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6/20/13 Evening Update! Scotus Backs Amex Class Arb Waiver

Is it too expensive to arbitrate without others in a formal class?  It doesn't matter.  You and your company will arbitrate.

The U.S. Supreme Court this morning said that a class waiver in an arbitration contract between businesses can't be defeated by evidence that it is too costly to put on the case in American Express Co. v. Italian Colors Restaurant, No. 12–133 (June 20, 2012)(available here).

The 10-page, 5-3 opinion by Associate Justice Antonin Scalia held, “The FAA does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery.”

Associate Justice Clarence Thomas's one-page concurrence says that a plain reading of the Federal Arbitration Act provides the same result. "Italian Colors voluntarily entered into a contract containing a bilateral arbitration provision," wrote Thomas, concluding, "It cannot now escape its obligations merely because the claim it wishes to bring might be economically infeasible. "

Associate Justice Elena Kagan wrote a dissent that says the waiver insulates Amex from antitrust liability, and excoriated the majority. "[H]ere is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad."  For full details, see our accompany post, "Kagan's Dissent--Defending Arbitration, Backing Litigation," here.

Associate Justice Sonia Sotomayor, who helped decide two of the three Amex Second Circuit decisions (see our Feb. 2, 2012 post here) that effectively were reversed today recused herself.

Today's opinion says that arbitration agreements must be rigorously enforced.

There is no Congressional command that requires rejecting the waiver, Scalia pointed out. 

The case emerged in an antitrust context, in which restaurants that accepted the American Express card filed suit against the company over the fees it charges the restaurants on the transactions in which they accepted the card.

But “[t]he antitrust laws do not guarantee an affordable procedural path to the vindication of every claim,” Scalia wrote.

He cited the seminal arbitration case, Mitsubishi Motors Corp. v. Soler-Chrysler-Plymouth Inc., 473 U. S. 614, 628 (1985), noting that the antitrust laws don’t “evince an intention to preclude a waiver” of class-action procedures.

The opinion similarly discounts Federal Rule of  Civil Procedure 23 as evidence that class proceedings are necessary to vindicate statutory rights.

Mitsubishi’s “effective vindication” of rights exception is analyzed.  The opinion says that the respondent restaurants' contended that "enforcing the waiver of class arbitration bars effective vindication, . . . because they have no economic incentive to pursue their antitrust claims individually in arbitration."

The opinion says that the Mitsubishi dictum doesn’t apply in Amex.  “[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,”  wrote Scalia. [Emphasis in the opinion.]

The opinion concludes that “AT&T Mobility [LLC v. Concepcion , 563 U. S. ___ (2011)(available here)] all but resolves this case.” In AT&T Mobility, Scalia writes, the Court "specifically rejected the argument that class arbitration was necessary to prosecute claims 'that might otherwise slip through the legal system.'”

* * *

The Amex case has been closely watched by arbitration practitioners for a long time.

The arbitration clause first wound up in court in March 2006, and made three visits to the Second Circuit, as well as a couple to the Supreme Court, ahead of today’s decision.
The original plaintiffs in the dispute over the validity of a contract provision providing for a waiver of class arbitration are California and New York corporations that operate businesses that have contracted with Amex, and the National Supermarkets Association, a membership-based trade association that represents the interest on independently owned supermarkets.

American Express has traditionally has been able to charge high fees to merchants that allegedly are at least 35% higher than competitive rates. The plaintiffs alleged that American Express was unable to compel merchants to accept its new credit card products at the same elevated rate, so it included an “Honor All Cards” provision contained in the Card Acceptance Agreement.

The merchants were faced with a choice of paying the so-called merchant discount fees on Amex’s mass-market products, or losing significant sales. The claim amounts to an illegal “tying arrangement,” in violation of the Sherman Act, 15 U.S.C. section 1.

The Card Acceptance Agreement precluded a merchant from bringing a class-action suit, and also precluded the signatory from arbitrating on anything other than individual bases.

American Express moved to compel arbitration pursuant to the Card Acceptance Agreement terms, and on March 16, 2006, a federal district court granted the motion, holding that the enforceability of the collective action waivers is a claim for the arbitrator to resolve, and issues relating to the enforceability of the contract and its specific provisions are for the arbitrator to decide, once arbitrability is established.
The court’s conclusion was that all of the plaintiffs’ substantive antitrust claims, as well as the question of whether the class action waivers were enforceable, were subject to arbitration. The case was dismissed.
The plaintiff then took the case to the Second Circuit, a saga on class arbitration that was ended by today's opinion.  A history of the case in the Second U.S. Circuit Court of Appeals, including Sotomayor’s participation as well as links to earlier decisions, can be found here:  "Arbitration: Second Circuit, Sticking to Its Earlier Stance, Invalidates a Class Arbitration Waiver, Despite Stolt-Nielsen and AT&T Mobility "(Feb. 2, 2012)(available here).

--Russ Bleemer, Editor, Alternatives;
background by Thendo Tshivhengwa, CPR Intern