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.”