Supreme Court's Amex Decision Creates High Hurdle For Plaintiffs Seeking To Invalidate Arbitration Agreements With Class Action Waivers

In American Express Co. v. Italian Colors Restaurant, No. 12-133 (June 20, 2013), the U.S. Supreme Court reversed a Second Circuit opinion and held that the Federal Arbitration Act (FAA) does not permit a court to invalidate an arbitration agreement with a class action waiver on the ground that the plaintiff's cost of individually arbitrating a federal statutory claims exceeds the potential recovery.

In a 5-3 decision,1 the Supreme Court reiterated that courts "must rigorously enforce" arbitration agreements according to their terms, including terms that "specify with whom [the parties] choose to arbitrate their disputes." Relying on its decision last year in CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012), the Court stated this was true even for claims brought under a federal statute, "unless the FAA's mandate has been overridden by a contrary congressional command."

Finding no such contrary congressional command in the federal antitrust laws at issue in the case, the Court then turned its attention to the argument that the class action waiver would preclude the plaintiffs from effectively vindicating their statutory rights. The Court also rejected the Second Circuit's analysis on this issue. As Justice Scalia pointed out, requiring a court to "determine the legal requirements for success on the merits claim-by-claim and theory-by-theory, the evidence necessary to meet those requirements, the cost of developing the evidence, and the damages that would be recovered in the event of success" would be completely unworkable and inconsistent with the text of the FAA and Supreme Court precedent.

As a result of the Court's opinion, parties should now be able to enforce valid arbitration agreements more expeditiously and move cases into arbitration without "destroy[ing] the prospect of speedy resolution that arbitration ... was meant to secure."

Background

The road to the Court's opinion today has been a long one. The plaintiffs are merchants who accept American Express ("Amex") cards. The Card Acceptance Agreements require that all disputes be resolved by arbitration and that "there shall be no right or authority for any Claims to be arbitrated on a class basis." Notwithstanding this class action waiver, the plaintiffs brought a class action alleging federal antitrust claims under the Sherman and Clayton Acts. Amex moved to compel individual arbitration of the plaintiffs' claims, which the plaintiffs resisted on the basis of expert...