Fenwick Employment Brief - July 2013: Waiver of Class Action Remedy Enforced Even Though Anticipated Costs of Individual Arbitration Exceeded Maximum Potential Recovery

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In American Express Company v. Italian Colors Restaurant, a non-employment case, the Supreme Court enforced a class action waiver in an American Express (“AMEX”) arbitration agreement despite a restaurant’s objection that the waiver effectively prevented a legal remedy. AMEX provides merchants with credit card processing services. As a condition of such services, merchants agree to individually arbitrate any disputes and waive the right to bring class action lawsuits. Italian Colors Restaurant filed a class action lawsuit against AMEX for alleged antitrust violations. Opposing AMEX’s motion to compel individual arbitration, the restaurant argued that its maximum individual recovery was under $50,000 and the cost of expert evidence to prove the antitrust claim alone would cost hundreds of thousands of dollars. According to the restaurant, public policy required an affordable and effective remedy for the federal antitrust violation, and that a class action was that remedy.

Rejecting the restaurant’s argument, the court held that a stronger public policy favoring arbitration outweighed the merchant’s right to bring a class action antitrust claim. According to the court, the merchant may seek to vindicate its antitrust rights but must do so in individual arbitration.

The AMEX case may prove compelling to those California courts considering employee challenges to class action waivers in employment arbitration agreements.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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