Supreme Court Upholds Arbitration Agreement, Rejects Effective Vindication Of Federal Rights

by Perkins Coie


The U.S. Supreme Court rejected another challenge to the enforceability of arbitration agreements under the Federal Arbitration Act (FAA), holding that a contractual waiver of class arbitration is enforceable even if the cost of arbitration exceeds the potential recovery.  See generally Am. Express Co. v. Italian Colors Rest., __ S. Ct. __, No. 12-133, 2013 WL 3064410 (June 20, 2013).  Justice Scalia, writing for the 5-3 majority with Justice Sotomayor having recused herself, emphasized two principles:

  • First, no congressional command compelled the availability of the class action vehicle to pursue antitrust claims under the Sherman Act.  See id. at *4.
  • Second, a judicially created exception to the enforcement of arbitration clauses, known as the “effective vindication” doctrine, concerned the “right to pursue” federal statutory remedies at the outset, not the cost of proving the merits of such claims.  See id. at *5. 

Referencing Concepcion, the Court reiterated that arbitration agreements cannot be invalidated based on public policy concerns that claims may “slip through the legal system” because their value is too small to prosecute absent the availability of class procedures.  See id. at *6-7.

Buildup to American Express

American Express is the latest in a number of Supreme Court decisions regarding the enforceability of arbitration agreements under the FAA.  In 2010, the Court held that class arbitration could not be compelled where the parties had stipulated that they had not reached an agreement on the issue.  See Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 130 S. Ct. 1758, 1775 (2010) (“[A] party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”).  Later that term, the Court concluded that parties could agree to submit gateway questions of arbitrability to the arbitrator instead of the courts.  See Rent-A-Ctr., W., Inc. v. Jackson, 130 S. Ct. 2772, 2777-79 (2010) (observing that unless the delegation provision is specifically challenged, “any challenge to the validity of the Agreement as a whole [is] for the arbitrator”).  In 2011, the Court held that Section 2 of the FAA preempted California’s Discover Bank rule “classifying most collective-arbitration waivers in consumer contracts as unconscionable.” AT&T Mobility v. Concepcion, 131 S. Ct. 1740, 1746 (2011).  Citing the FAA’s purpose of promoting arbitration, the Court observed that California’s Discover Bank rule “interfered” with arbitration, and that “class arbitration, to the extent it is manufactured by Discover Bank rather than consensual, is inconsistent with the FAA.”  Id. at 1749-51.      

Since Concepcion, the Court has repeatedly emphasized that exceptions to enforcing arbitration clauses subject to the FAA are narrow.  See, e.g., Nitro-Lift Tech., LLC v. Howard, 133 S. Ct. 500, 503 (2012) (per curiam) (“The trial court found that the contract contained a valid arbitration clause, and the Oklahoma Supreme Court did not hold otherwise.  It nonetheless assumed the arbitrator’s role by declaring the noncompetition agreements null and void.”); Marmet Health Care Ctr., Inc. v. Brown, 132 S. Ct. 1201, 1203-04 (2012) (per curiam) (“West Virginia’s prohibition against predispute agreements to arbitrate personal-injury or wrongful-death claims against nursing homes is a categorical rule prohibiting arbitration of a particular type of claim, and that rule is contrary to the terms and coverage of the FAA.”); KPMG LLP v. Cocchi, 132 S. Ct. 23, 25 (2011) (per curiam) (reiterating that “[t]he Federal Arbitration Act reflects an emphatic federal policy in favor of arbitral dispute resolution”) (internal citation and quotation marks omitted). 

Last term, the Court held that where a federal statute is silent regarding whether claims brought pursuant to it can be arbitrated, the FAA requires enforcement of an agreement to arbitrate such claims.  See CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 673 (2012) (addressing the Credit Repair Organizations Act).  And just last week, the Court stressed the limited nature of judicial review under the FAA, noting that “Oxford chose arbitration, and it must now live with that choice.  Oxford agreed with Sutter that an arbitrator should determine what their contract meant, including whether its terms approved class arbitration.”  Oxford Health Plans LLC v. Sutter, __ S. Ct. __, No. 12-135, 2013 WL 2459522, at *6 (June 10, 2013) (unanimously holding that courts cannot overturn arbitrator’s construction of the contract, even if it was mistaken).

American Express Procedural History

In an antitrust case involving claims under the Sherman Act, 15 U.S.C. § 1, the Second Circuit declined to enforce an arbitration agreement on the grounds that doing so would preclude the plaintiffs from vindicating their federal statutory rights.  See In re Am. Express Merchs.’ Litig., 667 F.3d 204, 208, 219 (2d Cir. 2012) (Amex III), rev’d, American Express, 2013 WL 3064410.  In 2009—before Stolt-Nielsen and Concepcion—the Second Circuit had held that “the class action waiver in the Card Acceptance Agreement cannot be enforced in this case because to do so would grant Amex de facto immunity from antitrust liability by removing the plaintiffs’ only reasonably feasible means of recovery.”  In re Am. Express Merchs.’ Litig., 554 F.3d 300, 320 (2d Cir. 2009), vacated, Am. Express Co. v. Italian Colors Rest., 130 S. Ct. 2401 (2010).  The Second Circuit maintained that view after the Supreme Court granted American Express’ petition for certiorari and subsequently remanded the case for reconsideration in light of Stolt-NielsenSee In re Am. Express Merchants’ Litig., 634 F.3d 187, 200 (2d Cir. 2011) (refusing to alter original opinion while noting that “Stolt-Nielsen plainly precludes us from ordering class-wide arbitration, but we did not do so earlier”).  And after Concepcion, the Second Circuit stayed the course, again finding that the class action waiver was not enforceable and concluding “Concepcion does not alter our analysis.”  Amex III, 667 F.3d at 206.   

Supreme Court’s American Express Decision

Having authored Rent-A-Center, Concepcion, and CompuCredit, it comes as no surprise that Justice Scalia would once again head the pro-arbitration majority.  Considering the Sherman Antitrust Act and the treble damages available under the Clayton Act, the Court observed that while Congress “has taken some measures to facilitate the litigation of antitrust claims,” it never “guarantee[d] an affordable procedural path to the vindication of every claim.”  American Express, 2013 WL 3064410 at *4.  The Court further observed that the “Sherman and Clayton Acts make no mention of class actions.  In fact, they were enacted decades before the advent of Federal Rule of Civil Procedure 23.”  Id.   Absent “contrary congressional command” within the statute that provided for class procedures, the arbitration agreement and associated waiver of class arbitration should be enforced.  See id.

Concluding that there was no statutory requirement for class proceedings, the Court considered the judicially created “effective vindication” exception to the enforcement of arbitration agreements, designed to “prevent ‘prospective waiver of a party’s right to pursue statutory remedies.’”  Id. at *5 (quoting Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 637 n.19 (1985).  Under the “effective vindication” doctrine, arbitration agreements clearly cannot exclude certain statutory claims from prosecution.  Id..  The doctrine may cover prohibitive filing and administrative fees that render the arbitral forum inaccessible.  Id.  But the doctrine does not cover the scenario where a statutory claim is simply too expensive to prove in bilateral arbitration.  Id.  (“[T]he fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”).  For Justice Scalia, the “effective vindication” argument was simply a veiled public policy argument that the Court had already rejected in ConcepcionId. at *6. 

Finally, the Court noted the untenable framework created by the Second Circuit’s rule applying “effective vindication” to proving a claim:  parties would have to litigate and courts would have to determine the cost of developing evidence necessary to pursue claims, as well as the recoverable damages, before an arbitration agreement could be enforced.  Id. at *7.  Such a “judicially created superstructure” is clearly contrary to the purpose of the FAA.  See id. 

In a powerful dissent, Justice Kagan, with whom Justices Ginsberg and Breyer joined, concluded, “To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled. . . . In the hands of today’s majority, arbitration threatens to become . . . a mechanism easily made to block the vindication of meritorious federal claims and insulate wrongdoers from liability.”  Id. at *15. 

Practice Pointers

  • Absent contrary congressional command overriding the mandate of the Federal Arbitration Act, courts will not read a right to pursue claims as a class into federal statutes.
  • “Effective vindication” of federal statutory rights is not a viable challenge to the enforceability of an arbitration agreement with a class action waiver—even if, as a practical matter, enforcement means meritorious claims will not be pursued because the cost of doing so as an individual is prohibitive.
  • The Supreme Court continues to reject challenges to enforcing arbitration agreements based on public policy arguments.

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.

© Perkins Coie | Attorney Advertising

Written by:

Perkins Coie

Perkins Coie 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.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

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.


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 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:

- 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.