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?]
As manyreaders of this blog know, Amex comeshot on the heels of AT&T Mobility LLCv. Concepcion, 131 S. Ct. 1740 (2011). Before Concepcion, courtsroutinely held that class arbitration waivers were unconscionable when appliedto numerous, low value, state law claims. The idea was that these small-dollar grievances—which usually invokedstate consumer protection statutes—would either be pursued as a class action ornot at all. However, Concepcion (arguably) held that section2 of the FAA preempts this line of authority. (I say “arguably” because Concepcion’sprecise holding remains contested, and to plug myforthcoming article, which urges courts to read Concepcion narrowly). JusticeScalia’s majority opinion reasoned that using the unconscionability doctrine tomandate class arbitration—which is slower and more formal than two-partyarbitration—violated the FAA’s purposes and objectives. Justice Scalia then dismissed concerns aboutdeterring small claims by declaring that “[s]tates cannot require a procedurethat is inconsistent with the FAA, even if it is desirable for unrelatedreasons.”
Yet theunconscionability defense wasn’t the only tool that judges employed to invalidateclass arbitration waivers. In Green Tree Fin. Corp.-Alabama v. Randolph,531 U.S. 79, 90 (2000), the Court suggested (but did not hold) that plaintiffsdon’t have to arbitrate if they prove that they can’t effectively vindicatetheir federal statutory rights in the arbitral forum. Specifically, the Court cited high arbitralcosts as a reason to strike down an arbitration clause for thwarting federalstatutory rights. Since then,many lower courts have applied the vindication of rights doctrine to nullifyclass arbitration waivers in situations where individual lawsuits arecost-prohibitive. Because Concepciondealt with state unconscionability principles and section 2 preemption, itseffect on the vindication of rights doctrine—a matter of federal common law—isunclear.
Amex falls into this gap. The plaintiffs, a group of merchants and atrade association, claim that American Express violated the Sherman and ClaytonActs. Although the parties’ agreementscontain a class arbitration waiver, the plaintiffs claim that the expense of provingtheir allegations (between several hundred thousand and a million dollars)dwarfs any individual’s potential recovery (a maximum of $38,000, even iftrebled under the antitrust statutes). Thus, the Court (minus Justice Sotomayor, who sat on a Second Circuitpanel that considered an earlier iteration of the case) will decide whether Concepcion’s rhetoric about the evils ofclass arbitration extends to negative-value federal statutory claims.
Fromreading the petition for certiorari—which was supported by amicus briefs fromthe usual defense-side suspects—it seems that the vindication of rightsdoctrine itself will come under fire. Of course, it’s unlikely to be the flagship argument. I think American Express et al. will firsttry to stretch Concepcion as far aspossible and then distinguish the plaintiff’s costs (which are mostly expertfees) from other vindication of rights holdings (which tend to involve expensesthat wouldn’t normally be incurred in litigation, such as arbitrator’s fees). But at least some of the briefs are alreadychallenging Green Tree as dicta. If the Court takes the bait and throttles back on the vindication ofrights doctrine, it would affect the entire sprawling institution ofarbitration—not just class actions. Evenplaintiffs with righteous, non-class claims under important federal statuteswouldn’t be able to challenge egregious arbitration clauses under federallaw. (To be sure, the unconscionabilitydefense might still prune away the worst provisions, but it (1) is notoriouslyunreliable and (2) also hangs by a thread in the arbitration arena). Thus, Amexcould be another large step toward a proposition that the Court seemsincreasingly willing to embrace: claims must be sent to arbitration even ifthey can’t or won’t be arbitrated.
[Posted on David’s behalf, by JT]