Another Supreme Court Pro-Arbitration Win for Corporations

The Supreme Court holds (5-3, Justice Sotomayor recused) today in American Express Co. et al. v. Italian Colors Restaurant et al. that the 1925 Federal Arbitration Act does not permit courts to invalidate fine print arbitration agreements—even if they do not permit class arbitration to effectively vindicate a federal statutory right—in this case the antitrust laws.   

The Court reviewed a case in which there was a dispute between small merchants and American Express.  The merchants wanted to challenge Amex’s alleged use of its monopoly power to force merchants into higher fee arrangements which the merchants claimed was an antitrust violation.  The merchants said that they could not get redress if each merchant was required to arbitrate, as individual arbitration would be prohibitively expensive.

The majority opinion, written by Justice Scalia and signed onto by Justices Thomas, Alito, Kennedy, and Chief Justice Roberts, says, that “…courts must ‘rigorously enforce arbitration agreements according to their terms.”  The Court wrote that “The class-action waiver merely limits arbitration to the two contracting parties.  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…”  The Court draws an all but meaningless distinction between the right to pursue a claim and being able to effectively vindicate the right in order to give a preference for private arbitration—and the corporations that are most likely to use it.

Justice Kagan, writing a first-rate dissent for herself and Justices Ginsberg and Breyer explains that the majority’s opinion means that procedural bars to vindicating a claim translates into “the monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”  Kagan notes that the Court’s opinion in “the nutshell version” means “Too darn bad.” 

The strongly-worded dissent continues: The Court’s “answer is a betrayal of our precedents, and of federal statutes like the antitrust laws.  Our decisions have developed a mechanism—called the effective-vindication rule—to prevent arbitration clauses from choking off a plaintiff’s ability to enforce congressionally create rights.”  Justice Kagan writes “the majority disregards our decisions’ central tenet:  An arbitration clause may not thwart federal law, irrespective of exactly how it does so.”

What does it mean?  The Supreme Court has declared that the pro-arbitration (and anti-class action) position of the narrow majority of the Justices in a series of opinions now, siding unmistakably with large corporations seeking to enforce privately contracted arbitration provisions, supersedes other federal laws, regardless of the consequence to other important federal statutory rights small business and consumers may attempt to vindicate.  This decision permits a private ordering of rights resolution in arbitration, via fine print contracting, to undermine all other federal policies.  

The decision can be found here.