Courts

Supreme Court Hears AmEx Arbitration Case


Big Business could see a big impact from a case involving pizza parlors.

Photograph by Andrew Harrer/Bloomberg

Big Business could see a big impact from a case involving pizza parlors.

All eyes yesterday were on the oral arguments in a Supreme Court case challenging the Voting Rights Act, where the justices seemed to be leaning toward rolling back some of the act’s protections. After the arguments wrapped up, the justices turned their attention to another big case, which didn’t make headlines—one that will impact how consumers and employees are able to challenge alleged corporate wrongdoing.

The case, American Express Co. v. Italian Colors Restaurant, questions whether there are instances in which people can file a class action even if they’ve signed an agreement requiring that they settle any problems via arbitration. These boilerplate class-action waivers show up in a range of contracts, covering everything from checking accounts to terms of employment. As Bloomberg News reports: “The enforceability of millions of routine arbitration agreements could be at stake in the court’s decision.”

The American Express (AXP) cases started when a pizza shop in Oakland, Calif., tried to pursue a class-action antitrust suit, claiming the credit-card company was using its market dominance to force retailers to pay high swipe fees on AmEx credit and debit cards as a condition of being able to accept AmEx charge cards. AmEx countered by saying part of the standard contracts the pizza joint and other merchants had signed forced them to resolve problems one at a time through private arbitration, not as a group in court. The case had a convoluted history, leading up to a 2009 appeals court ruling that found AmEx’s contract was void because, without banding together, it wasn’t feasible for the restaurants to exercise their rights. This was largely because the expert research that’s essential in an antitrust case could cost more than $1 million, while the most any individual merchant could recoup was $38,549.

AmEx then asked the Supreme Court to hear the case, and it comes now almost two years after the court dealt a major blow to class actions in the case AT&T Mobility v. Concepcion, which generally said contracts that prohibited class actions were OK. The main issue before the judges in the AmEx case is whether the waivers hold, even when evidence shows that arbitration will make it impossible for people to exercise their rights.

Based on the judges’ questions and conversations (PDF) yesterday, there’s a chance the court may not resolve the issue. That’s because the argument largely focused not on the core question of whether arbitration must provide a fair shot at exercising rights, but instead posed hypothetical situations to see if there were still ways to work around the class-action ban. Paul Bland, an attorney at Public Justice, which submitted a brief to the court in support of the restaurant, says the judges’ questioning had “a certain amount of magical thinking.” Chief Justice John Roberts, for example, pondered whether a restaurant association could pay for the expensive study that each restaurant would use in individual arbitration. Bland says a case like that wouldn’t be practicable since it would require getting thousands of restaurants to bring individual arbitration challenges, finding lawyers willing to represent each one, and getting experts to testify in each case, and so on.

As they pondered these types of “What ifs,” the justices wondered aloud if they perhaps needed more facts to make a decision and if they should send the case back down to lower courts. That leaves open the question of how much wiggle room—if any—consumers have to band together and challenge companies.

Weise_190
Weise is a reporter for Bloomberg Businessweek in New York. Follow her on Twitter @kyweise.

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Companies Mentioned

  • AXP
    (American Express Co)
    • $93.15 USD
    • -0.13
    • -0.14%
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