Foundation Asks Supreme Court to Overturn Decision Refusing to Enforce Arbitration Agreement

The Foundation recently filed an amicus brief on behalf of several current and retired general counsel of major corporations and on behalf of the International Association of Defense Counsel urging the Supreme Court to reverse the U. S. Court of Appeals for the Second Circuit in American Express Company, et al. v. Italian Colors Restaurants, et al., an important case involving enforcement of arbitration agreements.

Plaintiffs are retail businesses which accept American Express cards for their customers’ purchases. Each plaintiff entered into an agreement with American Express that contains an arbitration clause that provides that all disputes between Amex and the merchant shall be resolved by arbitration and contains a "class arbitration waiver" that requires that the arbitration be between each merchant singularly and Amex.

Plaintiff merchants filed a class action complaint alleging that Amex’s "Honor All Cards" policy, which requires merchants who accept American Express charge cards to accept American Express credit cards as well, constitutes an unlawful "tying" arrangement under Section 1 of the Sherman Act. The named plaintiffs purported to sue on behalf of "all merchants that have accepted American Express charge cards."

Amex moved to compel arbitration. Plaintiff merchants argued that, because of the prohibitive costs of proceeding individually, the class action waiver precluded them from vindicating their federal statutory rights under Green Tree Fin. Corp. – Alabama v. Randolph, 531 U.S. 79 (2000). The district court rejected that argument, holding that Green Tree applied only to "costs which would not be incurred in a judicial forum." Because the costs the plaintiffs complained about (expert witness fees) would be incurred whether the claim was resolved in court or in arbitration, the district court held that they provided no basis to avoid arbitration.

The U.S. Court of Appeals for the Second Circuit reversed, holding that an arbitration agreement containing a class arbitration waiver cannot be enforced because, in the court’s view, a class action is the "only economically feasible way" for the plaintiff to pursue its federal law claim. This case is before the Supreme Court for the third time.

In our amicus brief we argue that this case is controlled by AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), in which the Court held that the Federal Arbitration Act (FAA), 9 U.S.C. ‘ 1, et seq., preempted the application of a state law "unconscionability" doctrine to a class action waiver provision in an arbitration agreement, and reaffirmed that the FAA’s overarching policy of enforcing arbitration agreements according to their own terms and that the Second Circuit’s attempt to limit Conception to cases in which state law governing the enforceability of class action arbitration waivers is invoked was incorrect. The circuit court had concluded that class action arbitration waivers that invoke federal statutory claims and therefore rely solely on the "federal substantive law of arbitrability" instead of state law may be invalidated. In re Am. Express Merchs.’ Litig. (Amex III), 667 F.3d 204, 213 (2d Cir. 2012).

In our brief we argue that neither the FAA nor Concepcion, and a recent line of other Supreme Court cases interpreting the FAA, supports such a limited and strained reading. The FAA’s central purpose "is to ensure that private agreements to arbitrate are enforced according to their terms." Stolt Nielsen S.A. v. AnimalFeeds Intl Corp., 130 S. Ct. 1758, 1773 (2010))and that is true "even when the claims at issue are federal statutory claims, unless the FAA’s mandate has been Aoverridden by a contrary congressional command." CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 669 (2012). The Sherman Act, which underlies the merchants’ claims, contains no such overriding contrary command. Moreover, as the Supreme Court said in Concepcion, "class arbitration, to the extent it is manufactured" by force of law rather than by agreement of the parties, is "inconsistent with the FAA." Concepcion, 131 S. Ct. at 1750 51; Stolt Nielsen, 130 S. Ct. at 1773 76 (recognizing that imposing class arbitration on parties who have not agreed to that procedure is inconsistent with the FAA); see also Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U. 5. 468, 479 (1989) (reiterating the basic precept that arbitration "is a matter of consent, not coercion").

We further argue that the Second Circuit’s stubborn refusal to enforce the class action waiver clause of a valid arbitration agreement is an example of judicial "hostility" to arbitration that the FAA was intended to override, and that the lower court’s decision would impair the FAA’s strong federal policy favoring the enforcement of arbitration agreements. See Moses H. Cone Mem’IHosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 25 (1983).

We urged the Supreme Court to reverse the Second Circuit’s decision in the Amex cases once again.

To view the Foundation’s brief, please click here.