Supreme Court Rules That Arbitration Agreements That Prohibit Class Arbitration Are Enforceable

imagesThe Supreme Court today ruled 5-3 in American Express Co., et al. v. Italian Colors Restaurant et al., U.S. Supreme Court, No. 12-133 that an arbitration agreement prohibiting merchants from bringing class action claims against American Express Company are enforceable. The opinion was written by Justice Scalia, who was joined by Chief Justice Roberts and Justices Alito, Kennedy and Thomas. The majority reasoned that American Express’s arbitration agreement did not preclude merchants from effectively vindicating their rights. Justice Kagan wrote the dissent in which Justices Breyer, Ginsburg and joined. The dissent argued that the majoritys decision left the plaintiffs without an effective remedy, either at law or in arbitration. Justice Sotomayor did not participate in the case.

The case stemmed from a 2003 class action lawsuit, filed by restaurants, retailers and other merchants, alleging American Express violated antitrust law by forcing them to accept its credit cards as a condition of accepting its charge cards. Charge cards require their holders to pay the full outstanding balance at the end of a billing cycle; credit cards require payment of only a portion, with the balance subject to interest.

American Express argued that the lawsuit was barred by the arbitration agreement signed by the merchants. The merchants countered that the agreement should not be enforced because it would not be economically feasible for many of them to bring individual claims in arbitration.

The case was closely watched by major corporations, which have increasingly relied on arbitration agreements to settle disputes with consumers and other parties. Those arbitration clauses also frequently prohibit plaintiffs from banding together to bring one action on behalf of a larger class. Consumer advocates claim the clauses give unfair advantages to companies. But, in recent years, the Supreme Court has upheld their enforcement under the Federal Arbitration Act, which was intended to encourage their use.

The Foundation filed an amicus brief on behalf of several current and retired general counsels 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.

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 Aclass arbitration waiver that requires that the arbitration be between each merchant singularly and Amex. Plaintiff merchants filed a class action complaint alleging that Amexs 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 ‘ 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 and because the costs the plaintiffs complained about (expert witness fees) would be incurred whether the claim was resolved in court or in arbitration, there was 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 courts view, a class action is the only economically feasible way for the plaintiff to pursue its federal law claim. This case was before the Supreme Court for the third time.

In our amicus brief we argued, and the Supreme Court majority agreed, 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 FAAs overarching policy of enforcing arbitration agreements according to their own terms and that the Second Circuits attempt to limit Concepcion to cases in which state law governing the enforceability of class action arbitration waivers is invoked was incorrect. In our brief we argued 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 FAAs 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 FAAs mandate has been overridden by a contrary congressional command. CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 669 (2012).
We further argued that the Second Circuits 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 courts decision would impair the FAAs strong federal policy favoring the enforcement of arbitration agreements. See Moses H. Cone MemI Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 25 (1983).

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