[authors: David Garcia and Leo Caseria]
On Friday, November 9, 2012, the Supreme Court granted certiorari in American Express Company vs. Italian Colors Restaurant, No. 12-133 to address the following question: “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.” As we predicted in February, the Supreme Court was likely to grant certiorari in American Express after the Second Circuit held, for the third time in the same case, that a class action waiver in an arbitration agreement between American Express and plaintiff merchants was unenforceable because it would effectively preclude plaintiffs from vindicating their federal statutory rights under the Sherman and Clayton Acts (plaintiffs are merchants alleging a Sherman Act tying claim against American Express for allegedly forcing merchants to accept American Express credit cards and debit cards as a condition of accepting American Express charge cards, at higher rates than competing credit cards and debit cards). See In re American Express Merchants' Litigation, 664 F.3d 204 (2d Cir. 2012) ("AMEX III") (previously blogged at In re American Express Merchants' Litigation - Plaintiffs Survive Three Rounds In The Second Circuit, But Can They Survive The Supreme Court?). To reach its decision, the Second Circuit had to bob and weave its way around three recent Supreme Court decisions all upholding the express terms of arbitration agreements under the Federal Arbitration Act (“FAA”): CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012) (holding that an arbitration agreement could be enforced in a case involving claims under the federal Credit Repair Organizations Act (CROA), because the CROA is silent on whether arbitration is permissible); AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (holding that a class action waiver in an arbitration agreement was enforceable because the FAA preempts state law); Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010) (holding that class arbitration cannot be imposed on parties that have not agreed to it). American Express will now become part of this line of cases.
In its Petition for Writ of Certiorari and Reply in support of the Petition, American Express asserted that the Second Circuit ignored and disregarded the Supreme Court’s recent decisions. It characterized AMEX III as creating a “sweeping, unwritten loophole” to the FAA. According to American Express, it makes no sense and would eviscerate Concepcion to hold that the FAA permits courts to ignore class action waivers in cases involving federal law claims but not state law claims, since it is not difficult for a plaintiff to “manufacture” a federal statutory claim. American Express also argued that the Second Circuit had misread and improperly expanded dicta from two earlier Supreme Court cases (Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90 (2000) and Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 (1985)) regarding “effective vindication” of rights. According to American Express, neither case suggested that class arbitration could be imposed if plaintiffs simply proved that the cost of litigating an individual case exceeded the potential recovery or was otherwise “prohibitive,” which would give plaintiffs “an easy-to-follow roadmap . . . to invalidate literally millions of arbitration agreements nationwide.” Instead, Mitsubishi involved the choice of substantive antitrust law in arbitration, while Green Tree concerned excessive arbitration fees. American Express further noted that AMEX III not only conflicts with Supreme Court precedent, but also with other federal circuit court decisions. In particular, American Express cited a recent case involving federal claims against AT&T based on service agreements, Coneff v. AT&T Corp., 673 F.3d 1155 (9th Cir. 2012) where the Ninth...
