Do Arbitrators Follow the Law? A New Study Provides Data, But the Debate Continues

Today’s episode of the Consumer Finance Monitor podcast is centered around a novel and thought-provoking article by David Horton, a professor of law at the University of California, Davis. The article, titled "Do Arbitrators Follow the Law? Evidence from Clause Construction," dives into the intriguing question of whether arbitrators render decisions that align with judicial rulings. Horton explores the longstanding debate on arbitration's adherence to legal standards, focusing on whether arbitrators have followed the Supreme Court’s 2019 decision in Lamps Plus, Inc. v. Varela (2019) that class-wide arbitration is not permitted when an arbitration clause is silent or ambiguous on the matter.  The podcast episode explores the ramifications of Horton's finding that in about 27% of the arbitrations studied, the arbitrators did not follow Lamps Plus.  Horton interprets that finding as suggesting that a significant minority of arbitrators may be motivated by financial considerations in allowing a class arbitration to proceed, notwithstanding Lamps Plus, because it is more lucrative for them than an individual arbitration.   

Mark Levin, Senior Counsel at Ballard Spahr, also joins the program. Mark interprets Horton’s findings differently, emphasizing that in his view Horton’s data strongly supports the conclusion that arbitration is not lawless since an overwhelming majority of the arbitrators (73%) did follow Lamps Plus.  Mark also dismisses Horton’s suggestion that some arbitrators’ rulings may be swayed by financial considerations as pure speculation.  On the contrary, he observes, the fact that some arbitrators have not strictly followed Lamps Plus does not show they were not following the law since the issue of clause construction has a lengthy complex history and prominent courts such as the Second Circuit have themselves found reasons for distinguishing Lamps Plus.   

Consumer Finance Monitor is hosted by Alan Kaplinsky, Senior Counsel at Ballard Spahr, and the founder and former chair of the firm's Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.