WASHINGTON, D.C. - (Mealey's) A mandatory class action
waiver clause in American Express Co.'s (AmEx) standardized service contract is
enforceable under the Federal Arbitration Act (FAA), even if the cost of
individual arbitration of merchants' antitrust claims is prohibitively high,
the U.S. Supreme Court ruled 5-3 on June 20 in reversing the Second Circuit
U.S. Court of Appeals (American Express Company, et al. v. Italian Colors
Restaurant, et al., No. 12-133, U.S. Sup.) (lexis.com subscribers may access Supreme Court briefs and the opinion for this case).
Writing for the majority, Justice Antonin Scalia said
that the FAA "reflects the overarching principle that arbitration is a matter
of contract" and that "courts must 'rigorously enforce' arbitration agreements
according to their terms. . . unless the FAA's mandate has been 'overridden by
a contrary congressional command.'"
"No contrary congressional command requires us to reject
the waiver of class arbitration here," Justice Scalia wrote, adding that
"antitrust laws do not guarantee an affordable procedural path to the
vindication of every claim."
The majority noted that the Sherman and Clayton Acts were
enacted before Federal Rule of Civil Procedure 23 established class proceedings
for vindication of statutory rights.
The majority rejected the merchants' argument that the
class action waiver bars effective vindication of their federal statutory
rights because the cost of individually arbitrating their antitrust claim
exceeds their potential recovery and, therefore, the arbitration agreement is
"The [effective vindication] exception finds its origin
in the desire to prevent 'prospective waiver of a party's right to pursue
statutory remedies,'" Justice Scalia said, adding that "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."
Chief Justice John G. Roberts Jr. and Justices Anthony M.
Kennedy, Clarence Thomas and Samuel Anthony Alito Jr. joined in the majority
Justice Thomas filed a concurring opinion, saying that
"the result here is also required by the plain meaning of the Federal
"Because [plaintiff] Italian Colors [Restaurant] has not
furnished 'grounds . . . for the revocation of any contract,' 9 [United Stated
Code] §2, the arbitration agreement must be enforced. Italian Colors
voluntarily entered into a contract containing a bilateral arbitration
provision. It cannot now escape its obligations merely because the claim it
wishes to bring might be economically infeasible," Justice Thomas said.
Justice Elena Kagan filed a dissenting opinion, in which
Justices Ruth Bader Ginsburg and Stephen G. Breyer joined.
The effective-vindication rule "bars applying [an
arbitration] clause when (but only when) it operates to confer immunity from
potentially meritorious federal claims. In so doing, the rule reconciles the
Federal Arbitration Act (FAA) with all the rest of federal law-and indeed,
promotes the most fundamental purposes of the FAA itself. As applied here, the
rule would ensure that Amex's arbitration clause does not foreclose Italian
Colors from vindicating its right to redress antitrust harm," the dissent said.
"[T]he majority disregards our decisions' central
tenet: An arbitration clause may not thwart federal law, irrespective of
exactly how it does so," Justice Kagan said.
In the instant case, AmEx's "contract expressly prohibits
class arbitration. But that is only part of the problem. The agreement also
disallows any kind of joinder or consolidation of claims or parties. And
more: Its confidentiality provision prevents Italian Colors from
informally arranging with other merchants to produce a common expert report. And
still more: The agreement precludes any shifting of costs to Amex, even if
Italian Colors prevails. And beyond all that: Amex refused to enter into any
stipulations that would obviate or mitigate the need for economic analysis. In
short, the agreement as applied in this case cuts off not just class
arbitration, but any avenue for sharing, shifting, or shrinking necessary
costs," the dissent said.
"[T]he FAA was never meant to produce this outcome," the
Justice Sonia Sotomayor took no part in the consideration
or decision of the case.
Italian Colors and other merchants sued AmEx, alleging
that AmEx used its monopoly power to force merchants to accept a service
contract that contained an "honor all cards agreement" whereby merchants were
forced to pay supracompetitive fees on AmEx's mass-marketed products or lose a
significant portion of sales from businesses, travelers and affluent customers
who are traditional users of AmEx cards. The agreement precluded merchants from
accepting some AmEx cards and denying others in violation of the Sherman Act,
the merchants said.
The merchants further alleged that as a condition of
accepting AmEx's cards, they were required to sign a "card acceptance
agreement" that contained a mandatory arbitration clause and prohibited the
merchants from bringing a class action lawsuit in court and from having any
claim arbitrated on anything other than an individual basis. The merchants
contended that the agreement violated the FAA.
The U.S. District Court for the Southern District of New
York granted AmEx's motion to compel arbitration of the merchants' antitrust
claims and the question of whether the class action waivers were enforceable,
and the District Court dismissed their cases.
On Jan. 30, 2009, the Second Circuit reversed, finding
that the merchants had adequately demonstrated that the class action waiver
provision was not enforceable because enforcement of the waiver would
effectively preclude any action seeking to vindicate the statutory rights
asserted by the plaintiffs and "would grant AMEX de facto immunity from
antitrust liability." According to the appeals panel, the merchants
demonstrated that "the size of the recovery received by any individual
plaintiff will be too small to justify the expenditure of bringing an
The panel found that Section 2 of the FAA provides that
an agreement to arbitrate "shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation of any
contract." The panel held that because a valid ground exists for the
revocation of the class action waiver, it cannot be enforced under the FAA.
On May 3, 2010, the Supreme Court granted AmEx's petition
for a writ of certiorari, vacated the Second Circuit's decision and
remanded in light of Stolt-Nielsen S.A., et al. v. AnimalFeeds Int'l Corp, 130
S.Ct. 1758 (2010) [an enhanced version of this opinion is available to lexis.com
subscribers], in which the Supreme Court, in a 5-3 decision on April
27, 2010, held that an arbitration panel exceeded its authority under the FAA
by construing an arbitration clause to permit class arbitration of antitrust
claims when the clause was silent on that issue.
The Supreme Court subsequently issued its decision in AT&T
Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011) [enhanced version], in which the Supreme Court held
that the FAA preempted a California
law barring the enforcement of class action waivers in consumer contracts.
The Second Circuit panel said that its original analysis
was unaffected by Concepcion. The Second Circuit denied rehearing en
banc in a divided ruling on May 29, 2012, and, on Nov. 9, the Supreme Court
granted AmEx's petition for a writ of certiorari.
The Second Circuit remanded to the District Court with
the instruction to deny AmEx's motion to compel arbitration, commenting that
"each waiver must be considered on its own merits, based on its own record, and
governed with a healthy regard for the fact that the FAA 'is a congressional
declaration of a liberal federal policy favoring arbitration agreements.'"
briefs in support of AmEx's petition for certiorari were filed by the
Equal Employment Advisory Council; Experian Information Solutions Inc. and
Concumerinfo.com Inc.; American Bankers Association, American Financial
Services Association and Consumer Bankers Association; The Financial Services
Roundtable; The Chamber of Commerce of the United States of America and
Business Roundtable; New England Legal Foundation; Distinguished Law
Professors; and DRI-The Voice of the Defense Bar.
Also filing an amicus brief in support of reversal
were senior legal officers for public companies - Marcy S. Cohen, general
counsel and managing director of ING Financial Holdings Corp; Augustus I.
DuPont, vice president, general counsel and secretary of Crane Co.; Hayward D.
Fisk, former vice president, general counsel and secretary of Computer Sciences
Corp.; William Graham, former senior vice president, general counsel and
secretary of Bethlehem Steel Corp.; Frank R. Jimenez, chief legal and
government affairs office of a "large cap" public company; Robert Lonergan,
former executive vice president and general counsel of Rohm and Haas Co.; and
Clifford B. Storms, former senior vice president and general counsel of CPC
International - and the International Association of Defense Counsel.
Amicus briefs filed in support of
affirmance were filed by National Community Pharmacists Association, National
Association of Convenience Stores and National Grocers Association; COSAL -The
Committee to Support the Antitrust Laws; Ohio and 21 other states; Professors
of Civil Procedure; American Antitrust Institute; Public Citizen Inc.; Public
Justice P.C., AARP and the American Association for Justice; Food Marketing
Institute and National Retail Federation; Professional Arbitrators and Arbitration
Scholars; and Antitrust Scholars.
The United States is represented by Solicitor General
Donald B. Verrilli Jr., Deputy Assistant Attorney General Leslie C. Overton,
Deputy Solicitor General Malcolm L. Stewart, Assistant to the Solicitor General
Ginger D. Anders and Attorneys Catherine G. O'Sullivan, Robert B. Nicholson,
David Seidman and Adam Chandler of the U.S. Department of Justice and Acting
General Counsel David C. Shonka of the Federal Trade Commission. All are in Washington.
AmEx is represented by Michael K. Kellogg and Derek T. Ho
of Kellogg, Huber, Hansen, Todd, Evans & Figel in Washington, Louise M.
Parent, Mark G. Califano and Bernadette Miragliotta of American Express Travel
Related Services Inc. in New York and Julia B.
Strickland of Stroock & Stroock & Lavan in Los Angeles.
The merchants are represented by Paul D. Clement and
Michael H. McGinley of Bancroft and Deepak Gupta, Brian Wolfman, Gregory A.
Beck and Jonathan E. Taylor of Gupta Beck. All are in Washington.
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