American Express

  • 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.