Public Justice's Arthur Bryant
Will the U.S. Supreme Court re-interpret the Federal Arbitration Act to give corporations a license to steal? That is the issue in American Express Co. v. Italian Colors Restaurant, to be argued on February 27.
Filed by a group of small merchants, the class action claims that American Express violated the antitrust laws by using its monopoly power in the corporate and premium charge-card market to require them to accept mass-marketed AmEx credit cards, too — and then overcharging them by 30 percent. AmEx moved to compel each merchant to arbitrate its claims separately. But the undisputed evidence proved that no plaintiff could possibly do so. The market study necessary would cost each plaintiff hundreds of thousands to millions of dollars, when the claims are worth an average of $5,200 each. So the U.S. Court of Appeals for the Second Circuit found AmEx's arbitration clause, which bans class actions and information sharing, unenforceable because it violates the Supreme Court's long-standing effective-vindication rule: An arbitration agreement will not be enforced if enforcement would prevent a party from effectively vindicating his or her rights.
AmEx wants the court to jettison this rule and enforce its arbitration clause even though (or precisely because) that would eliminate the plaintiffs' ability to pursue their claims. For three reasons, the court should refuse to do so.
First, the court's entire arbitration jurisprudence and expansion of the Federal Arbitration Act (FAA)'s reach is based on the proposition that moving disputes from court into arbitration does not affect anyone's rights; it just transfers their resolution to a cheaper, faster, more efficient forum. Enforcing arbitration clauses that eliminate parties' ability to vindicate their rights would put the lie to this assertion and developed law. In 1985, in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, the court held that antitrust claims could be arbitrated because, "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum." The court said, "[S]o long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function." Since that time, the court has permitted and justified arbitration of a wide variety of claims solely on these grounds.
AmEx insists that the court's 2011 decision in AT&T Mobility LLC v. Concepcion discarded the effective-vindication rule, but that is not so. See Arthur H. Bryant, "Class Actions Are Not Dead Yet," NLJ, June 20, 2011. Concepcion held California's Discover Bank rule was pre-empted because it allowed plaintiffs to invalidate bilateral arbitration agreements even when they could effectively vindicate their rights. It noted that "the claim here was most unlikely to go unresolved." It did not address, much less repudiate, the effective-vindication rule.
Second, abandonment of the effective-vindication rule would undermine both the FAA and numerous substantive laws. The FAA was enacted to increase the resolution, not the elimination, of claims through arbitration. Allowing arbitration clauses to bar claims would preclude that result and limit the enforcement of many laws. Instead of prompting companies to use arbitration to resolve claims, it would encourage companies to draft clauses that decrease or eliminate both arbitration and the claims. Arbitration would no longer be a process for dispute resolution. It would be (and be seen as) an exercise of power used to deprive the less powerful of their rights. Arbitration would lose its integrity — and public support.
Third, adoption of AmEx's argument would raise serious constitutional questions and undermine the rule of law. Congress enacted the FAA in 1925 to make agreements to arbitrate as enforceable as other contracts. The notion that the court should "interpret" the statute to immunize AmEx from the federal antitrust laws (and other companies to immunize themselves from myriad federal and state laws) presents troubling separation of powers, federalism, due process and other issues. Two hundred years ago, in Marbury v. Madison, the court said, "The government of the United States has been emphatically termed a government of laws, and not of men. It will certainly cease to deserve this high appellation, if the laws furnish no remedy for the violation of a vested legal right." Yet that is what AmEx proposes now.
At bottom, the facts make things clear. The plaintiffs claim that AmEx broke the antitrust laws and cheated 3.2 million merchants out of approximately $5,200 each. That's $16.64 billion. (Visa and MasterCard just agreed to a $6.05 billion antitrust class action settlement for overcharging merchants.) AmEx contends that, even if plaintiffs are right, the FAA should be interpreted so it can keep the money. Does anyone really believe that Congress intended the FAA to provide such a license to steal? Do five members of the court?
Arthur H. Bryant is the executive director of Public Justice, a national public interest law firm dedicated to preserving access to justice. Public Justice filed an amicus brief supporting the effective-vindication rule in the AmEx case.
