Finally, the U.S. Supreme Court has issued an opinion involving a heated expert issue with some bite. Decided June 20th, the Court gave a clear-cut answer to the question of whether the cost to individually arbitrate a claim – which includes the potentially pricey cost of an expert – can be grounds for a court to invalidate a contractual waiver of class arbitration in the context of an antitrust claim. The majority’s answer: A resounding “No.”
Although the majority’s answer was loud and clear, the decision apparently touched on a nerve within the court, as it sparked fireworks in the form of a stinging dissent issued by three of the Justices. Perhaps that’s not a surprise given that the case, American Express Co. v. Italian Colors Restaurant, was already on its second go-round at the U.S. Supreme Court, having once been remanded to the 2nd Circuit.
The dissent didn’t mince words. It recognized the critical nature of economic testimony in proving antitrust claims and further called pursuit of the claim in light of the arbitration contract’s procedural bars “a fool’s errand.” The dissent further found that a result under the majority’s decision would mean “The monopolist gets to use monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”
Despite Dissent, Decision a Boon for Big Business
But for big businesses and the attorneys representing them, the late term majority decision was worth the wait, or rather worth its weight in gold. The majority had much to say about the enforceability of contractual waivers of class arbitration under the Federal Arbitration Act (FAA) in an opinion that should keep businesses which utilize them smiling.
The question examined by the Court: Whether the plaintiff’s cost of individually arbitrating a federal statutory claim (which here very likely includes the high cost of retaining an expert) gives grounds for invalidating a contractual waiver of class arbitration under the FAA when the economic cost of individual arbitration would exceed an individual’s potential recovery.
The Court’s decision: The FAA does not allow courts to invalidate contractual waivers of class arbitration on the basis of economic infeasibility – merely because the cost of individual arbitration exceeds potential recovery. Arbitration agreements, as the FAA reflects, are a matter of contract, the terms of which are freely entered into by the parties. Courts must “rigorously enforce” such arbitration agreements in accordance with their terms, “unless the FAA’s mandate has been ‘overridden by a contrary congressional command.’”
The Real “Cost” of An Expert – Should Economic Access Impact Vindication of Rights?
The case has a long and complex procedural history, but the issue was rather straight forward.
Original plaintiffs, business merchants who accept American Express cards, alleged that certain contract provisions in connection with accepting American Express charge cards essentially amounted to “tying arrangements” in violation of the Sherman Act. Plaintiffs brought a class action alleging violation of federal antitrust law and treble damages for the class under the Clayton Act.
American Express Company sought to compel individual arbitration under the FAA, citing terms of an arbitration agreement entered into by the parties which expressly waived arbitration of disputes on a class action basis.
Plaintiffs countered the defendant’s motion to compel individual arbitration with (you guessed it) an expert– an economist who opined on none other than the prohibitive costs of an expert necessary to prove the antitrust claims. The economist submitted a declaration which estimated that the cost of expert analysis required to prove the antitrust claims far exceeded any maximum recovery that an individual plaintiff might be able to obtain.
As recounted in the majority’s opinion, the economist estimated that, “[T]he cost of an expert analysis necessary to prove the antitrust claims would be ‘at least several hundred thousand dollars, and might exceed $1 million,’ while the maximum recovery for an individual plaintiff would be $12,850, or $38,549 when trebled.”
The district court sided with American Express Company, granting its motion to compel individual arbitration and dismissing the suits. But the Second Circuit reversed the decision, finding that plaintiff merchants had demonstrated the costs to arbitrate individually would be prohibitive and that the class action arbitration waiver was unenforceable.
Eventually the case and issue landed before the Supreme Court – for a second time. Perhaps eager to stop the legal merry-go-round, this time the majority gave a definitive answer, ending the debate.
The Court’s Answer
Despite the potentially prohibitive cost of individually litigating such a claim – including costs associated with expert analysis which might outweigh an individual plaintiff’s recovery amount – the majority found that arbitration, including the class action waiver here, is a matter of contract which the Court refused to disturb.
“[A]ntitrust laws do not guarantee an affordable procedural path to the vindication of every claim,” noted the Court. As the Court made abundantly clear, economic feasibility and the actual right to prove a remedy are two separate issues.
The majority made no bones about it, stating, “[T]he fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” Respondents contracted to litigate their claims individually. Such waiver of class action litigation, concluded the majority, did not violate policies of antitrust law.
Justice Thomas, in a concurring opinion, echoed the majority, stating, “Italian Colors voluntarily entered into a contract containing a bilateral arbitration provision. It cannot now escape its obligations merely because the claim it wishes to bring might be economically infeasible.”
The Dissent –“Too Darn Bad”
Justice Kagan penned the dissent (joined by Justice Ginsburg and Justice Breyer), which characterized the result under the decision as follows: A small merchant is essentially prevented from challenging allegedly unlawful provisions in a form contract that it claims violate antitrust laws. The majority’s opinion, according to the dissent, ignores the effective-vindication rule – designed to prevent arbitration clauses from “choking off a plaintiff’s ability to enforce congressionally created rights.”
The majority’s response, according to the dissent: “Too darn bad.”
The dissent noted the obvious – plaintiff could not prevail in arbitration without economic analysis from an expert, which “would cost between several hundred thousand and one million dollars,” a cost which the dissent characterized as prohibitive in relation to plaintiff’s possible award, which the dissent valued at up to $38,549. “No rational actor would bring a claim worth tens of thousands of dollars if doing so meant incurring costs in the hundreds of thousands,” stated the dissent.
The End of the Road…
This case appears to have found its final resting place with a result that should make big business rest easy as to the enforceability of such class action waiver arbitration agreements. Meanwhile the fireworks – at least for now – have come to an end while the Supreme Court takes a well-deserved recess after concluding a history-making term.
Do you agree with the majority or dissent? Should the cost of an expert impact vindication of individual rights under a federal statute or affect court access?