Supreme Court reverses Second Circuit and enforces arbitration clause that includes waiver of class arbitration

by Saul Ewing LLP
Contact

Summary

The Supreme Court has issued another in a series of decisions that have revealed its desire to limit the impact of class actions. It held that under the Federal Arbitration Act, courts must vigorously enforce arbitration agreements according to their terms, and the fact that it would be prohibitively expensive for the individual plaintiffs to pursue their respective claims did not justify invalidating the parties’ arbitration agreement, including the waiver of class arbitrations.

In a 5-3 decision in which Justice Sotomayor did not participate, the United States Supreme Court held the Federal Arbitration Act (the “FAA”) does not permit courts to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim. In so doing, it reversed the Second Circuit Court of Appeals, which had held the waiver to be unenforceable in light of the fact that it would have been prohibitively expensive for the plaintiff to attempt to vindicate its rights under the federal antitrust laws by proceeding on its own. In a sharp dissent, the three judge minority called the majority’s opinion a “betrayal” of its precedents.

At issue in American Express v. Italian Colors Restaurant, 2013 WL 3064410 (June 20, 2013), was a dispute between certain merchants that accept American Express cards and American Express. Plaintiffs initiated a class action for alleged violation of the federal antitrust laws, contending that American Express had abused its monopoly power to force them to accept rates that were significantly higher than those charged by competing credit cards. They sought treble damages.

The agreement between the parties contained a clause requiring all disputes to be resolved through arbitration, and expressly providing that “there shall be no right or authority for any Claims to be arbitrated on a class action basis.” Citing to that language, American Express moved to compel individual arbitrations under the FAA. In countering that motion, the merchants submitted the declaration of an economist, who estimated that the expert report necessary to prove the antitrust claim would cost at least several hundred thousand, and possibly as much as one million dollars. By contrast, the maximum recovery for an individual plaintiff would be $12,850, or $38,549 when trebled. The district court granted American Express’s motion and dismissed the lawsuits. The Second Circuit reversed, finding that the class action waiver was not enforceable given the prohibitive costs the individual plaintiffs would be forced to incur in order to prove their respective cases in relation to the relatively small available recovery.

The Supreme Court vacated the Second Circuit’s decision and remanded the matter for further consideration in light of Stolt –Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 130 S. Ct. 1758 (2010), which held that a party cannot be compelled to submit to class arbitration absent an agreement to do so. After the remand, the Second Circuit confirmed its earlier decision, and noted that such decision did not compel class arbitration. On appeal, the Supreme Court reversed the Second Circuit. In so doing, the Court stated that under the FAA, courts must vigorously enforce arbitration agreements according to their terms. The Court further noted that nothing contained in the antitrust laws dictated a different result, and the fact that it would be prohibitively expensive for the individual plaintiffs to pursue their respective claims did not justify invalidating the parties’ arbitration agreement, including the waiver of class arbitrations. The Court cited to its earlier opinion in AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011), stating that the earlier decision “all but resolves” the instant case. In AT&T Mobility, the Court struck down a California law that conditioned enforcement of arbitration on the availability of a class procedure. The American Express Court quoted language from AT&T Mobility that described a class arbitration procedure as sacrificing the efficiency and informality of a standard arbitration.

The vigorous dissent argued that the majority’s decision left the merchants in question unable to seek meaningful redress for their claimed antitrust injury. “The Court today mistakes what this case is about. To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of [Federal Rule of Civil Procedure 23 (governing class actions)] everything looks like a class action, ready to be dismantled.”

Recent Supreme Court cases have revealed the Court’s tendency to limit the impact of class actions. The American Express decision marks another step in that direction.

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.

© Saul Ewing LLP | Attorney Advertising

Written by:

Saul Ewing LLP
Contact
more
less

Saul Ewing LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!