On June 20, 2013, in American Express Corp. v. Italian Colors Restaurant, (No. 12-133), the United States Supreme Court held that a party cannot escape individual, non-class arbitration by asserting that class action procedures are necessary to effectively prosecute the claim. That is true even if the economics of a non-class arbitration are not viable: "[The FAA's] command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low-value claims." (Slip op. at 9 n.5.) The Court's decision forecloses recent attempts to evade AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which "rejected the argument that class arbitration was necessary to prosecute claims 'that might otherwise slip through the legal system'" (id. at 9 (citation omitted)), and is the latest in a string of decisions vindicating the ability of businesses to arbitrate consumer disputes.
The Court's Decision
American Express had a winding road to the Supreme Court, obtaining certiorari in November 2012 only after several rounds in the Second Circuit, including two separate opinions refusing to enforce the class waiver in the wake of Stolt-Nielsen S.A. v. Animal Feeds International Corp., 130 S. Ct. 1758 (2010), and Concepcion.
In reversing the Second Circuit's most recent decision, the Supreme Court reaffirmed the principles of Concepcion; namely, that courts must "'rigorously enforce' arbitration agreements according to their terms," including terms that specify "'with whom the parties choose to arbitrate their disputes.'" (Slip op. at 3 (citation omitted).) And they must do so regardless of "public policy" objections. (Id. (citation omitted).) That is true even for federal statutory claims, "unless the FAA's mandate has been 'overridden by a contrary congressional command.'" (Id. at 4 (citation omitted).)
There was no such congressional mandate under the federal Sherman and Clayton Acts: "[T]he antitrust laws do not guarantee an affordable procedural path to the vindication of every claim." (Id. at 4.) In fact, explained the Court, the class-action waiver "no more eliminates those parties' right to pursue their statutory remedy than did federal law before its adoption of the class action for legal relief in 1938." (Id. at 7.) The Court suggested that the same is true of the federal employment statutes: "In Gilmer [v. Interstate/Johnson Lane Corp., 500 U. S. 20, 28 (1991)], we had no qualms in enforcing a class waiver in an arbitration agreement, even though the federal statute at issue, the [ADEA], expressly permitted collective actions." (Slip op. at 8.)
Its decision also distinguished between arbitration provisions that serve as "as a prospective waiver of a party's right to pursue statutory remedies,'" and those that simply make the claim more difficult to prove: "[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 that remedy." (Id. at 6–7 (citations omitted).)
Justice Kagan's dissenting opinion (joined by Justices Ginsburg and Breyer; Justice Sotomayor recused herself) sharply criticized the majority and suggested that the Court was driven by hostility to class proceedings: "To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled." (Id. at 14 (Kagan, J., dissenting).)
American Express represents the latest in a string of recent precedent involving class arbitration issues. Following Concepcion, the Court issued several decisions rejecting state and federal court attempts to circumvent that ruling. See Marmet Health Care Ctr., Inc. v. Brown, 132 S. Ct. 1201 (2012) (per curiam); CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012); Nitro-Lift Techs., L.L.C. v. Howard, 133 S. Ct. 500 (2012) (per curiam); KPMG LLP v. Cocchi, 132 S. Ct. 23 (2011) (per curiam). Notably, in all of these cases except Sutter v. Oxford Health Plans LLC, No. 12-135, 2013 WL 2459522 (June 10, 2013), the Court enforced individual over classwide arbitration. (And Oxford Health was a very narrow ruling that focused on the very limited standard of review available under the Federal Arbitration Act.)
Although American Express involved a federal antitrust claim, it will have far-reaching implications for a variety of state and federal claims where such claims are subject to an arbitration agreement and class waiver. It will also, no-doubt, result in further litigation in the lower courts over the breadth of the Court's decision, including in the following areas:
- Continuing Attacks Under the Banner of "Prospective Waiver." Despite its broad holding, the American Express decision suggested that arbitration provisions that serve as a "prospective waiver of a party's right to pursue statutory remedies" remain vulnerable. (Slip op. at 6–7.) It noted, for example, that a court "perhaps" may reject "filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable." (Id. at 6.) Such a provision may make it "impossible" to bring the claim, "not just as a class action but even as an individual[.]" (Id. at 7 n.3.) On the other hand, the Court expressly held that arbitration provisions that do not foreclose access to the forum, but merely make the claim more difficult to prove, will not qualify as a "prospective waiver." (Id. at 6–7.) Where the courts draw that line remains to be seen and lower courts will undoubtedly be forced to grapple with the Court's "prospective waiver" analysis in future cases
- Impact on Employment Claims. In the wake of American Express, plaintiffs in employment cases may reframe their existing attacks on arbitration agreements as "prospective waivers" in their continuing effort to salvage pre-Concepcion case law and to otherwise escape the principles set forth in Concepcion. For example, plaintiffs have argued that representative actions under the California Private Attorney General Act (PAGA) can only be brought on a representative basis, and therefore, a class waiver would foreclose all relief under the statute and serve as a "prospective waiver" of rights. Cf. Brown v. Superior Court, No. H037271, -- Cal. App. ----, 2013 WL 2449501, at *9 (Cal. Ct. App. June 4, 2013); but see Iskanian v. CLS Trans. Los Angeles, LLC, 206 Cal.App.4th 949 (2012) (holding that the FAA preempts the PAGA exemption), review granted, 286 P.3d 147 (Cal. 2012). Particularly in states like California—the birthplace of the rule invalidated in Concepcion—the viability of these arguments remains to be seen.
Some plaintiffs may also seek to escape American Express by distinguishing it as an antitrust case—one that did not attempt to reconcile the FAA with federal employment statutes that expressly authorize the use of collective actions, such as the federal Fair Labor Standards Act, which arguably raises questions as to whether "the FAA's mandate has been 'overridden by a contrary congressional command.'" (Slip op. at 4 (citation omitted).)
- California Unfair Competition Law / Public Injunctive Relief Claims. American Express should end attempts to use "public policy" arguments to exempt certain consumer protection claims from arbitration. One important and far-reaching context is in claims for injunctive relief under California's notoriously broad Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA). In two frequently cited decisions, the Supreme Court of California exempted "public injunctive relief" claims under these statutes from arbitration. See Broughton v. Cigna Healthplans of Cal., 21 Cal. 4th 1066, 1079–85 (1999); Cruz v. PacifiCare Health Systems, Inc., 30 Cal. 4th 303, 317–20 (2003). But American Express "specifically rejected" the assertion that arbitration may be discriminated against when necessary to "vindicate the policies" of an underlying law. (Slip op. at 5.)
Although the Court spoke in the context of an underlying federal law (i.e., the Sherman Act), the rule that public policy cannot serve as a reason for discriminating against arbitration is even stronger in the context where an underlying state law is concerned. Indeed, as Justice Kagan explained in her dissent, the Court "has no earthly interest (quite the contrary) in vindicating" a state law that discriminates against arbitration. (Slip op. at 14 (Kagan, J., dissenting).) A Ninth Circuit panel applied Concepcion to abrogate the Broughton-Cruz rule in Kilgore v. Keybank, Nat'l Ass'n, 673 F.3d 947, 962 (9th Cir. 2012). But on en banc rehearing, the Ninth Circuit ruled in the defendant's favor on other grounds and side-stepped the continued vitality of this rule. See Kilgore v. Keybank, Nat'l Ass'n, Nos. 09-16703, 10-15934, --- F.3d ----, 2013 WL 1458876 (9th Cir. April 11, 2013) (en banc).
Finally, American Express, coupled with the decision earlier this term in Oxford Health, also strongly counsels in favor of reassessing existing arbitration agreements in consumer and employment contracts to maximize the enforceability of these provisions.