The U.S. Supreme Court heard oral arguments Wednesday in American Express Co. v. Italian Colors Restaurant, an arbitration class action waiver case from the Second Circuit that could expand or reduce the scope of AT&T Mobility LLC v. Concepcion, 131 S. Ct.1740 (2011). The Circuit Court decision can be read here.
The issue presented on review is:
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.
In Green Tree Financial v. Randolph, 531 U.S. 79, 90 (2000), the SCOTUS implied that plaintiffs shouldn’t have to arbitrate if they could prove that they could not effectively vindicate their federal statutory rights in the arbitral forum. A decade later, in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010) , the SCOTUS held that the Federal Arbitration Act prohibits arbitrators from imposing class arbitration on parties that have not agreed to such procedures. A year after that, in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) , the SCOTUS held that the FAA preempts state laws invalidating commercial arbitration agreements on the ground that they forbid class arbitration. However, AT&T Mobility addressed unconscionability principles under state law, within the scope of Section 2 preemption, so it did not address the vindication of rights doctrine, which is a federal common law doctrine. Now, the SCOTUS addresses this issue in American Express
The Second Circuit held that the American Express class action waiver was unenforceable because its effect would be to prevent the plaintiffs from effectively vindicating their statutory rights plaintiffs, notwithstanding the holdings in Stolt-Nielsen or AT&T Mobility.
It is usually difficult to predict where a majority of justices stand based on the questions they pose during oral argument, but if you enjoy doing so, you can read the transcript here. We suspect that the vote will be 5-3 to overturn the Second Circuit (Justice Sotomayor recused herself because she sat on the Second Circuit panel that issued one of the earlier rulings). If we are right, companies will be able to effectively give themselves contractual immunity from liability for violating even important statutory rights on a large scale, as long as each individual's damages aren't large enough to warrant hiring a lawyer.