In American Express Co., et al. v. Italian Colors Restaurant, et al. (June 20, 2013), the Supreme Court tries to take class arbitration off life support

Supreme Court.png

This one made me too sad to write about it quickly.  I had to grieve first.  Another day, another chance for the United States Supreme Court to pork litigants with an arbitration ruling.  In today's chapter, American Express Co., et al. v. Italian Colors Restaurant, et al. (June 20, 2013), we have the last saga in a long-running case addressing effective vindication of statutory rights.   Merchants who accept American Express cards brought a class action against Amex for violations of the federal antitrust laws. According to the merchants, 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, they said, violated §1 of the Sherman Act. They sought treble damages for the class under §4 of the Clayton Act.  The agreement with Amex contains a clause that requires all disputes between the parties to be resolved by arbitration. The agreement also provides that“[t]here shall be no right or authority for any Claims to be arbitrated on a class action basis.” In re American Express Merchants’ Litigation, 667 F. 3d 204, 209 (CA2 2012).  The Court of Appeal reversed an order compelling arbitration, agreeing with the merchants that the expense required to prove antitrust claims was so high that no individual merchant would be able to vindicate their statutory rights without the ability to aggregate claimants in a class action.

The 5 Justice majority opinion, authored by Justice Scalia, focused its analysis on the meaning of the “effective vindication” exception to the requirements of the FAA, concluding that it did not apply to a prohibitively expensive process for resolving claims on an individual basis only:

But the 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. See 681 F. 3d, at 147 (Jacobs, C. J., dissenting from denial of rehearing en banc). The class-action waiver merely limits arbitration to the two contracting parties. It no more eliminates those parties’ right to pursue their statutory remedy than did federal law before its adoption of the class action for legal relief in 1938, see Fed. Rule Civ. Proc. 23, 28 U. S. C., p. 864 (1938 ed., Supp V); 7A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure §1752, p. 18 (3d ed. 2005). Or, to put it differently, the individual suit that was considered adequate to a
ssure “effective vindication” of a federal right before adoption of class-action procedures did not suddenly become “ineffective vindication” upon their adoption.

Slip op., at 7.  The majority, in referring in later discussion to Concepcion, made it very clear that, while you may have a “right” conferred by statute, you have no right to insist on an effective method to enforce that “right.”

The dissent, authored by Justice Kagan, offers a passionate but ultimately unavailing criticism of the majority’s holding:

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.

Slip diss. op., at 1.  The dissent began by positing an uncontroversial proposition: “We would refuse to enforce an exculpatory clause insulating a company from antitrust liability—say, ‘Merchants may bring no Sherman Act claims’—even if that clause were contained in an arbitration agreement.” Slip diss. op., at 2.  But the dissent then observed, “If the rule were limited to baldly exculpatory provisions, however, a monopolist could devise numerous ways around it.”  Slip diss. op., at 3.

Applied as our precedents direct, the effective- vindication rule furthers the purposes not just of laws like the Sherman Act, but of the FAA itself. That statute reflects a federal policy favoring actual arbitration—that is, arbitration as a streamlined “method of resolving dis- putes,” not as a foolproof way of killing off valid claims. Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U. S. 477, 481 (1989). Put otherwise: What the FAA prefers to litigation is arbitration, not de facto immunity. The effective-vindication rule furthers the statute’s goals by ensuring that arbitration remains a real, not faux, method of dispute resolution. With the rule, companies have good reason to adopt arbitral procedures that facili- tate efficient and accurate handling of complaints. With- out it, companies have every incentive to draft their agreements to extract backdoor waivers of statutory rights, making arbitration unavailable or pointless. So down one road: More arbitration, better enforcement of federal statutes. And down the other: Less arbitration, poorer enforcement of federal statutes. Which would you prefer?  Or still more aptly: Which do you think Congress would?

Slip diss. op., at 5-6.  The balance of the dissent is an effective and scathing dismantling of the majority reasoning.  In conclusion, Justice Kagain writes:  “To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled.” Slip diss. op., at 14.  But it is for naught at this point.  The majority opinion is the one that will rule day, and it is the one that should cause great concern if not checked legislatively.