Please ensure Javascript is enabled for purposes of website accessibility
Home / News Stories / High cost no bar to class arbitration waiver

High cost no bar to class arbitration waiver

Merchants who wanted to use a class action to sue a credit-card company for antitrust violations cannot cite the expense of individual arbitration to avoid a class-action waiver clause, the U.S. Supreme Court has held in a divided ruling.

In American Express Co. v. Italian Colors Restaurant, the merchants argued the cost of individually arbitrating their claims could exceed $1 million, while the maximum statutory recovery for each claimant was less than $13,000.

A federal district court granted a motion to compel individual arbitration, but the 2nd U.S. Circuit Court of Appeals reversed and remanded, holding that the federal common law “effective vindication” doctrine renders such class action waivers unenforceable where the plaintiffs’ cost of individual arbitration is prohibitively high.

Writing for a 5-3 majority, Justice Antonin G. Scalia disagreed.

“[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,” Scalia wrote, adding that the court’s ruling in AT&T Mobility v. Concepcion that the Federal Arbitration Act trumps a state law requiring classwide arbitration proceedings “all but resolves this case.”

In a dissent, Justice Elena Kagan wrote that the court’s ruling essentially allows the credit card company “to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”

“And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad,” Kagan wrote in a dissent joined by Justices Ruth Bader Ginsburg and Stephen G. Breyer.

Justice Sonia M. Sotomayor, a former 2nd Circuit judge, recused herself from the case’s consideration.

Leave a Reply