In a five to three opinion issued Thursday reversing the Second Circuit, the United States Supreme Court held that contractual waivers precluding class-wide arbitration are enforceable even when they would prevent a party from “effectively vindicating” their rights under a federal statute. This welcome decision for corporate entities is consistent with a recent line of Supreme Court cases that require the enforcement of arbitration agreements under the Federal Arbitration Act (FAA).
In American Express Co. v. Italian Colors Restaurant merchants brought an antitrust class action against a credit card company. The agreements between the merchants and the credit card company specified that all disputes would be resolved by arbitration, and further stipulated that arbitration could not be conducted on a class-wide basis. In arguing that the prohibition on class-wide arbitrations was unenforceable, the merchants contended that as the cost to litigate individual antitrust actions against the credit card company would exceed any potential recovery, enforcement of the provision would preclude plaintiffs from vindicating their rights under the FAA. In response to this argument, the Supreme Court observed that “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.”
Ultimately, the Court concluded that there was no reason to depart from its earlier decision in AT&T Mobility v. Concepcion, where it held that class-action arbitration waivers are valid and enforceable under the FAA. The Supreme Court’s continued recognition in Italian Colors of the ability of parties to use arbitration provisions as a means of limiting class-wide exposure will certainly benefit potential defendants in class action lawsuits.