Private Law Theory

ABSTRACT
Parties waive their constitutional right to public trials by agreeing to privately arbitrate current or future disputes. Traditionally, consumer and employment contracts contained arbitration agreements which only covered claims that ‘arise out of’ or were ‘related to’ such contracts. In recent years, to avoid litigation, repeat players have stipulated language which has allowed them to arbitrate ‘any and all claims between them and the consumer’ regardless of whether any connection exists between the claim and the underlying contract.

This new generation of arbitration clauses have divided courts across the country. On the one hand, some authorities via overreaching use of the long-standing federal policy favoring arbitration have found such ‘infinite’ arbitration agreements valid and arguably within the realm of party consent. On the other hand, other authorities have applied the statutory limitation under § 2 of the Federal Arbitration Act (FAA) in finding that claims which do not ‘aris[e] out of’ the underlaying contract as unenforceable. § 2’s statutory language allegedly only gives effect to claims which ‘aris[e] out of’ the container contract. Courts are, however, divided on whether they must textually apply this statutory limitation. Others by relying on state contract law defenses have ruled such clauses as unenforceable. Meanwhile, these defenses are vulnerable to preemption challenges under the FAA.

This Article addresses current claim expansion issues. The Article, first, acknowledges that calls over enforcing the statutory limitations of § 2 could be a path forward in limiting ultra-expansive reach of these agreements. However, it argues that the Court may be reluctant in overlooking decades of its pro-arbitration precedent in recognizing the limitation, in addition to the impact such narrow reading will have on enforceability of business-business arbitration agreements. The Article alternatively argues that courts rather than dealing with expansive language at the scope level, should treat expansion at the formation stage. Courts have traditionally employed this two-step analysis in enforcing arbitration agreements: first, whether parties formed a valid agreement to arbitrate, and second, whether the agreement covers the alleged claim or dispute. The Article offers an original approach in shifting analysis of a scope issue to formation, supported by some court decisions. To that effect, it suggests that courts should sever the arbitration clause into two distinct agreements: an agreement to arbitrate claims which ‘aris[e] out of’ the container contract and an agreement to arbitrate claims which do not ‘aris[e] out of’ the container. This approach will afford adjudicators the opportunity to evaluate formation of any agreement to arbitrate claims unrelated to the container contract through state contract rules rather than presuming an agreement over arbitrating such claims. The reason for suggesting and formulating such an approach is that treating expansion at formation would insulate the outcome from federal presumptions in favor of arbitration. A presumption strongly applicable at the scope stage but inapplicable at the formation stage. Further, courts may adopt this approach under current FAA’s statutory scheme. This approach could ensure that in enforcing this new generation of arbitration agreements, arbitration remains, as the Court has intoned on numerous occasions, ‘a matter of consent, not coercion’.

Fazilatfar, Hossein, Arbitration Clause Expansion (February 1, 2025), 114 Kentucky Law Journal (Forthcoming 2026).