The U.S. Supreme Court continued its slow but steady evisceration of collective consumer action, effectively gutting one of the last exceptions allowing consumers to join forces as a class.
In Italian Colors v. American Express, the Court ruled 5-3 (Justice Sonia Sotomayor did not participate) that it doesn’t matter if a consumer’s costs in proving a company’s statutory violation dwarf any potential recovery; that consumer still can’t sue as part of a class.
Most consumer contracts have provisions that go beyond just requiring the resolution of disputes in arbitration, rather than in court. A class action waiver — precluding a consumer from resolving his dispute as part of a class — is one such provision, one that the Supreme Court upheld in 2011 in AT&T v. Concepcion.
Despite that ruling, courts had continued to recognize the prohibitive litigation costs to an individual — the so-called “effective vindication” exception — as a reason to allow consumers to proceed as a group. In Italian Colors, that group consisted of merchants suing American Express for alleged violations of antitrust laws, saying that the company was using its monopoly power to force them to agree to excessive fees. When American Express sought to force the merchants to sue individually, the group countered that the costs in proving any individual claims could exceed a million dollars, while any likely recovery would be in the thousands.
The United States Court of Appeals for the Second Circuit agreed with the merchants, but the Supreme Court reversed. Writing for the majority, Justice Antonin Scalia (also the author of the Concepcion decision) said that the law does not “guarantee an affordable procedural path to the vindication of every claim.”
That position, wrote Justice Elena Kagan in her dissent — joined by Justices Stephen Breyer and Ruth Bader Ginsburg — yields this result: “The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”
Here is the nutshell version of this case, unfortunately obscured in the Court’s decision. The owner of a small restaurant (Italian Colors) thinks that American Express(Amex) has used its monopoly power to force merchants toaccept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawfulprovision (imposing a tying arrangement), but the same contract’s arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool’s errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law.
And here is the nutshell version of today’s opinion,admirably flaunted rather than camouflaged: Too darn bad.
Consumer groups called the decision a rejection of the longstanding principle that arbitration agreements must allow “effective vindication” of rights.
“The upshot of that is that companies like American Express can use these forced arbitration clauses to give themselves immunity from federal laws,” F. Paul Bland Jr. of Public Justice said in a statement in the New York Times.
But business groups said the ruling marked a significant step in the direction of universal arbitration.
“The Supreme Court today eliminated the last significant obstacle to adoption of fair, efficient arbitration systems that increase access to justice for consumers while reducing transaction costs for everyone,” Andrew Pincus, the lawyer who won the Concepcion case, said in a statement after the decision.