U.S. Supreme Court Enforces Contracts Barring Class Arbitration Despite High Litigation Costs
On June 20, 2013, the U.S. Supreme Court issued its opinion in American Express v. Italian Colors Restaurant, holding that contract agreements that require arbitration and prohibit class-action claims are enforceable under the Federal Arbitration Act (“FAA”), even when the potential recovery is overshadowed by costs of individual arbitration. The 5-3 opinion, which was authored by Justice Antonin Scalia is linked herein. The case involved merchants in New York City that tried to pursue a class arbitration claim against American Express. The lower court, here the 2nd Circuit, had held that the arbitration provisions were unenforceable because the costs associated to litigate the individual claims far exceeded the claims themselves—a plaintiffs expert estimated the cost to litigate the antitrust case could exceed $1 million, but potential individual recovery was only $38,000.
Why does this case matter for the average citizen? The answer is simple, as Justice Scalia puts it: “..the antitrust laws do not guaranty an affordable procedural path to the vindication of every claim.” (Stated in layman’s terms: Some lawsuits based on contracts with arbitration provisions are just too expensive to pursue, and that’s the law.) The dissenting opinion, authored by Justice Elena Kagan, succinctly answers the question this way: “…the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.”
The moral of the story here, if there is one, may be that merchants like the plaintiffs, or any citizen, must be mindful of the legal rights they are signing away when agreeing to resolve disputes via arbitration.
Should you wish to discuss whether an arbitration provision in a contract is enforceable, contact the commercial litigation department at Washington State Law Firm Beresford Booth.
Sources:
http://www.scotusblog.com/2013/06/details-american-express-v-italian-colors-restaurant/