The Supreme Court recently heard argument in American Express Co. v. Italian Colors Restaurant, No. 12-133. The case stems from the Second Circuit’s February 1, 2012 decision that American Express (“AMEX”) could not compel a putative class of merchants to arbitrate their antitrust claims. In re Am. Express Merchants Litig., 667 F.3d 204 (2d Cir. Feb. 1, 2012). The Second Circuit had held that the class action waiver contained in AMEX’s Card Acceptance Agreement—which tied the acceptance of its credit card to its charge card, which charged a higher rate—was unenforceable because it “would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.” The Second Circuit’s decision was based on an affidavit from plaintiffs’ expert showing that the cost of individual litigation far exceeded any potential individual recovery.

The Supreme Court heard argument on the following question: “Whether the Federal Arbitration Act permits courts, invoking the ‘federal substantive law of arbitrability,’ to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal-law claim.”

At argument, the Court appeared divided. Justice Kagan was concerned, as was the Second Circuit, with a plaintiff’s ability to vindicate a federal statutory right, repeatedly asking Petitioners’ counsel about how far an arbitration agreement can go to preclude a plaintiff from bring a Sherman Act claim. For example, she asked: “Do you think that if in your arbitration agreement you had a clause which just said, I hereby agree not to bring any Sherman Act claim against American Express…could your arbitration agreement do that?” At the other end of the spectrum, Justice Scalia asked questions which focused on the fact that the Sherman Act existed before the class actions rules, from which one could infer that there was no right to bring such claims in a class action at all, let alone to make them possible if otherwise costly: “I don’t see how a Federal statute is frustrated or is unable to be vindicated if it’s too expensive to bring a federal suit. That happened for years before there was such a thing as a class action in Federal courts. Nobody thought the Sherman Act was a dead letter, that it couldn’t be vindicated.”

Meanwhile, the other Justices (except Justice Sotomayor, who recused herself given her involvement with the case when she sat on the Second Circuit), focused their questions on the costliness of the arbitration procedure, with the questioning led by Justice Breyer. Justice Breyer also expressed concern with the erosion of the law of arbitrability: “You are saying the thing that keeps him out is his own theory of wrong, which will involve hiring a lot of experts and others. Now, once that’s adopted, it seems to me in practice we reversed in many, many cases the proposition that you can in fact require Federal causes of action to be arbitrated, because all you have to do to get out of the arbitration is to allege a theory of your case which is hard and complicated to prove. Now you are back in court.”

The Supreme Court’s recent jurisprudence in this area has been defendant-friendly, enforcing class action arbitration waivers and standing for the proposition that class arbitration cannot be imposed on a party. Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010); AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011). However, this case may carve out an exception, or at least provide further guidance for companies to know how to draft such waivers. Significantly, the Court is slated to hear another class arbitration case, Oxford Health Plans LLC v. Sutter, shortly, on the related issue of whether class arbitration can be imposed without express contractual language which permits it.