American Express Co. v. Italian Colors Restaurant
570 U.S. ____ (2013) (2013)
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Rule of Law:
The Federal Arbitration Act (FAA) requires courts to enforce contractual waivers of class arbitration, even if the cost of proving a federal statutory claim in individual arbitration exceeds the potential recovery for any single plaintiff.
Facts:
- Italian Colors Restaurant and other merchants entered into an agreement with American Express to accept its cards.
- The agreement contained a clause requiring all disputes to be resolved through arbitration.
- This clause also explicitly prohibited resolving any claims on a class-action basis.
- The merchants alleged that American Express used its market power to impose an illegal tying arrangement in violation of federal antitrust laws.
- An economist retained by the merchants estimated that the cost of an expert analysis necessary to prove the antitrust claim would be at least several hundred thousand dollars.
- The maximum potential recovery for an individual merchant, even after being trebled as allowed by antitrust law, was estimated to be $38,549.
Procedural Posture:
- Italian Colors Restaurant and other merchants filed a class-action lawsuit against American Express in the U.S. District Court for the Southern District of New York, alleging federal antitrust violations.
- American Express moved to compel individual arbitration pursuant to the parties' agreement.
- The District Court granted the motion to compel individual arbitration and dismissed the class-action lawsuit.
- The merchants (appellants) appealed to the U.S. Court of Appeals for the Second Circuit, and American Express was the appellee.
- The Court of Appeals reversed the District Court, holding that the class-action waiver was unenforceable because it would impose prohibitive costs on the merchants.
- The U.S. Supreme Court granted certiorari, vacated the Second Circuit's judgment, and remanded the case for reconsideration in light of an intervening Supreme Court decision, Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp.
- On remand, the Second Circuit again held the waiver was unenforceable, a conclusion it reaffirmed after reconsidering the case in light of another Supreme Court decision, AT&T Mobility LLC v. Concepcion.
- The U.S. Supreme Court granted certiorari to review the Second Circuit's decision for a second time.
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Issue:
Does the Federal Arbitration Act permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff's cost of individually arbitrating a federal statutory claim exceeds the potential recovery?
Opinions:
Majority - Justice Scalia
No. The Federal Arbitration Act does not permit courts to invalidate a class arbitration waiver on the grounds that the cost of individual arbitration makes it economically irrational to pursue the claim. The FAA requires courts to rigorously enforce arbitration agreements according to their terms. The judge-made 'effective vindication' exception does not apply here because it only guards against the prospective waiver of a party's right to pursue statutory remedies, not the economic feasibility of proving them. The fact that it is not worth the expense to prove a claim does not constitute the elimination of the right to pursue that claim. Neither the Sherman Act nor the Clayton Act contains a 'contrary congressional command' that would override the FAA's mandate to enforce the agreed-upon bilateral arbitration.
Concurring - Justice Thomas
No. The Federal Arbitration Act requires an arbitration agreement to be enforced unless a party successfully challenges the formation of the agreement itself, such as by proving fraud or duress. The merchants' arguments—that enforcing the waiver would contravene antitrust policy or prevent effective vindication of their rights—do not concern whether the contract was properly formed. Because the merchants voluntarily entered into the contract, they cannot escape their obligation to arbitrate individually merely because their claim might be economically infeasible.
Dissenting - Justice Kagan
Yes. The Federal Arbitration Act should permit invalidation in these circumstances. The majority's decision betrays the long-standing 'effective-vindication' rule, which prevents arbitration clauses from being used to choke off a plaintiff's ability to enforce congressionally created rights. Here, the arbitration agreement as a whole—with its class-action waiver, confidentiality provisions, and bar on cost-sharing—makes pursuit of the antitrust claim a 'fool's errand,' effectively granting American Express immunity from liability for its alleged monopolistic conduct. The FAA prefers arbitration to litigation, but not de facto immunity to any form of dispute resolution at all.
Analysis:
This decision significantly strengthens the enforceability of class-action waivers in arbitration agreements under the Federal Arbitration Act. It narrows the 'effective vindication' doctrine, clarifying that economic infeasibility of proving a claim is not a sufficient basis for invalidating an arbitration clause. The ruling makes it exceedingly difficult for plaintiffs to challenge such waivers, particularly in consumer, employment, and antitrust contexts where individual claims may be small but require costly expert evidence. Consequently, the case has made it easier for companies to use arbitration clauses to avoid class-action liability for conduct that harms many individuals in small amounts.
