In American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (June 20, 2013), plaintiffs filed a putative class action in the United States District Court for the Southern District of New York, claiming defendant had violated antitrust law by using its monopoly power in the market for non-credit charge cards to force merchants accepting the defendant’s credit cards to pay inflated fees. Defendant obtained an order compelling arbitration of the named plaintiff’s claim pursuant to a provision of the parties’ agreement that mandated arbitration of all claims on an individual basis. The United States Court of Appeals for the Second Circuit then reversed, concluding the agreement was unenforceable because plaintiff had demonstrated that pursuing an individual claim was impractical, as the expert analysis needed to prosecute the claim would cost at least several hundred thousand dollars, far more than the maximum recovery of approximately $40,000.
The United States Supreme Court granted certiorari and remanded the case for reconsideration in light of Stolt-Neilsen v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), which held that a party may not be compelled to class arbitration absent an agreement to do so. The Second Circuit then reaffirmed its holding, and did so again on sua sponte review prompted by the Supreme Court’s subsequent decision in Concepcion v. AT&T Mobility LLC, 131 S. Ct. 1744 (2011), which held the Federal Arbitration Act (“FAA”) preempted a state law barring enforcement of a class arbitration waiver (see July 2011 Foley Hoag Product Liability Update).
After granting certiorari for a second time, the Supreme Court first noted that the FAA mandates the enforcement of an agreement to arbitrate according to its terms, absent a contrary congressional command. The Court held that neither the antitrust laws on which plaintiffs’ claims were based, nor Federal Rule of Civil Procedure 23 providing for class actions generally, evinced a congressional intent to guarantee the availability of class proceedings to resolve antitrust claims.
As to plaintiffs’ argument that the disparity between arbitration costs and the maximum potential individual recovery prevented them from effectively vindicating their antitrust rights through individual claim arbitrations, the Court acknowledged the existence of an “effective vindication” exception to the enforceability of arbitration agreements. But the Court held this exception applied only where an arbitration agreement prospectively waived the assertion of a statutory right, and “perhaps” also where the arbitration fees were so high as to render the arbitral forum itself impracticable. Here, however, there was no advance waiver of antitrust claims but merely impracticality in proving them. Finally, the Court noted that Concepcion all but resolved the present case, as it held state law could not condition the enforceability of an arbitration agreement on the availability of class arbitration even if this might mean that some claims would thereby “slip through the legal system.”