American Express v. Italian Colors: arbitration waiver of class actions

by Walter Olson on June 20, 2013

Today’s Supreme Court decision in American Express Co. v. Italian Colors Restaurant is a victory for freedom of contract, a boost for arbitration as an alternative to litigation, and a step forward in the Court’s ongoing recognition that the class action is just one legal vehicle among many, not some priority express train to be favored over other traffic. The restaurant had agreed with American Express to settle disputes by way of arbitration, and to waive any rights to have future disputes handled through class actions. When a potential antitrust claim arose, it nonetheless sought to slip out of its contractual agreement and invalidate the waiver. Split along familiar ideological lines with Justice Sotomayor not participating, the court ruled 5-3 that the Second Circuit erred in striking down the waiver as inconsistent with the Federal Arbitration Act. While the Court has previously held that arbitration agreements must be construed to provide “effective vindication” of statutory claims, the class action format — which did not even exist for these purposes until decades after the Sherman Act’s passage — was not so crucial to the restaurant’s legal rights as to be unwaivable.

A dissent by Justice Kagan — both longer and more spirited than Justice Scalia’s majority opinion — seeks to extend the Court’s earlier rulings that arbitration clauses cannot thwart “effective vindication” of statutory rights by such devices as requiring overly high fees for entry into arbitration. Interestingly, the dissent outdoes the majority in claiming to favor the true spirit of arbitration as an alternative to litigation; in that respect, at least, it departs from the tone of much commentary from the Legal Left which treats arbitration as an evil corporate plot to deprive the world of the benefits of zealous litigation. It also proposes two paths of argument that the majority declines to pursue: 1) that skepticism toward contractual waivers might be especially appropriate in antitrust contexts because the alleged monopolist under scrutiny may use its putative market power to put across unfair contract terms; 2) that confidentiality clauses in Amex’s contract (not addressed by the majority) might fail the “effective vindication” test by preventing Amex customers from joining forces to collaborate on expert reports to use on their behalf in individualized assertion of their disputes.

For years, organized trial lawyers have been publicly campaigning against arbitration — which keeps money out of their pockets by diverting disputes from knock-down litigation — claiming that it is unfair and one-sided. But many studies support the view that disputants’ overall satisfaction in arbitration compares very favorably to that in litigation, in part because it is a speedier and less acrimonious process. And consumers and small businesses by millions sign away their class action rights not because they are all hoodwinked or coerced, but because at some level they have rational grounds to recognize that those class-action rights are very unlikely to pay off for them in durable future benefits (as opposed to benefits for participants in the litigation industry). Congress will be asked to overturn Supreme Court decisions like Amex v. Italian Colors and the earlier, related AT&T Mobility v. Concepcion. It should resist. (expanded from an earlier post at Cato at Liberty; and welcome SCOTUSblog readers.)

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AmEx v. Italian Colors: the end of the world? - Overlawyered
06.24.13 at 7:45 am

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1 jdgalt 06.20.13 at 8:30 pm

I like the concept of arbitration, but the law ought to recognize that many (most?) people who sign contracts that specify it don’t really have any practical alternative. For instance, AT&T is still the only reasonably priced phone service available in a large part of the US, so they should not have the right to impose arbitration on their customers.

2 Eric Rasmusen 06.20.13 at 8:35 pm

I’ve only seen summaries (and the SC opinion), but is the antitrust claim here as stupid as it sounds? It seems to be that Amex is monopolizing by requiring a restaurant to accept the Amex debit card if it wants to use the Amex credit card, a tying claim. No wonder Italian Colors’ law firm says it needs some fancy expert witnessing, if that’s what they’re trying to who. If that’s really it, Amex should ask the court for damages for the bringing of such a frivolous suit.

3 O.M. 06.21.13 at 6:06 am

consumers and small businesses by millions sign away their class action rights not because they are all hoodwinked or coerced, but because at some level they have rational grounds to recognize that those class-action rights are very unlikely to pay off for them in durable future benefits (as opposed to benefits for participants in the litigation industry).

Oh, come ON. People sign arbitration agreements en masse first and foremost because they simply want the service, loan, or job that’s conditional upon signing the agreement. Most consumers & employees don’t know the ramifications, or they know they couldn’t afford to litigate anyway, and/or they think it’s unlikely they’ll ever have a dispute worth litigating. The likelihood that they won’t get a big payout in a class action doesn’t even enter into it! Small businesses are in theory better informed, but again, they want the services that companies like Amex provide, and they’re all-too-willing to gamble that they won’t be the victim of a nickel-and-dime scheme that the law normally discourages B2B service providers from hatching.

Your predictable ad hominem is a nice distraction, but even if it were true that anti-arbitration sentiment is fueled by armies of “legal leftists” with dollar-sign eyeballs, you completely sidestep the indisputable fact that arbitration agreements very simply and effectively allow corporations to opt-out of the court system and class actions, thus enabling them to all but completely dodge accountability for systemic violations of employment, consumer protection, and now even antitrust law. The fact that people aren’t coerced into signing, or that they probably won’t get a big payout in class-action litigation, does not excuse or balance out this inherent, shameful disregard for rights that people suffered and even fought and died for.

The one good thing about this development is that the door is now wide open for businesses to really put the screws to each other, instead of just to the little guy. Maybe this will change some stubborn, “pro-business” minds about how fair arbitration really is. Somehow I doubt it, though.

4 William Nuesslein 06.21.13 at 9:55 am

OMG O.M. How would a large telephone company monatize its great advantage in arbitration? The avoidance of legal-lotto benefits its customers through lower fees. Even I can see that.

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