U.S. Supreme Court Allows Credit Card Company to Use Its Bargaining Power to Shield Itself from Antitrust Liability

July 23, 2013

Supreme Court BuildingArbitration agreements have proliferated in recent years. They are common place in employment agreements, medical service contracts, insurance agreements, credit card agreements, cell phone contracts, and a variety of other standard form consumer contracts.

Arbitration has been widely touted as an efficient, cost effective way to resolve disputes. However, as one of us has explained in an earlier post, compelling consumers to arbitrate claims individually can effectively insulate the contracting party with superior bargaining power against liability.

In recent years, the United States Supreme Court has been highly protective of the efforts of large corporations to force waivers of the right to arbitrate disputes on a class-wide basis on their customers, their vendors, and their employees. In Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010), the Court interpreted the Federal Arbitration Act (FAA)  to deprive arbitrators of discretion to order class arbitration when an arbitration agreement is silent on the question of class. A year later, in AT & T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), the Court interpreted the FAA to preempt state courts from refusing to enforce class arbitration waivers that the state court determine to be unconscionable. Last month, in

American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013), the Court continued this trend by upholding a class arbitration waiver that, by its own admission, effectively precluded plaintiffs from vindicating important federal statutory rights.

Factual Background

Merchants who use American Express (Amex) credit cards brought a class action against the credit card company for violation of antitrust laws. Amex moved to compel individual arbitration pursuant to the credit card use agreement signed by each merchant, which provided: “There shall be no right or authority for any Claims to be arbitrated on a class action basis.”

Spend $1 Million to Recover Less Than $40,000

In resisting Amex’s motion, the merchants submitted a declaration from an economist who estimated that the cost of an expert analysis necessary to prove the antitrust claims would be “at least several hundred thousand dollars, and might exceed $1 million,” while the maximum recovery for an individual plaintiff would be $12,850, or $38,549 when trebled.

The Supreme Court Says “Too Bad”

By a 5 to 3 majority, the U.S. Supreme Court, in an opinion authored by Justice Scalia,  ruled that the merchants must arbitrate their claims individually. Under the Federal Arbitration Act (FAA) § 2, 9 U.S.C. § 2, “A written provision in any maritime transaction or contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” The Court explained that FAA § 2 “reflects the overarching principle that arbitration is a matter of contract.” The Court noted that this principle holds true even where the claim alleges violation of a federal statute, and the contracting party with superior bargaining power uses the contract’s waiver of class arbitration to insulate itself against liability for violating the statute.

The merchants sought to invoke a judge-made exception to the FAA allowing courts to invalidate agreements that prevent the “effective vindication” of a federal statutory right.  The Court found such an exception inapplicable to this case:

[T]he exception finds its origin in the desire to prevent “prospective waiver of a party’s right to pursue statutory remedies [citation omitted, Court’s emphasis]. That would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights. And it would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable. [Citation omitted.] But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.


Simply put, the majority has allowed Amex to use its superior bargaining power to shield itself from antitrust liability. Justice Kagan in a dissent joined by Justices Ginsburg and Breyer (Justice Sotomayor did not participate) explains how:

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 to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (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. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.

And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.

Justice Scalia grounds his reasoning on the principle that “arbitration is a matter of contract.” Yet a contract requires consent, and the narrow Court majority has repeatedly shown no willingness to examine whether there is a true “meeting of the minds” regarding one-sided provisions inserted into adhesion contracts.

Moreover, in the Concepcion case, the Court rejected the California’s Supreme Court’s ruling that a class arbitration waiver in certain consumer contracts is unconscionable as a matter of California law—even though the FAA § 2 expressly provides that an arbitration agreement may be found unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract.” In short, the Court invokes contract law while at the same time restricting plaintiffs from contesting the validity of the underlying contract or arbitration agreement itself.

By Marc M. Schneier & John DiMugno