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    The Lawletter Blog

    CONTRACTS: Supreme Court Again Enforces Arbitration Clause Prohibiting Classwide Arbitration

    Posted by Gale Burns on Fri, May 16, 2014 @ 11:05 AM

    The Lawletter Vol 39 No 3

    Paul Ferrer, Senior Attorney, National Legal Research Group

         Given its small caseload, the U.S. Supreme Court continues to surprise with the number of arbitration cases it decides year after year. An article in the July 2011 issue of Lawletter, see Supreme Court Weighs In on Enforceability of Arbitration Clause Prohibiting Classwide Arbitration, 35 Lawltr. No. 10, at 39, discussed the decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), in which the Court "held that the [Federal Arbitration Act (the 'FAA'), 9 U.S.C. §§ 1B16,] pre-empted a state law barring enforcement of a class-arbitration waiver" contained in an otherwise enforceable arbitration agreement. Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2308 (2013) (discussing Concepcion, 131 S. Ct. 1740). We predicted that in the wake of the Concepcion decision, parties who actually read the boilerplate language in the adhesive contracts they sign could expect to see many more arbitration provisions including class-action waivers. And, in fact, such a waiver was also at issue in the Court's later decision in the American Express case.

         In that case, the plaintiffs were merchants who accepted American Express charge cards for payment. The merchants' agreements with American Express contained a provision requiring all
    disputes between the parties to be resolved by arbitration. The agreement further provided that "[t]here shall be no right or authority for any Claims to be arbitrated on a class action basis." Id. When the merchants nevertheless filed a class action against American Express, alleging  violations of the federal antitrust laws, American Express moved to compel individual arbitration under the FAA.

         In resisting the motion, the merchants submitted a declaration from an economist who estimated that the cost of an expert analysis necessary to prove the antitrust claims would be at least several hundred thousand dollars and might exceed $1 million, while the maximum
    recovery for an individual plaintiff would be only $12,850, or $38,549 when trebled. The merchants therefore argued that enforcing the waiver of class arbitration and requiring them to proceed individually ("as they contracted to do," id. at 2309) prevented the "effective vindication" of a federal statutory right under the antitrust laws. See id. at 2310 (noting an earlier decision in which the Court had "expressed a willingness to invalidate, on 'public policy' grounds, arbitration agreements that 'operat[e] . . . as a prospective waiver of a party's right to pursue statutory remedies'" (Court's alterations) (Court's emphasis) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19 (1985))). But the 5-3 majority of the Court, again speaking through Justice Scalia, was unimpressed with the argument, concluding that "the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue the remedy." Id. at 2311 (Court's emphasis). Thus, the Court unsurprisingly again upheld the class arbitration waiver, yielding another in its increasingly long line of decisions affirming the broad right to compel arbitration (and keep cases out of federal court) when the parties have contracted to arbitrate their dispute.

    Topics: legal research, contracts, Paul Ferrer, U.S. Supreme court, The Lawletter Vol 39 No 3, arbitration clause, FAA preempts state law, Am. Express v. Italian Colors Restaurant, class-action waiver upheld

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