In American Express Co. v. Italian Colors Restaurant, the Supreme Court held in a 5-3 decision that class waivers in arbitration agreements are enforceable, even if the plaintiff’s cost of arbitrating her federal statutory claim exceeds her potential recovery.
Italian Colors brought a class action against American Express for alleged federal antitrust violations under the Sherman Act. American Express sought to enforce an agreement to arbitrate all disputes individually, with no “class arbitration.” The restaurant argued that enforcing the class arbitration waiver would bar the “effective vindication” of its federal statutory rights. The costs to prove its antitrust claim would require several hundred thousand dollars in expert witness fees, while her maximum recovery totaled less than $40,000. Essentially, the restaurant argued that it would not be economically feasible for plaintiffs to pursue their claims on an individual basis.
The Second Circuit sided with the merchants and found the class waiver unenforceable, but the Supreme Court reversed.
In an opinion authored by Justice Scalia, the Supreme Court ruled that the arbitration agreement must be enforced according to its terms under the Federal Arbitration Act absent a “contrary congressional command.” Scalia wrote, “the antitrust laws do not evince an intent to preclude a class action waiver.” The Court continued and said that although effective vindication concerns arise where there is a provision in an arbitration agreement “forbidding the assertion of certain statutory rights,” and “would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable . . . . the 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.”
In other words, a class waiver in an arbitration agreement cannot be found unenforceable under the Federal Arbitration Act merely because it would be too expensive for a party to prove her claims on an individual basis. Absent exorbitantly expensive filing and administrative fees, this decision should foreclose the use of the “effective vindication” or “economic feasibility” argument that plaintiffs’ lawyers have used to circumvent the Supreme Court’s seminal class-waiver decision, AT&T Mobility LLC v. Concepcion. Indeed, the Italian Colors majority found that its decision in Concepcion, “all but resolves this case” because the Court there “specifically rejected the argument that class arbitration was necessary to prosecute claims that might otherwise slip through the legal system.”
In her dissent, Justice Kagan (joined by Justices Ginsberg and Breyer) criticized the majority for an unwarranted attack on class actions and undue deference toward individual arbitration as an alternative. As she put it, “To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled.” Justice Sotomayor took no part in the consideration of the case because she was on a Second Circuit panel that heard the case.
Italian Colors sends the clear message that an arbitration agreement should be enforced according to its terms, even when it is not economically feasible for a plaintiff to pursue her claims through individual arbitration. Although the decision arose in the antitrust context, it has a direct impact on all consumer class actions, and should allow companies to compel individual arbitration – and avoid class arbitration – if the agreement at issue clearly prohibits class procedures.