Much commentary regards last week’s decision on American Express v. Italian Colors Restaurant (see earlier) as a virtual sentence of doom for class actions, which will henceforth be barred by contract in favor of individualized arbitration. From the plaintiff’s side, Paul Bland of Trial Lawyers for Public Justice calls the decision “catastrophic for the antitrust laws… an unmitigated disaster” while from the defense side, Michael Fox expects employers to use the ruling to turn back one of the current litigation trends most menacing to them, class actions over wage-hour infractions under the Fair Labor Standards Act (FLSA) (“a large number of employers who have not implemented arbitration plans will be re-thinking the decision”). Others expect a backlash against the decision; for example, the new Consumer Financial Protection Bureau may ban or greatly restrict arbitration waivers in consumer contexts (cf. Daniel Fisher‘s report) or Congress might legislate with the same intent, presumably after future Democratic Party gains in the House. More: Fed Soc Blog.
There are, however, also reasons to doubt that the decision spells utter rout for the class action bar. To begin with, these lawyers have proven resourceful in finding ways around earlier restrictions, as in the case of securities litigation reform and the Class Action Fairness Act. At Class Action Blawg, Paul Karlsgodt comments: “Concepcion hasn’t [ended class actions], so I doubt Amex III will either.”
Moreover, earlier Supreme Court decisions generally make clear that the arbitration option cannot displace substantive legal entitlements. Many, even most relevant federal statutory causes of action are barbed with incentive provisions intended to ease the assertion of meritorious claims, including attorneys’-fee entitlements, treble damages and statutory damages. The particular situation in Italian Colors, in which unrecoverable expert witness costs were expected to exceed even treble damages for the claimant, is not really typical. Our colleagues at Point of Law, especially Ted Frank, have been active in pointing out some of these considerations. [Manhattan Institute paper, plus reaction from Carter Wood and more from Michael Greve; discussion between Ted and Cardozo lawprof Myriam Gilles; more blog posts here and here]
In particular, even if the Rule 23 class action device is not available as such, it is likely that plaintiffs will have considerable scope for cost-sharing and collaboration, as described in more detail by Gregory Cook in the Michigan Journal of Law Reform. This came up in the AmEx case itself, as Jim Copland notes:
In footnote 4, the majority credits AmEx’s concession that “other forms of cost sharing . . . could provide effective vindication.” As Professor [Myriam] Gilles noted, AmEx expressly conceded this point in footnote 8 of its reply brief on the merits. In essence, Justice Kagan’s dissent refuses to credit AmEx’s concession — thus disagreeing with the majority about the facts of this specific case.
As Cook points out, pattern and coordinated litigation filed on behalf of numerous small claimants against financial institutions, but not using the class action device, has been quite successful in fields ranging from the Fair Debt Collection Practices Act to FACTA to the ATM notice cases. Indeed, defendants will sometimes regret the lack of a class action mechanism since it may be more difficult to obtain closure and settlement of a body of liability without it.
Commentators have counted out the class action bar before now. It’s always been a mistake.
3 Comments
I can’t tell if Cook’s argument is dishonest or merely stupid; given his obvious experience, I lean towards dishonest. Even if we assume that dozens of clients will somehow gravitate towards the same lawyer (a doubtful assumption), bringing a couple dozen arbitrations means the plaintiffs or their lawyers need to shell out hundreds of thousands of dollars — because each arbitration requires thousands of dollars in fees — just to get to the arbitration hearing. Defendants will exploit this problem by filing numerous frivolous motions in each arbitration, all of which have to be decided in each arbitration, thereby creating a war of attrition in which the numbers are stacked against the plaintiffs. Arbitrators will have every incentive to encourage this misconduct, because they profit from it.
Let’s assume 50 consumers are all injured by blatant consumer fraud to the tune of $50. Assuming a really cheap arbitration of $5,000 each (which means the defendants took no steps whatsoever the prolong it), that’s $250,000 the plaintiff’s lawyer has to shell out of pocket, likely over the course of years, just for the privilege of maybe having a chance at recovering $2,500 and maybe have a chance of recovering attorney’s fees which are never available for breach of contract and only sometimes available for consumer fraud.
But I think the proof is in the pudding: if it’s going to be so easy to file and win these things, why don’t some of the arbitration cheerleaders do it? It’s not like there’s an absence of illegal conduct out there. And if arbitrations aren’t going to make a difference, why are companies rushing to use them?
There’s a reason the vast majority of plaintiff’s firms don’t bother with class actions: they typically fail, and now even more will fail, all because SCOTUS has legislated from the bench, dishonestly ruling that the FAA — which says merely that arbitration should be on equal footing with other contract clauses under state law — mandates that arbitration clauses are to be given irrefutable preference over all other provisions of federal and state law.
I look forward to Cook bringing several thousand individual antitrust actions against AmEx, to prove his bogus theories.
[…] are forced into expensive arbitration where the cost to arbitrate exceeds the value of the case. Walter Olson thinks it’s not a big deal, and I disagree. Putting aside the disastrous consequences, there’s […]
[…] American Express v. Italian Colors Restaurant: The Court held that parties to an arbitration agreement can agree to preclude the arbitration of claims on a class wide basis. Is it the end of the world? […]