Tuesday, June 25, 2013
Today the Supreme Court put another nail in the coffin of the withering body of consumer rights. In the American Express v. Italian Colors case, the Court furthered its trend that permits corporations to use arbitration to prevent consumers from challenging their unlawful conduct. The case arose when a group of merchants brought a class action against American Express alleging that the credit card company imposed on them an illegal tying arrangement, in violation of the antitrust law. The merchants' contracts with Amex contained a clause that required all disputes be subject to arbitration and that all disputes be arbitrated on an individual basis. It also prohibited parties from sharing the costs of any litigation or otherwise consolidating their legal claims. The merchants wanted to void the class action waiver and arbitrate as a group because it would cost many hundreds of thousands of dollars to mount an antitrust action yet the average recovery would be only $5000. Hence, they argued, without the ability to bring a class or collective action, they would lose their substantive rights. The Second Circuit agreed. It held that the class action ban could not be enforced "because to do so would grant Amex de facto immunity from antitrust liability by removing the plaintiffs' only reasonably feasible means of recovery."
The Second Circuit decision rested on an established Supreme Court precedent that says that under the Federal Arbitration Act, arbitration is only appropriate when it entails no loss of substantive rights. The Supreme Court first expressed this principle in 1985 in Mitsubishi Motors v. Solar Chrysler-Plymouth, a case in which a party was required to arbitrate a claim arising under the Sherman Antitrust Act. In Mitsubishi, the Court stated that arbitration could be ordered only if the litigant "may vindicate its statutory cause of action in the arbitral forum." The Court further explained that "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute."
There is a lot more good analysis. You should read the whole thing.