ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Thursday, November 15, 2012

Court Grants Certiorari in American Express Co. v. Italian Colors Restaurant

[When we learned that SCOTUS had granted cert. in this case, since David Horton (pictured) has guest blogged for us before, repeatedly, we threatened to hold him hostage until we could complete our science fiction fanstasy movie called Argo unless he could supply a post on the case.  Beacuse of the following post, it looks like the film will never be made.  Can someone get John Goodman and Alan Arkin out of our blog offices?]

HortonJeremy has kindly asked me to say a few words about the U.S. Supreme Court’s cert grant in American Express Co. v. Italian Colors Restaurant, No. 12-133, 2012 WL 3096737 (U.S. Nov. 9, 2012) (“Amex”).  For years, scholars like Jean Sternlight and Myriam E. Gilles have warned that the Court’s expansive interpretation of the Federal Arbitration Act (“FAA”) will kill off the consumer and employment class action.  Amex may drive the final nail into this coffin.  In fact, as I’ll explain, the case has the potential to sweep even further.

 As many readers of this blog know, Amex comes hot on the heels of AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).  Before Concepcion, courts routinely held that class arbitration waivers were unconscionable when applied to numerous, low value, state law claims.  The idea was that these small-dollar grievances—which usually invoked state consumer protection statutes—would either be pursued as a class action or not at all.  However, Concepcion (arguably) held that section 2 of the FAA preempts this line of authority.  (I say “arguably” because Concepcion’s precise holding remains contested, and to plug my forthcoming article, which urges courts to read Concepcion narrowly).  Justice Scalia’s majority opinion reasoned that using the unconscionability doctrine to mandate class arbitration—which is slower and more formal than two-party arbitration—violated the FAA’s purposes and objectives.  Justice Scalia then dismissed concerns about deterring small claims by declaring that “[s]tates cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”   

Yet the unconscionability defense wasn’t the only tool that judges employed to invalidate class arbitration waivers.  In Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 90 (2000), the Court suggested (but did not hold) that plaintiffs don’t have to arbitrate if they prove that they can’t effectively vindicate their federal statutory rights in the arbitral forum.  Specifically, the Court cited high arbitral costs as a reason to strike down an arbitration clause for thwarting federal statutory rights.  Since then, many lower courts have applied the vindication of rights doctrine to nullify class arbitration waivers in situations where individual lawsuits are cost-prohibitive.   Because Concepcion dealt with state unconscionability principles and section 2 preemption, its effect on the vindication of rights doctrine—a matter of federal common law—is unclear. 

Amex falls into this gap.  The plaintiffs, a group of merchants and a trade association, claim that American Express violated the Sherman and Clayton Acts.  Although the parties’ agreements contain a class arbitration waiver, the plaintiffs claim that the expense of proving their allegations (between several hundred thousand and a million dollars) dwarfs any individual’s potential recovery (a maximum of $38,000, even if trebled under the antitrust statutes).  Thus, the Court (minus Justice Sotomayor, who sat on a Second Circuit panel that considered an earlier iteration of the case) will decide whether Concepcion’s rhetoric about the evils of class arbitration extends to negative-value federal statutory claims.

From reading the petition for certiorari—which was supported by amicus briefs from the usual defense-side suspects—it seems that the vindication of rights doctrine itself will come under fire.  Of course, it’s unlikely to be the flagship argument.  I think American Express et al. will first try to stretch Concepcion as far as possible and then distinguish the plaintiff’s costs (which are mostly expert fees) from other vindication of rights holdings (which tend to involve expenses that wouldn’t normally be incurred in litigation, such as arbitrator’s fees).  But at least some of the briefs are already challenging Green Tree as dicta.  If the Court takes the bait and throttles back on the vindication of rights doctrine, it would affect the entire sprawling institution of arbitration—not just class actions.  Even plaintiffs with righteous, non-class claims under important federal statutes wouldn’t be able to challenge egregious arbitration clauses under federal law.  (To be sure, the unconscionability defense might still prune away the worst provisions, but it (1) is notoriously unreliable and (2) also hangs by a thread in the arbitration arena).  Thus, Amex could be another large step toward a proposition that the Court seems increasingly willing to embrace: claims must be sent to arbitration even if they can’t or won’t be arbitrated.    

[Posted on David's behalf, by JT]

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