What hope remains for consumers, employees after SCOTUS Amex ruling?

June 20, 2013

The U.S. Supreme Court’s ruling Thursday in American Express v. Italian Colors has narrowed to an irrelevant pinhole the so-called “effective vindication exception” to mandatory arbitration. Despite dicta in previous Supreme Court cases that suggested arbitration clauses are not enforceable when it is prohibitively expensive for claimants to enforce their rights through the arbitration process, the five justices in the Amex majority held that plaintiffs who sign arbitration agreements don’t have the right to pursue their claims on anything but an individual basis, even if the cost of that pursuit dwarfs their potential recovery.

The effective vindication exception “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,” Justice Antonin Scalia wrote for the majority. “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.” (As many early commentators have noted, Justice Elena Kagan wrote a memorable rejoinder for the three Amex dissenters: “Here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.”)

The decision overturns a ruling by the 2nd Circuit Court of Appeals that permitted small businesses to proceed with an antitrust class action against Amex, despite arbitration agreements between the credit card company and the merchants suing over allegedly unfair fees. The majority’s reasoning will extend beyond arbitration over antitrust rights, however, and almost certainly beyond federal causes of action. There’s little doubt that one of the only other decisions to buck the Supreme Court’s 2011 pro-arbitration holding in AT&T Mobility v. Concepcion – a ruling last week by the Massachusetts Supreme Judicial Court, in a consumer case against Dell that raised similar issues of the affordability of pursuing individual claims through arbitration – will not survive Thursday’s Amex opinion. (Dell counsel John Shope of Foley Hoag told me that “it’s very clear” that under Amex, the Massachusetts ruling “is no longer good law, if it ever was.” The plaintiffs’ lawyer in the case,Edward Rapacki of Ellis & Rapacki, said his clients’ claims may yet survive under a slightly different theory.)

Between them, Concepcion and Amex leave consumers, employees and small businesses that are subject to class action waivers in mandatory arbitration provisions without hope of evading the waiver. If you can’t afford to arbitrate your claim individually, the Supreme Court majority seems to be saying, then don’t sign the contract requiring arbitration. The three liberal justices who dissented (Justice Sonia Sotomayor was recused) predicted that the consequence of the majority’s disregard for the effective vindication exception will be mandatory arbitration clauses in which companies “extract backdoor waivers of statutory rights, making arbitration unavailable or pointless.”

So what recourse do small businesses, consumers and employees have when they can’t litigate or arbitrate as a group? I asked that question Thursday to two lawyers on opposite sides of the mandatory arbitration debate and got two very different answers. Andrew Pincus of Mayer Brown, who won the Concepcion case for AT&T Mobility, and Paul Bland of Public Justice, the well-known public interest advocate for consumer rights, agreed that the Supreme Court has all but foreclosed courts from refusing to enforce class action waivers. But they disagreed on the implications.

Pincus said claimants still have viable options even when their individual recovery may be small. They can, for instance, band together to share the cost of attorneys’ fees and expert witnesses, he suggested. (The Supreme Court asked Amex whether its arbitration clause precluded cost-sharing; Amex’s lawyer from Kellogg, Huber, Hansen, Todd, Evans & Figel said no but the dissent cited a 2nd Circuit finding to the contrary.) According to Pincus, American Arbitration Association rules now make confidentiality of consumer arbitration less of a concern. So there’s no reason, he said, that plaintiffs’ lawyers can’t use social media to attract lots of clients with the same small arbitration claims. Even though those clients would all have to pursue individual actions, he said, sharing costs could make their claims economically viable.

Bland called Pincus’s mass arbitration idea – which he has heard the Mayer Brown partner discuss on panels – “magical thinking that doesn’t occur in the real world…. He’s come up with an extremely clever, after-the-fact rationalization.” Bland said that courts have tossed hundreds of class actions in the two years since Concepcion, and none of them was subsequently revived as a mass of individual arbitrations with shared costs. “It’s a bedtime story to tell children. It doesn’t happen,” he said.

How about state AGs enforcing consumer and employment regulations through labor code and parens patriae enforcement actions? Pincus told me he’s all for it. “I have always said that’s the real back-up here,” he said. “If someone is really stealing $1 from millions of state residents, the state will step in.”

Not if it doesn’t have the resources, Bland countered – and most states don’t. “The AGs say they need the private bar, that they can’t do all of these consumer cases on their own,” Bland told me. He’s been involved in class actions in which state AGs submitted briefs to that effect, laying out the vast number of complaints they receive and the relatively tiny percentage of cases they’re able to pursue. (Bland said he can’t comment on the prospect of private AG actions, which a Stanford law professor recently proposed as an alternative way to enforce group claims precluded by arbitration agreements.) Consumers and employees, Bland said, simply can’t rely on state officials to press claims in every case in which their rights are compromised.

Late Thursday, public interest legal groups and Senator Al Franken (D-Minn.) began circulating calls for Congress to pass legislation rolling back the Supreme Court’s decisions in Concepcion and Amex. That’s a very unlikely prospect, especially considering that Franken and other Democrats have already tried and failed to pass laws countering Concepcion. The straits of small businesses, consumers and employees are dire indeed if a rollback law is their best option.

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The hope for consumers is that they’ll finally be forced to learn that a deal’s a deal. If you don’t like the deal offered by one service/product provider, go seek a better deal with a competing provider. In any case, caveat emptor. Stop whining, take charge of your lives as competent adults, read what you sign, and by all means leave the parasitic plaintiffs’ lawyers out of it.

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