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Will freedom of contract be vindicated?

March 4, 2013 8:00 AM

by Ted Frank

Professor Gilles's last parenthetical confuses me. What is my "typical" objection? For that matter, who is my cohort? I always thought of myself as sui generis.

I honestly haven't paid a lot of attention to the Visa/Mastercard settlement because (1) no class member has asked for my help and (2) there are several competing class-action attorneys who have already (if clumsily) objected, and, thus, there doesn't seem to be a need for my non-profit to get involved to vindicate class members' interests, because for-profit entities with the proper incentives seem to already be on the case. But if one side or another wants to offer me a suitcase of money to consult on the litigation and possible objections as a private attorney, I'll be happy to consider the possibility and try and get permission from CCAF to do so.

Not that I think Visa/Mastercard tells us a lot about AmEx. I can think of exactly one American brick & mortar merchant with more than $100,000 in annual sales that I dealt with in the last five years that wouldn't take my Visa card, and it just went out of business. The case for Visa monopoly power is a different one than that for AmEx, where enough merchants don't do business with AmEx to show that when AmEx makes a take-it-or-leave-it offer that the merchant doesn't like, AmEx doesn't get the business. And DOJ has cried wolf often enough in the antitrust context in the Clinton and Obama administrations that a complaint over a tying arrangement doesn't have a lot of credibility with me: it's at least as likely to be the result of special-interest rent-seeking as consumer protection. In any event, that the Justice Department sued AmEx sort of undercuts the idea that we need a private class action to bring AmEx to heel.

Separately, since I've been critical of the AmEx Italian Colors litigation strategy through now, let me give credit where credit is due to Mr. Kellogg's excellent oral argument--which as Professor Gilles suggests, performed as I hoped and retreated to AmEx's stronger arguments. At oral argument, AmEx disputed the claim that it had not challenged certain factual contentions in the record. I'll note that the dispute exists without attempting to resolve the quibble, since the underlying public-policy question that I'm interested in doesn't turn on how well AmEx litigated its case in the lower courts. I do note that I've certainly been the victim of court opinions that chose to assert that I had not made an argument that I made rather than reach the questions my argument raised.

It's not clear to me why Professor Gilles is upset that a possible consequence of this argument would be dismissal of certiorari as improvidently granted; that result would very much be perceived as a victory by the array of special interests opposing the freedom to contract for arbitration clauses, leaving the broad Second Circuit exception to Concepcion intact.

Does it beg "reality to assert AmEx's arbitration clause doesn't completely preclude vindication of federal antitrust claims"? The Andy Pincus's amicus brief for the Chamber and other business entities suggests numerous ways arbitration proceedings could be aggregated to spread the costs of an expert witness (though I think their reliance on the Honda small-claims-court movement is overstated). It's just that the resulting aggregate litigation would be opt-in rather than opt-out--as it was in American courts during the first several decades of the Sherman Act. And, as Justice Breyer notes, why do we assume that the streamlined and informal procedures of arbitration require the same disastrous litigation expenses of court proceedings? There's certainly nothing in the record about that.

Professor Gilles complains that my floodgates argument isn't "rooted in reality," but my contention is hardly hypothetical: we see it in the Italian Colors case itself. As Justice Breyer noted at oral argument, plaintiffs' expert report about vindication was perfunctory, and didn't even mention arbitration. Yet it was sufficient to put American Express through what must be to date seven digits of litigation expenses, and may even eventually be successful in nullifying AmEx's contractual rights. Anyone who doesn't think it won't be easy to invest a few thousand dollars in a hired-gun expert to create a factual dispute over whether an arbitration clause makes vindication of a cause of action possible hasn't seen how little adverse consequence attaches to attorneys and parties who hire experts to make fantastic claims.

Speaking of vindication, I find it fascinating how often class action advocates speak of the importance of the class action in vindicating rights but how little they speak of vindication when it comes to the class actions themselves. Friday, I was in court watching class counsel argue that it was okay to freeze small shareholders out of a securities settlement because of the administrative expense in paying their claims; in the pending Fraley v. Facebook settlement, I expect to see class counsel argue that it is fair, reasonable, and adequate to pay the class zero cash because there are too many class members who want to be compensated. I find these arguments remarkable: if the class action has such high administrative expenses that after paying for notice and attorneys' fees, the class cannot be paid at all, why are these classes being certified under Rule 23(b)(3) in the first place? Doesn't that rule require a demonstration "that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy"? What makes a class action "superior" in the (b)(3) sense, much less the "vindication" sense, when class counsel takes the position that the class can't be compensated?

1 Comment

When losing, change the subject. Class actions bad!

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute

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