Supreme Court Rules Companies Can Block Class Action Lawsuits

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A new Supreme Court decision has dealt a major blow to America’s consumers, employees and small businesses, according to American Association for Justice (AAJ) President Mary Alice McLarty.

“The Supreme Court ruled that corporations can use the fine print of contracts to grant themselves a license to steal and violate the law,” McLarty said in a statement regarding the court’s recent ruling in AmEx v. Italian Colors.

In AmEx v. Italian Colors, small businesses were seeking to hold AmEx accountable for violating federal antitrust laws. They alleged that the credit card company violates antitrust laws by using its monopoly power to compel merchants to take AmEx cards and to pay the higher fees associated with the cards. In the merchant contracts, AmEx requires individual forced arbitration to resolve disputes and prohibits merchants from sharing the arbitration expenses with other merchants.

In the class action lawsuit, the small businesses presented evidence to show that the costs of individual arbitration were substantially higher than the maximum amount of damages they could recover. While each claimant’s damages would likely be no more than a few thousand dollars, funding a single antitrust market study could cost more than $1 million, making it financially unfeasible to bring the antitrust claim. As a result, small companies cannot afford to bring individual antitrust claims against AmEx. In effect, AmEx is allowed to engage in wrongdoing without challenge.

The class action lawsuit initially arose after Italian Colors Restaurant in Oakland signed an agreement with AmEx to accept AmEx credit cards. The agreement included two stipulations. The first indicated that any dispute would be settled in arbitration. The second indicated that Italian Colors would also have to take AmEx debit cards. The AmEx debit cards impose significant fees on merchants who accept them.

Italian Colors and other merchants filed the class action lawsuit against AmEx, claiming that the debit card requirement violated federal trust laws because AmEx used its market position to force companies to take an action that caused AmEx to benefit from the added fees.

Because of the arbitration clause, the merchants were prohibited from joining efforts to dispute the debit card requirement. Further, the merchants were required to conduct independent research for each case. Since proving an antitrust violation incurs a huge cost, the merchants believed that their interest in bringing legal action would trump the arbitration agreement. The lower courts agreed that the arbitration agreement put an unfair burden on the merchants. AmEx appealed the decision all the way to the U.S. Supreme Court.

The Supreme Court’s opinion, written by Justice Antonin Scalia, argues that the agreement was enforceable. Scalia found that upholding the plaintiff’s class action lawsuit would defeat the “prospect of speedy resolution” that arbitration was meant to enforce. He goes on to explain that the Federal Arbitration Act “does not sanction a judicially created superstructure.”

In her dissent, Elena Kagan argues that the arbitration clause has allowed AmEx to protect itself from antitrust liability, “even if it has in fact violated the law.” She claims that the Supreme Court’s decision allows a company holding a monopoly to completely deprive merchants of legal recourse.

The case is American Express Co. et al. v. Italian Colors Restaurant et al., Case No. 12-133 in the U.S. Supreme Court.