Supreme Court to Hear Another Case on Class Arbitration Waivers

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On November 9, 2012, the U.S. Supreme Court agreed to consider the enforceability of a class action waiver clause in agreements between American Express and merchants that accepted its cards. The merchants filed a proposed class action suit against Amex, alleging that its “Honor All Cards” policy—which required stores to accept Amex’s charge cards as well as its credit cards—violated federal antitrust law. The U.S. Court of Appeals for the Second Circuit allowed the suit to go forward despite a class arbitration waiver clause that explicitly prohibited merchants from joining together to litigate claims as a class. The Second Circuit ruled that the class arbitration waiver was unenforceable because the expense of each merchant litigating its claim individually was so high that the “practical effect” of the waiver “preclude[d] their ability to vindicate their federal statutory rights.”

In recent years, however, the Supreme Court has issued several decisions upholding class action waiver clauses—and reversing lower courts that struck them down as unenforceable. In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1744 (2011), for example, the justices cautioned that “conditioning the enforceability of ... arbitration agreements on the availability of classwide arbitration procedures” interferes with the Federal Arbitration Act. In its petition for review, Amex said the Second Circuit’s ruling was incompatible with this line of precedent and created a “sweeping, unwritten loophole” in federal arbitration law. Reversal of the Second Circuit’s decision appears likely. Click here to read our previous update discussing AT&T Mobility LLC v. Concepcion.

Athough this is not an employment case, it will be closely watched by the employment bar because employment agreements that require employees to arbitrate disputes instead of suing in court often also have class action waivers.

The case is American Express Co. v. Italian Colors Restaurant, No. 12-133. The Court will hear arguments early next year, with a decision expected by June. Justice Sotomayor will not participate in argument or decision, most likely because she was on one of the appellate panels that heard the case in the Second Circuit.

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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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