In re American Express Merchants Litigation

The Supreme Court’s decision today in American Express Co. v. Italian Colors Restaurant (pdf), No. 12-133, eliminated the last significant obstacle to adoption of fair, efficient arbitration systems that increase access to justice for consumers while reducing transaction costs for everyone, particularly the huge legal fees of both plaintiffs’ lawyers and defense lawyers.

In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Supreme Court held that the Federal Arbitration Act (FAA) prohibits courts from refusing to enforce arbitration agreements on the ground that they do not provide for class actions. Today’s ruling in American Express makes clear that Concepcion’s determination applies to claims under federal law as well. Mayer Brown represented AT&T Mobility in Concepcion and filed an amicus brief (pdf) for the Chamber of Commerce of the United States of America and Business Roundtable in American Express.

American Express has significant implications both for courts’ consideration of attempts to invalidate arbitration agreements and for the policy debate over the enforceability of those agreements. We discuss both, after explaining the grounds for the Supreme Court’s ruling.


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In the wake of AT&T Mobility LLC v. Concepcion, the California Supreme Court granted review in three cases involving significant arbitration issues, including key questions about whether the Federal Arbitration Act preempts California law concerning the enforceability of arbitration agreements.

My colleagues and I have filed amicus briefs on behalf of the Chamber of Commerce of the United States in all three cases, the most recent of which is Iskanian v. CLS Transportation, No. S204032.

In Iskanian, the Second District of the California Court of Appeal had affirmed an order compelling individual arbitration in a putative class/representative action alleging, among other things, that the defendant had failed to pay overtime and provide required meal and rest breaks. For more background on the grant of review and the decision below, please see our prior blog post here.

The Chamber’s amicus brief (pdf) to the California Supreme Court explains why the court of appeal was correct.


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Yesterday, my colleagues and I attended oral arguments before the Supreme Court in American Express Co. v. Italian Colors Restaurant, No. 12-133, in which we submitted an amicus brief on behalf of business groups.   As readers of the blog know, the issue in American Express is whether plaintiffs may avoid their agreements to arbitrate on an individual rather than class-wide basis by contending that they cannot “effectively vindicate” their federal claims without the use of the class device.   The Second Circuit held that a plaintiff who can prove that that it would be “economically irrational” to pursue his or her federal antitrust claims without resort to class actions may avoid arbitration.  From the oral arguments, a majority of the Supreme Court appears prepared to reject the Second Circuit’s conclusion.

(Update: An audio recording of the argument is available here.)

American Express had a bit of a head start in light of AT&T Mobility LLC v. Concepcion, in which the Court held two terms ago that the Federal Arbitration Act preempts state-law rules that would condition the enforceability of arbitration agreements on the availability of class procedures.  (We represented AT&T in Concepcion).  In our American Express amicus brief, we explained that Concepcion’sholding rested on this Court’s conclusion that class arbitration is ‘not arbitration as envisioned by the FAA,’ ‘lacks its benefits,’ and is therefore ‘inconsistent with the FAA.’ There is no basis for believing that the FAA views the fundamental—and therefore protected—characteristics of arbitration differently when a plaintiff’s claim arises under federal law.”

At oral argument, the Justices and parties seemed to take it as given that plaintiffs could not invoke the FAA or the Sherman Act to attack their arbitration agreements solely because they forbid class procedures.  Instead, the argument focused on the meaning and breadth of the language in prior Supreme Court decisions referring to whether a litigant may “effectively vindicate her federal statutory rights in the arbitral forum.”


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Two years ago, the Supreme Court held “that a party may not be compelled under the [Federal Arbitration Act] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” Stolt-Nielsen v. AnimalFeeds International Corp., 130 S. Ct. 1758, 1775 (2010) (emphasis in original). But the Court expressly declined at the time “to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration.” Today, the Supreme Court granted review in Oxford Health Plans LLC v. Sutter, No. 12-135, to resolve a circuit split over what counts—consistent with the FAA—as an agreement to authorize class arbitration. This issue is important to businesses that seek to enforce arbitration agreements in the context of putative class actions when those agreements do not expressly address class arbitration.
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The Supreme Court has just granted certiorari in American Express Co. v. Italian Colors Restaurant, No. 12-133.   Earlier today, my colleague Andy Pincus previewed the issue presented to the Court, which is (in a nutshell) whether plaintiffs may avoid their agreements to arbitrate on an individual rather than class-wide basis by contending that

When the Supreme Court convenes for its private conference today, the Justices will consider whether to grant certiorari in a case presenting one of the most significant questions regarding the meaning of the Court’s ruling in AT&T Mobility v. Concepcion that remains unresolved in the lower courts.

Following the Concepcion decision, opponents of arbitration tried to convince lower courts to limit Concepcion’s holding that arbitration clauses could not be invalidated on the ground that they required individual arbitration and prohibited class proceedings. The overwhelming majority of those arguments were rejected by district courts and courts of appeals, as explained in this article.

But a two-judge panel of the Second Circuit earlier this year endorsed the bizarre assertion that Concepcion applies differently depending on whether the claim to be arbitrated arises under state or federal law. In In re American Express Merchants’ Litigation, the panel held that agreements to arbitrate disputes on an individual basis need not be enforced when a plaintiff provides evidence that the costs of vindicating a federal claim make it “economically irrational” to pursue such a claim without the class-action procedure. Amazingly, the court found that the affidavit of the plaintiffs’ own economic expert provided sufficient “evidence” to invalidate the arbitration clauses. In other words, arbitration clauses that could be enforced with respect to a state claim might be unenforceable if the same plaintiff brought a virtually identical claim under federal law.

As noted in an earlier blog post, American Express filed a petition for a writ of certiorari seeking review of the Second Circuit’s ruling (American Express Co. v. Italian Colors Restaurant, No. 12-133) and Mayer Brown authored an amicus brief supporting the petition on behalf of the Chamber of Commerce, Business Roundtable, American Bankers Association, and National Association of Manufacturers.


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Since Concepcion, the plaintiffs’ bar has been searching for ways to avoid agreements to arbitrate on an individual basis. Because their efforts have largely failed so far, the new frontrunner is the argument that class procedures are necessary to permit “vindication of federal statutory rights.” Most courts to consider the argument have rejected it,

In Schnuerle v. Insight Communications (pdf), the Kentucky Supreme Court joins a number of other courts in rejecting a key argument that the plaintiffs’ bar has been making in the wake of AT&T Mobility LLC v. Concepcion (pdf)—that arbitration agreements with class waivers should not be enforced whenever the plaintiff is able to persuade a court that it would not be feasible to vindicate his or her statutory claims on an individual basis because of the alleged cost of proving those claims.

Ever since Concepcion, in which the U.S. Supreme Court held that the Federal Arbitration Act bars states from refusing to enforce arbitration agreements that forbid class proceedings, plaintiffs have been searching for a rule-swallowing exception to that decision. They appear to have settled on the so-called “vindication of statutory rights” theory: Based on out-of-context dicta in a number of Supreme Court decisions involving the arbitrability of federal claims, plaintiffs argue that the Supreme Court has a long-standing rule that courts need not enforce arbitration agreements when they are persuaded that the plaintiff would be unable to vindicate his or her claims under the arbitration clause at issue and that Concepcion left that rule undisturbed.

The courts are divided as to the viability of the vindication-of-statutory-rights theory when the plaintiff has raised federal claims. So far, my colleagues and I have won this fight in the Ninth Circuit in Coneff v. AT&T Corp. (pdf), 673 F.3d 1155 (9th Cir. 2012). The Second Circuit came to a different conclusion in In re American Express Merchants Litigation, 667 F.3d 204 (2d Cir. 2012) (pdf). (We’ve previously reported (pdf) on the Second Circuit’s decision and its denial of a petition for rehearing en banc.) But virtually all courts have rejected the notion that the vindication-of-statutory-rights theory has any validity when the plaintiff raises only state-law claims.  The Kentucky Supreme Court joined the club in Schnuerle.  See more below the fold.


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Since the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, the Eleventh Circuit has consistently enforced agreements to arbitrate with class waivers. Earlier this week, it did so again in a case involving Sprint’s arbitration agreement in its service contracts. See Pendergast v. Sprint Nextel Corp. (pdf), No. 09-10612 (11th Cir. Aug. 20, 2012).

Businesses should pay close attention to Pendergast for two reasons. First, the decision closes a door that—at least according to some plaintiffs—had been left wide open in the Eleventh Circuit. Specifically, the Eleventh Circuit issued the first post-Concepcion federal appellate decision in Cruz v. Cingular Wireless LLC (pdf), 648 F.3d 1205 (11th Cir. 2011) (pdf), which involved the same AT&T Mobility provision upheld in Concepcion. Plaintiffs thus argued that Cruz did not apply to arbitration clauses that lacked the pro-consumer incentives of AT&T’s arbitration provision. See Concepcion, 131 S. Ct. at 1753 & n.3. Because the Sprint provision at issue in Pendergast does not contain similar features, Pendergast makes clear that Concepcion and Cruz extend to a broad array of arbitration agreements with class waivers.

Second, Pendergast rejects the attack on arbitration agreements that is currently in vogue among the plaintiffs’ bar: that without the class action device, a plaintiff will not be able to “effectively vindicate” his or her statutory rights. At the eleventh hour—or, to be more precise, just a few weeks before the Eleventh Circuit issued its opinion— the plaintiff filed a motion (pdf) attempting to invoke In re American Express Merchants Litigation (pdf), 667 F.3d 204 (2d Cir. 2012) (“Amex III”). In Amex III, the Second Circuit refused to enforce the arbitration provision in the agreements between the plaintiff and American Express after concluding that the plaintiffs could not vindicate their federal antitrust claims on an individual basis in arbitration. (Please see our more detailed reports on the Amex III decision (pdf) and the Second Circuit’s denial of rehearing en banc (pdf).) By enforcing Sprint’s arbitration clause, the Eleventh Circuit’s decision tacitly rejects the plaintiff’s attempt to invoke this “vindication of statutory rights theory” in the context of Florida’s consumer-protection statute.


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