The U.S. Supreme Court agreed to hear an appeal from American Express Co. (AXP:US) in a clash with retailers over the credit cards they must accept, a case that may reinforce millions of arbitration agreements.
A federal appeals court in New York let the merchants press their antitrust claims as a group even though they had agreed to pursue disputes individually before an arbitrator. The appeals court refused to enforce the arbitration accord, saying its bar on class actions would make it infeasible for the merchants to press their claims.
Business trade groups led by the U.S. Chamber of Commerce say that ruling undermines a 2011 Supreme Court decision letting companies use arbitration accords to block employees and consumers from pressing claims as a group. The appeals court said that decision doesn’t apply when plaintiffs would be unable to “vindicate” their rights under federal law.
The appeals court ruling “provides plaintiffs with a forum and roadmap for judicial invalidation of millions of arbitration agreements,” business trade groups led by the U.S. Chamber of Commerce argued in court papers.
Companies are increasingly turning to arbitration accords to limit lawsuits by customers, employees and fellow businesses. Advocates of arbitration say it saves litigation expenses and produces quicker decisions.
American Express faces a series of lawsuits filed starting in 2003 by restaurants and other merchants in California and New York. The lead plaintiff at the Supreme Court is the Italian Colors Restaurant of Oakland, California.
The merchants say they should be able to accept American Express charge cards, which require payment of the entire balance each month, without having to accept the company’s newer credit cards, which don’t require full payment. The merchants say the newer cards aren’t used by the high-end customers preferred by stores and consequently aren’t worth the high fees imposed on stores by American Express.
The merchants told the Supreme Court that the most any of them could hope to recover in damages is $38,549, far less than what it would cost to marshal the evidence to prove their case.
The merchants say Supreme Court decisions from 1985 and 2000 establish that arbitration is an acceptable substitute for litigation only when a potential plaintiff would have a feasible chance to pursue the claim.
“This court has repeatedly recognized that a litigant’s ability to effectively vindicate its rights is a precondition to the arbitration of federal statutory claims,” Italian Colors argued in court papers.
New York-based American Express’s standard agreement with its merchants calls for all disputes to be resolved through individual arbitration.
American Express points to the 1925 Federal Arbitration Act, which says courts must enforce arbitration accords the same as any other contract.
The appeals court decision “creates an expansive new exception to the FAA under which courts may routinely invalidate bilateral arbitration agreements because they do not provide for class-arbitration procedures,” the company argued.
Justice Sonia Sotomayor, who was involved with the case as an appellate judge, didn’t take part in the Supreme Court’s decision to consider the appeal.
The case is making its second trip to the nation’s highest court. In 2010, the justices told the appeals court to revisit the matter in light of a just-issued Supreme Court ruling.
The case is American Express v. Italian Colors Restaurant, 12-133.
To contact the reporter on this story: Greg Stohr in Washington at firstname.lastname@example.org
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