The Court upholds a class action ban in an adhesive consumer contract, giving de facto immunity to corporations involved in widespread civil wrongdoing.

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American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013)

Relevant Facts: A group of small business owners banded together in a federal class action to allege anti-trust violations in the excessive fees American Express charged for business credit cards. However, since the consumer contracts each contained a forced arbitration clause including a class action ban, American Express moved to compel individual arbitration. In response, the consumers argued that the arbitration clause was unenforceable because the cost of the expert analysis required to prove their antitrust claims would greatly exceed the maximum recovery for an individual plaintiff, leaving them with no way to effectively vindicate their rights. The federal district court ruled in favor of American Express and ordered individual arbitration, effectively breaking up the class. The appeals court reversed, holding that the prohibitive costs the plaintiffs would face if they had to arbitrate individually would leave them with no realistic way to move forward with their claims, and the class action waiver was unenforceable.


Question Before The Court: Whether class action bans in forced arbitration clauses are enforceable when proceeding in individual arbitration would be cost-prohibitive.


The Opinion: The Court held that the FAA does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individual arbitration of a federal statutory claim may exceed the potential recovery. Although the business owners’ argument centered on their inability to hold American Express accountable for widespread lawbreaking if their class was broken, the law enforcement elements of the case were largely ignored by the Court. The majority paid lip service to its “contrary congressional command” test but failed to analyze under the steps of that rule. Instead of looking to the purpose of the competing federal statutes and trying to reconcile any identifiable conflicts, the Court briefly looked to the permissiveness of class arbitration before refocusing on and basing its holding on the economic argument.


Justice Antonin Scalia, writing for the majority, upheld the class bans, asserting that parties need only have a path to enforce their rights under a statute, but that plaintiffs are “not guarantee[d] an affordable procedural path to the vindication of every claim.” The Court explained, “the FAA’s command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low-value claims. The latter interest . . . is unrelated to the FAA. Accordingly, the FAA [favors] the absence of litigation when that is the consequence of a class-action waiver, since its principle purpose is the enforcement of arbitration agreements according to their terms.” It is hard for an objective reader to interpret this assertion as anything other than an invitation for widespread claim suppression.


In addressing the consequence of their holding on the plaintiff’s ability to obtain relief, the Court surmised that “[t]he ‘effective vindication doctrine’ comes from a desire to prevent ‘prospective waiver of a party’s right to pursue statutory remedies’, but the 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.”


The Court seems to take painstaking effort to frame this as merely about a number of small-dollar claims, rather than about a large group of people trying to come together to hold a major corporation accountable for widespread fraud under federal antitrust law. Thanks to the Court’s contortionist exercise here, corporations now routinely suppress all consumer claims for willful violations of the law by inserting arbitration clauses containing class action bans into their legal boilerplate. This de facto corporate immunity springs from the fact that no sane person is going to spend thousands of dollars to pursue a claim in individual arbitration to recover an award worth substantially less than the legal fees required to do so.


Justice Kagan spoke directly to this problem in her dissent: “The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse. . . Throughout, the majority disregards our decisions’ central tenant: An arbitration clause may not thwart federal law, irrespective of exactly how it does so.” Many companies, seeing the writing on the wall, took the power to grant themselves legal impunity through their own fine print a step further and started including class bans in their employment contracts. Doing so allowed employers to silence, en masse, any workers who experienced employer wrongdoing on the job or who sought to band together to improve working conditions—a tactic the Court legitimized four years later in Epic Systems v. Lewis.

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