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Late-Breaking News: American Express Concedes! (Mostly)

February 26, 2013 10:33 AM

By Myriam Gilles

After seven years of appellate litigation, including three rounds at the Second Circuit and two trips to the Supreme Court, in the final footnote of its Reply Brief, American Express has abandoned - stunningly - its primary policy argument. Amex has consistently argued that a ruling for the merchants would open the floodgates to a torrent of challenges to its and other companies' arbitration clauses, and that an "Amex exception" would swallow the "Concepcion rule." The merchants, meanwhile, have said "No, the floodgates are already slamming shut as companies enact liberal, vindication-enabling arbitration agreements - and especially, agreements that allow prevailing arbitral claimants to shift the cost of expert witnesses."

Now, in footnote 8 of Amex's Reply Brief on the merits, comes the bombshell: Amex has just recently promulgated a new version of its merchant agreement with an arbitration provision that shifts the costs of expert witnesses in favor of a prevailing arbitral claimant. Never again can a merchant complain (as the merchants here do) that the unavailability of both collective action and cost-shifting, combined with proscriptions against sharing information across arbitrations, precludes them from being able to vindicate their rights in arbitration. While footnote 8 makes clear that "Petitioners do not rely on this amendment in their challenge to the decision below," the fact is that in future cases the Amex clause will allow cost-shifting. The merchants' proffered test is whether the proven non-recoupable costs exceed the recovery sought. If all costs are recoupable, the inquiry is over before it starts. For this corporate defendant, the floodgate is closed.

The Amex amendment shows that companies always have their hands on the floodgate-closing switch, and it makes clear that the vindication-of-rights doctrine has had the effect of causing companies to write arbitration agreements that actually allow (or at least, do a better job of allowing) purchasers, employees and other counterparties to vindicate rights in the arbitral forum. Vindication-enabling clauses promote arbitration and further the purposes of the FAA, while vindication-disabling clauses do the opposite. Is that seriously in doubt?

To be fair, when I say that Amex has conceded, I am referring only to the policy side of the argument. The concession is that the vindication-of-rights doctrine promotes vindication-enabling clauses, promotes arbitration, and entails no "floodgate" risk. What Amex does not concede is that the vindication-of-rights doctrine exists at all. And while that's a subject for another post, one thing should be crystal clear: if the Supreme Court were to hold that there is no effective-vindication rule, we will not see any more agreements shifting expert costs to prevailing parties, and companies will have an unprecedented and clear incentive to write agreements that ensure arbitrations never take place.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.