GeoLegal Weekly #40 - How Arbitration Can Bring World Peace

I speak with American Arbitration Association President and CEO Bridget McCormack about the future of arbitration including how it may bring about a more peaceful society.

Arbitration has been in the news a bit recently as both Disney and Uber tried to compel death and injury cases out of the court system and into the private sphere. In effect, the companies argued that a single app-based action (like taking a DisneyPlus streaming trial or a daughter ordering UberEats in the same app) meant the customer agreed to arbitration in interactions with different parts of the company (an allergic reaction at a Disney resort restaurant or an Uber car crash.) 

Such headlines reinforce a common perception that arbitration is a game where companies have the upper hand. But that perception ignores the history of arbitration - which, at the time of inception, was a disruptive legal innovation rooted in grandiose conceptions of building a peaceful society. And it misses that the future of arbitration may be one where technology enables the elimination of bias in dispute resolution.

I dived deep into how arbitration may save the world with Bridget McCormack, who is President and CEO of the American Arbitration Association (AAA) and was previously the Chief Justice of the Michigan Supreme Court. You can watch the full interview below or here.

Peaceful Roots

As Bridget tells me, arbitration originated in the business-to-business and business-to-government sphere. As a result, the peaceful resolution of conflicts was a strong alternative to litigation and would reduce competitive friction between businesses and between business and the state. It’s only when arbitration became a business-to-consumer or business-to-worker dynamic that the tenor of it changed.

Frances Kellor, a social activist, was the only female founder of the AAA when it was established 100 years ago. In a historic collection of her essays, one quote jumped out at me:

A country is immensely more tranquil and secure that builds up reserves of goodwill and good faith among its people. Arbitration clauses are a means of increasing them. Their prevalence indicates a high level of these reserves. Therefore, the cultivation of the spirit of arbitration as an American way of life makes for a strong nation of happy individuals and of cooperative organizations. To this end, the arbitration clause is being used in the organization of American arbitration and in international systems projected for the benefit of all people.

If there’s ever a moment that underscores just how much the US needs more tranquility, goodwill and good faith amongst its people it is during the waning days of a presidential election when politics is at its fiercest and the country seems the most divided. Extending the concept of arbitration (and other forms of alternative dispute resolution) into the people-to-people sphere would reinforce the need for common ground to be found in all disputes - personal, business or political. As technology brings down the cost of arbitration, the (re)-democratization of it becomes a possibility.

International Arbitration

Arbitration greases the wheels of international commerce. As Bridget notes, you’d never want to do a foreign deal if you knew you’d end up in a foreign court  - a point even more relevant today as a rule of law erosion implies the increasing politicization of courts around the world. But what’s often missed is that arbitration is actually a tool of international politics to settle disputes as an alternative to war.

Is it crazy to think that some of the disputes ongoing today could be settled by arbitration, mediation or alternative dispute methods? Not when it’s state to state conflict. Egypt and Israel used arbitration to settle border disputes in the 1980s.  Eritrea and Ethiopia did the same after armed fighting, though implementation has been incomplete. In fact, the US and UK used arbitration to settle claims that the UK violated neutrality in the civil war by supporting the confederate Navy.  

Sitting down at a table and negotiating or giving your dispute to an impartial judge panel feels quaint in today’s world of armed conflict. But that’s because you can’t summon the instincts for dispute resolution over night - you have to ingrain it over years. As the world gets more fragmented, that opportunity slips out of our hands at an international level.

But it doesn’t need to at a domestic level. China, for instance, provides robots in court entrances that tell a prospective litigant whether they will win or lose in hopes of convincing the litigant to settle and avoid disrupting social harmony. Obviously, a US or Western version of this would look different but a big piece of the puzzle is shifting political and legal culture back toward a more positive-sum approach by underscoring that a fight which isn’t fought may be more valuable even than a fight which is won.

Overwhelming arbitration

To do this, arbitration is going to have to deal with a scale previously uncontemplated. As I wrote with Steve Heitkamp in Harvard Business Review a couple weeks ago, companies are about to be on the receiving end of an onslaught of legal complaints that they are unable to manage. A number of major companies have already experienced this through “mass arbitrations,” a procedural exploitation used by plaintiff firms to overwhelm companies that have promised to pay the cost of all arbitrations. 

As Damini Mohan writes on Arbitrate.com:

Mass arbitrations have become quite common in recent years with Uber being subject to around 12,500 such arbitration demands in 2018, for example.¹ The arbitration fees for this were expected to exceed $18 million. Uber eventually settled for an amount between $146 million and $170 million rather than paying filing fees or challenging the mass arbitration in the courts.² In 2019, Doordash received around 5,000 to 6,000 arbitration demands.³ Many other companies such as Postmates, TurboTax,⁴ Amazon,⁵ Chegg,⁶ Dollar Tree,⁷ and Peloton⁸ have also faced similar demands. In 2022, Samsung faced 50,000 arbitration demands for alleged violation of Illinois’ Biometric Information Privacy Act.⁹

That’s a lot to arbitrate. Companies are dealing with this in a few ways. First, some are removing arbitration clauses altogether as Amazon has done (probably recognizing that they have an advantage in court so might as well try there rather than the sure cost of arbitration.)  Some are implementing batch arbitrations that effectively allow for a test of some subset of cases. Others are going to court and challenging their own clauses as invalid to avoid fees. And there are also companies seeking out software platform providers, like NewEraADR, which can handle certain disputes through streamlined processes.

Bridget outlined for me how AAA is undergoing a digital transformation that will ultimately bring down the cost of arbitrations and deliver justice more swiftly. Over time, that may be an algorithm making the decision. This stands in stark contrast to the court system, where she served as Chief Justice of the Michigan Supreme Court for two reasons. First, as a private dispute resolution system, arbitration companies can invest in innovation much more readily than can state court systems. And, second, private systems can eventually stipulate the use of algorithmic resolution which may sidestep biases in the legal system.

As Bridget noted, some groups in society like women and people of color, believe that the court system is biased against them. As a result, they show an increased willingness to have computerized justice from a system that can be de-biased easier than de-biasing all the humans in the court system, which is much harder.

A process in flux

Having dived further into the history of arbitration, I come away with a sense that this next tech-driven evolution may bring arbitration ultimately back to its roots. More streamlined and cost-effective processes level the playing field between big companies who win when procedure is complicated and smaller actors who benefit from their day in front of an impartial decision-maker - whether that judge be a human arbitrator in a boardroom or an algorithm.

I can only hope that the spirit of self-reliance and fair treatment generates goodwill in the political system quickly as we’re going to need it on November 5th. And we certainly need it on an international level.

That’s it for this week.

-SW