Arbitration

  • July 22, 2013
    Guest Post

    by Suzette M. Malveaux, Associate Dean for Academic Affairs and Professor of Law, Columbus School of Law, Catholic University of America

    On June 20, 2013, as the general public, legal pundits and media anxiously awaited the Supreme Court to issue its blockbuster cases of the year on affirmative action, voting rights and marriage equality, American Express was handed down.  This case is about the enforceability of an arbitration agreement that forbids merchants from pursuing their federal antitrust claims against American Express as a class action.  Not the stuff most people are talking about at the dinner table . . . unless it’s mine.  That day, most media trumpeted that there were “no major decisions today,” and, with a few exceptions, made little or no mention of the case.  Others went so far as to claim that the public had been “cruelly trick[ed]” into learning about class action arbitration instead. In reference to American Express, Vanity Fair proclaimed that “[j]urisprudence diehards will argue that this morning’s . . . B-side ruling[] . . . [is] important too.  These nerds are not wrong . . .  .”  Vanity Fair is right, on both accounts.  While I usually prefer to go by “professor,” I embrace the magazine’s conclusion and urge others to do the same.

    To fully appreciate the magnitude of American Express, it is necessary to first understand what the case was about.  A group of merchants who accept American Express cards accused the company of using its monopoly power to force them to accept credit cards at an inflated rate.  The merchants brought a class action against Amex, alleging that this tying arrangement -- embodied in a form contract -- violated federal antitrust laws.  The parties had agreed in advance to resolve all disputes in arbitration.  This agreement also contained a clause forbidding class actions in arbitration.

    Thus, the issue before the lower courts was whether the class arbitration waiver was enforceable where the merchants had established that costs made it impossible for them to arbitrate their claims individually.  The evidence demonstrated that the cost of an expert analysis necessary to prove the merchants’ claims (“at least several hundred thousand dollars, and might exceed $1 million”) far surpassed each individual’s potential recovery (some by ten times).   And in the absence of any possibility of cost-sharing with Amex, this made the class action structure the only viable way to proceed.  Without a mechanism for aggregating the costs of litigation, it would be impossible for the merchants to challenge Amex’s alleged unlawful business practices.  Under these circumstances, the class arbitration waiver would function as an exculpatory clause, effectively giving Amex a pass for violations of federal antitrust laws.

  • June 28, 2013
    Guest Post

    by Emily J. Martin,  Vice President and General Counsel at the National Women's Law Center

    You may have missed it in the flurry of newsmaking by the Supreme Court this week, but on Monday, five of the Justices gave early Christmas presents to defendants accused of employment discrimination, when the Court handed down important decisions in two Title VII cases: Vance v. Ball State University and University of Texas Southwestern Medical Center v. Nassar.  In both Vance and Nassar, the 5-4 decisions ignored the realities of the workplace and the ways in which employment discrimination and harassment play out every day.  Placing new obstacles in the path of workers seeking to vindicate their rights, the Court set aside the longstanding interpretations of the Equal Employment Opportunity Commission (the agency charged with enforcing Title VII), and closed out a term in which the Court repeatedly limited the ability of individuals to challenge the actions of powerful corporations.

    Justice Samuel Alito wrote the Vance decision.  Prior cases have held that when a plaintiff shows she was sexually harassed, or racially harassed, or harassed on some other unlawful basis by a supervisor, her employer is liable, unless the employer can prove that the plaintiff unreasonably failed to take advantage of a process that the employer provided for addressing harassment. An employer is only liable for harassment by a co-worker, however, when a plaintiff can show that the employer was negligent in controlling working conditions—a far tougher standard.  Vance posed the question of who is a supervisor: Is it only someone who has the authority to hire, fire, or take other tangible employment actions? Or is it anyone who oversees and directs the plaintiff’s work on a day-to-day basis? Ignoring the ways in which day-to-day supervisors have been invested with authority over other employees that empowers them to harass, the Court ruled on Monday that employers are not vicariously liable for harassment by day-to-day supervisors who do not have the authority to hire, fire, and the like. Indeed, showing even more solicitousness for the interests of employers than the defendant in the case had shown for itself, the majority adopted an even narrower interpretation of the word “supervisor” than had been urged by Ball State.

  • June 20, 2013
    Guest Post

    by Paul Bland, Senior Attorney, Public Justice. This piece is cross-posted at Public Justice’s blog.

    So, today, in American Express v. Italian Colors, the U.S. Supreme Court said that a take-it-or-leave-it arbitration clause could be used to prevent small businesses from actually pursuing their claims for abuse of monopoly power under the antitrust laws. Essentially, the Court said today that their favorite statute in the entire code is the Federal Arbitration Act, and it can be used to wipe away nearly any other statute.

    As Justice Kagan said in a bang-on, accurate and clear-sighted dissent, this is a "BETRAYAL" (strong word, eh?) of the Court's prior arbitration decisions. You see, until now, the Supreme Court has said that courts should only enforce arbitration clauses where a party could "effectively vindicate its statutory rights." Today, in a sleight of hand, the five conservative justices said that this means that arbitration clauses should be enforced even when they make it impossible for parties to actually vindicate their statutory rights, so long as they have a theoretical "right" to pursue that remedy.

    The plaintiffs in this case, restaurants and other small merchants, claim that American Express uses its monopoly power over its charge card to force them to accept American Express's credit cards and pay higher rates than they would for other credit cards. This is called a "tying arrangement" under the antitrust laws -- American Express is alleged to be using its monopoly power over one product to jack up the price of another product to higher rates than it could charge in a competitive market.

  • June 20, 2013
    Guest Post

    by John Vail, Vice President and Senior Litigation Counsel, Center for Constitutional Litigation

    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, 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 percent 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 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, 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.”

  • June 20, 2013

    by Jeremy Leaming

    During her featured remarks at the 2013 ACS National Convention, Sen. Elizabeth Warren (D-Mass.) ripped the federal bench, and the Supreme Court in particular, for a pro-corporate trend. Today the high court issued an opinion in American Express Company v. Italian Colors Restaurant that buttresses Warren’s sharp critique.

    In the American Express case, the Court’s right-wing justices found that the Federal Arbitration Act (FAA) blocks courts from invalidating contractual waivers of class arbitration, another blow to individuals hoping to band together to hold corporations accountable for malfeasance. A group of merchants who accept American Express cards had lodged a class action against the financial giant arguing that its rate on accepting American Express cards violated federal antitrust laws. The high court led by Justice Antonin Scalia, however, essentially held that a clause in the American Express agreement barring class action arbitration trumped antitrust laws.

    Scalia maintained that the FAA was enacted by Congress as a “response to widespread judicial hostility to arbitration” and that its text “reflects the overarching principle that arbitration is a matter of contract. There is no ‘contrary congressional command’ that “requires us to reject the waiver of class arbitration here,” Scalia wrote.

    Scalia notes the merchants argued that forcing them to litigate individually would prove too costly, but concluded “the antitrust laws do not guarantee an affordable path to the vindication of every claim.” Later in the opinion, Scalia writes, “But 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.”

    As Media Matters’ Senior Counsel & Director of its Courts Matter project Lara Schwartz noted, “In other words, Scalia essentially was saying it’s OK if the rules make it impossible to win as long as they don’t make it impossible to play.

    Justice Elena Kagan lodged a dissent, joined by Justices Ruth Bader Ginsburg and Stephen Breyer. (Justice Sonia Sotomayor recused herself in this case). Kagan wrote, that the “owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws.” But that same agreement with Amex barred the restaurateur from bringing the claim.

    “And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.”