In a decision one justice called a “betrayal of our precedents,” the Supreme Court today ruled that corporations can use arbitration clauses to insulate themselves from liability.  

The decision culminates a thirty-year judicial effort by the Court to turn an innocuous 1920s statute, the Federal Arbitration Act, into a weapon used to thwart enforcement of rights by consumers, employees, and small businesses. 

In American Express v. Italian Colors Restaurant, http://www.supremecourt.gov/opinions/12pdf/12-133_19m1.pdf, a restaurant filed a class action complaining that American Express had used monopoly power to force merchants to accept credit cards at rates approximately 30% higher than the fees for competing credit cards, in violation of antitrust statutes.  American Express moved to compel arbitration based on a clause in its agreement with the restaurant that provided, in part, “[t]here shall be no right or authority for any Claims to be arbitrated on a class action basis.”

The restaurant, invoking a line of Supreme Court cases that held open the possibility that courts could invalidate arbitration clauses that effectively precluded vindication of federal statutory rights, opposed arbitration.  It demonstrated that costs of litigating an individual claim were “’at least several hundred thousand dol­lars, and might exceed $1 million,’ while the maximum recovery for an individual plaintiff would be $12,850, or $38,549 when trebled,” and argued that preclusion class resolution effectively precluded it from vindicating its claim. 

The Second Circuit agreed with the restaurant, having held that “the only economically feasible means for . . . enforcing [respondents’] statutory rights is via a class action.” The Supreme Court reversed.

The Court, with Justice Scalia writing for a five-person majority, first found nothing specific in the antitrust laws  - no “congressional command “ - requiring the Court  to reject the waiver of class arbitration: “The antitrust laws do not ‘evinc[e] an intention to pre­clude a waiver’ of class-action procedure.”

The Court also found no “entitlement to class proceedings for the vindication of statutory rights” flowing from congressional approval of Rule 23, noting that in AT&T Mobility v. Concepcion it already had rejected the argument that “federal law secures a nonwaivable opportunity to vindicate federal policies by satisfying the procedural strictures of Rule 23 or invoking some other informal class mechanism in arbitration.”

Turning to doctrine that seemingly permitted ignoring a class action ban the Court noted, “It would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights. And it would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable.”  But, the Court continued, “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.”

Justice Kagan, writing in dissent and joined by Justices Ginsberg and Breyer (Justice Sotomayor took no part in the case), called the majority decision “a betrayal of our precedents, and of federal statutes like the antitrust laws.” 

She found that the arbitration clause in question “imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool’s errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law.”

She noted that, under the majority decision, “The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”

CCL’s John Vail participated in the filing of an amicus curiae brief in the case on behalf of Public Justice, AARP, and the American Association for Justice.  Today’s decision effectively leaves only Congress to provide recourse.