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.