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American Express v. Italian Colors: Reversal (5-3)

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Today, the Supreme Court decided American Express v. Italian Colors (PDF) (holding, 5-3, that the fact that necessary expert-witness costs exceed the expected return on low-value individual claims, premised on federal law, does not, under the judicially created "effective vindication" doctrine, mean that arbitration clause class-action waivers are unenforceable). (The justices here lined up in the "usual" way -- with Justice Scalia writing for the majority and Justice Kagan for the dissent; Justice Sotomayor, who considered the case below on the Second Circuit, recused.)

See Ted's earlier posts on the case here (at cert stage) and here (after filings of merits briefs). We also hosted a featured discussion on the case between Ted and Cardozo law professor Myriam Gilles here. And see Ted's Manhattan Institute paper on arbitration-clause waivers of class-action remedies here, and reaction here (Greve) and here (Wood).

Because, as Ted has noted, "the litigation lobby has already beat the bushes to create unfair animus against arbitration clauses," it's important to emphasize what the decision says and what it doesn't. Justice Kagan's very well-written dissent to the contrary, the majority opinion does not suggest that companies can invoke any and every arbitration provision to preclude the vindication of federal rights.

Rather than answering the question Ted raised and that the dissent invokes -- "Can a party act to make it impossible for a contractual partner to bring a Sherman Act claim against it?" -- the majority narrowly construes the arbitration provision at issue as being solely about waiving class remedies. (In footnote 4, the majority credits AmEx's concession that "other forms of cost sharing . . . could provide effective vindication." As Professor Gilles noted, AmEx expressly conceded this point in footnote 8 of its reply brief on the merits. In essence, Justice Kagan's dissent refuses to credit AmEx's concession -- thus disagreeing with the majority about the facts of this specific case.)

Key to the Court's decision is the fact that the federal class action procedural device post-dates both the Sherman and Federal Arbitration Acts, the relevant federal laws at issue. So, the Court reasons, the enforceability of an arbitration clause--given the FAA's presumption that such clauses are enforceable--cannot be conditioned on a purported need to use the class-action procedural device to enforce the Sherman Act.

But critically, the majority does not answer the question about whether the effective-vindication doctrine would bar arbitration provisions that would preclude "other forms of cost sharing--existing before the Sherman Act," (see footnote 4), which, given AmEx's concession, the majority views as unnecessary to deciding the outcome of the case.

Thus, the resolution of this case turns out to be rather narrow. AT&T Mobility v. Concepcion held that arbitration clauses that preclude class remedies are enforceable under the FAA, notwithstanding state laws rendering arbitration clauses unenforceable if they lack a class remedy--a rather obvious preemption holding, the Court's division in that case notwithstanding. In Italian Colors, the Court has simply applied Concepcion such that class-action waivers in arbitration clauses are enforceable with respect to federal legal claims, at least if such claims arise out of statutes that created a private right of action without at least implicitly contemplating a class-action procedural remedy for vindicating such claims. Otherwise defining the contours of the "effective vindication" doctrine is thus reserved to some future case.

1 Comment

What remains unclear, as this post says, is whether Amex could enforce the clause that says restaurants cannot pool resources and all use the same expert report.

(1) Actually,that clause seems empty to me, since really it's a confidentiality clause. Couldn't a consultant say, "I will sell to any restaurant my report on market power in the credit card industry" and then sell the report to each restaurant separately? The consultant is not bound by the Amex-restaurant contract. The only effect of the contract would be that each restaurant would have to arbitrate its own case separately, and the arbitrator would get rather tired of seeing the same expert report trotted out a hundred times in a row.

(2)What are Amex's damages if a restaurant breaches the confidentiality clause? If the only harm to Amex is that Amex is shown to have behaved illegally, can Amex sue for those damages? I would think it would be a contract clause against public policy, like a contract between two price-fixing companies saying that neither company is allowed to report illegal behavior to the Justice Dept.

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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.