Last week, the Supreme Court decided American Express Co. v. Italian Colors Restaurant, in which it held that the Federal Arbitration Act does not permit courts to invalidate a contractual waiver of the right to sue individually or by class action. The case involves the boiler-plate mandatory arbitration provisions contained in the majority of service provider agreements, including credit card and cell phone agreements. The beneficiaries of this decision are big corporations that wish to force customers to raise their grievances against the corporation through an individual arbitration rather than a class action, class arbitration, or other collective method that permits cost-sharing.
This decision makes it nearly impossible for a small business or individual to seek redress against a corporation in a small damages case. For example, let’s say a consumer or small business owner has irrefutable proof that her mobile phone service provider is tacking on an improper, small charge to every monthly bill. The customer’s actual damages over the time that it took her to discover this improper billing practice may be less than $1,000. It makes no financial sense for this customer to hire an attorney and file an individual lawsuit or arbitration claim because the costs of prosecuting the individual claim plus the attorney’s fees would be greater than the amount of the potential award. The corporation may be defrauding millions of customers by this same billing error or scheme. The efficient way to stop such bad corporate practice is for the affected consumers to join a class action or other collective resolution method against the corporation.
In the American Express Co. v. Italian Colors Restaurant case, a group of merchants sought to hold American Express accountable for violating federal antitrust laws under the Sherman Act. They alleged that AmEx used its monopoly power over charge cards to force merchants to take all AmEx-branded credit cards and pay higher fees. Each of the merchants’ AmEx agreements contained language in the fine print forcing them into individual arbitration of all disputes. The merchants presented overwhelming evidence to the Court proving that the costs of an individual arbitration would have been many times more than the possible maximum amount of damages that any one merchant would recover. The cost of a single antitrust market study necessary for each arbitration claim could exceed $1 million, while the merchant’s potential damages were a few thousand dollars. Italian Colors was not claiming that a class action was necessary- only that it had to have some means of vindicating a meritorious claim by some form of cost-sharing with other similarly situated merchants. The AmEx agreement barred not just class actions, but all forms of cost-sharing. As Justice Kagan states in her dissenting opinion, “AmEx has put Italian Colors to this choice: Spend way, way, way more money than your claim is worth, or relinquish your Sherman Act rights.”
The practice of forced arbitration means that Amercan corporations can use the fine print of their non-negotiable contracts to force small businesses and consumers to waive their constitutional right to trial by jury. In the AmEx decsion, the SCOTUS says that forced arbitration is permissible even when the small business can prove that it will not be able to have its rights redressed through arbitration. The majority opinion was written by Justice Scalia. In her dissent, which Justices Ginsburg and Breyer joined, Justice Kagan expressed serious concern that the majority’s approach would allow all kinds of de facto prohibitions to be inserted into arbitration agreements to prevent parties from effectively vindicating their rights. For instance, arbitration agreements might impose high filing fees, a one-day statute of limitations, or prohibit economic testimony in antitrust cases, among other things.
All of this smacks of a frightening attack not only on the right to participate in a class action, but also on the 7th Amendment to the Constitution, which states that in all controversies exceeding $20 “the right of trial by jury shall be preserved.” There is no mention of arbitration in the Constitution. 7th Amendment advocates need to take a lesson from 2nd Amendment advocates. Can you imagine the reaction to an opinion that weakened the 2nd Amendment to this extent? Or how about boiler-plate provisions in contracts that say that people who sign the contract waive their right to own a gun?
Here’s the bottom line for American consumers. If you sign an arbitration agreement that says somewhere buried in the fine print that you are waiving your right to class action lawsuit, collective arbitration or to any form of cost-sharing, that means you are waiving your right to class action lawsuit, collective arbitration, and every other form of cost-sharing. A court cannot help you get out of your agreement just because you never saw the fine print or because individual arbitration is so expensive that it would be impossible for you to be awarded more than it costs you to get the award, even if a federal statutory right is involved. Get used to it. Corporations are “people,” and some people have more rights than others.