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.

Filed under: class actions, Supreme Court