Forbes magazine's coverage of a Supreme Court case that sharply limits consumers' and small businesses' rights focuses on a supposed victory over trial lawyers, ignoring its impact on enforcement of federal statutory rights.
On June 20, the Supreme Court released its opinion in American Express v. Italian Colors Restaurant. In a sharply divided opinion by Justice Antonin Scalia, the Court ruled that class-action waiver provisions in arbitration clauses are enforceable even when denying plaintiffs the right to proceed as a class would make it functionally impossible to litigate to protect their rights under federal law.
Although consumer advocates, 22 states led by Ohio Attorney General Mike DeWine, the United States, and even arbitration professors wrote briefs to urge the Court to protect consumers' ability to vindicate their federal statutory rights, Forbes chose to characterize Am Ex as a case about plaintiffs' attorneys' business model:
Class-action lawyers took a major hit to their business strategy today at the U.S. Supreme Court when a conservative majority led by Justice Antonin Scalia rejected an antitrust lawsuit against American Express [...] on behalf of thousands of merchants.
Class-action opponents say the procedure itself has become hopelessly corrupt, with lawyers pursuing claims with the main objective of negotiating a settlement that returns their "clients" pennies but generates meaningful fees for themselves.
With this decision, the justices in the conservative majority made it clear which side they're on.
The case involves a claim by small businesses, led by Italian Colors - an Oakland, California-based restaurant--that American Express's policy of requiring merchants to accept all of its cards violated federal antitrust laws. Pursuing antitrust claims is so expensive that the cost of arbitrating cases individually would exceed what plaintiffs could recover. However, to accept American Express cards, businesses must agree to waive their right to pursue claims against the company through class actions. The U.S. Court of Appeals for the Second Circuit held that a class-action waiver would not be enforced where doing so would prevent a plaintiff from vindicating its rights under federal antitrust laws.
In a stunning blow for plaintiffs and consumers, the Supreme Court reversed this decision. Justice Scalia acknowledged that the Court might refuse to enforce an explicit waiver of statutory rights, writing
As we have described, the exception [to the requirement that class action waivers are enforceable] finds its origin in the desire to prevent "prospective waiver of a party's right to pursue statutory remedies," Mitsubishi Motors, supra, at 637, n. 19 (emphasis added). That would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights.
Although he agreed that an explicit agreement not to enforce antitrust laws might be invalid, Scalia nonetheless closed the courthouse door to plaintiffs whose agreement effectively immunized corporate defendants:
But 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.
In plain English, that means it's okay if the rules make it impossible to win as long as they don't make it impossible to play.
First, if the Court embraces Petitioners' position and severs the link between arbitration and effective vindication of rights, statutes intended by Congress to protect weaker parties against stronger parties will essentially be gutted. Small businesses might as well move to a different country where they no longer enjoy the protection of the antitrust laws. At the whim of an employer, workers could be required to prospectively waive their Title VII rights. Consumer protection laws such as the Truth in Lending Act could be silently, but inescapably, repealed by corporations with the stroke of a pen.
Forbes gave short shrift to its implications for real consumers, choosing instead to style the issue as a battle between powerful lawyers and big corporations. Taking advantage of pro- corporate Supreme Court decisions, corporations are increasingly forcing consumers to accept class-action waivers. If you purchase a cruise ticket, a car, or a cell phone contract, chances are you are subject to a class-action waiver too.
Now, under the Supreme Court ruling, those corporations who forced you to forego your rights could be immunized from liability for violating the law.
Justice Elena Kagan summarized that outcome in her dissent:
The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse. And here is the nutshell version of today's opinion, admirably flaunted rather than camouflaged: Too darn bad.