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Friday, June 21, 2013

American Express Co. v. Italian Colors Restaurant: SCOTUS Upholds Class Action Waiver In Antitrust Action

Over the last several years, as the Supreme Court has limited class actions through its arbitration jurisprudence, several lower courts have pushed back, attempting to find ways to invalidate class action waivers in arbitration agreements. A prime example is the Second Circuit Court of Appeals, which considered an antitrust case involving the fees that American Express charges its merchant clients. In re. American Express Merchants' LitigationIn three successive decisions (2009, 2011, and 2012), the Second Circuit held: (1) a class action waiver was unenforceable where "enforcement of the clause would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs;" and (2) the Supreme Court's decisions in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 559 U.S. ___ and AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ did not affect that conclusion. 

On June 20, the Supreme Court issued its definitive response to the Second Circuit. In an opinion authored by Justice Scalia, with Chief Justice Roberts and Justices Kennedy, Thomas, and Alito joining, the Court held that "a contractual waiver of class arbitration is enforceable under the Federal Arbitration Act when the plaintiff ’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery." Slip op. at 1. 

The Court explained its holding as follows: 

Arbitration is a matter of contract, and courts must "rigorously enforce" arbitration agreements according to their terms, even when parties allege a violation of federal law, unless Congress has evidenced an intent to override the FAA. Slip op. at 3-4.  

The Court found no "contrary Congressional command" that would require it to depart from the normal rules and invalidate the class action waiver here. Slip op. at 4-5. The antitrust laws "do not guarantee an affordable procedural path to the vindication of every claim." Slip op. at 4. "Nor does Congressional approval of Rule 23 establish an entitlement to class proceedings for the vindication of statutory rights." Slip op. at 5. 

The "effective vindication" theory -- that courts may invalidate arbitration agreements that "operate as a prospective waiver of a party’s right to pursue statutory remedies" -- also does not help the plaintiffs. Slip op. at 5-9. The class action waiver does not "forbid the assertion of statutory rights," or require payment of fees that are "so high as to make access to the forum impracticable." Slip op. at 6. It merely makes proving the statutory violation impractical, which "does not constitute the elimination of the right to pursue that remedy." Slip op. at 7 (ital. in original).  

Justice Thomas joined in the opinion and wrote a separate concurrence "to note that the result here is also required by the plain meaning of the Federal Arbitration Act," which "requires that an agreement to arbitrate be enforced unless a party successfully challenges the formation of the arbitration agreement, such as by proving fraud or duress.” Slip op. at 1. No such argument being made here, Thomas would find no grounds for revocation of the contract.  

Justice Kagan dissented, joined by Justices Ginsburg and Breyer: 
Here is the nutshell version of this case, unfortunately obscured in the Court’s decision. The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract’s arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool’s errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.   
And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad. 
Slip op. at 1. 

Justice Sotomayor sat on the Second Circuit panel that issued the 2009 decision case below and did not take part in the Supreme Court's decision. Her participation obviously would not have changed the outcome. 

The opinion is available here.  The SCOTUSblog has a page for the case here, including links to the opinion below, the Court's docket, and articles explaining the case.  

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