In a federal antitrust case brought by restaurant owners against American Express, the Supreme Court agreed on November 9 to decide "whether the Federal Arbitration Act permits courts, invoking the 'federal substantive law of arbitrability,' to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim."

The U.S. Court of Appeals for the Second Circuit, in Italian Colors Restaurant v. American Express Travel Related Services Co., had refused to enforce the class action waiver in the American Express arbitration agreement on the ground that it would effectively preclude the plaintiffs from prosecuting their federal antitrust claims. The subsequent denial of American Express' motion for en banc review spurred vigorous dissents by the Second Circuit's Chief Judge and four other judges, increasing the likelihood that the Supreme Court would grant review.

The Second, Third, and Ninth Circuits disagree with the Second Circuit on whether the “vindication of statutory rights” theory is viable in light of the U.S. Supreme Court’s landmark decision in AT&T Mobility LLC v. Concepcion in 2011. There, the Supreme Court held that the Act preempts state laws that refuse to enforce class action waivers in consumer arbitration agreements as unconscionable or against public policy. The panel in American Express had concluded that Concepcion did not preclude them from refusing to enforce the class action waiver because the plaintiffs had shown that to prosecute their claims, they would be required to hire an expert who would charge exponentially more than the plaintiffs' potential recovery, and those expert fees could not be recovered under the Sherman Act even if the plaintiffs prevailed in individual arbitrations.

By contrast, the Second, Third, and Ninth Circuits have ruled that Concepcion is broadly written and that the Act requires enforcement of an arbitration agreement’s class action waiver, despite arguments that the plaintiffs would be unable to vindicate their statutory rights without a class action because their claims were worth much less than the cost of litigating them. Indeed, the Third Circuit, in another case brought by consumers against American Express, Homa v. American Express Co., held that “[e]ven if Homa cannot effectively prosecute his claim in individual arbitration, that procedure is his only remedy, illusory or not … Though some persons might regard our result as unfair, 9 U.S.C. § 2 requires that we reach it. In this regard, we point out that when Congress makes a law the court must enforce the law as Congress has written it regardless of the court’s view of the law.”

Justice Sonia Sotomayor took no part in the order granting certiorari, probably because she was a member of the Second Circuit panel that heard the case in an earlier appeal. The Supreme Court is expected to rule in the spring of 2013.

The grant of certiorari in Italian Colors shows that the Supreme Court continues to be extremely interested in arbitration issues. Over the past several decades, it has issued more than 30 major opinions dealing with arbitration. Ballard Spahr has been honored to participate in many of those cases on behalf of the parties or amici curiae.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). It also produces the CFPB Monitor, a blog that focuses exclusively on important CFPB developments. To subscribe, use the link provided to the right. The CFPB has recently commenced its study of pre-dispute consumer arbitration agreements. The Group is involved in counseling several clients and submitting comments to the CFPB in connection with that study.

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, or Mark J. Levin at 215.864.8235 or levinmj@ballardspahr.com.