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Thursday, June 20, 2013

American Express Co. v. Italian Colors Restaurant Guts Enforcement of Federal Laws

By Jean Sternlight

The Supreme Court’s decision today in American Express v. Italian Colors is ghastly, at least from the perspective of those who believe that federal laws ought to be enforced. In a 5-3 decision the Court (per Justice Scalia) held that it is perfectly acceptable for companies to use arbitration clauses to insulate themselves from federal claims that might be brought by potential adversaries. Specifically, the Court found that it was fine for American Express to prevent restaurant owners from joining together in a class action to bring an antitrust claim, even though it was undisputed that absent collective action the restaurant owners could not feasibly bring the claim either in arbitration or litigation.

Many of you who have taught arbitration may wonder how this holding can be squared with the Supreme Court’s prior decisions stating that arbitration cannot be used to prevent the “effective vindication” of a federal statutory right. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. & Green Tree Financial Corp.-Ala. v. Randolph.

Perhaps the only positive thing I can say about this decision is that Justice Scalia is forthright about the fact that the decision spells doomsday for many consumer and small business claims. The opinion states “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.” That is, the Court finds that it is fine for a company to use arbitration to effectively prevent persons from bringing claims, so long as the company does not altogether eliminate the right to pursue that claim in theory. “[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."

With this decision the Court has also fully endorsed companies’ use of mandatory arbitration provisions to block access to justice rather than to provide an alternative means of obtaining access to justice. There is no pretense in the decision that the restaurants would or could pursue their claims individually in arbitration. As Justice Kagan aptly explains in dissent, “[t]he monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.” She therefore calls this decision a “betrayal” of the Court’s precedents. Through its decision the Court has made clear that the FAA can be used not to redirect claims to an alternative streamlined forum, but rather to (in Justice Kagan’s words) “block the vindication of meritorious federal claims and insulate wrongdoers from liability.”

So now what? One needs no crystal ball to predict that this decision will unleash a new rash of companies issuing arbitration clauses that preclude class actions. These clauses will be designed to block consumer, employee and small business claims entirely rather than redirect those claims to arbitration.

Is this decision horrible enough that it will inspire Congress to take some action? If Congress cares to ensure the enforceability of its laws it could take any of several steps: (1) pass the Arbitration Fairness Act to prevent companies from imposing arbitration on consumers, employees, or small businesses; (2) pass legislation (as Professor Sarah Cole has proposed) to prevent companies from using arbitration to insulate themselves from class actions; or (3) set up and fund strong government agencies that are able to do all the enforcement that is needed of federal laws. Alternatively, Congress may choose to do nothing and allow companies to violate federal laws at will. Unfortunately my crystal ball is not good enough to know which way Congress will go.