An op-ed in Investors Business Daily by Lisa Rickard, president of the Institute for Legal Reform on an arcane but important topic.

For nearly a century, the American Law Institute (ALI) has provided an invaluable public service to judges and policymakers by surveying the current state of the law and summarizing it in authoritative guides known as “Restatements.” The name explains the purpose: to restate the law as it is, not as the authors wish it to be.

Now ALI is poised to turn this formula on its head with its pending “Restatement of the Law of Consumer Contracts,” which it met to consider in October. Instead of building upon a firm foundation of contract law established over hundreds of years, the Restatement’s authors want to create an entirely new body of law for contracts between businesses and consumers, one that will have far-reaching repercussions.

There is one more chance for the ALI Council to do something. At the Council’s meeting later this week, the Council could — and should — put this on their agenda and carefully consider if this Restatement fits in with the mission of ALI.

To understand why this proposed Restatement is such a departure from ALI’s typical practice, it’s important to know how the organization is supposed to operate.

The 95-year-old group is an invite-only collection of top-tier attorneys, law professors and judges from around the country. This group compiles the latest court decisions and develops a variety of resources, including periodic Restatements, to help judges and lawyers understand and apply the law as it is practiced today.

The Importance Of Restatements

Judges routinely turn to Restatements the way a layperson would turn to an encyclopedia.

According to ALI’s own rules, Restatement authors (called Reporters) are supposed to avoid proposing “wild swings” in the law. ALI recognizes that as an unelected body, it “has limited competence and no special authority to make major innovations in matters of public policy.”

But that is precisely what the Restatement of the Law of Consumer Contracts does.

This new Restatement would draw heavily upon consumer protection statutes, which are designed to govern sales and marketing practices, not contracts. This would push ALI firmly into the territory of policymaking, since no court in America has articulated a separate set of consumer contract rules that operate differently from the general law of contracts.

At the same time, the project turns a blind eye to statutes such as the Federal Arbitration Act (FAA), and the U.S. Supreme Court’s interpretations of the FAA upholding provisions such as class action waivers in pre-dispute arbitration agreements. The Reporters wave aside “constraints overlaid by federal law” to propose new “principles that determine the enforceability of (such) clauses.”

Taken together, the Restatement’s novel provisions appear engineered to enhance consumers’ ability to challenge almost any contract supplied by a business.

Contract Chaos?

For example, the Restatement proposes a broad expansion of the centuries-old doctrine of unconscionability, creating a new and untested theory of “deceptive contract” that would give courts virtually unfettered discretion to refuse to enforce all or part of any consumer contract.

The new rules also would create a set of unalterable, mandatory contract terms, where if judges find deviations from the standard, they will have the power to replace those terms with ones that “operate against the business.”

Underscoring this entire Restatement is the radical, unsupported idea that consumers should not be required to read and understand the agreements they enter voluntarily. The fact that many consumers choose not to read their contracts serves as the foundation for new rules that effectively encourage consumers never to read them.

The notion of personal responsibility is casually tossed aside in favor of proposed legal rules that would grant greater rights to those who endeavor to be the least informed.

This view is not only backwards, it is dangerous. The law should make every effort to encourage consumers to read agreements before they enter into them. Courts shouldn’t give consumers an incentive to ignore contract terms that businesses of all sizes use to try and communicate the terms of an agreement.

Not So ‘Happy Days’

Such blatant public policy advocacy may be fine for a professor’s law review article, but not an ALI Restatement of the Law. This is especially the case where ALI is restating a topic that courts do not even recognize as separate from the general law of contracts.

The whole exercise is reminiscent of the “Happy Days” episode where scriptwriters made the unfortunate decision of having Fonzie jump a shark on water skis. “Jumping the shark” became a shorthand term for desperate overreach.

ALI is in danger of jumping the shark with its Restatement of Consumer Contracts, and the truth is there is no need for it to happen. ALI produces another type of work product called “Principles of Law,” which focuses on areas of law “so new that there is little established law” and allows project Reporters some leeway to espouse aspirational rules of what they believe the law “should be.”

Instead of creating new law from whole cloth and labeling it a Restatement, ALI can avoid potential backlash by making this a Principles project.

But time is running out. ALI should get back to its core mission of being a reliable source for understanding the law, and stop trying to be a policy-making entity.

Categories: The Law