Customized Procedure in Theory and Reality

Contract theory has long posited that parties can maximize contract value by manipulating the procedural rules that will apply if there is a dispute. Beyond choosing a litigation or arbitration forum, parties can allocate costs and fees, alter pleading standards, adjust evidentiary and discovery rules, and customize nearly every aspect of the adjudication process. In time, this theoretical insight became a matter of faith. The assumption that contracts routinely alter procedural rules spawned debate over the normative implications of allowing parties to dictate procedure.

Only recently have a few studies suggested that this debate may lack a firm empirical foundation. This Article presents a comprehensive picture of dispute resolution practices in commercial contracts, one that corrects for many of the limitations of the existing research and focuses on both binding and non-binding mechanisms. Parties do exercise autonomy in structuring the rules of adjudication, but they do so within a limited domain. Contracts almost always specify the governing law and routinely designate a litigation or arbitration forum, and a substantial minority allocate responsibility for attorney fees.

In arbitration, parties go further, frequently allocating costs, imposing expertise requirements, and shaping decision-making dynamics (as by requiring multiple arbitrators). In neither forum, however, do parties expressly modify governing rules of pre-trial, trial, or arbitration procedure. The findings imply that it is premature to debate the normative implications of allowing parties to dictate judicial procedures, for contracts rarely employ the kinds of clauses that have provoked concern. Yet, the findings also call for a more complete account of procedural contracting—one that explains why parties do not more fully exercise their procedural autonomy.