Worst Supreme Court Arbitration Decision Ever

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.

For plaintiffs to prove this kind of case, they have to come up with hard evidence -- economic proof -- that costs hundreds of thousands of dollars. And each individual merchant has only lost, and thus can only hope to recover, a small fraction of that amount. The U.S. Court of Appeals for the Second Circuit recognized that if American Express's arbitration clause (and particularly its ban on class actions) was enforced, that would mean that none of the small business plaintiffs could enforce their rights under the antitrust laws. And under a long line of Supreme Court cases, arbitration clauses are only enforceable when they permit the parties to effectively vindicate their statutory rights.

Today's decision turns that rule on its head. According to Justice Scalia's majority opinion, even if an arbitration clause would mean that no individual would ever actually be able to pursue an antitrust claim on an individual basis, the arbitration clause still has to be enforced. The law has changed dramatically -- parties no longer have a right to "effectively" vindicate their statutory rights; they are left with the meaningless but formal right to pursue economically irrational claims if they choose to do so.

The decision is catastrophic for the antitrust laws, as well as for civil rights, consumer rights, and many other statutory rights. The decision is an unmitigated disaster, replacing adhesive contracts for an idea of actual law. The drafters of the FAA would not recognize what it has turned into.

Justice Kagan went on to state: "As a result, Amex's contract will succeed in depriving Italian Colors of any effective opportunity to challenge monopolistic conduct allegedly in violation of the Sherman Act. … In the hands of today's majority, arbitration threatens to become … a mechanism easily made to block the vindication of meritorious federal claims and insulate wrongdoers from liability." Justice Kagan gets this one completely right. The entire point of the majority opinion is to use arbitration to insulate companies from any possibility of class action liability.

We used to have something called "The Federal Arbitration Act." The Court today might as well have amended its real title to "The Federal Corporate Immunity Act."