While the marquee decisions expected from the Supreme Court still haven't dropped — like the two gay marriage cases — each of the Court's rulings is of course significant. Today's opinion in American Express v. Italian Colors Restaurant, for example, greatly strengthens the contractual terms of arbitration, which affects you in ways you might not expect.
Italian Colors Restaurant in Oakland (charmingly DIY website here) wanted to take American Express credit cards. To do so, it signed an agreement with the company. Included in the agreement were two stipulations. First, that any dispute would be settled in one-on-one arbitration. Second, if it wanted to take credit cards, it also had to take AmEx debit cards. Which, it's worth noting, required fairly high fees.
Eventually, Italian Colors and other merchants got together and decided to file a lawsuit against AmEx, charging that the debit card requirement was an antitrust violation — more simply, that American Express was using its market position to force action that got it more money. But the agreement the merchants had signed said that any dispute had to be handled one-on-one and, moreover, that research regarding any complaints had to be unique to each dispute. Since proving the anti-trust violation incurred huge cost, the merchants figured their desire for class action trumped the agreement. And lower courts agreed.
The Supreme Court didn't. The Court's opinion, written by Justice Scalia on behalf of the conservative justices (Sotomayor recused), argues that the agreement between the parties is more important even than any other consideration. The majority argued, in short, the contract is the most important consideration.
The dissent, written by Justice Kagan (and concurred to by Justices Ginsburg and Breyer) begins by outlining that decision in a nutshell. "So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law." It continues:
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.
The Atlantic Wire spoke by telephone with Richard Frankel, an associate professor of law at Drexel University who filed an amicus brief on behalf of Professional Arbitrators and Arbitration Scholars in support of Italian Colors. He explained the precedent that today's decision sets — and its limits.
"What makes this case different from other cases," Frankel noted, "is that the merchants didn't just assert it would be more expensive" for them to have individual arbitrations, "they had documented proof that individual arbitration would not be an option." Which, in Frankel's estimation, is a real problem.
[This] more broadly jeopardizes the right to file class actions because now there's nothing preventing someone wanting to avoid class action from including arbitration in an agreement. No matter how bad that [stipulation] may be, it will be enforced.
That's where the limit comes in, though. If you haven't agreed to arbitration in lieu of class action, you can't be forced into it. If, however, you have agreed — even through, say, an End User License Agreement on a piece of software — the case can be made that you can't sue under a class action.
When we first reached Frankel, he hadn't yet seen the decision, but said, "I assume I'm not going to be happy." As a proponent of Italian Colors' argument, he wasn't. But he obviously wasn't surprised. "I think what's driving this decision," he said, "is you have a majority of the court that really dislikes class actions and is hell-bent on undermining them."
There is a recourse. Congress could pass a measure that clarifies the relationship between the Federal Arbitration Act and, say, the Sherman Act, which governs anti-trust claims. "The FAA is a federal statute and it can't override another statute," Frankel explained. "It wasn't designed to place such hurdles in front of the resolution of federal claims that they don't get resolved at all." Whether or not the current Congress takes such concerns to heart is another question entirely.
This article is from the archive of our partner The Wire.
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