According to Justice Elena Kagan, the Supreme Court’s recent decision confirming a corporation’s ability to require arbitration in the event of a dispute is “Too darn bad.” The June 20, 2013 decision in American Express Co. v. Italian Colors Restaurant (No. 12-133) considered the situation of an Oakland, California restaurant which, along with other merchants, had commenced a class action lawsuit against American Express for violations of the Sherman and Clayton federal antitrust acts. According to Italian Colors and its fellow merchants, American Express used its monopoly power in the credit card market to force merchants to accept credit cards at rates 30% higher than the fees for competing cards.
The credit card agreements between American Express and each of its merchants require that all disputes be resolved by arbitration, and provide that there “shall be no right or authority for any Claims to be arbitrated on a class action basis.” Citing these agreements, American Express moved to dismiss the class action and to compel individual arbitration with each merchant under the Federal Arbitration Act. In opposition to the motion, the merchants submitted an affidavit from an economist who estimated that the expert analysis required to prove the merchants’ antitrust claims could cost “at least several hundred thousand dollars, and might exceed $1 million,” while each plaintiff’s maximum recovery would be $38,549. Even so, the District Court granted the motion, but the Court of Appeals reversed, finding that the merchants “would incur prohibitive costs if compelled to arbitrate under the class action waiver.” If all of the merchants could share the costs in a class action, pursuing these claims would be much more feasible.
Although the merchants argued that requiring each of them to individually arbitrate their claims would violate federal antitrust laws, the Supreme Court disagreed, finding that Congress had established the legality of binding arbitration agreements (such as that at issue in this case). As Justice Antonin Scalia, writing for the majority, noted: “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.” The Court found that even with a class action off the table, each merchant still had a remedy, albeit an expensive one: “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” The Court’s decision essentially validated the credit card company’s contract mandating arbitration and eliminating the possibility of a class action.
While some observers lauded the decision as an endorsement of alternative dispute resolution and a win for contractual freedom, others, such as Justice Kagan, voiced their concern. Recognizing that cost effectively barred Italian Colors from proving its case outside a class action setting, Justice Kagan wrote that under the majority’s decision, “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.”