U.S. Supreme Court Again Affirms Application of Arbitration Agreements

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The Court has held that the FAA (Federal Arbitration Act) does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s costs of individually arbitrating a federal statutory claim exceeds the potential recovery.  In a 5-3 decision (Justice Sotomayor recused herself)[1], the Court found that:

 “[T]he fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”  Also the court noted that its earlier ruling in the AT&T Mobility v. Concepcion matter “all but resolves this case,”  because that ruling held that the Federal Arbitration Act trumps a state law requiring classwide arbitration proceedings .  See summary at:  http://lawyersusaonline.com/blog/2013/06/20/justices-high-cost-no-bar-to-class-arbitration-waiver/?utm_source=WhatCounts+Publicaster+Edition&utm_medium=email&utm_campaign=Justices%3a+High+cost+no+bar+to+class+arbitration+waiver+&utm_content=+Justices%3a+High+cost+no+bar+to+class+arbitration+waiver+

The Supreme Court issued its ruling on Thursday, June 20, 2013 in the matter of American Express Co. v. Italian Colors Restaurant.  See:

http://www.supremecourt.gov/opinions/12pdf/12-133_19m1.pdf

The respondents in the case were merchants who accept American Express cards.  Respondents had alleged that American Express used its monopoly power in the market for charge cards to force merchants to accept credit cards at rates approximately 30% higher than the fees for competing credit cards.  This tying arrangement allegedly violated the Sherman Act and the merchants sought treble damages for a class under the Clayton Act.  In response to this action, American Express moved to compel individual arbitration under the Federal Arbitration Act.

Respondents claimed in opposition to the motion to compel that in order to prove the antitrust claims, the costs would be “at least several hundred thousand dollars, and might exceed $1 million,” while the maximum recovery for an individual plaintiff would be $12,850 , or $38,549 when trebled.

Writing for the majority, Justice Scalia stated that the text of the Act “reflects the overarching principle that arbitration is a matter of contract.”  See, American Express v. Italian Colors Restaurant, 570 U.S.___ (2013) (slip op., at 3); citing Rent-A-Center, West, Inc. v. Jackson, 561 U.S. ___ (2010) (slip op., at 3).  Courts must ‘rigorously enforce’ arbitration agreements, Justice Scalia asserted.  In addressing whether requiring plaintiffs to litigate their claims individually would contravene the policies of antitrust laws, the Court advised that the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.  See, American Express, slip op. at 4.  The Sherman and Clayton Acts make no mention of class actions; and, the acts were enacted before Federal Rule of Civil Procedure 23, the procedural rule allowing for cases to proceed on a class basis.  In contrasting this ruling with language  from an earlier Supreme Court decision (which was dicta, Justice Scalia noted), the Court reiterated that “so long as the prospective litigant effectively may vindicate its statutory cause of action in an arbitral forum, the statute will continue to serve both its remedial and deterrent function.”  See, American Express at slip op. 6 referring to Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614, 637 (1985).

The dissent (Justices Ginsburg, Breyer and joined by Justice Kagan) expressed concern that the approach would allow all kinds of de facto prohibitions into arbitration agreements to prevent parties from effectively vindicating their rights.

As noted in SCOTUSBlog, “class proceedings are an exception to the rule, not an entitlement.”  http://www.scotusblog.com/2013/06/opinion-analysis-a-class-action-waiver-in-an-arbitration-agreement-will-be-strictly-enforced-under-the-federal-arbitration-act/#more-165505

The Court included a discussion of the “effective vindication exception,” however, it noted this applied more appropriately at attempts to prohibit the assertion of statutory rights.  In Justice Thomas’ concurrence, he notes, “[b]ecause Italian Colors has not furnished ‘grounds…for the revocation of any contract,’… the arbitration agreement must be enforced.”


[1] Justice Sotomayor sat on the Second Circuit panel that originally decided the case.

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