This is a devastating day for justice in America. The U.S. Supreme Court just issued its decision in American Express Co. v. Italian Colors Restaurant and gave corporations a license to steal.
For years, the Court has been allowing corporations to force more and more cases into arbitration. In so doing, the Court has repeatedly insisted that arbitration clauses are only enforceable when they allow parties to “effectively vindicate their substantive rights.” Based on that premise, the Court has both portrayed and justified arbitration as simply a procedural alternative to litigation in court—one that is cheaper, faster and more efficient.
Today, however, the Court’s majority enforced AmEx’s arbitration clause, which included a class-action ban, even though it eliminated the plaintiffs’ ability to effectively vindicate their rights under the antitrust laws. So much for the cheaper, faster, more efficient alternative. Now arbitration clauses can be used to bar people and companies from enforcing their rights.
In American Express, a local restaurant and other small merchants sued the credit card company for violating the federal antitrust laws and using its monopoly power to force them to pay excessive fees. AmEx moved to force the case into individual arbitration (with no possibility of a class action). But the small businesses proved it would be impossible for them to pursue their antitrust claims in court or arbitration if they had to go forward on an individual basis. It would cost them hundreds of thousands of dollars to prove each case and the claims were worth only about $5,000 apiece. Because enforcement of AmEx’s arbitration clause would bar them from “effectively vindicating their substantive rights,” the U.S. Court of Appeals for the Second Circuit refused to enforce it.
This morning, in a decision written by Justice Antonin Scalia, the U.S. Supreme Court overturned that ruling and held that, as long as the plaintiffs have a theoretical “right to pursue” their substantive rights in arbitration, it does not matter whether they can actually vindicate them. If the arbitration clause bars class actions (in court or arbitration) and arbitration is too expensive to pursue individually, that is, as Justice Kagan’s dissent summarized the majority’s holding, “Too darn bad.”
As Justice Kagan said, the decision is “a betrayal of our precedents, and of federal statutes like the antitrust laws.” The decision is actually worse than that. It allows corporations to violate a wide range of laws designed to protect consumers, workers, small businesses, our economic system—all Americans—and simply avoid being held accountable.
American Express caps a process that started three years ago, when the Court took AT&T Mobility v. Concepcion. The dangerous implications were clear. I flagged that “the company is asking the Supreme Court to let it wipe out class actions” and why that was such a mistake. See “Class Actions Wipe Out,” National Law Journal, November 25, 2010.
When the Court issued its decision, many corporate defense counsel and even some consumer advocates claimed that the Court had given corporations that power. But it hadn’t, in part because the Court stressed that the plaintiffs could effectively vindicate their rights. See “Class Actions Are Not Dead Yet,” National Law Journal, June 20, 2011. So the Court had no reason to address the “effective vindication of rights” doctrine.
When the Court took American Express, however, the issue was teed up. As I wrote in “A License to Steal?,” National Law Journal, February 25, 2013: “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?”
The answer is apparently yes. Watch out for your wallet and your rights. The Supreme Court has just sent a message to corporations—take the money and run.
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.