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Arbitration Backed as High Court Rules for American Express in Class Action Case

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by Publius
Posted June 20, 2013, 11:17 AM

According to Bloomberg News:

The U.S. Supreme Court reinforced companies’ power to funnel legal disputes into arbitration, ruling in favor of American Express Co. (AXP) in an antitrust clash with retailers over the credit cards they must accept.

The 5-3 ruling is a victory for American Express in its bid to hold merchants to agreements they signed promising to pursue any disputes individually before an arbitrator. A federal appeals court had refused to enforce the arbitration accord, saying its bar on class actions would make it infeasible for the merchants to press their claims.

Writing for the majority, Justice Antonin Scalia rejected that reasoning, saying courts can’t invalidate a class-action waiver on the grounds that individual arbitration would be too expensive to pursue.

“Such a preliminary litigating hurdle would undoubtedly destroy the prospect of speedy resolution that arbitration in general and bilateral arbitration in particular was meant to secure,” Scalia wrote.

Companies are increasingly turning to arbitration accords to limit lawsuits by customers, employees and fellow businesses. Advocates of arbitration say it saves litigation expenses and produces quicker decisions. The high court has repeatedly backed the use of arbitration agreements in recent years.

In dissent, Justice Elena Kagan said the ruling risked turning arbitration into “a mechanism easily made to block the vindication of meritorious federal claims and insulate wrongdoers from liability.”

Justices Ruth Bader Ginsburg and Stephen Breyer joined Kagan in dissent. Justice Sonia Sotomayor, who was involved with the case as an appellate judge, didn’t take part in the Supreme Court’s decision.

Today’s decision extends a 2011 Supreme Court ruling that said companies can use arbitration accords to block employees and consumers from pressing claims as a group.

American Express is fighting a series of lawsuits filed starting in 2003 by restaurants and other merchants in California and New York. The lead plaintiff at the Supreme Court was Italian Colors Restaurant of Oakland, California.

The merchants say they should be able to accept American Express charge cards, which require payment of the entire balance each month, without having to accept the company’s newer credit cards, which don’t require full payment. The merchants say the newer cards aren’t used by the high-end customers preferred by stores and consequently aren’t worth the high fees imposed on stores by American Express.

In May 2013, the Federalist Society's Litigation Practice Group produced a podcast on the case, American Express Co. v. Italian Colors Restaurant, with Thomas G. Hungar, partner at Gibson Dunn & Crutcher LLP. You can listen to it here.

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