Legal Alert: Arbitration and Class Action Waiver Issues Again Before the Supreme Court

The U.S. Supreme Court heard oral argument yesterday in the first of two cases to be argued this term again raising questions regarding the enforceability of arbitration agreements and class action waivers. These cases continue the Court’s recent focus on arbitration and related class action issues. The first case, American Express Co. v. Italian Colors Restaurant, 12 - 133 (Amex), follows the Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion , 131 S.Ct. 1740 (U.S. 2011) which upheld the enforceability of class action waivers contained in arbitration provisions. Later this term, the Court will hear Oxford Health Plans LLC v. Sutter , 12 - 135, a follow - up to Stolt - Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758 (U.S. 2010 ), holding that an arbitrator may not compel class arbitration under the Federal Arbitration Act (FAA) unless the underlying agreement between the parties provides specifically for a class action remedy.

American Express Co. v. Italian Colors Restaurant

In Amex , the Court was asked to review a Second Circuit decision holding that a mandatory class action waiver in an arbitration provision was unenforceable where the plaintiffs established that enforcement of the waiver would prevent them from vindicating federal statutory rights, specifically antitrust laws. See In re American Express Litigation , 667 F.3d 204 (February 1, 2012). The Second Circuit found that if the class waiver were enforced, “the cost of plaintiffs' individually arbitrating their dispute with Amex would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws.” The court he ld that this fact rendered the arbitration provision and class waiver unenforceable based on language from Green Tree Financial Corp. - Alabama v. Randolph, 531 U.S. 79 (2000), which stated that where “a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs.” The Second Circuit found that plaintiffs had met that burden, and that the provision was unenforceable because otherwise “[t]he defendant will thus have immunized itself against all such antitrust liability by the expedient of including in its contracts of adhesion an arbitration clause that does not permit class arbitration.”

Petitioner Amex has argued that the Second Circuit’s decision was contrary to the FAA’s “core mandate” that arbitration agreements be enforced according to their terms. Amex also expressly argued that the Second Circuit’s decision contravenes the Supreme Court’s 2011 decision in Concepcion, in which the Court held that the FAA preempted a California state court doctrine under which class action waivers in consumer arbitration agreements in most consumer and employment contracts had been held to be per se unconscionable. According to Petitioner, Concepcion was not limited to state law claims and foreclosed the “vindication of statutory rights” rationale adopted by the Second Circuit. Amex contended that the statement in Randolph regarding vindication of statutory rights was dicta (the Court had rejected a cost - related challenge to an arbitration provision in that case), and that dicta cannot override the mandate of the FAA and Concepcion. The Second Circuit’s “labored efforts” to “evade” Concepcion were without merit, said Amex, because the Second Circuit ruling would prevent bilateral arbitration and force the Amex to either accept class arbitration or no arbitration at all.

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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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