DOJ Message To SCOTUS: Do Not Enforce Arbitration Agreements That Invalidate Federal Statutory Rights

On January 29, the U.S. Dept. of Justice filed an amicus brief supporting respondents in AmEx III, arguing that to enforce the class arbitration waiver would be to create a large loophole for important federal laws.  The Solicitor General has also asked to argue at the hearing on February 27.  To my knowledge, DOJ has never previously weighed in on an arbitration case before the U.S. Supreme Court.

The issue in AmEx is whether American Express can enforce its arbitration agreement, which precludes any class or consolidated actions, against a class of plaintiffs who allege antitrust violations.  The Second Circuit has held, on remand and on reconsideration, that American Express cannot enforce that arbitration agreement.  The court held that the plaintiffs proved it was not economically feasible to pursue their cases on an individual basis and therefore precluding a class action meant precluding the enforcement of their antitrust rights, which is sufficient to invalidate the arbitration agreement under Green Tree Financial Corp.  v. Randolph, 531 U.S. 79 (2000).  

A few months ago, I was concerned that the only amici weighing in on this case seemed to be on the side of rigid enforcement of class action waivers.  I spoke too soon.  A host of knights in shining armor have appeared to argue on behalf of these antitrust plaintiffs, including 22 state attorneys general, Public Citizen, a group of professors, and the Solicitor General himself.  (Maybe this should not be surprising, after other federal agencies have taken stands against class waivers in arbitration agreements.  Also, maybe I am reading too much Game of Thrones…)

The brief of the Department of Justice works hard to strengthen the precedent supporting an affirmance of AmEx.  It argues that for decades the Supreme Court has refused to enforce arbitration agreements that prevent any “effective vindication” of federal statutory claims (citing Mitsubishi, Gilmer, Vimar Seguros y Reaseguros, and 14 Penn Plaza, as well as Randolph).  It argues that affirming the “effective-vindication rule” would not undermine the FAA,  that the standard is not unworkable for courts to apply, and that Concepcion does not dictate a reversal.

What I found most compelling in the Government’s brief, however, was its focus on how the Supreme Court’s decision will influence the drafting of arbitration agreements in the years to come:

“the effective-vindication principle, it should be emphasized, is not simply a sound rule of decision for the rare case in which a federal statutory claim cannot feasibly be pursued through the arbitration procedure specified in the parties’ agreement. . . . the [rule] creates a salutary incentive for companies that prefer arbitration to ensure that such cases remain rare, by adopting arbitration procedures that can feasibly be invoked even for small-value claims.”  In contrast, “under petitioners’ approach… companies could use a combination of class-action and joinder prohibitions, confidentiality requirements, and other procedural restrictions to increase the likelihood that a plaintiff’s cost of arbitration will exceed its projected recovery …That would deprive a range of federal statutes of their intended deterrent and compensatory effect, without promoting the actual use of arbitration as an alternative means of dispute resolution.”

Will that be enough to sway one of the usual conservative block of justices that votes for rigid enforcement of the FAA?  (Justice Sotomayor is recused from this case, so only eight justices will consider it.)  I hope so.