August 2013 Bar Bulletin
 
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The Law Behind The News

SCOTUS: Green Light for Class Action Waivers

By Nathaniel Strauss

 

For those who believe the Roberts Court is pro-business, the recent case of American Express Co. v. Italian Colors Restaurant1 is Exhibit A: "How to Succeed in Business Without Really Trying."

The Court's conservative majority held there that arbitration clauses can prohibit class actions for alleged violations of federal law. The decision provides a roadmap for big business to avoid liability for most federal claims and deals a serious body blow, though perhaps not a fatal one, to consumer advocates and one of their preferred tools, the class action.

In fact, the plaintiff was not a consumer, but a small, independent restaurant located in Oakland, California. The restaurant sued American Express, one of its credit card vendors, for allegedly engaging in a product-tying scheme in violation of federal antitrust law. The same contract that the restaurant claimed created the unlawful tying also included an arbitration clause that prohibited any sort of class action.

The restaurant brought suit in federal court and argued that the arbitration clause was unenforceable because its class action waiver prevented Italian Colors from seeking redress for American Express's alleged antitrust violations. The restaurant sought treble damages of $38,549, but an expert testified that the cost of proving its antitrust claims "would be at least several hundred thousand dollars, and might exceed $1 million."2

Although the restaurant found support in district court and the Second Circuit, the Supreme Court was not so sympathetic. Justice Antonin Scalia, writing for a five-member majority that also included Chief Justice John G. Roberts and justices Anthony Kennedy, Clarence Thomas and Samuel Alito, ruled that the Federal Arbitration Act (FAA)3 compelled the enforcement of the class arbitration waiver and that "[n]o contrary congressional command" required otherwise.4

The heart of the opinion concerned the "effective vindication" doctrine, under which courts do not enforce arbitration clauses when they prevent the vindication of federal statutory rights. Justice Scalia appeared to take a dim view of the doctrine, construing its precedents narrowly. He also distinguished between the right to pursue a remedy and the right to prove a remedy, and held that the effective vindication doctrine applies to the former but not the latter.5

"The class-action waiver merely limits arbitration to the two contracting parties," Scalia wrote. "It no more eliminates those parties' right to pursue their statutory remedy than did federal law before its adoption of the class action for legal relief in 1938."6

Justice Elena Kagan penned a strongly worded dissent that was joined by justices Ruth Bader Ginsburg and Stephen Breyer.7 She would have taken a functional approach and set aside any arbitration provision that prevented the effective vindication of federal statutory rights "however it achieves that result."8 "And this is just the kind of case the rule was meant to address," Justice Kagan argued. "No rational actor would bring a claim worth tens of thousands of dollars if doing so meant incurring costs in the hundreds of thousands."9


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