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Vindicating vindication

February 27, 2013 8:05 AM

by Ted Frank

This might be a short debate! From the beginning, I've defended Concepcion because I believe nothing in Concepcion precluded consumers from vindicating their rights. American Express's briefing, however, has focused on a theory that they can do with an arbitration clause what it would be plainly impossible to do with any other contractual clause. AmEx couldn't have a "tying arrangement" waiver clause; it couldn't even have a procedural clause to agree to restrict the use of expert witnesses in antitrust disputes. And—theoretically at least—a monopolist would not face the market competition that would force it to pass along the savings from arbitration to consumers, making the argument for where to draw the line to force arbitration weaker in antitrust cases than other cases. The Federal Arbitration Act says that arbitration clauses are not to be disfavored, not that they get special treatment from the courts.

The Second Circuit, however, did disfavor AmEx's arbitration clause, and thus failed to correctly apply the Federal Arbitration Act. They did that by giving the record and the arbitration clause a cribbed reading to reach its preferred result. The Supreme Court should correct that kind of abuse, or judges will be able to undo the FAA with the sort of rulings that the Court criticized in Concepcion, but just classify them as "vindication" decisions rather than "unconscionability" decisions.

Pages 19-23 of the American Express reply brief give a roadmap for reversing the erroneous Second Circuit decision: the Second Circuit adopted a view of arbitration and of the arbitration clause that was just entirely fictional. Nothing in arbitration or the AmEx arbitration clause inherently precludes arbitration of antitrust disputes. The fact that that argument is restricted to the last five pages of AmEx's brief makes me fear that the American Express attorneys will continue to insist that Mitsubishi provides only token protection for parties subject to an arbitration agreement and focus on an argument that the Court is likely to reject 8-0. The oral argument will be telling: will AmEx quickly retreat to its strong ground and hope for a narrow ruling?

The problem with the Mitsubishi exception is, as Judge Jacobs noted in his Second Circuit dissental, that disingenuous plaintiffs' lawyers will always make vindication arguments against an arbitration clause. Footnote 8 then simply . It merely clarifies the arbitration agreement to make it harder for judges to do what the Second Circuit did here: create an imaginary set of facts and then rule upon that set of facts. Unfortunately for American Express, Paul Clement has cleverly tailored respondents' brief to rest upon that narrow argument, and the Supreme Court might never reach the decisive issue, because "interpretation of an arbitration agreement" or sussing out the record is the sort of "error-correction" that the Supreme Court deigns itself above.

This will be an injustice. The underlying antitrust claim is bogus. American Express plainly does not have monopoly power that would permit it to use a tying arrangement to harm its merchants; the merchants suffer no conceivable harm from the challenged practice. This is a class action to impose litigation costs upon AmEx in the hopes that they'll pay Danegeld to the attorneys to get out from under it. That hurts consumers by raising their prices, and hurts income inequality by transferring wealth from productive sectors of the economy to rent-seekers in the 1%. As we see from the DOJ litigation against Amazon for lowering book prices, the problem with public enforcement of the antitrust laws is not that it's insufficiently overaggressive; outside of the special case of actual price-fixing arrangements, it's hard to see what private antitrust enforcement adds in the way of net social good. Even if the Supreme Court surprises me and strikes down or narrows the vindication doctrine, it's hard to see consumers being injured on net. But that would be a kluge hiding the real public-policy problem.

How do we solve the problem that Judge Jacobs identifies? Unfortunately, it might take a few years of iteration of litigation over arbitration clauses before we can get a clean set of procedures that precludes trial lawyers from destroying the cost-savings of arbitration clauses with bogus litigation claiming that vindication is impossible under the arbitration clause. That's why I hope the Supreme Court steps in to save this arbitration with a narrow ruling, and makes it clear that lower courts' distaste for arbitration does not excuse wrongful stretches of contractual language any more than it excuses wrongful stretches of unconscionability doctrine. One certainly understands why AmEx and the business community would prefer to cut the Gordian knot and just eliminate the vindication doctrine and why they're swinging for the fences here. I worry that that would be bad for arbitration in the long run, and encourage overreaction by a Congress that already has to be restrained from undoing consumer choice.

In a perfect world free from special-interest pressure, we could have legislation or regulation that sets out the bounds of arbitration agreements to create bright-line rules of what would vindicate rights. The fact that Obama administration regulators have been hacking at arbitration agreements with a cleaver, however, demonstrates regulatory capture by the trial bar; as a political matter, we need to rely upon the courts, but the courts have been less than consistent in applying Concepcion. But the same problem is true in Rule 23(e) fairness hearings and PSLRA protections against abusive class actions.

Professor, maybe we can find some grounds for debate anyway. Would you agree that if AmEx is correct that its arbitration clause does not preclude a merchant from bringing antitrust litigation that its arbitration clause should have been enforced by the Second Circuit? Do you disagree with anything in my white paper?

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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.