Default Rules from Mandatory Rules: Privatizing Law Through Arbitration

Abstract

This Article considers the extent to which the creation of law has been privatized through arbitration. It suggests that, under Supreme Court cases and other current legal doctrine, vast areas of law are privatizable and that this degree of privatization is possible only through arbitration. The implications of this point are separated along the familiar line between mandatory rules of law and default rules. The first implication is that arbitration jeopardizes mandatory rules of law. To preserve the mandatory effect of these rules, the Supreme Court must make a choice. The Court must either reverse its decisions that claims arising under otherwise mandatory rules are arbitrable, or require de novo judicial review of arbitrators' legal rulings on such claims. The second implication is that claims arising under default rules should be arbitrable and completely free from judicial review for errors of law. The arbitration of claims arising under default rules presents an opportunity to privatize the creation of vast areas of law. It is an opportunity to create private legal systems of unwritten norms, written rules, and the precedents of private courts.