We recently posted on class arbitration rules for business. Just 10 days later, the US Supreme Court has issued another ruling enforcing class arbitration waivers in binding arbitration agreements.
The case is American Express Co. v. Italian Colors Restaurant (6/20/2013). It says a large charge card company can require its small business merchant customer to arbitrate on a one-on-one basis only, not on a class-wide basis.
The American Express case applied another case, AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, in doing so. AT&T Mobility allowed a large telephone company to compel a consumer to arbitrate on an individual basis and not “as a plaintiff or class member in any purported class or representative proceeding.”
No More Judicial Hostility To Arbitration
The Supreme Court’s message to lower courts has been clear. Arbitration agreements must be enforced according to their terms. Lower courts may not use “public policy” reasons to invalidate arbitration agreements.
In American Express Co., the appellate court used a “public policy” “fairness” argument in refusing to enforce an arbitration agreement that prohibited class arbitration by the merchant. The Supreme Court reversed.
What was the “public policy” used by the appellate court? That the merchants expert in the antitrust suit would be too costly to shoulder on its own. Therefore, a class action should be allowed in order to make the lawsuit cost effective. If there was no class action, there would be no lawsuit and antitrust violations would go unpunished.
The US Supreme Court said, hold on, not so fast. The parties agreed “no class arbitration” and they will be held to their contractual bargain. Just because it doesn’t make financial sense to arbitrate the claim on an individual basis doesn’t justify re-writing the contract to allow class action litigation when the parties’ agreement says the opposite.
Strong Support For Arbitration (and Disdain For Class Actions)
Granted the issue is complex and can be mind boggling. Keeping things simple, the writing on the wall is:
- The US Supreme Court is showing strong support for enforcement of arbitration agreements.
- “Public policy” reasons whether grounded on federal or state policy cannot trump the parties’ agreement.
- If the parties to an arbitration agreement do not agree to class arbitration there will be no class arbitration; if the parties’ agreement states class arbitration is prohibited, “public policy” will not override that agreement.
- The alleged stronger party (e.g. AT&T or AmEx) can force an alleged weaker party (a consumer or small business merchant) to bargain away “class action” procedure in an arbitration agreement.
Stay tuned as the US Supreme Court is handing down decisions concerning arbitration and class arbitration under the Federal Arbitration Act (FAA) on an increasingly regular basis. And the message is clear: lower courts, mess with arbitration agreements under the FAA at your peril – we will enforce them according to their terms and will reverse your rulings if you refuse to do so.