ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, June 20, 2013

SCOTUS Issues Opinion in Italian Colors: No Surprises

In a 5-3 decision (Sotomayor, J., not participating), the U.S. Supreme Court today compelled arbitration in American Express Co. v. Italian Colors Restaurants.

SCOTUS 2010We reported on the oral arguments in this case here, and UC Davis's David Horton provided an introduction for us to the case after cert. was granted here.  Things unfolded much as Professor Horton predicted. 

Justice Scalia, writing for the majority, accepts plaintiffs' premise that, given the costs of experts' fees necessary to prove plaintiffs' antitrust allegations, the costs to any American Express customer to bring an antitrust claim against American Express far exceeds any possible recovery, even assuming the availability of triple damages.  Plaintiffs argue that the class action waiver that they signed as part of their arbitration agreement with Amerrican Express is thus invalid because the waiver denies them of any meaningful opportunity to prosecute their antitrust claim.

According to the majority, that argument is foreclosed by the Federal Arbitration Act, which directs courts to enforce arbitration agreements, absent something like fraud or duress, which is not present in this case.  Justice Thomas specially concurred to say that in his view, such a finding followed inevitably from the Court's prior decision in AT&T Mobility LLC v. Concepcion. Justice Scalia pretty much agrees (at the bottom of page 8), but he first does a two part analysis, finding: 1) no clear congressional command that might trump the Federal Arbitration Act's command that courts enforce arbitration agreement and 2) that the judicially created "effective vindication" doctrine does not apply here.  That doctrine would set aside arbitration provisions that prevent a party from vindicating important statutory rights.  Here, however, parties can pursue their legal rights; they simply do not have a procedural mechanism (the class action suit) available to them, but that is what they agreed to when they signed the arbitration agreement.  

 Justice Kagan, writing for the three dissenting Justices summarizes the case as folllows:

The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract’s arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool’s errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.

And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.


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