The "Effective Vindication" Doctrine is a Virtual Dead Letter After American Express Co. v. Italian Colors Restaurant

On June 20, 2013, the U.S. Supreme Court, in American Express Co. v. Italian Colors Restaurant, No. 12- 133, held that the Federal Arbitration Act (FAA) requires courts to enforce a contractual waiver of class action procedures in an arbitration clause, even where the practical effect of such a waiver is to bar claimants from asserting claims under federal law because they have no economic incentive to arbitrate them on an individual basis. Some courts, including the U.S. Court of Appeals for the Second Circuit in Italian Colors, had refused to enforce such class action waivers on the ground that they prevent the “effective vindication” of a federal statutory right. The Court rejected that argument, declaring that “the FAA’s command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low-value claims.”

The groundwork for the Italian Colors decision was laid two years ago, in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). In that case, the Court held that the FAA preempted a California state court rule invalidating class arbitration waivers where the plaintiff alleged that the defendant had “carried out a scheme to deliberately cheat large numbers of consumers out of small amounts of money.” Some commentators speculated that the impact of that holding might be limited by two factors. First, Concepcion involved claims under state, not federal, law, and there was speculation that the Supreme Court might be more willing to strike down a class action waiver if it barred enforcement of a federal claim. Second, the arbitration clause in Concepcion included several consumer-friendly provisions, including provisions that required AT&T to pay a minimum amount of $7,500 plus twice the amount of the claimant’s attorney’s fees in the event that the claimant were to win an award larger than AT&T’s final written settlement offer. Some commentators wondered whether the Court would refuse to enforce a class action waiver that did not contain these or other features that preserved a financial incentive to arbitrate individual claims.

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Topics:  American Express, American Express v Italian Colors Restaurant, Arbitration, Arbitration Agreements, Class Action, Class Action Arbitration Waivers, Federal Arbitration Act, SCOTUS

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates

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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