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Thursday, June 20, 2013

Supreme Court Upholds Class Action Restrictions in Arbitration Agreements

This morning the Supreme Court ruled, in a 5-3 decision, that arbitration agreements which preclude class action's are enforceable even in cases where the cost of arbitration makes pursuing individual actions impractical.

In American Express v. Italian Colors Restaurant, a group of merchants banded together to sue American Express for violating several anti-trust laws and thereby coercing them to pay fees in excess of the market norm.  All potential class members had signed arbitration agreements that precluded arbitration on a class action basis.

American Express moved to compel individual arbitration based on this agreement and the issue before the Court was whether or not that provision should be enforced.  The merchants argued that the small amount of money at stake for the individual class members made individual arbitration more expensive than any potential award and should therefore allowed to preserve their ability to vindicate their rights.

The court ruled in favor of American Express, stating that:
This text [in the Federal Arbitration Act] reflects the overarching principle that arbitration is a matter of contract. And consistent with that text, courts must rigorously enforce arbitration agreements according to their terms, including terms that specify with whom the parties choose to arbitrate their disputes and the rules under which that arbitration will be conducted. That holds true for claims that allege a violation of a federal statute, unless the FAA’s mandate has been overridden by a contrary congressional command...No contrary congressional command requires us to reject the waiver of class arbitration here. Respondents argue that requiring them to litigate their claims individually—as they contracted to do—would contravene the policies of the antitrust laws. But the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.
Am. Exp. Co. v. Italian Colors Rest., 133 S. Ct. 1236, *3-4 (2013) (internal citations omitted).  Justice Thomas wrote a Concurring Opinion and Justice Kagan, joined by Justices Breyer and Ginsberg, authored a dissent arguing that there are times when exceptions to arbitration agreements are needed to preserve important constitutional rights.

Read the Opinion
Listen to the Oral Arguments
Read the Briefs