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Cert grant in American Express v. Italian Colors

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In AT&T Mobility v. Concepcion, the Supreme Court upheld an arbitration agreement over a California Supreme Court holding that that arbitration agreements with class waivers were inherently unconscionable. An ambiguity in the opinion, however, makes it unclear whether it was doing so because the Federal Arbitration Act overrides any such bars on arbitration, or whether the facts of the case—a district-court finding that the pro-consumer provisions in the particular arbitration agreement made it financially feasible for consumers to bring small-dollar claims without the procedural advantage of potential class litigation—were what was dispositive. The latter position is supported by dicta in Green Tree Fin. Corp. - Alabama v. Randolph, which suggested that an arbitration agreement could not make it financially infeasible to proceed with a legitimate cause of action.

As we previously discussed, the Second Circuit took the more narrow view of the case, holding that the arbitration clause combined with the class-action waiver made it impossible to bring the Sherman Act claims at issue in that case; the interest in civil enforcement of the Sherman Act outweighed the interest in promoting arbitration. On en banc review, the Second Circuit reaffirmed this position over a five-judge dissent by Judge Jacobs, who took the broader view of the case, also raising the public-policy problem that a narrow view of Concepcion would lead to collateral litigation over whether arbitration agreements fit within the Randolph exception, depriving arbitration clauses of the advantage of legal certainty.

The Supreme Court's certiorari grant should resolve this controversy. Unfortunately, the cert petitions talk past one another. Can a party act to make it impossible for a contractual partner to bring a Sherman Act claim against it? The briefs for cert grant don't say. What are the implications of a rule that permits extensive fact-based collateral litigation over the arbitrability of a particular claim? The respondents' brief doesn't say. One hopes the merits briefs more fully address this conflict.

Politically speaking, the business community should be cautious about trying to eke out a 5-4 victory here. The litigation lobby has already beat the bushes to create unfair animus against arbitration clauses. Pressing an interpretation of the Federal Arbitration Act that permits businesses to use arbitration clauses to completely protect themselves from certain types of litigation may be a reasonable expansion of freedom of contract, but leads to the rhetorical parade of horribles that law professors have used to call for abolishing more modest uses of arbitration clauses.

The fact that the Court took up this petition despite the fact that Justice Sotomayor is recused (she sat on one of the earlier Second Circuit panels) suggests that the Court may be inclined to reverse; a 4-4 affirmance would not result in a precedential opinion and would keep any misunderstandings about the scope of Concepcion alive.

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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.