Arbitrator Liability: Reconciling Arbitration and Mandatory Rules

This Article resolves the tension that exists between mandatory legal rules and the widespread use of arbitration. In recent years, United States courts have expanded the range of enforceable arbitration agreements to include those that cover areas of law previously thought to be within the exclusive domain of courts. Among the disputes that are now deemed arbitrable are those that implicate mandatory rules such as securities and antitrust laws. The willingness of courts to enforce arbitration agreements and to uphold the resulting arbitral awards with minimal judicial review makes it possible for the parties to the transaction to avoid mandatory rules of law. Until now, it has generally been believed that the legal system must either restrict the use of arbitration or permit arbitration and accept that doing so turns all mandatory rules into default rules. This Article proposes a mechanism that permits the continued use of arbitration without abandoning the mandatory nature of legal rules. The recommended approach, termed "arbitrator liability," allows the losing party in an arbitration to sue the arbitrator on the grounds that a mandatory rule was ignored. Arbitrator liability eliminates the arbitrator's incentive to ignore mandatory rules in favor of the contractual terms. The benefits of arbitration can be retained without sacrificing the ability of lawmakers to adopt mandatory rules.