20 June 2013

Law in Plain English: American Express Co. v. Italian Colors Restaurant

This is one in a series of posts designed to describe court decisions in plain English. For more detail and background on the legal issues, see the link to the case below. For similar posts, click here.

American Express Co. v. Italian Colors Restaurant

Italian Colors Restaurant and other merchants (in a class action) alleged that as a condition of accepting American Express (AmEx) charge cards, they were forced to accept AmEx credit cards and debit cards at higher rates than competitors' credit cards and debit cards. Pursuant to a prior agreement which included a class action waiver, AmEx sought arbitration. The District Court found in favor of AmEx. The Second Circuit reversed, finding that the class action waiver was unenforceable because if the provision were enforced it would strip the plaintiffs of rights accorded them by statute. The question before the Court was whether the Federal Arbitration Act (FAA) 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 a 5-3 decision (Justice Sotomayor recused, because she participated in the decision at the Second Circuit), the Supreme Court ruled that the FAA does not permit courts to invalidate a contractual waiver of class arbitration on the grounds that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery. As a result, the merchants' class action is precluded by the arbitration agreement. The practical impact of this decision is that courts must enforce arbitration agreements for claims, even for claims alleging a violation of a federal statute, unless the FAA’s mandate has been overridden by a contrary congressional command.
Post a Comment