This morning the Supreme Court of the United States heard oral argument in American Express Co. v. Italian Colors Restaurant, No. 12-133 (U.S.), on whether an arbitration agreement containing a class action waiver can be void on the ground that a litigant has shown that it would be unable effectively to vindicate its interest in a federal statute in a non-class arbitral forum. We observed from the courtroom as eight members of the Supreme Court — Justice Sotomayor recused herself as a member of the Second Circuit Panel who issued the decision below (In Re American Express Merchants Litigation, 667 F.3d 204 (2d Cir. 2012)) — asked a myriad of questions of counsel for the parties. At the end, no clear signal of how the Justices might rule was discernible. However, there is no question of the high stakes involved in the issue.
The case was filed by merchants bringing antitrust claims against American Express. It involves an arbitration clause in the agreement that allows merchants to be able to accept American Express cards. The agreement contains a provision requiring bilateral rather than class arbitration. (It also contains some disputed confidentiality provisions that may or may not allow one bilateral arbitration participant to share her expert report with another bilateral arbitration participant.) American Express had moved to compel arbitration in the district court. In opposing that motion, Respondents argued that the class waiver precluded them from effectively vindicating their federal statutory rights in the arbitral forum, given the staggering cost of paying for an expert report to demonstrate the antitrust injury — which is small as to any one merchant. The Second Circuit sided with Respondents (in multiple rulings). Today’s argument was not the first time the Supreme Court had this case before it, having sent it back for reconsideration after an important class arbitration decision in 2010 – in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010).
Petitioner, American Express, argued that the Second Circuit’s decision to prevent bilateral arbitration was counter to the recent Supreme Court decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which held that the Federal Arbitration Act precludes courts from conditioning the enforceability of arbitration agreements on the availability of class-wide procedures. Respondents, on the other hand, sought to focus the Supreme Court’s attention on the specific arbitration clause at issue here, which it emphasized at oral argument includes not only the bilateral arbitration requirement. In the Supreme Court, Respondents’ brief argued that when the requirements for proving a federal statutory claim (like the Sherman and Clayton Act claims here) and “the mandates of a specific arbitration agreement interact so that the federal claims cannot be vindicated in an arbitral forum, compelling arbitration is contrary to the policies of both the FAA and the underling federal statute.” Thus, they hope that the Supreme Court rules that arbitration agreements that foreclose class arbitration can be invalidated on the basis of the longstanding effective vindication rule.
It was ironic that while the question on which the Supreme Court granted certiorari placed the availability of class action procedures in the arbitral forum at the center of the inquiry, the questioning did not center around class procedures much, if at all. Justice Scalia, in fact, read the question presented aloud, with some chagrin, to clarify that it was, in fact, a class arbitration waiver that was at issue so that Rule 23 requirements were significant. Instead, Respondents shifted the focus to other aspects of the American Express arbitration agreement that they contended prevented vindication of their rights. And near the end, the discussion at today’s oral argument related to what it takes to try a class case, whether in arbitration or not, due to the cost of proving violations of complex antitrust statutes and damages to boot. Justice Breyer, especially, seemed to adopt a pragmatic tone at this point. He asked whether, if the issue is really the cost of hiring an expert, could the arbitrator issue an order limiting the cost of the arbitration to resolve that problem? Or could the parties agree that the loser in the arbitration pays the experts’ fees?
In short, what we learned today is not much “in the weeds” about class action procedures and how they can and should play out in an arbitral or litigation forum. Instead, we heard Justices seeking clarification on just how hard it is — or should be, perhaps — to litigate or arbitrate complex, expert analysis-driven, civil cases. American Express Co. v. Italian Colors Restaurant has the potential to be vitally important to workplace class action litigation. Stay tuned for the decision in the coming months.