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American Express v. Italian Colors Restaurant

U.S. Supreme Court Says "Too Darn Bad" to Legal Rights

    

 

The Court enforced an arbitration agreement even though it denied the parties effective vindication of statutory rights.

Background

Several small businesses filed a class action lawsuit against American Express (Amex), arguing that it violates antitrust law by forcing merchants who accept Amex charge cards to also accept all Amex branded credit cards, which have higher merchant fees than Visa and Mastercard. Amex sought to force the dispute into arbitration, with no class-action and strict confidentiality requirements that prevent the businesses from sharing information necessary to prove a violation.

The merchants in this case provided uncontroverted evidence that if forced to arbitrate individually, it would cost them hundreds of thousands of dollars each to prove Amex is violating the law, while the most any could hope to recover is approximately $5K each.

Aggregating individual claims into a class action often offers the only effective way to remedy widespread harmful practices. Many important civil rights and consumer protection statutes are designed to be enforced by private litigation. When arbitration prevents private litigation, it also eliminates the primary enforcement of those important laws, essentially giving the wrongdoer a “get out of jail free” card.

AARP Foundation Litigation attorneys filed AARP’s friend-of-the-court brief with two other groups, explaining that the Supreme Court and arbitration’s ardent supporters have always justified arbitration as a forum for the effective vindication of rights. The uncontroverted evidence about the cost of proving the claims in this case makes it clear that forcing these plaintiffs into individual arbitration will actually eliminate their rights, not simply provide an alternative forum.

The Court enforced the arbitration clause, ruling that arbitration need not ensure the effective vindication of rights because it would hamper the “speedy resolution that arbitration…was meant to secure” contrary to the purpose of the Federal Arbitration Act. The dissent lamented that “The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision…but the same contract’s arbitration clause prevents him from doing so…The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse” and the response from the Court is ‘Too darn bad.’” The dissent argued that rather than honoring the FAA, the majority’s opinion frustrated the FAA by replacing dispute resolution with the ability to impose sheer monopolistic unilateral power.

What’s at Stake

This decision sounds the death knell for private enforcement of statutory rights.  Corporations are able to exempt themselves from laws enacted to protect important rights by imposing arbitration in their take-it-or-leave-it contracts. Virtually everything is now subject to arbitration, including-- employment, medical, banking, cell phones, internet or cable, and nursing facilities. Compared to court, arbitration is very expensive does not provide access to corporate information needed to prove claims, and does not result in a written, public decision. Even if a corporation is violating the law, they will keep the ill-gotten gain because few, if any, have the wherewithal to risk the expense of arbitration.  A class action is superior because it enforces the law for all injured people and prevents corporations from profiting from illegal activities.  

Case Status

American Express Co. v. Italian Colors Restaurant was decided by the U.S. Supreme Court.

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Our legal advocacy initiatives  - conducted by AARP Foundation Litigation (AFL) - reflect more than 15 years of work in federal and state courts across the country. Through our efforts, we support the Foundation’s four priority areas: Hunger, Income, Housing and Isolation, and ensure that those 50 and older have a voice in the laws and policies that affect their daily lives.