U.S. Supreme Court justices, hearing a clash between American Express Co. and retailers over enforceability of routine arbitration agreements, questioned whether the case lacks information needed to make a decision.
Justice Anthony Kennedy, a possible swing vote, and three Democrat-appointed justices, suggested the record wasn’t developed fully enough to determine whether the merchants were improperly denied the ability to effectively bring a claim because the agreement barred group action in arbitration.
“It does seem like both of the parties have changed what they’re saying a bit,” Justice Elena Kagan said near the end of the hour-long argument today. When the case was accepted by the court, she said, its premise was that “if you go into arbitration, it would not provide an effective way to vindicate the claim.”
The enforceability of millions of routine arbitration agreements could be at stake in the court’s decision. The merchants and the U.S. say an American Express (AXP:US) victory would block consumers from banding together and sharing costs to pursue claims of wrongdoing in an arbitration proceeding. Business trade groups led by the U.S. Chamber of Commerce argued in a court filing that invalidating arbitration clauses would “open a vast loophole” for claimants seeking to dodge agreements they made.
The case was appealed by American Express after the U.S. Court of Appeals in New York refused to enforce an arbitration accord, ruling that its bar on group claims made it infeasible for individual merchants to press federal antitrust allegations against the card company.
American Express faces a series of lawsuits restaurants and other merchants in California and New York began filing in 2003.
The merchants argue they shouldn’t be forced to accept the company’s newer credit cards, which don’t require full payment each month, to be able to take American Express charge cards, which require full monthly 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 them by American Express.
The most any of the plaintiffs 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 told the Supreme Court in briefs arguing for approval of joint action.
The lead plaintiff at the Supreme Court is the Italian Colors Restaurant in Oakland, California.
Business groups say the appeals court ruling in New York undermined a 2011 Supreme Court decision that lets companies use arbitration accords to bar employees and consumers from pressing claims as a group. The appeals court said that ruling doesn’t apply when the ban on joint action would deprive plaintiffs of the ability to “vindicate” their rights under federal law.
Companies are increasingly turning to arbitration accords to limit lawsuits by employees, customers and other businesses. Advocates of the process say it saves litigation expenses and produces quicker decisions.
The appeals court based its decision on a report from the merchants that the cost of producing a market-study report -- a key piece of evidence used in antitrust cases -- could be at least $300,000 and possibly exceed $1 million.
The merchants said the terms of the arbitration agreement with American Express blocked them from pooling the costs of that study and prevents them from sharing information related to arbitration proceedings.
Chief Justice John Roberts asked why a trade association couldn’t fund the study that could be used by each individual merchant to bring the claim.
“That doesn’t seem too difficult,” Roberts said. “You either have your trade association or you have a big meeting of all them and say, ‘We need to pay for this expert report and once we’ve got it, you know, I’m going to represent each of you individually in individual arbitrations and I’m going to win the first one, and then the others are going to fall into place and they’ll get a settlement from American Express.’”
Michael Kellogg, a lawyer for New York-based American Express, said that nothing in the agreement would prevent the retailers from seeking funding for the study from a hedge fund that finances litigation.
Paul Clement, a lawyer for the retailers, told the justices that the American Express accord prevents his clients from working together on damage calculations.
“When you have a market like this where the allegations are they’ve distorted the market so we can’t rely on market price, we need to know the sales volume of all the individual stores,” said Clement, the U.S. solicitor general in the George W. Bush administration and now a partner at Bancroft Pllc in Washington. “Their confidentiality agreement protects that and doesn’t allow that to be shared.”
Justice Stephen Breyer asked whether the cost estimate for a market analysis cited by the retailers is the amount associated with bringing the case before a court as opposed to an arbitrator, who is under instruction “to get this done cheap.” He suggested possibly sending the case back to a lower court requesting more information.
Kennedy said that the parties didn’t leave the high court with “much of a record” to consider.
“It seems to me that I have to engage in speculation about the limits of arbitration in order to resolve in your favor,” Kennedy told Clement.
Justice Sonia Sotomayor, who was involved with the case as an appellate judge, didn’t take part in the Supreme Court argument.
This is the second time American Express has brought the case to the nation’s highest court. In 2010, the justices told the appeals court to revisit the matter in light of a newly issued Supreme Court ruling.
The case is American Express Co. v. Italian Colors Restaurant, 12-133, U.S. Supreme Court (Washington).
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