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United States of America > Federal > Litigation Dispute resolution > Arbitration > Article > American Express Co. v. Italian Colors Restaurant

Article: American Express Co. v. Italian Colors Restaurant

In American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), the Supreme Court recently held that class action waivers in arbitration agreements will be strictly enforced under the Federal Arbitration Act ("FAA"), even where it is not economically feasible for individual plaintiffs to arbitrate their claims.  In doing so, the Court continued a clear recent trend of upholding agreements to arbitrate under the FAA.  See, e.g., Nitro-Lift Technologies, L.L.C. v. Howard, 133 S. Ct. 500 (2012); Marmet Health Care Ctr., Inc. v. Brown, 132 S. Ct. 1201 (2012); AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).

In American Express Co., a group of merchants filed a class action suit against American Express arguing that the company used its "monopoly power" to force the merchants to pay exorbitant fees in violation of § 1 of the Sherman Antitrust Act.  American Express countered by moving to compel the merchants to bring individual arbitration actions under the terms of the parties' agreements, which stated that there was no "right or authority for any Claims to be arbitrated on a class action basis."  The merchants responded  by arguing that the provisions restricting class actions were unenforceable, because such a case could not realistically be brought by an individual plaintiff.  In support of this proposition, the merchants pointed out that the cost of retaining an expert witness to opine on the merits of such a suit might exceed $1 million, while the maximum recovery for an individual plaintiff would be capped at an estimated $38,549.

In a five to three decision, the Supreme Court held that the high cost of proving the merits of the plaintiffs' claims did not justify deviating from the FAA's "overarching principle that arbitration is a matter of contract," and that arbitration agreements must be "rigorously enforce[d] . . . according to their terms."  In an opinion authored by Justice Antonin Scalia, the Court found that the fact that the merchants alleged a violation of a federal statute (here, the Sherman Act) could not overcome the presumption of enforceability provided by the FAA, unless there was evidence of a "contrary congressional command."  However, the federal antitrust laws at issue "do not guarantee an affordable procedural path to the vindication of every claim." Nor did the congressional approval of Federal Rule of Civil Procedure 23, which governs class action proceedings in federal courts, "establish an entitlement to class proceedings for the vindication of statutory rights."

The Court also rejected the merchants' reliance on the common law "effective vindication" exception to the FAA, which holds that arbitration agreements may be invalidated where they operate "as a prospective waiver of a party's right to pursue statutory remedies."  In doing so, Justice Scalia distinguished between the cost of proving the merits of the action, and the waiver of the right to bring an action in the first place.  As this particular case only involved the former, the "effective vindication" exception did not apply.  Justice Kagan's dissent, joined by Justices Ginsberg and Breyer, took issue with this distinction, arguing that the exception should apply where the plaintiffs' rights to enforce a federal statute have been effectively deprived. 

American Express Co. indicates that class action waivers in arbitration agreements will be strictly enforced under the FAA, absent specific legislation to the contrary, even where the plaintiffs seek to vindicate their rights under a federal statute, and pursuing individual arbitration actions would be highly impracticable.  The Court will likely continue to be skeptical of, if not hostile toward, legal arguments and theories that would "destroy the prospect of speedy resolution that arbitration," and by extension, the FAA, "was meant to secure."

Last Update: 2013-Jul-24 Charles E. “Trip” Dorkey III - Dentons
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Author: Charles E. “Trip” Dorkey III
Law Firm: Dentons
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