On November 9, 2012, the Supreme Court granted certiorari in American Express Co. v. Italian Colors Restaurant, No. 12-133. The question presented is as follows: “Whether the Federal Arbitration Act permits courts, invoking the ‘federal substantive law of arbitrability,’ to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal-law claim.”
The case stems from the Second Circuit’s February 1, 2012 decision that American Express (“AMEX”) could not compel a putative class of merchants to arbitrate their antitrust claims. In re Am. Express Merchants Litig., 667 F.3d 204 (2d Cir. Feb. 1, 2012) (“Amex III“). The Second Circuit had held that the class action waiver contained in AMEX’s Card Acceptance Agreement—which tied the acceptance of its credit card to its charge card, which charged a higher rate—was unenforceable because it “would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.” The Second Circuit’s decision was based on an affidavit from plaintiffs’ expert showing that the cost of individual litigation far exceeded any potential individual recovery. A divided panel declined to hear the case en banc.
The AMEX III decision appears inconsistent with the strong policy favoring arbitration provisions that preclude class actions, as previously recognized by the Supreme Court. In Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), the Supreme Court held that the Federal Arbitration Act (“FAA”) could not compel parties to submit to class arbitration unless there was a contractual provision for such compulsion. Similarly, in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Supreme Court held that the FAA preempted a California state law that rendered most class action waiver provisions unenforceable. The Second Circuit reasoned that its holding was not inconsistent with Stolt-Nielsen or Concepcion because it does not impose class arbitration.
The Supreme Court’s ruling is likely to have a broad impact — beyond the area of antitrust — on understanding the interplay between a plaintiff’s right to a federal statutory remedy and a defendant’s right to enforce an arbitration agreement according to its terms.