Seven Months After 'American Express v. Italian Colors Restaurant': The End Of Class Actions?

The conclusion of the U.S. Supreme Court's last term produced a number of notable victories for business. These victories involved decisions that made it more difficult for employees to prevail in discrimination claims, rejected attempts by plaintiffs to circumvent limitations on class actions in the Class Action Fairness Act, ruled in favor of generic-drug manufacturers sued by persons claiming to have been injured by defective generic medications and limited corporate liability under the Alien Tort Statute for conduct occurring outside the United States.

Among the most significant of these pro-business outcomes are decisions broadly affecting plaintiffs' ability to successfully bring and maintain federal class-action lawsuits.

By greatly enhancing the ability of companies to contract out of class procedures and by making it more difficult for plaintiffs to establish the prerequisites to class certification, the court has potentially drastically reduced the availability of the class-action device.

In particular, in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), the court issued an opinion concerning the availability of class procedures for parties to consumer contracts that provide for mandatory arbitration.

Nearly seven months after the AmEx decision, its impact can begin to be assessed. Based on the decisions to date, it appears that AmEx is being construed so as to prevent customers, employees, clients and other constituents of corporate America from utilizing class actions where a contract provides for individual arbitration.

That is the case even in cases in which enforcing such a clause effectively means that the individual will not pursue claims because it is too expensive to do so relative to the potential recovery.

Because the class-action device is frequently used in precisely the situation in which it is not viable to pursue claims individually, the impact of the AmEx decision is potentially enormous.1

The AmEx Decision

In AmEx, the court addressed "whether a contractual waiver of class arbitration is enforceable under the Federal Arbitration Act when the plaintiff's cost of individually arbitrating a federal statutory claim exceeds the potential recovery."2

Italian Colors Restaurant and a group of similarly situated merchants brought a purported class action against American Express, asserting that the company had violated Section 1 of the Sherman Act by allegedly using its monopoly power to force merchants to accept credit cards with fees paid to AmEx that were significantly higher than its competitors' fees.

Shortly after the suit commenced, AmEx moved to compel individual arbitration under the Federal Arbitration Act, 9 U.S.C. § 1, and under the parties' contracts, which required that all disputes be resolved in arbitration and explicitly waived the merchants' right to arbitrate claims against AmEx on a class-wide basis.3

In their response, the merchants argued that the costs of proving their antitrust claims individually would far outweigh their expected individual recoveries under the Sherman Act and that they should therefore be permitted to litigate as a class.

The District Court dismissed the merchants' class-action lawsuit. The 2nd U.S. Circuit Court of Appeals reversed, holding that the class-action waiver in the parties' contract was unenforceable because it created a situation in which the merchants "would incur prohibitive costs" when exercising their federal statutory rights, effectively amounting to a forfeiture of those rights.

Eventually, after the 2nd Circuit stood by its decision on two separate occasions even after considering subsequent Supreme Court decisions in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), and AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), the Supreme Court addressed AmEx head on.4

The Court's Decision

In a 5-3 decision authored by Justice Antonin Scalia,5 the Supreme Court...