Supreme Court Extends its Strong (Conservative) Pro-Arbitration Jurisprudence to Mandate Enforcement of Class Action Waivers Contained in Arbitration Agreements

The Supreme Court’s conservative majority’s recent opinion (5-3) in American Express Co. v. Italian Colors Restaurant, 2013 DJDAR 7944 (June 20, 2013), while no surprise, extends the court’s strong pro-arbitration jurisprudence to mandate enforcement of class action waivers contained in arbitration agreements, even where pursuit of an individual claim may be uneconomical or impractical.  Specifically, the court held the Federal Arbitration Act (“FAA”) does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery.  Scalia, J., delivered the opinion of the Court, in which Roberts, C.J., and Kennedy, Thomas and Alito, JJ., joined.  Kagan, J., filed a dissenting opinion, in which Ginsburg and Breyer, JJ., joined.  Sotomayer, J., took no part in the consideration or decision of the case.

The Supreme Court noted that courts must “rigorously enforce” arbitration agreements according to their terms, even for claims alleging a violation of a federal law, unless the FAA’s mandate has been “overridden by a contrary congressional command.”   Congressional approval of Federal Rule of Civil Procedure 23 (the class action procedural mechanism) does not establish an entitlement to class proceedings for the vindication of statutory rights.  The “effective vindication” exception originated as dictum in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), which was derived from a desire to prevent “prospective waiver of a party’s right to pursue statutory remedies.”  But, the Supreme Court found “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.”

Justice Kagan, dissenting, eloquently provided a nutshell version of the antitrust case at issue:

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.

Just Kagan further provide a nutshell version of the majority’s opinion, which he described as “admirably flaunted rather than camouflaged”: “Too darn bad.”  The Court’s precedents have developed a mechanism – called the effective-vindication rule – to prevent arbitration clauses from choking off a plaintiff’s ability to enforce congressionally created rights.  Kagan found this rule reconciles the FAA with all the rest of federal law – and indeed, promotes the most fundamental purposes of the FAA itself.  As applied in Italian Colors, the rule would ensure that Amex’s arbitration clause does not foreclose Italian Colors from vindicating its right to redress antitrust harm.   Kagan found that the conservative majority “barely tries to explain why it reaches a contrary result.”  Throughout, the majority disregards the Court’s precedent’s central tenant: “An arbitration clause may not thwart federal law, irrespective of exactly how it does so.”

Without the rule, the practical and very real result,  a company, such as Amex, could (and allegedly did) use its monopoly power to protect its monopoly power, by coercing agreement to contractual terms eliminating its antitrust liability.

By | 2015-01-06T13:57:31+00:00 July 2nd, 2013|Uncategorized|Comments Off on Supreme Court Extends its Strong (Conservative) Pro-Arbitration Jurisprudence to Mandate Enforcement of Class Action Waivers Contained in Arbitration Agreements