Amex decision may mean fewer contract arbitration lawsuits

The landscape for contract arbitration has changed significantly. On June 20, in American Express Company v. Italian Colors Restaurant, the US Supreme Court ruled that a contract containing a clause prohibiting class arbitration had to be enforced even though the restaurant (and similarly situated small businesses) couldn’t afford the legal costs to challenge American Express’s allegedly illegal monopolist conduct. The cost of the expert testimony needed to prevail in anti-trust litigation dwarfs the potential individual recovery in most cases. This ruling means that larger businesses may be able to effectively shut down litigation against them by including, as a standard contract clause, an arbitration requirement with a prohibition on class arbitration.   

The Supreme Court’s 5-3 majority decision reflects a familiar ideological split among the justices (Justice Sotomayor did not take part in the case). Writing for the majority, Justice Scalia explained that the law does not require the enforcement of a right to be economically viable; the formal opportunity to seek a remedy is all that need exist. Justice Kagan’s dissent characterized the case and the decision of the majority this way:

‘Here is the nutshell version of this case…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.’

Ben Robbins, senior staff attorney with the free-market litigation center New England Legal Foundation, filed an amicus brief in AmEx and in the 2011 case that was the key precedent for it, ATT Mobility v Concepcion, in both cases supporting the majority’s decision. As he explained, ‘The combined effect of Concepcion and Amex is likely to be broad.’  One reason for the broad scope is that the precedents essentially cover all contracts.  ‘In AmEx, the Court says…a class arbitration waiver must be enforced in any agreement falling under the FAA.  And Concepcion already answered the question that the FAA applies to unilateral form contacts as it does to arms-length, negotiated contracts.’ Robbins identified employment cases as one area of significant application, because employees ‘typically have small-value claims and would want to aggregate their claims.’

Robbins also notes that ‘in Concepcion and in American Express, the Court is doing its best to interpret the Federal Arbitration Act to give full effect to Congress’s intent.’ But, ‘Congress always has the final word in matters of statutory interpretation.

‘Congress responded to Concepcion in 2011 by proposing an arbitration fairness act that would bar mandatory arbitration agreements in the consumer and employment contexts,’ says Robbins. But he notes that, to date, Congress has not enacted it.