Amex Can Refuse Class Arbitration, Justices Say

(CN) - American Express can force merchants to arbitrate their claims individually, the Supreme Court ruled Thursday, even if they cannot recoup their expenses without a class action.

The justices reversed a 2nd Circuit decision invalidating the credit card company's class-arbitration waiver in favor of merchants.

Writing for the 8-3 majority, Justice Antonin Scalia explained that arbitration "is a matter of contract," and "courts must 'rigorously enforce' arbitration agreements according to their terms" absent instructions from Congress to do otherwise.

"No contrary congressional command requires us to reject the waiver of class arbitration here," Scalia wrote.

The ruling is a victory for American Express, which faced an antitrust class action despite the class-arbitration waiver in its contract.

Merchants claimed the company used its monopoly power to extract fees that were 30 percent higher than the rates charged by competing credit card companies.

American Express tried to compel individual arbitration under the Federal Arbitration Act, but the merchants refused, saying the cost of proving the antitrust claims would be "at least several hundred thousand dollars, and might exceed $1 million." The most an individual merchant could recover was just shy of $40,000, according to the merchants.

A federal judge sided with American Express and dismissed the lawsuit, but the 2nd Circuit reversed. The federal appeals court stood by that decision even after the Supreme Court vacated and remanded in light of its 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., which made it harder for consumers to band together in arbitration proceedings with businesses.

The high court on Thursday rejected the merchants' claim that courts may invalidate agreements that prevent the "effective vindication" of a party's legal rights -- the so-called "effective vindication" exception to the Federal Arbitration Act.

Scalia said this exception applies to a party's "right to pursue statutory remedies," and doesn't guarantee the right to arbitrate a class action.

"The fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy," Scalia wrote (original emphasis).

"The regime established by the Court of Appeals' decision would require -- before a plaintiff can be held to contractually agreed bilateral arbitration -- that a federal court determine (and the parties litigate) the legal requirements for success on the merits claim-by-claim and theory-by-theory, the evidence necessary to meet those requirements, the cost of developing that evidence, and the damages that would be recovered in the event of success. Such a preliminary litigating hurdle would undoubtedly destroy the prospect of speedy resolution that arbitration in general and bilateral arbitration in particular was meant to secure," Scalia concluded. (Parentheses in original.)

Voting with Scalia were Chief Justice John Roberts and Justices Clarence Thomas, Samuel Alito and Anthony Kennedy.

In her dissenting opinion, Justice Elena Kagan said American Express's contract "imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool's errand."

"So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability -- even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse," she wrote.

"And here is the nutshell version of today's opinion, admirably flaunted rather than camouflaged: Too darn bad."

Justices Ruth Bader Ginsburg and Stephen Breyer joined Kagan in dissent.

Justice Clarence Thomas wrote a concurring opinion, and Justice Sonia Sotomayor did not participate in the decision.

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