarbitrable.’” (quoting R.M. Perez
& Assoc. v. Welch, 960 F.2d 534, 538 (5th Cir. 2002)).
365. See id. at 1008.
366. Id. at 1011–12.
367. See id. at 1012.
368. See id. at 1011 (“The act of suing in a court of law is distinctly different from
arbitration.”).
369. See id.
370. See id. at 1012.
371. See id. at 1012–15 (stating that these statutes lacked the congressional intent of the
CROA as well as the broad anti-waiver provisions); see also supra Part II.C.4.
372. See Alexander, 384 F. Supp. 2d at 1014.
2011] GIVING ARBITRATION SOME CREDIT 2799
precedent—ultimately overturned a year after this decision—as an example
of a case supporting the plaintiffs’ opinion that arbitration should not be
compelled because of express language within the statute.
373
Additionally, the court examined the legislative history of the CROA,
pointing to what it saw as a clear intent to protect consumers.
374
The court
cited a letter from the Chairman of the FTC stating that the bill provided a
right to sue and that this provision was a valuable aspect of the CROA.
375
According to the court, a previous version of the bill stated that claims
under the CROA should be brought in any district court.
376
The court
interpreted the change in the language as stemming from the need to
simplify the language for the average consumer’s understanding.
377
The
court determined that the CROA’s drafters moved this language from the
interior of the statute to the disclosure provision to ensure that all
consumers would be aware of this right.
378
On these grounds, the court
rejected USCM’s assertion that the arbitration agreement was enforceable
and denied the motion to compel arbitration.
379
2. The Ninth Circuit
In August 2010, the Ninth Circuit decided Greenwood v. CompuCredit
Corp.,
380
thereby creating a definitive split among the circuits on this
issue.
381
The case involved a subprime credit card offered to consumers
with low credit scores advertised as a way to ameliorate credit problems.
382
The agreement that the plaintiffs signed prior to receiving the card
contained a mandatory arbitration provision.
383
The plaintiffs filed suit in
federal district court for violations of the CROA and California’s Unfair
Competition Law after CompuCredit charged them $257 in fees.
384
In
denying the defendant’s motion to dismiss and compel arbitration, the
district court held the arbitration clause invalid and void because the CROA
protected the right to sue in court.
385
373. See id. at 1014 (citing Garret v. Circuit City Stores, Inc., 338 F. Supp. 2d 717 (N.D.
Tex. 2004), rev’d, 449 F.3d 672 (5th Cir. 2006), in which statutory claims arising under the
USERRA could not be compelled into arbitration); see also supra note
292.
374. See Alexander, 384 F. Supp. 2d at 1014–15.
375. See id. at 1015.
376. See id.
377. See id.
378. See id. at 1016.
379. See id.
380. 615 F.3d 1204 (9th Cir. 2010).
381. A petition for certiorari was filed on January 24, 2011. Petition for Writ of
Certiorari, CompuCredit Corp. v. Greenwood, 615 F.3d 1204 (9th Cir. 2010) (No. 10-948).
382. See Greenwood, 615 F.3d at 1205.
383. See id.
384. See id.
385. See Greenwood v. CompuCredit Corp., 617 F. Supp. 2d 980, 988 (N.D. Cal. 2009).
2800 FORDHAM LAW REVIEW [Vol. 79
The Ninth Circuit affirmed.
386
Like the court in Alexander, the Ninth
Circuit found that the CROA’s required disclosures provision establishes
four rights made unwaivable by the anti-waiver provision of the statute.
387
The court looked to the established definitions used by the Alexander court
to highlight the differences between arbitration and a civil action.
388
Credit
Providers argued that because the “right to sue” language is contained only
in the disclosure section of the statute, it does not create a separate right.
389
Unconvinced, the court asserted that Congress did not intend to require
credit repair organizations “to misinform consumers about a fictional
right.”
390
Credit Providers also argued that because the anti-waiver provision states
that a waiver cannot be enforced “by any Federal or State court or any other
person,” Congress intended for arbitrators to hear CROA claims.
391
The
court rejected this argument and stated that this language speaks to a
situation in which an organization proceeds against a consumer in
arbitration, at which point the consumer would retain these rights in the
process of the arbitration.
392
The court also pointed to the numerous usages
of the word “courts” in the statute, which it interpreted as emphasizing the
intended vital role of courts in CROA claims.
393
Acknowledging the circuit split its decision created, the court stated that
it was “unpersuaded” by the reasoning of its sister circuits.
394
The court
described the holdings of the Third and Eleventh Circuits as unfairly
disregarding the “right to sue” provision, and rejected the analogies to
Supreme Court precedent in favor of arbitration.
395
In dissent, Circuit Judge A. Wallace Tashima argued that nothing in the
CROA evinces an intent to void arbitration agreements.
396
Judge Tashima
argued that the “right to sue” language simply establishes what must be
communicated to consumers, and does not create a substantive right.
397
386. See Greenwood, 615 F.3d at 1205 (“We conclude that Congress meant what it said
in using the term ‘sue,’ and that it did not mean ‘arbitrate.’”).
Additionally, Judge Tashima found instructive the fact that each of the
rights stated alongside the right to sue in section 1679c is separately stated
elsewhere in the statute, showing that Congress included the disclosure
provision simply to ensure the disclosure of rights that are then granted
387. See id. at 1207.
388. See id. at 1208; see also supra note 369 and accompanying text.
389. Greenwood, 615 F.3d at 1209.
390. See id.
391. See id. at 1208; see also Brief of Appellant at 19, Greenwood, 615 F.3d 1204 (9th
Cir. 2010) (No. 09-15906) (“[B]y including ‘or any other person’ in the same sentence that
addresses Federal and State courts, Congress acknowledged that arbitrators . . . may decide
CROA claims.”).
392. See Greenwood, 615 F.3d at 1208.
393. See id. at 1211.
394. Id. at 1211.
395. See id. at 1211–14.
396. See id. at 1214 (Tashima, J., dissenting).
397. See id. at 1215.
2011] GIVING ARBITRATION SOME CREDIT 2801
elsewhere.
398
Judge Tashima argued that the civil liability provision in
section 1679g corresponds to the “right to sue” language and provides
consumers with a right of action that is not required to be enforced
anywhere in the CROA.
399
Furthermore, Judge Tashima argued that
because section 1679c(a) only requires written disclosures but creates no
substantive rights, that provision could not be the basis of an unwaivable
right.
400
Judge Tashima also endorsed the defense’s argument based on the
“any other person” language, finding that this language reveals Congress’s
acknowledgement that third parties such as arbitrators may decide such
cases.
401
Finally, Judge Tashima expressed disagreement with the majority’s
reliance on the word “courts,” finding that such word choice merely
indicates that questions of civil liability will ordinarily be resolved in a
judicial forum.
402
Pointing to the lack of both an inherent conflict and any
dispositive legislative history, Judge Tashima cautioned against eschewing
the holdings of the Third and Eleventh Circuits and endorsed the view that
CROA claims are arbitrable.
403
3. Against Enforceability
Those courts that disallow arbitration of CROA claims reinforce the
theories of a number of scholars who advocate for a blanket prohibition of
mandatory arbitration provisions in any agreement with a consumer.
404
Consumer protection advocates consistently argue that pre-dispute
arbitration agreements are harmful to consumers.
405
Additionally,
supporters of this viewpoint contend that arbitration, and the FAA in
general, was intended only to be used by businesses with equal bargaining
power, and that consumer arbitration agreements should not be enforced
pursuant to the FAA as it is currently written.
406
In support of the opinion that mandatory arbitration of consumer disputes
should not be enforced, proposed legislation recommends a broad
398. See id.
399. See id. at 1215–16.
400. See id.
401. See id.; see also supra note 391 and accompanying text.
402. See Greenwood, 615 F.3d at 1216 (Tashima, J., dissenting).
403. Id. at 1216 (“We should not lightly create a circuit split on an issue of national
application on the basis of the flimsy evidence on which the majority relies.”).
404. See Sternlight, supra note 18, at 1674–75 (finding that mandatory arbitration clauses
inserted by businesses into agreements with consumers, patients, students, and employees
are inherently unjust); Van Wezel Stone, supra note 200, at 936 (“[T]he Supreme Court’s
expansive doctrines, when applied to consumer transactions, contravene the statute’s intent
and undermine many important due process and substantive rights.”).
405. See Sternlight, supra note 205, at 679 (“[E]ven assuming . . . that arbitration is
cheaper, quicker, and even better for society as a whole, it may still not serve the interests of
all parties. Some could argue that a system of slavery would be more efficient for society as
a whole, but that certainly does not mean that the system would be just or fair to the
slaves.”).
406. See generally Feingold, supra note 18.
2802 FORDHAM LAW REVIEW [Vol. 79
transformation in federal arbitration law.
407
These proposals include
eliminating the use of mandatory arbitration in consumer lending and credit
card agreements,
408
requiring arbitration agreements to meet certain criteria
in order to be enforceable,
409
and granting the power to regulate consumer
arbitration to states.
410
Advocates of these bills, or of any federal
legislation limiting arbitration in the consumer context, vehemently contend
that arbitration unfairly deprives consumers of inalienable rights and
violates principles of democracy.
411
This opposition to arbitration has resulted in a transformation of the
treatment of mandatory consumer arbitration clauses in practice. Banks and
arbitration associations have retreated from the approach of full
enforcement previously in effect. For example, in July 2009, JP Morgan
Chase announced that it would cease filing new arbitration claims and may
stop including arbitration agreements in contracts altogether.
412
In August
2009, Bank of America decided that credit card holders could bring claims
in court even if they have previously signed a contract containing an
arbitration agreement.
413
Similarly, the American Arbitration Association
(AAA) has decided to stop hearing consumer debt collection claims
pursuant to pre-dispute arbitration agreements.
414
407. See Sternlight, supra note
Likewise, the National
Arbitration Forum (NAF) has decided to stop hearing cases arising from
arbitration agreements in consumer contracts following the settlement of a
127, at 178–82 (“For those who oppose the use of
mandatory arbitration in the consumer context it is clear that federal legislation is the most
powerful tool by which such arbitration might be eliminated or regulated.”).
408. See 146 C
ONG. REC. 1722–24 (2000); see also 155 CONG. REC. 4897–99 (2009) (the
2009 version of Senator Feingold’s proposed Arbitration Fairness Act).
409. See 146 C
ONG. REC. 22,861–65 (2000).
410. See Sternlight, supra note 127, at 181.
411. See Alderman, supra note 17, at 152–54; Mark E. Budnitz, Arbitration of Disputes
Between Consumers and Financial Institutions: A Serious Threat to Consumer Protection,
10 O
HIO ST. J. ON DISP. RESOL. 267, 313–29 (1995); David S. Schwartz, Enforcing Small
Print To Protect Big Business: Employee and Consumer Rights Claims in an Age of
Compelled Arbitration, 1997 W
IS. L. REV. 33, 125–28; Smith, supra note 18, at 1222
(“Mandatory arbitration effectively strips consumers of their rights to protect themselves
from large corporations and jeopardizes the American judicial process of developing
common law.”); Sternlight, supra note 18, at 1661–65.
412. See Ashby Jones, The Revolution Rolls On: JP Morgan Chase Suspends Arbitration
Activity, W
ALL ST. J. L. BLOG (July 24, 2009, 12:00 PM), http://blogs.wsj.com/
law/2009/07/24/the-revolution-rolls-on-jpmorgan-chase-suspends-arbitration-activity/.
413. See Kathy Chu, Bank of America Ends Arbitration of Credit Card Disputes, U.S.A.
TODAY (August 13, 2009, 11:29 PM), http://www.usatoday.com
/money/industries/banking/2009-08-13-bank-of-america-no-arbitration_N.htm; Jonathan
Stempel, Bank of America Ends Arbitration of Card Disputes, REUTERS (Aug 14, 2009, 8:59
AM), http://www.reuters.com/article/idUSTRE57D03E20090814.
414. See Robin Sidel & Amol Sharma, Credit Card Disputes Tossed Into Disarray, W
ALL
ST. J., July 22, 2009, at A1 (announcing the American Arbitration Association’s (AAA)
decision to stop hearing disputes involving consumers and their credit card and cell phone
companies).
2011] GIVING ARBITRATION SOME CREDIT 2803
lawsuit brought by the Minnesota Attorney General stemming from the
company’s connection to a major debt collection enterprise.
415
IV. WHY COURTS SHOULD FIND THAT THE CROA DOES NOT PRECLUDE
ARBITRATION
Parts I and II of this Note outlined the legal and theoretical foundations
of the CROA and the FAA. Part III examined the different ways courts
have resolved a purported clash between the two statutes. This part
discusses why courts should continue to enforce arbitration agreements
under the CROA. First, it considers the importance of stare decisis in
relation to this particular conflict. Next, it addresses the concerns of those
advocating for the prohibition of mandatory consumer arbitration
agreements by examining consumer protection provided by mechanisms
other than litigation. Finally, this part suggests an alternative method to
solve the current dispute by simply outlawing the operation of credit repair
organizations.
A. Lower Courts Should Uphold the Supreme Court’s Strongly Expressed
Policy in Favor of Arbitration
The Supreme Court’s predilection for arbitration is unambiguous.
416
As
recently as June 2010, the Supreme Court endowed arbitrators with
increased power and autonomy over the process of arbitration.
417
Such
decisions reflect a clear endorsement of the benefits of arbitration.
418
That
the Supreme Court has consistently upheld arbitration agreements and
continued to rely on the efficacy of arbitration for the past thirty years
419
Relatedly, the Supreme Court’s recent decision overturning the holding
of three esteemed arbitrators
reflects a determination by the Court that any problems inherent in
arbitration pose little threat to the democratic process.
420
415. See Carrick Mollenkamp, Dionne Searcy & Nathan Koppel, Turmoil in Arbitration
Empire Upends Credit Card Disputes, W
ALL ST. J., Oct. 15, 2009, at A1.
indicates that while arbitration is valued as
416. See Carbonneau, Revolution, supra note 19, at 238 (“At every stage of arbitration’s
ascendancy, the Court has provided the necessary doctrinal pronouncements and political
muscle to confirm the gains achieved and to advance the process to the next level of its
reformation.”); see also Brief for DRI—The Voice of the Defense Bar as Amicus Curiae
Supporting Petitioners at 9, CompuCredit Corp. v. Greenwood, 615 F.3d 1204 (9th Cir.
2010) (No. 10-948) (“[The Ninth Circuit’s] approach to arbitrability not only threatens
thousands of arbitration agreements; it is flatly contrary to the pro-arbitration policy
embodied in the FAA and this Court’s previous decisions.”).
417. See supra notes 242–48 and accompanying text.
418. See Rent-a-Center, W., Inc. v. Jackson, 130 S. Ct. 2772, 2776 (2010) (“The FAA . . .
places arbitration agreements on an equal footing with other contracts . . . and requires courts
to enforce them according to their terms.”); see also supra notes 242–48 and accompanying
text.
419. See supra Part II.C.
420. See Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1770 (2010)
(“[I]nstead of identifying and applying a rule of decision . . . the arbitration panel imposed its
2804 FORDHAM LAW REVIEW [Vol. 79
an alternative means for the vindication of legal rights, the Court retains a
significant amount of control over arbitration awards to ensure that
individual rights are protected.
421
While several scholars have argued that
mandatory consumer arbitration unfairly circumvents the judicial
process,
422
the vacatur of the award in Stolt-Nielsen S.A. v. AnimalFeeds
International Corp.
423
shows that judicial review of arbitration awards
remains a meaningful and viable channel. This decision demonstrates that
while the Court has afforded arbitration a great deal of deference,
arbitration has not become a practice that is allowed to proceed unchecked
and without the trappings of due process.
424
Likewise, in the years since the passage of the FAA in 1925, the Supreme
Court has never interpreted a federal statute to preclude arbitration, with the
exception of labor statutes negotiated by a union.
425
Undoubtedly, the
Court’s finding in Mitsubishi,
426
that arbitration fully protects the statutory
rights of participants, has endured and remained applicable for thirty
years.
427
Adherence to the Court’s policy in favor of arbitration of statutory
claims is even more merited when considering the longstanding principle
that stare decisis is more strictly adhered to when interpreting federal
statutes than in other contexts.
428
Because this principle acknowledges
Congress’s ability to reverse a Court’s decision to allow arbitration of
statutory claims, the fact that neither the FAA nor the numerous statutes
under which arbitration has been compelled have been revised reflects
Congress’s support for the Court’s allowance of arbitration under these
statutes.
429
own policy choice and thus exceeded its powers.”); see also supra notes
249–55 and
accompanying text.
421. See supra notes 249–57 and accompanying text.
422. See supra note 411 and accompanying text.
423. 130 S. Ct. 1758, 1770 (2010).
424. See Carbonneau, Revolution, supra note 19, at 266 (“Lawyers provide the hands-on
supervision as counsel and advocates, while courts peer remotely into the process from a
respectful distance.”).
425. See Alexander v. Gardner-Denver Co., 415 U.S. 36, 48–49 (1974) (holding that Title
VII sought to enhance and not reduce a claimant’s possibilities for redress); see also
Sternlight, supra note 205, at 672; supra note 190.
426. See supra notes 191–96 and accompanying text.
427. See C
ARBONNEAU, supra note 151, at 271 (“There are few, if any, federal statutes or
rights that result in a judicial determination of inarbitrability. The courts favor arbitration
too greatly to find that statutory regulations should prohibit recourse to the process.”).
428. See Illinois Brick Co. v. Illinois, 431 U.S. 720, 736 (1977) (“[C]onsiderations of
stare decisis weigh heavily in the area of statutory construction, where Congress is free to
change this Court’s interpretation of its legislation.”).
429. See C
ARBONNEAU, supra note 151, at 231 (discussing how claims arising under
regulatory laws governing commercial conduct and federal statutes that create individual
rights and implicate civil rights legislation and individual liberties have been submitted to
arbitration); see also Speidel, supra note 19, at 1081 (“In the absence of a clear
congressional decision that the statutory claim is not suitable for arbitration, the Court has
stated that the nature of the claim is irrelevant because adjudication is simply shifted from a
court to an arbitral forum that is capable of deciding the claims.”).
2011] GIVING ARBITRATION SOME CREDIT 2805
In addition to stare decisis concerns, courts should not refuse to enforce
arbitration agreements under the CROA because there is little proof that the
arbitration process truly causes consumers any detriment that they would
not otherwise endure in the litigation process.
430
While some argue that
mandatory arbitration favors large companies,
431
the record-setting award
against Goldman Sachs upheld by a federal judge in November 2010 tends
to discredit this argument.
432
The award, one of the largest arbitration
awards ever granted, suggests that mandatory arbitration is not as
unfavorable to the “little guys” as many argue.
433
Additionally, the choice
of arbitration provides some benefits to consumers, the deprivation of
which may lead to higher costs of services.
434
B. Consumer Protection Is Supplied by Alternative Channels
Courts should enforce arbitration agreements pursuant to current policy
and judicial precedent because the inequities cited by those who oppose
mandatory consumer arbitration may be prevented through alternative
means. Due to developments in consumer protection law as well as recent
changes in the way banks and arbitration associations handle contracts,
consumers may be protected from unfair arbitration agreements by methods
other than judicial determinations denying arbitration.
435
1. Institutions Reject Arbitration Agreements
By discontinuing the use of arbitration clauses in consumer contracts,
Bank of America and JP Morgan Chase have narrowed the number of
scenarios in which arbitration agreements will be compelled.
436
In the
event that credit repair organizations do not similarly terminate usage of
arbitration clauses in consumer agreements, however, the decision of two
major arbitration associations to stop hearing cases arising out of mandatory
consumer arbitration clauses has reduced the possibility that arbitration of
CROA claims can effectively be compelled.
437
430. See Carbonneau, Triumph, supra note
Without the services of
19, at 397 (“Arbitration embodies a trial
process grounded in common sense, flexibility, and an ethic of problem-solving. . . . In other
words, arbitration personifies due process and justice.”).
431. See Sternlight, supra note 205, at 680–96.
432. See supra notes 260–61 and accompanying text.
433. See id.; see also Sternlight, supra note 205, at 637. Sternlight’s thesis rests on the
idea that arbitration is inherently unfair to consumers and that courts have inadequately
protected consumers from these agreements. Id.; see also Brief for DRI, supra note 416, at 6
(“[C]onsumers prevailed in 55 percent of the consumer-initiated cases that reached decision.
. . . Another study found that consumers prevailed in consumer-initiated cases 65.5 percent
of the time.” (internal citations omitted)).
434. See Ware, supra note 355, at 213 (“[T]he consumer’s right to government
adjudication is alienable. This empowers any and all consumers to get consideration for that
right.”).
435. See supra notes 412–15 and accompanying text.
436. See supra notes 412–13 and accompanying text.
437. See supra notes 414–15 and accompanying text.
2806 FORDHAM LAW REVIEW [Vol. 79
these two major arbitration services, a courtroom may be the only forum
available to hear these cases.
Modification of the policies of these institutions reflects a shift in the
legal community’s attitude about consumer arbitration agreements. While
this change seems to reflect pressure from consumer groups rather than
disapproval for arbitration on the part of the institutions themselves,
438
2. The Legislative Branch Seeks To Modify Arbitration
the
shift in policy indicates that regardless of whether mandatory arbitration of
consumer agreements harms consumers, overturning a longstanding policy
of the Supreme Court is not the sole method by which these agreements
may be avoided.
In addition to protection from the banking and arbitration communities,
the legislative branch has made steps toward increased consumer protection
in the realm of arbitration.
439
The numerous statutes that have been
proposed in support of prohibiting mandatory arbitration of consumer
contract disputes in the past few years suggest an imminent change to
arbitration policy in the legislature.
440
Recently, the Arbitration Fairness
Act was reintroduced in Congress.
441
The proposed statute would prohibit
pre-dispute binding arbitration clauses in consumer and employment
contracts.
442
Additionally, former Senator Russell Feingold, the sponsor of
the bill, has suggested an arbitration bill of rights should a legislative
prohibition prove too sweeping.
443
Similarly, several scholars have
suggested amendments to the FAA limiting the use of mandatory consumer
arbitration agreements.
444
438. See Stempel, supra note
Should legislative modifications be made, courts
may continue to enforce arbitration agreements that remain within the new
restrictions, and parties may continue to use arbitration in those areas of
dispute resolution where it provides a valuable function.
413 (quoting a Bank of America spokeswoman as saying,
“While the bank thinks arbitration is a very fair way to go, customers do not”).
439. See supra notes 407–10 and accompanying text.
440. See supra notes 407–10 and accompanying text.
441. See supra notes 407–10 and accompanying text.
442. See supra note 408.
443. See Feingold, supra note 18, at 298 (suggesting a cap on filing fees and costs, a
limited right to discovery, and a requirement that arbitrators explain the reasoning behind
decisions).
444. See, e.g., Sternlight, supra note 127, at 375 app. C (proposing that contracts between
consumers and companies that “deny the consumer access to courts that would otherwise be
available to the consumer to enforce legal claims” be invalidated); see also Speidel, supra
note 19, at 1093–94 (proposing a “Federal Consumer Arbitration Act” that would invalidate
arbitration agreements in adhesion contracts unless there is a clear disclosure of the
agreement to arbitrate that explicitly informs the consumer that statutory rights will be
included in the agreement to arbitrate. The act would also require the arbitrator to issue a
written opinion explaining any decision based on statutory rights).
2011] GIVING ARBITRATION SOME CREDIT 2807
3. A New Agency Reconsiders Arbitration
The Dodd-Frank Act specifically requires the Consumer Financial
Protection Agency to examine the use of mandatory pre-dispute arbitration
agreements and to enact restrictions on the use of such clauses based on the
study’s results.
445
C. A Simple Solution: Outlaw Credit Repair Organizations
With this mandate, the Agency will be able to resolve
the conflict over mandatory consumer arbitration and make targeted
adjustments to the current law as needed.
A blanket prohibition against the practices of credit repair organizations
would respect the policy in favor of arbitration and address concerns about
consumer rights. The virtues of such organizations are few.
446
Statements
of both legislators and former members of the credit repair industry reflect
the organizations’ lack of societal value and inherent potential for consumer
harm.
447
Georgia’s state version of the CROA
448
prohibits the operation of credit
repair organizations, in an acknowledgement of the few benefits and
plentiful dangers that these clinics pose.
449
Several other states make
CROA violations a felony.
450
It is doubtful that similar action on the part
of Congress would deprive the economy of a vital entity. Considering the
continued violations of credit repair organizations despite the passage of the
CROA,
451
CONCLUSION
a blanket prohibition against these agencies or an increase in the
severity of the penalties these agencies face for violations would provide
consumers with far greater protection than would simply prohibiting CROA
claims from arbitration.
The Credit Repair Organizations Act is vague in its discussion of rights
to a judicial forum, causing confusion among consumers and credit repair
agencies alike. While a Supreme Court holding that the CROA precludes
arbitration may nominally protect consumers, such a holding would
ultimately weaken arbitration’s effectiveness as a form of alternative
dispute resolution.
445. See supra notes 265–68 and accompanying text.
446. See supra notes 59, 65–67 and accompanying text.
447. See supra notes 66–67 and accompanying text.
448. See G
A. CODE ANN. § 16-9-59 (2007); see also supra Part I.D.
449. See Hearing, supra note 67, at 9 (“The credit repair industry is big business, big
business that can’t be done. It is legally impossible to change a credit rating unless a mistake
has been made.”).
450. See supra note 100; see also Nathalie Martin, 1,000% Interest—Good While
Supplies Last: A Study of Payday Loan Practices and Solutions, 52 A
RIZ. L. REV. 563, 592–
93 n.154 (2010) (noting that Congress and states passed credit repair organizations
legislation because “[m]ost of the credit repair agencies turned out to be scams, with some
even offering to rent other people’s credit scores to borrowers for fees of $2000 or more”).
451. See supra Part I.C.
2808 FORDHAM LAW REVIEW [Vol. 79
An abrupt shift away from enforcement of arbitration agreements would
throw years of Supreme Court jurisprudence into doubt.
452
The current
upsurge in the usage of ADR methods originated because of significant
problems with the court system, and arbitration’s practicality has been
affirmed by its current prevalence.
453
Because of arbitration’s evident
usefulness, courts should be hesitant to abandon the policy of deference to
arbitration. To find that arbitration is precluded by a statute that articulates
no clear prohibition of arbitration would drastically diminish the strength of
arbitration as a fair and adequate process for conflict resolution in numerous
other contexts. Whether or not enforcement of these provisions harms
consumers, the solution should not involve turning decades of pro-
arbitration Supreme Court jurisprudence on its head. Alternate channels
exist to avoid the social costs that may accrue from the enforcement of
mandatory arbitration clauses. A more effective method of consumer
protection would be a wholesale ban on the operation of credit repair
organizations. For these reasons, enforcing arbitration clauses in this
context would do little to damage consumer protection and would allow
courts to continue to respect arbitration agreements in other areas of the
law.
452. See supra Part II.C.
453. See supra Part II.C.5.
