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U.S. Supreme Court To Make Landmark Decision on Anti-Class Action Arbitration Enforcement

Wednesday, February, 27, 2013


This week, the U.S. Supreme Court will hear arguments in a case that could limit the ability of businesses to impose anti-class action verbiage in their arbitration clauses.  While arbitration is a common form of dispute resolution chosen by businesses to be included in their employee or third-party contract, there has been a marked increase in wording within them that bans class action suits.  Opponents claim that clauses such as these are unfair, providing an advantage to the company to limit its future risk and mitigate significant financial loss. 

The particular case going before the Supreme Court this week involves a group of merchants who are alleging that American Express has violated the antitrust law by requiring businesses to accept cards with high transaction fees.  According to the lawsuit, in order for businesses to be able to accept American Express corporate charge cards, they must also accept cards that cost them a significant amount of money to process.  The group of businesses had at first agreed to arbitrate their disputes with American Express but have since insisted that the costs associated with so many individual arbitrations would be expensive when compared with the amount of money they could each recover if they won the arbitration claims.  Thus, according to the merchants’ claims, the anti-class action arbitration clause violates their rights under U.S. antitrust law.  

As a result of these claims, New York’s 2nd U.S. Circuit Court of Appeals agreed that American Express could not compel arbitration in all of the cases.  American Express then appealed the decision, arguing that there was conflict with the Supreme Court’s ruling regarding the enforceability of arbitration agreements under the Federal Arbitration Act.  In their appeal, American Express cited the Supreme Court’s 2011 ruling in AT&T vs. Concepcion, in which the Supreme Court upheld the contractual clauses that waived customers’ right to class action lawsuits.  

Advocates are concerned that if the Supreme Court rules in favor of American Express in this case, there would be an influx of arbitration clauses banning class-action suits—a legal process that is, in some cases, the only cost-effective way of bringing a claim against a company.  Solicitor General Donald Verrilli agrees with this interpretation and said that a ruling in American Express’ favor "would deprive a range of federal statutes of their intended deterrent and compensatory effect."