If you check your cellphone contract or your bank-account agreement, you’ll likely find an arbitration clause. That arbitration clause most likely includes a class-action waiver. Two years ago, in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), the Supreme Court held that a class waiver in an arbitration clause is enforceable just like any other contractual provision. Last Thursday, in American Express Co. v. Italian Colors Restaurant (“AMEX”), No. 12-133 (June 20, 2013), the Court confirmed that it meant what it said in Concepcion and held that a class waiver is enforceable even if the costs of litigating a claim individually outstrip the plaintiff’s potential recovery.

AMEX could be the death knell for many class actions.

The rule: Unless Congress has said otherwise, class proceedings aren’t necessary to vindicate statutory rights.

The facts in AMEX were straightforward: American Express (“AMEX”) included an arbitration clause and class waiver in its contracts with merchants. Undeterred, some of those merchants filed a class action against AMEX alleging that it violated the antitrust laws. In an effort to break up the putative class, AMEX moved to compel individual arbitrations. The district court granted AMEX’s motion and dismissed the lawsuit. In re Am. Express Merchants’ Litig., 2006 WL 662341 (S.D.N.Y. Mar. 16, 2006).

After a whirlwind tour in the appellate courts—the case went up to the Second Circuit, then up to the Supreme Court, then back down to the Second Circuit—the Second Circuit reversed the district court, holding that the class waiver in AMEX’s merchant agreement was unenforceable because it prevented merchants from “effectively vindicating” their statutory rights. In re Am. Express Merchants’ Litig., 667 F.3d 204 (2d Cir. 2012). No merchant had an incentive to pursue an individual antitrust claim in arbitration, the court reasoned, because the costs to pursue an individual claim far outweighed any possible recovery.

By a 5-3 vote (Justice Scalia for the majority), the Supreme Court reversed.1 The Court first rejected the merchants’ argument that antitrust plaintiffs are entitled to class proceedings. Noting that Congress enacted the Sherman and Clayton Acts decades before the advent of the class action, the Court concluded that “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.”

The Court also rejected the merchants’ argument that, without class proceedings, they could not effectively vindicate their statutory rights because the costs of pursuing an individual antitrust claim would dwarf any possible recovery: “[T]he fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue a remedy.” Justice Thomas echoed this sentiment in his concurring opinion: “Italian Colors voluntarily entered into a contract containing a bilateral arbitration provision. It cannot now escape its obligations merely because the claim it wishes to bring might be economically infeasible.”

Justice Kagan (joined by Justices Breyer and Ginsburg) dissented. Justice Kagan called the majority’s decision “a betrayal of our precedents” and predicted that it will permit big companies to insulate themselves from antitrust scrutiny simply by including class waivers in all their contracts.

Five takeaways.

AMEX settles that class waivers are enforceable. That ruling will reverberate throughout the class-action bar. Here are five takeaways:

  1. Arguing that litigation is too expensive won’t get you out of a class waiver. Antitrust litigation is expensive. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558-59 (2007). If litigation costs were not enough to undermine a class waiver in an antitrust case, then they won’t be enough in any other type of case either.
  2. Those courts and defense lawyers who argued that Concepcion applies broadly were right. Since the Court handed down Concepcion, defense lawyers have argued (and many courts have concluded) that the decision wasn’t merely an assertion of federal preemption of California law but rather a broad statement about the enforceability of class waivers.2 Those courts and counsel were right—a point that Justice Scalia underscored in AMEX: “Truth to tell, our decision in AT&T Mobility all but resolves this case.”
  3. The antitrust landscape will change. In her dissent, Justice Kagan predicted that AMEX will reduce the number of antitrust class actions. We agree: By including a class waiver in consumer contracts, companies may be able to insulate themselves from certain types of antitrust liability (particularly for alleged monopolization under Section 2 of the Sherman Act).
  4. Look for the regulators to push back. Even before AMEX, the Consumer Financial Protection Bureau (CFPB) suggested that it might prohibit certain financial industries from including class waivers in consumer contracts.3 We expect that AMEX will renew calls for the CFPB and other agencies to strip class waivers out of arbitration agreements.
  5. Make sure that your class waiver is airtight. Of course, AMEX is of no help to a company that doesn’t have a clear class waiver in its customer agreement or consumer contract. Companies should take a fresh look at their arbitration agreement to make sure that any class waiver is airtight.4  

AMEX is a big win for companies that face class litigation and that are able to include arbitration provisions in their contracts. The decision gives them a powerful tool—the class waiver—for minimizing litigation exposure. It will be interesting to see how the CFPB and other consumer-focused regulators react to the decision. In the meantime, consumers and merchants boxed in by a class waiver are left only with the AMEX majority’s answer (paraphrased in Justice Kagan’s dissent): “Too darn bad.”