On November 9, 2012, the Supreme Court granted certiorari in American Express Co. v. Italian Colors Restaurant, No. 12-133, on the following question: “Whether the Federal Arbitration Act permits courts, invoking the ‘federal sustantive law of arbitrability,’ to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal-law claim.” While AMEX is an antitrust action, the case is likley to have broad significance as it concerns a body of Supreme Court precedent addressing the enforceability of class action waivers, most recently holding such provisions enforceable.
As discussed at length on this blog (see February 2, 2012, June 5, 2012 and August 20, 2012 posts), the Second Circuit held on Februrary 1, 2012 that a class action waiver contained in an AMEX contract with merchants was unenforceable because it “would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.” The ruling was based in large part on expert evidence that the cost of individual litigation would outweigh individual recovery, effectively immunizing AMEX from liability absent arbitration. A divided panel of the Second Circuit declined en banc review.
The Second Circuit read recent Supreme Court jurisprudence — enunciated in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010) and AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), to stand for the proposition that class arbitration cannot be imposed. The court reasoned that class arbitration was not being imposed, and thus its holding was not inconsistent with those decisions. Rather, the court looked to what is arguably dicta in older Supreme Court jurisprudence to justify looking at the effect of the class arbitration waiver on the plaintiff– Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) and Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000).
The AMEX case provides the Supreme Court with the opportunity to determine whether they will provide defendant companies with the right to enforce their contracts according to their terms and thus have predictability, or whether courts will be called on to engage in the sort of case-by-case analysis called for by the Second Circuit. Needless to say, it is an important case for companies to watch.