Unfair by Default: Arbitration's Reverse Default Judgment Problem

Authors

Alexi Pfeffer-Gillett, Washington and Lee University School of LawFollow

Document Type

Article

Publication Title

University of Pennsylvania Law Review

Publication Date

2023

Abstract

It is a foundational principle of civil law that a defendant who fails to respond to allegations is deemed to have admitted those allegations and can be subjected to default judgment liability. This threat of default judgment incentivizes defendants to respond to claims, thereby discouraging delay tactics and helping ensure cases are resolved efficiently on the merits.

In consumer and employment arbitration, though, the fairness and efficiency benefits of traditional default judgment are flipped, rewarding rather than punishing unresponsive defendants. This difference from civil litigation arises out of arbitration’s fee structures: if a defendant-company fails to pay its share of the fees required to initiate arbitration, which can exceed $3,000, the financial burden shifts back to the plaintiff to pick up the tab—on top of the plaintiff ’s own required initial fees, which range from $200 to $400. A plaintiff unable or unwilling to pay the defendant’s fees will face dismissal of the arbitration claims and be left with the choice of going to court—the very thing arbitration is meant to avoid—or simply walking away. By ignoring claims, then, defendant-companies can stall the process, significantly increase the financial burden on plaintiffs, and improve their own odds of escaping liability.

This Article confronts arbitration’s problematic default rule, which I term the “Reverse Default Judgment Rule.” Drawing on historical research into the development of arbitration’s modern rules, the Article shows how the Reverse Default Judgment Rule came to be. It then reveals the potentially insurmountable financial and procedural roadblocks that the Rule puts in the path of individual employees and consumers seeking to vindicate their rights. The burdens created by the Reverse Default Judgment Rule significantly undermine arbitration’s supposed speed, informality, and fairness in resolving consumer and employment disputes.

But hope for reform has recently come from plaintiffs leveraging arbitration’s same fee structures to bring coordinated, simultaneous “mass arbitration” claims against defendant-companies. Faced with paying tens of millions in court-ordered arbitration fees and the possibility of defending thousands of individual arbitration hearings, companies have quickly settled while demanding that arbitration providers change their fees. By turning the tables on defendants, mass-arbitration plaintiffs have thus not only scored major legal victories, but have also opened a political window to remedy arbitration’s fee structures.

Understanding and confronting arbitration’s Reverse Default Judgment Rule will shed light on whether consumer and employment arbitration can adequately replace the courts or if it is undeserving of the privileged legal status and judicial favoritism it has received.

Recommended Citation

Alexi Pfeffer-Gillett, Unfair by Default: Arbitration's Reverse Default Judgment Problem, 171 U. Pa. L. Rev. 459 (2023).