U.S. Supreme Court Rules that Arbitration Agreement Bars Class Action and Class Arbitration Claims – AmEx v. Italian Colors Restaurant

The United States Supreme Court recently ruled that federal law does not permit a court, based on a finding that individual arbitration is cost-prohibitive for a plaintiff, to strike a class arbitration waiver clause in a contract. American Express Co., et al. v. Italians Colors Restaurant, et al (“AmEx”), 570 U.S. ___, No. 12-133, slip op. (Jun. 20, 2013). The decision builds on prior decisions that have generally affirmed the enforceability of mandatory arbitration clauses, class arbitration waivers, and class action waivers, even in contracts where the bargaining power between the parties is far from equal.

The plaintiffs in AmEx are businesses that accept payments using American Express credit cards. The contract between the plaintiffs and American Express includes clauses requiring submission of all disputes to arbitration and waiving class arbitration procedures. The plaintiffs brought a federal antitrust class action lawsuit against American Express, claiming that the company engages in various monopolistic practices. The defendant brought a motion to compel arbitration under the contract and the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. In response, the plaintiffs offered an economist’s declaration stating that the cost of arbitration for an individual merchant asserting a federal antitrust claim would exceed any possible recovery.

The district court granted the defendant’s motion, but the Second Circuit reversed and remanded the decision several times, generally finding that the expense issue rendered the arbitration clause unenforceable. See In re American Express Merchants’ Litigation, 554 F.3d 300 (2nd Cir. 2009); American Express Co. v. Italian Colors Rest., 130 S.Ct. 2401 (2010); In re American Express Merchants’ Litigation, 634 F.3d 187 (2nd Cir. 2011); In re American Express Merchants’ Litigation, 681 F.3d 139 (2nd Cir. 2012). Justice Scalia, writing for the majority, reversed the Second Circuit, finding that Congress enacted the FAA to support “the overarching principle that arbitration is a matter of contract.” AmEx, slip op. at 3. He further found that nothing in the federal statutes allows a court to invalidate the class arbitration waiver, noting that plaintiffs are not “guarantee[d] an affordable procedural path” to resolve their claims. Id. at 4. The appellate court therefore erred in finding the arbitration clause unenforceable, according to the majority opinion.

Justice Kagan offered a dissent, joined by Justices Ginsberg and Breyer, that addressed the impact of the majority’s decision on future antitrust litigants. Calling the majority’s holding a “betrayal” of Supreme Court precedent and various federal statutes, id. at 1 (J. Kagan, dissenting), she noted that American Express “has insulated itself from antitrust liability” with an arbitration agreement. Id.

Justice Thomas concurred in the court’s opinion, but expressly tied the holding to an earlier case limiting the access of parties to an arbitration agreement to class action litigation. In that case, Justice Thomas wrote that the FAA requires proof of “fraud or duress” in the formation of an arbitration agreement in order to successfully challenge it. Id. at 1 (J. Thomas, concurring), citing AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1753 (2011, J. Thomas, concurring). The majority opinion in AT&T held that states may not condition the enforcement of arbitration clauses on the availability of class arbitration procedures.

Class action lawsuits give large numbers of consumers an efficient means of asserting their rights against a common opponent, which has far greater resources available for litigation than an individual plaintiff. Lubin Austermuehle’s class action attorneys have represented consumers for decades in the greater Chicago area and the the Mid-West region, including Illinois Indiana, Wisconsin and Iowa. To schedule a confidential consultation regarding your case, please contact us today online, at (630) 333-0333.