In a newly released legal policy report, "Class Actions, Arbitration, and Consumer Rights: Why Concepcion is a Pro-Consumer Decision," Ted Frank, adjunct fellow with the Manhattan Institute's Center for Legal Policy and editor of Point of Law, outlines why fears of the effects of pro-arbitration rulings are overstated. Arbitration agreements and the Supreme Court's endorsement of freedom of contract is a benefit to consumers. Recent decisions will not end the class action, and consumer advocates would be better off working to end the abuse of class actions that benefit attorneys at the expense of consumers, rather than fighting arbitration agreements that consumers would prefer ex ante.
On February 27, 2013, the Supreme Court will hold oral arguments in American Express Co. v. Italian Colors Restaurant. Like the Court's 2011 decision in AT&T Mobility v. Concepcion, Italian Colors involves the intersection of two mechanisms for resolving legal disputes not easily handled by high-cost individually filed lawsuits: arbitration and class action litigation.
In class action litigation, similarly situated legal claims are aggregated under a single lawsuit. Given the cost of litigation, class action suits can be efficient mechanisms for resolving large numbers of relatively low-dollar claims, but they also can enrich lawyers at legitimate claimants' expense because such lawsuits' low value to individual plaintiffs reduces the incentive for any plaintiff to monitor the lawyers handling the claim.
Arbitration, a form of dispute resolution outside the courts, involves imposing as legally binding and enforceable the decision of a third party, typically specified in advance in contracts. Arbitration is generally favored and enforceable under federal law, through the 1925 Federal Arbitration Act (FAA). Potential corporate defendants have sought to use mandatory arbitration clauses to avoid the expense of class actions. The trial bar and allies in the legal academy criticized such clauses as "anticonsumer" and, for years, had success, particularly in California state court, in obtaining judicial rulings finding the clauses unenforceable, notwithstanding the language of the FAA.