In a ruling that continues a recent trend restricting the
use of class action lawsuits to address the collective claims of similarly
situated plaintiffs, the United States Supreme Court has ruled that restaurant
owners were precluded by an arbitration clause in their American Express
agreements from pursing arbitration claims against the financial institution on
a class-wide basis.
The plaintiffs in the putative class action case, American Express v. Italian Colors
Restaurant, alleged that American Express forced merchants to accept its high-fee
credit cards as a condition of accepting the firm’s premium and corporate
cards, in violation of federal anti-trust laws.
The merits of the dispute, however, were not addressed because American
Express sought to enforce a provision in its service contract that required
stores to arbitrate their disputes rather than file lawsuits in court. Importantly, the standard arbitration clause
found in these agreements prohibited the merchants from bringing their claims
as a class action on behalf of similarly situated restaurants. Rather, each vendor was required to pursue
its arbitration claim on an individual basis.
The Second Circuit Court of Appeals initially permitted the
restaurant owners to bring their case as a class action because the high costs
of anti-trust litigation would preclude them from brining individual claims for
relief. According to the plaintiffs, the
litigation costs could reach $1 million even though each litigant could expect
to recover approximately $40,000. The
federal appellate court agreed that this disparity resulting from the class
action waiver provision would effectively preclud the restaurants from
“vindicating [their] statutory rights in the arbitral forum.”
The U.S. Supreme Court, however, reversed the Second
Circuit’s decision and held that the arbitration provision was enforceable as
written. Justice Antonin Scalia, who authored
the 5-3 majority opinion, rejected the lower court’s rationale because the
“anti-trust laws do not guarantee an affordable procedural path to the
vindication of every claim.” According
to the majority opinion, the large expense of arbitration did not justify
weakening the impact of the Federal Arbitration Act’s “core requirement” that arbitration
agreements be enforced pursuant to the intent of the parties entering into the
contract. As Justice Scalia explained,
“[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.” The majority concluded that
courts must “vigorously enforce” arbitration agreements according to their
terms. Otherwise, the extensive
litigation of the merits of a case necessary to allow a court to decide whether
to enforce an arbitration agreement “would undoubtedly destroy the prospect of
speedy resolution that arbitration in general and bilateral arbitration in
particular was meant to secure.”
In her dissent, Justice Elena Kagan was sharply critical of
the majority’s decision. She disputed that arbitration should be permitted to
be used as a mechanism “easily made to block the vindication of meritorious
federal claims and insulate wrongdoers from liability.” She further wrote, “[t]he 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.”
