Recent Supreme Court Decision Allows Corporations to Avoid Class Action Lawsuits, Insulate Themselves From Antitrust Liability, and Deny Their Victims Access to Legal Remedies
by: Scott D. Gilchrist, Attorney
& Lynn A.Toops, Attorney
Yesterday the Supreme Court of the United States issued a 5-3 decision, authored by Justice Antonin Scalia, that deals a crushing blow to all victims of corporate wrongdoing. Corporations of all types now routinely require customers to agree to form contracts that deny the customer access to the courts and eliminate the right to cooperate with other potential victims in bringing a class action lawsuit. In American Express Company v. Italian Colors Restaurant, the Supreme Court decided that under the Federal Arbitration Act such contracts should be enforced, even when the contract prevents the effective vindication of statutory rights, as long as the customer has a theoretical “right” to pursue a remedy through private arbitration.
In the American Express case, Italian Colors, a small restaurant, entered into a contract with American Express that allowed the restaurant to accept payment using the American Express card. Later, Italian Colors brought a class action lawsuit against the company alleging that American Express used its monopoly power in the non-credit charge card market to require merchants to accept credit cards at rates nearly 30% higher than those charged by other credit card companies. As The New York Times points out, “American Express is a dominant provider of the charge cards that are favored by many corporations and affluent individuals. Businesses wishing to accept those cards must also agree to accept American Express credit cards,” and must pay higher fees on each credit card transaction than are charged by Visa or MasterCard.
In response to the lawsuit, American Express sought to have the case dismissed, because the very same form contract that was alleged to be the result of a monopoly also required merchants to arbitrate any of their disputes with American Express. American Express also argued that under the form contract the merchants had no right to bring a class action within the arbitration proceedings, effectively preventing the merchants from cooperating with one another in order to share the cost of proving their antitrust claims. In other words, American Express argued that its customers gave up their right to join with other customers and ask a public court for relief from the company’s alleged violations of the law, and instead had to raise any such challenge alone before a private arbitrator.
Italian Colors tried to stay in court by offering evidence that the cost of the expert analysis that was essential to prove its antitrust claims could be over $1 million, but the maximum value of the restaurant’s individual antitrust claim was just $38,000. In fact, the dissent, authored by Justice Kagan, pointed out that Italian Colors’ antitrust claim was “worth about a tenth the cost of arbitration.” Therefore, Italian Colors, argued that the class action procedure was the only economically viable way for the antitrust claims to be brought because the cost to prosecute the antitrust violations could be spread among all the members of the class. By requiring customers to enforce the antitrust laws individually, the contract in effect made the protection of the antitrust laws unaffordable, and therefore unavailable.
Justice Scalia was not moved by this argument. He wrote that the law does not “guarantee an affordable procedural path to the vindication of every claim.” In an opinion joined by four more of the Court’s most conservative Justices, Justice Scalia found that the case should be returned to the district court to be dismissed.
In a strongly-worded opinion, the three dissenting Justices portrayed the majority’s decision as a “betrayal” of prior case law, and concluded that American Express “has insulated itself from antitrust liability–even if it has in fact violated the law.” The dissent, authored by Justice Elena Kagan, observed that the majority’s decision could actually have the effect of allowing a wrongdoer to use their own violation of the law to avoid responsibility for the very same violation of the law: “The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”
Paul Bland, Senior Attorney at the public interest advocacy group Public Justice, notes that the Supreme Court’s decision essentially amends the title of the “The Federal Arbitration Act” to “The Federal Corporate Immunity Act.”
The bottom line to consumers is that, after the American Express decision, corporations can force arbitration clauses on their customers, even when doing so deprives the customer of the right to effectively enforce their statutory rights.