The Supreme Court issued its decision in American Express v. Italian Colors, holding that the Federal Arbitration Act ("FAA") does not permit a court to invalidate a contractual waiver of class arbitration on the ground that the claimant's cost of individually arbitrating a federal statutory claim exceeds the claimant's potential recovery. The "effective vindication" exception that originated as dictum in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. does not invalidate a class arbitration waiver.
The Respondents were a group of merchants who accept credit cards. Each had entered into an agreement with Amex requiring all disputes to be resolved in arbitration, and specifically waiving any right to arbitrate claims on a class basis. The merchants nevertheless brought a class action against Amex alleging violations of federal antitrust laws by using its monopoly power to force merchants to pay higher fees. Amex moved to compel individual arbitration under the FAA. In response, the merchants argued that that the prohibitively high cost of individual arbitration frustrated any attempt to vindicate the policies underlying the antitrust laws. They submitted a supporting declaration stating that the expert analysis to establish an antitrust violation would costs at least several hundred thousand dollars, and could be as high as $1,000,000, while the maximum recovery to any individual claimant would be $12,850, or $38,550 when trebled.
Judge Scalia, in delivering the 5-3 opinion, made clear that courts must rigorously enforce arbitration agreements according to their terms, including terms that specify with whom the parties choose to arbitrate and the rules under which the arbitration shall be conducted. Further, the Court stated that its decision in AT&T Mobility, which invalidated a law conditioning enforcement of arbitration on the availability of class procedure, all but resolves this case. Forcing a judge to prospectively determine the cost of prosecution of a case, and the potential recovery if successful, "would undoubtedly destroy the prospect of speedy resolution that arbitration in general and bilateral arbitration in particular was meant to secure." Further, the Court noted, "the class-action waiver merely limits arbitration to the two contracting parties. It 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 ... Or, to put it differently, the individual suit that was considered adequate to assure "effective vindication" of a federal right before adoption of class-action procedures did not suddenly become "ineffective vindication" upon their adoption."