If You (Re)Build It, They Will Come: Contracts to Remake the Rules of Litigation in Arbitration's Image

Abstract

The Supreme Court describes the right to trial by jury in a civil action as a "basic and fundamental" right that is "sacred to the citizen" and therefore "should be jealously guarded by the court." But parties to a contract may agree that, in the event a dispute arises, they waive their right to a jury. If this dispute resolution right - which is fundamental, constitutional, and set forth in the Federal Rules of Civil Procedure - may be used as a bargaining chip, are there any limits on parties' ability to modify the rules of litigation in their ex ante contract? Will the courts enforce an agreement that limits discovery to an exchange of documents? That limits direct testimony to written affidavit and prohibits a witness from appearing other than for cross-examination? That sets the requisite standard of proof in a civil case as clear and convincing evidence rather than a preponderance of the evidence? That permits the parties to substitute their own rules of evidence in place of the Federal Rules of Evidence? The likely answer to each of these questions is "Yes."

This Article concludes that there are very few limits on contract parties' ability to modify the rules of litigation. There is a presumption that litigation rules may be modified by an ex ante contract. If Congress has not expressly stated otherwise, parties may negotiate and modify any litigation rule by ex ante contract that the parties may waive during litigation or by electing arbitration. If the contract satisfies standard contract law requirements and (if required) was made knowingly, voluntarily, and intelligently, the contract will be subject to specific enforcement. Within these bounds, ex ante contracts to modify the rules of litigation can accomplish nearly all of the procedural benefits of arbitration. But modified litigation can be superior to arbitration. The parties get a neutral decision-maker, who is free of bias and uninhibited by the repeat-player syndrome of arbitration's judges-for-hire. The parties retain their right to full appellate review. These disputes also remain in the public domain, moving from the shadows of arbitration to the light of litigation. Finally, this freedom of contract adds value to the litigation rights. Because the litigation rights may be exchanged for consideration they are more valuable.

Keywords: contract, rules, civil procedure, evidence, procedure, dispute resolution, arbitration, litigation

JEL Classification: K10, K12, K40, K41, K4