*By Stephen S. Zashin
This week, the United States Supreme Court held that the Federal Arbitration Act (FAA) does not permit a court to invalidate an arbitration agreement with a class action waiver on the ground that the plaintiff's cost of individually arbitrating statutory claims exceeds the potential recovery.
In American Express Co. v. Italian Colors Restaurant, No. 12-133 (June 20, 2013), the Plaintiffs were merchants who accepted American Express credit cards. These merchants signed a Card Acceptance Agreement requiring that any disputes be resolved by arbitration and that "there shall be no right or authority for any Claims to be arbitrated on a class basis." Nonetheless, the merchants filed a class action lawsuit alleging federal antitrust claims under the Sherman and Clayton Acts. American Express moved to compel individual arbitration of the Plaintiffs' claims. The Plaintiffs resisted, citing expert testimony that their claims could cost from several hundred thousand dollars to more than $1 million, but an individual Plaintiff’s maximum recovery would approximate $38,000. The district court granted American Express’ motion and required the individual arbitration of the Plaintiffs’ claims. The Second Circuit reversed, finding the class action waiver unenforceable because Plaintiffs “would incur prohibitive costs if compelled to arbitrate under the class action waiver,” effectively depriving them of federal statutory protections.
The Supreme Court rejected the Second Circuit’s holding. In doing so, the Court compared cases in which a right to pursue a claim is eliminated, such as when a high filing fee makes access to courts impossible, to situations like that in American Express where it simply may not be worth the expense to prove a statutory remedy. Justice Scalia, writing for the majority, also noted that antitrust statutes predate the availability of class actions and so “[t]he individual suit that was considered adequate to assure ‘effective vindication’ of a federal right before adoption of class-action procedures did not suddenly become ‘ineffective vindication’ upon their adoption.” Lastly, Justice Scalia wrote that AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) resolved the matter because the Court specifically rejected the argument that class arbitration was necessary to prosecute claims “that might otherwise slip through the legal system.”
The Supreme Court’s decision is a victory for employers which are increasingly requiring arbitration and using class action waivers. The lesson to be learned from this case and the recently-decided Oxford Health Plans, LLC v. Sutter, No 12-135 (June 10, 2013) is that employers must carefully review whether to have an arbitration agreement and whether such agreement should contain an express class waiver. While courts will generally enforce arbitration agreements, employers must still consider the hostility demonstrated by the National Labor Relations Board toward any agreement to arbitrate (especially those with class action waivers). See here and here.
*Stephen S. Zashin, an OSBA Certified Specialist in Labor and Employment law, has experience representing employers in all types of labor and employment matters. Stephen also has experience assisting employers with crafting and enforcing arbitration agreements and class action arbitration waivers. Please contact Stephen (ssz@zrlaw.com) at 216.696.4441 for any questions regarding drafting, implementing, or enforcing arbitration agreements.
