U.S. Supreme Court Upholds Class Arbitration Waiver Agreements

In American Express Co. et al. v. Italian Colors Restaurant et al., the U.S. Supreme Court upheld a class arbitration waiver agreement, holding that the Federal Arbitration Act (FAA) bars courts from invalidating class action arbitration waivers.  The Second Circuit had held that the agreement in this case was unenforceable because plaintiffs’ costs to arbitrate each claim individually would be too high to permit an effective antitrust challenge, triggering the judge-made “effective vindication” exception to the FAA.

The Supreme Court rejected that argument, holding that the exception only applies if an arbitration agreement blocks plaintiffs from pursuing their federal claims altogether.  A contract that makes pursuing individual claims allegedly uneconomic, by contrast, remains enforceable. Justice Scalia, writing for the majority, rejected the plaintiffs’ argument “that requiring them to litigate their claims individually — as they contracted to do — would contravene the policies of the antitrust laws.”  Those laws, the Court held, “do not guarantee an affordable procedural path to the vindication of every claim.”  Congress has supported antitrust plaintiffs by providing for treble damages and attorney’s fees.  “In enacting such measures,” the Court explained, “Congress has told us that it is willing to go, in certain respects, beyond the normal limits of law in advancing its goals of deterring and remedying unlawful trade practice.”  But that does not support the plaintiffs’ argument that Congress must have intended to guarantee an economic remedy in every antitrust case.

In a strongly worded dissent, Justice Kagan wrote on behalf of three justices that “the arbitration clause . . . [enabled] AmEx [to] insulate itself from antitrust liability — even if it has in fact violated the law.”  The dissenters accused the majority of betraying precedent in concluding that it was simply “too darn bad” if an arbitration agreement rendered an antitrust irremediable.

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