How Will the Supreme Court’s Decision in American Express Company v. Italian Colors Restaurant Impact Class Action Litigation
In American Express Company v. Italian Colors Restaurant, the Supreme Court recently furthered its holding in AT&T Mobility LLC v. Concepcion by making it clear that the Federal Arbitration Act (“FAA”) does not permit courts to invalidate contractual waivers of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery. Italian Colors reflects the “overarching principle that arbitration is a matter of contract,” and that “courts must rigorously enforce arbitration agreements according to their terms,” including terms that specify “with whom the parties will arbitrate,” as well as “the rules under which arbitration will be conducted.”
Plaintiff had filed a class action lawsuit alleging that “American Express used its monopoly power to force merchants to accept credit cards at rates approximately 30% higher than the fees for competing cards.” American Express, in response, moved to compel individual arbitration based upon two clauses in the parties’ agreement. One clause required “all disputes between the parties to be resolved by arbitration.” The other provided “that there shall be no right or authority for any Claims to be arbitrated on a class action basis.” The plaintiff opposed the motion, arguing that the waiver was unenforceable because it would be too costly for an individual plaintiff to retain an expert to prove the antitrust claims. The District Court granted the motion to compel arbitration.
On appeal, the Second Circuit reversed and remanded, agreeing with Italian Colors that the waiver was unenforceable because of the prohibitive costs of expert analysis. The Supreme Court granted certiorari to determine whether the FAA permits courts to invalidate arbitration agreements that prohibit class arbitration of a federal-law claim. Italian Colors argued that the arbitration agreement should be invalidated for two reasons: (1) requiring it to litigate its claims individually “would contravene the policies of antitrust laws”; and (2) enforcing the class arbitration waiver would effectively vindicate its federal statutory rights because it “would have no incentive to pursue its antitrust claims individually in arbitration.”
The Supreme Court flatly rejected Italian Colors’ first argument, explaining that “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.” The Court similarly rebuffed Italian Colors’ second argument, reasoning that “the class action waiver merely limits arbitration to the two contracting parties. It no more eliminates those parties’ right to pursue their statutory remedy than did federal law before its adoption of the class action.” In other words, “the individual suit that was considered adequate to assure effective vindication of a federal right before the adoption of class-action procedures did not suddenly become ineffective vindication upon their adoption.”
The Italian Colors decision demonstrates the Supreme Court’s resistance to meddling with parties’ contracts, particularly arbitration agreements containing class action waivers. Corporations should feel comfortable with seeking to limit class action exposure by including class waiver provisions since Italian Colors shows that courts should be reluctant to invalidate such an agreement. As the Supreme Court made patently clear: when parties agree to arbitrate on an individual basis, “it would be remarkable for a court to erase that expectation.”