NYC Corporate Law

The ruling against merchants is another blow to class actions

A decision handed down by the U.S. Supreme Court on Thursday marked another blow to class action lawsuits — and the consumers who bring them.

The Court’s ruling in American Express v. Italian Colors Restaurant continued a recent pattern by the Court of upholding arbitration provisions, even when lower courts found them unfair or otherwise invalid.

The case concerned a clause in a contract between American Express and retail merchants prohibiting the merchants from bringing class-action arbitration cases. Instead, the contract required each merchant to bring its own individual arbitration claim. Despite the provision, lower courts had allowed class actions to proceed on the ground that the merchants couldn’t afford to bring Calzoncillos Calvin Klein España their own individual actions.

In a 5-3 ruling, the Court dismissed those concerns, writing that the Federal Arbitration Act “does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery.”

The Act, which dates back to 1925, affirmatively requires that parties who have agreed to arbitration honor that agreement rather than taking their complaints to a traditional court.

Arbitration “a matter of contract”

The Court’s opinion, written by Justice Antonin Scalia, said that the Act “reflects the overarching principle that arbitration is a matter of contract. … And consistent with that text, courts must ‘rigorously enforce’ arbitration agreements according to their terms.”

Justice Elena Kagan wrote a blistering dissent, in which Justices Ruth Bader Ginsburg and Stephen Breyer joined.

Kagan wrote that “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.”

Another Supreme blow to class actions

The opinion is just the latest in a series of blows that the Supreme Court has issued to the class action as a form of dispute resolution. In 2011, the Court  a provision in AT&T’s contracts requiring consumers to submit to individual arbitration.  That provision, like the one in American Express, had been waived by lower courts due to its bar on class actions.

That decision was so sweeping that it prompted law professor Brian Fitzpatrick to tell the  that it could “end class-action litigaiton as we know it.”

And in 2011, the Supreme Court threw out a high-profile employment discrimination lawsuit against retail giant Wal-Mart, ruling that the case did not meet the requirement that a class action involve “questions of law or fact common to the class.”

(originally published at )