WASHINGTON – In the latest in a series of cases considering the enforceability of mandatory arbitration clauses that bar class proceedings, the U.S. Supreme Court is considering whether federal common law prohibits such agreements in some circumstances.
Supporters of the plaintiffs’ position in American Express Co. v. Italian Colors Restaurant argue that the costs of bringing claims such as the Sherman Act antitrust action at issue on an individual basis are so prohibitively high that enforcing these agreements effectively shuts out parties from seeking redress.
“Corporations … should not be allowed to get away with bullying and cheating small businesses by manipulating the fine print of non-negotiable contracts,” said Mary Alice McLarty, a partner at McLarty Pope in Dallas and president of the American Association for Justice, a trial lawyers’ group.
But other say that allowing a federal-law exception to the Court-approved principle that parties should not be forced to arbitrate on a classwide basis without express agreement will give plaintiffs a way to circumvent the Court’s precedent.
“What people will do is always include federal claims [in their complaints] to get around the Court’s ruling” in AT&T Mobility v. Concepcion, said Andrew Pincus, a partner at Mayer Brown in Washington.
In that landmark case, the Court held that the Federal Arbitration Act prohibits states from requiring classwide arbitration procedures to be present in arbitration contracts.
‘Effective vindication doctrine’
The case before the justices considers whether plaintiffs in an antitrust action against a credit card company can proceed in arbitration as a class, despite a clause in the company’s agreement allowing only bilateral — or one-on-one — arbitration.
The plaintiffs argue that the federal common law “effective vindication doctrine” compels allowing classwide proceedings because the expert reports and other evidence required to prevail in an antitrust action are too cost prohibitive for single plaintiffs to afford, and requiring them to go it alone effectively eliminates their ability to seek redress. In addition, the contract’s confidentiality clause prohibits single claimants from helping each other build their cases.
At oral arguments on Wednesday, Paul Clement, a partner in the Washington office of Bancroft, argued on the plaintiffs’ behalf that the drafters of the Sherman Act didn’t contemplate a system in which claims would be cost-prohibitive, and that the Court should use the common law doctrine to level the playing field.
“Back in the good old days, you didn’t necessarily need a $300,000 expert to bring a Sherman Act claim,” Clement said.
The credit card company counters that the Supreme Court’s rulings in Concepcion and Stolt-Nielsen v. AnimalFeeds International Corp. — which held that class arbitration is inconsistent with the Federal Arbitration Act absent express approval by parties on both sides — also apply to federal claims like the one at issue, and underscore the fact that Congress never contemplated class arbitration under the Sherman Act. And, it argues, nothing prevents single claimants from finding ways to minimize the costs.
“They can share the cost of the expert. And, of course, they get their attorneys’ fees back, plus reasonable statutory costs, plus potentially treble damages,” said Michael Kellogg, a partner in the Washington office of Kellogg, Huber, Hansen, Todd, Evans & Figel, arguing for American Express.
Some justices expressed sympathy for the plaintiffs’ plight.
“The expense to win one of these cases is enormous,” said Justice Ruth Bader Ginsburg.
“And no single person” can afford it.
But others wondered if it was necessary to apply the federal common law doctrine to the FAA, which was designed to give parties a fast and less costly way to resolve disputes.
“The whole point of arbitration is to have a procedure where you don’t have costs,” said Justice Anthony M. Kennedy, questioning the need for such expensive expert evidence, which the plaintiffs say is needed to succeed in an antitrust action. “You have as an arbitrator … an antitrust expert or the best in the class in the third year antitrust course in law school.”
A decision is expected later this term.
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