Class Arbitration Contractual Waivers Are Valid And Enforceable Even When Plaintiff’s Recovery Is Outweighed By Individual Arbitration Costs

On June 20, 2013, the United States Supreme Court, in a 5-3 opinion in American Express Co. v. Italian Colors Restaurant, 2013 U.S. LEXIS 4700 (June 20, 2013),1 dealt yet another blow to antitrust plaintiffs' ability to seek relief on a class-wide basis. The Court held that under the Federal Arbitration Act (FAA), contractual waivers of class arbitration are valid and enforceable even when a plaintiff can show that his potential recovery is outweighed by the cost of arbitrating his claim individually. The decision follows several others by the Roberts Court that have mitigated antitrust risks for defendants and limited their potential exposure.

Case History

Plaintiffs filed suit in the Southern District of New York against American Express (Amex) for an alleged "tying arrangement," in violation of Section 1 of the Sherman Act. According to the plaintiffs, Amex leveraged its market power in corporate and personal charge cards to compel merchants to accept its credit card products at the same elevated discount rate. The plaintiffs therefore sought to represent a class of merchants that have contracted with Amex. Amex moved to compel arbitration pursuant to the mandatory arbitration clause of the Card Acceptance Agreement. The district court granted Amex's motion and dismissed the plaintiffs' suit, holding that the arbitration clause applied and that any question regarding enforceability of the arbitration clause, and the class action waiver specifically, is for the arbitrator to resolve.2

In Amex I, the Second Circuit reversed the District Court's judgment, finding that the plaintiffs met their burden under Green Tree Financial Corp.-Alabama v. Randolph3 by demonstrating that they would incur prohibitive costs if compelled to arbitrate under the class action waiver. Relying on an affidavit from plaintiffs' economist describing "the fiscal impracticality of pursuing individual claims" against Amex, the court found that enforcing the class action waiver "would grant Amex de facto immunity from antitrust liability by removing the plaintiffs' only reasonably feasible means of recovery."4 The court thus concluded that the class action waiver was not enforceable under Section 2 of the Federal Arbitration Act (FAA), which provides that arbitration agreements are valid "save upon such grounds as exist at law or in equity for the revocation of any contract."5

The Supreme Court granted Amex's petition for a writ for certiorari, then vacated and remanded for reconsideration in light of its decision in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp.,6 in which the Court stated that "a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so."7 The Court explained that class arbitration "changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator."8

On remand, in Amex II, the Second Circuit found that Stolt-Nielsen did not alter its original analysis. The court concluded "that the only economically feasible means for enforcing their statutory rights is via a class action," and remanded the case to the district court.9

Shortly after the decision in Amex II, the Supreme Court handed down its opinion in AT&T Mobility LLC v. Concepcion,10which held that the FAA preempted California law barring the enforcement of class action waivers in consumer contracts. In light of Concepcion,the Second Circuit sua...