The U.S. Supreme Court reinforced companies’ power to funnel legal disputes into arbitration, ruling in favor of American Express Co. (AXP:US) in an antitrust clash with retailers over the credit cards they must accept.
The justices, voting 5-3, said merchants seeking to sue American Express are bound by an agreement they signed to pursue disputes individually before an arbitrator. A federal appeals court had refused to enforce the arbitration accord, saying its bar on class actions would make it infeasible for the merchants to press their claims.
Writing for the majority, Justice Antonin Scalia said courts must respect arbitration agreements -- and bans on class actions -- even when the cost of pressing an individual case would exceed the potential damages.
The lower court’s reasoning “would undoubtedly destroy the prospect of speedy resolution that arbitration in general and bilateral arbitration in particular was meant to secure,” Scalia wrote.
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. The high court has repeatedly backed the use of arbitration agreements in recent years.
In dissent, Justice Elena Kagan said the ruling would let wrongdoers immunize themselves against lawsuits. She said American Express had used its market clout to foist the contract on retailers.
“If the arbitration clause is enforceable, Amex has insulated itself from antitrust liability -- even if it has in fact violated the law,” she wrote. “The monopolist gets to use its monopoly to insist on a contract effectively depriving its victims of all legal recourse.
‘‘And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad,’’ she wrote.
Justices Ruth Bader Ginsburg and Stephen Breyer joined Kagan in dissent. Justice Sonia Sotomayor, who was involved with the case as an appellate judge, didn’t take part in the Supreme Court’s decision.
Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas and Samuel Alito joined Scalia in the majority.
The decision extends a 2011 Supreme Court ruling that said companies can use arbitration accords to block employees and consumers from pressing claims as a group. Both cases turned on the 1925 Federal Arbitration Act, which says courts must enforce arbitration accords the same as any other contract.
Today’s ruling ‘‘preserves the availability of arbitration as a fair, efficient and cost-effective way to resolve disputes,” American Express said in an e-mailed statement.
American Express is fighting 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 was 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.
New York-based American Express’s standard agreement with its merchants calls for all disputes to be resolved through individual arbitration.
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 retailers said Supreme Court decisions from 1985 and 2000 establish that arbitration is an acceptable substitute for litigation of claims under federal law only when potential plaintiffs would be able to “vindicate” their rights. The Obama administration backed the merchants in the case.
“The decision is catastrophic for the antitrust laws, as well as for civil rights, consumer rights and many other statutory rights,” said Paul Bland, an attorney with Public Justice, a Washington-based advocacy group.
Consumer advocates said they would turn their attention to Congress and federal regulators.
“This is an issue on which the Supreme Court will not have the last word,” said Deepak Gupta, a lawyer who represents the merchants in the American Express case. “It’s quite likely that there will be legislative or regulatory responses to this.”
Under the 2010 Dodd-Frank law, the Consumer Financial Protection Bureau has authority to set new rules governing consumer arbitration agreements.
The case is American Express v. Italian Colors Restaurant, 12-133.
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