A few weeks ago, the Supreme Court heard oral arguments in American Express Co. v. Italian Colors Restaurant, the most important arbitration case before the court since AT&T Mobility LLC v. Concepcion was decided nearly two years ago. The issue in American Express is whether plaintiffs may avoid arbitration agreements that require individualized rather than class arbitration, by arguing that they cannot “effectively vindicate” their federal claims—here, under the antitrust laws—without the use of class proceedings.
From the justices’ questioning at oral argument, it seems likely that a majority of the court will conclude that the answer is “no,” and accordingly that the 2nd Circuit’s ruling that American Express’s arbitration provision is unenforceable because it precludes class actions cannot stand.
There seemed to be little debate that under Concepcion, the type of arbitration that the Federal Arbitration Act (FAA) contemplates is individualized arbitration, not class arbitration. Instead, the argument centered on whether the individual arbitration procedures available to the plaintiff merchants allowed them to pursue federal antitrust claims.
Unsurprisingly, the parties clashed over what it means to be able to “effectively vindicate” one’s rights. The plaintiffs claimed that they were unable to advance their antitrust claims effectively because, to prove their case, they needed to retain an expert that would cost hundreds of thousands of dollars—an amount much greater than most putative class members’ individual claims were worth. American Express argued that the Supreme Court’s prior decisions addressing the “vindication of statutory rights” theory were concerned with whether an arbitration agreement imposes prohibitively expensive costs that are unique to accessing and using the arbitral forum. Thus, in the leading Supreme Court case on the issue, Green Tree Financial Corp. v. Randolph, the court specifically pointed only to arbitral “filing fees” and “arbitrators’ costs”—not the alleged costs of proving a claim that would apply both to litigation and arbitration (such as expert witness fees).
Questioning by Justice Stephen Breyer highlighted some of the difficulties the plaintiffs might face. In response to the plaintiffs’ position that individual arbitration may be appropriate when claims are relatively simple but not when they are complex, Justice Breyer remarked: “You are saying the thing that keeps [a plaintiff] out [of arbitration] is his own theory of wrong, which will involve hiring a lot of experts and others.” Or, put another way, the “more far out” a plaintiff’s “theory” of liability is, “the harder it is to prove,” and “the more you need expensive experts.” The problem with that approach, Justice Breyer suggested, is that such a rule would result in a “significant erosion” of the court’s precedents holding that federal causes of action could be arbitrated if “all you have to do to get out of the arbitration is to allege a theory of your case which is hard and complicated to prove,” and “[n]ow you are back in court.”
Some of the justices identified an additional problem with the plaintiffs’ version of the “effective vindication” theory: that to compare individual arbitration to litigation, it would be necessary to see how the plaintiffs’ claims would fare in court. Thus, Justice Antonin Scalia asked whether, if a plaintiff contends that it needs access to court (and the class action device) rather than arbitration to pursue its claims, a court would have “to decide whether [the proposed] class would be certified, wouldn’t it?”
To be sure, the justices were not unanimous in their support for arbitration. Both Justice Elena Kagan and Justice Ruth Bader Ginsburg asked a number of questions suggesting that they were concerned about whether individual arbitration is feasible under American Express’s arbitration agreement. The parties debated, among other things, whether multiple plaintiffs could pursue individual arbitrations and share the costs of an expert whose report could be used across the multiple arbitrations. How that debate is resolved may be important: The plaintiffs have contended that American Express’s arbitration provision does not permit such cost-sharing because of a confidentiality requirement, and appear to have conceded that if cost-sharing were available, then they could in fact feasibly vindicate their antitrust claims in individual arbitration. American Express, for its part, has argued that the confidentiality provision erects no such bar to class arbitration.
A decision in American Express is expected by the end of June, and businesses should watch closely for additional guidance from the court on the enforceability of arbitration agreements that provide for individual arbitration as a fair alternative to class actions in court.