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.)

Filed under: antitrust, arbitration, class actions, contracts of adhesion, Supreme Court