Media Cover Boat Disaster But Not The Supreme Court Case That Could Hand Even More Power To Corporations

News outlets have largely ignored the legal barriers that the Supreme Court has erected in between injured consumers and access to compensation - including a current case that could give big business the power to place themselves beyond the reach of federal laws by preventing consumers and small businesses from bringing class action lawsuits.

That's surprising, considering the extensive media coverage of the story of 3,000 passengers on Carnival Cruise Line's Triumph who spent five days floating in the Gulf of Mexico with no power or plumbing, and finally disembarked in Mobile, Alabama.  On February 20, attorneys for the passengers filed a class-action lawsuit against Carnival, claiming that the cruise line acted negligently by sending the Triumph to sea when they knew the ship had mechanical problems.   It was the second major crisis on a Carnival ship in a year. 

Thanks to a series of Supreme Court cases limiting class actions and upholding arbitration agreements, those passengers are facing an uphill climb with their lawsuit.  Carnival's ticket contract itself contains an arbitration clause requiring customers to waive their right to bring claims against Carnival in court.  It also includes a “class-action waiver” that states: 

This contract provides for the exclusive resolution of disputes through individual legal action on guest's own behalf instead of through any class action."

If enforced, a class-action waiver creates a David and Goliath dynamic.  As legal expert Dahlia Lithwick has explained, class actions often level the playing field between individual claimants and big defendants such as employers.  The Supreme Court has made it increasingly difficult to pursue class actions.  For example in Wal-Mart v. Dukes, the Court rejected a class-action suit brought by female Wal-Mart employees who claimed they were subjected to discrimination in pay and promotions.  The practical result:  Wal-Mart employees would have to jump over significant hurdles to pursue class action; otherwise, they are forced to go it alone against the number two corporation in the Fortune 500.  Lead plaintiff Betty Dukes explained that the Court took “an opportunity to give corporate America a huge advantage over everyday American citizens.” 

These decisions, which leave plaintiffs to go it alone against corporations and waive their day in court based on agreements they didn't have an opportunity to negotiate, set the stage for an upcoming Supreme Court case that could shift the balance even further in favor of big business, allowing them to use these form agreements as an end run around federal law. 

On February 27, the Court will hear oral arguments in American Express Co v. Italian Colors Restaurant, in which it will weigh whether class-action waiver provisions in an arbitration clause are enforceable even when refusing to allow the class action to go forward would make it functionally impossible to vindicate federal statutory rights at all.   

Businesses that accept American Express charge cards must agree to a class-action waiver and waive any other means of sharing the cost of legal proceedings against the company.  American Express insists that businesses accept their unpopular credit cards if they want to accept the popular ones, which the businesses claim is a “tying arrangement”   that violates the antitrust laws.  Because pursuing antitrust claims is expensive, the cost of arbitrating an individual case would dwarf any possible recovery--meaning that if the plaintiffs cannot proceed as a class or share expenses, the antitrust claim is dead in the water.

The US Court of Appeals for the Second Circuit held that Am Ex's arbitration agreement, which includes a class-action waiver, was unenforceable because it would prevent the merchants from effectively vindicating their federal statutory rights.   Importantly, the court noted that enforcing the waiver would prevent an antitrust claim from being litigated at all:

Amex has brought no serious challenge to the plaintiffs' demonstration that their claims cannot reasonably be pursued as individual actions, whether in federal court or in arbitration, we find ourselves in agreement with the plaintiffs' contention that enforcement of the class action waiver in the Card Acceptance Agreement “flatly ensures that no small merchant may challenge American Express's tying arrangements under the federal antitrust laws.”

The bottom line is this:  if the Supreme Court reverses the Second Circuit's decision, small businesses and consumers could be forced to waive--through form contracts--longstanding statutory rights in order to do businesses with large corporations.  This gives corporations significant power to evade federal law.  As the Supreme Court explained in Reiter v. Sonotone (1979), even though the Department of Justice may also enforce antitrust laws, private litigation is important because

These private suits provide a significant supplement to the limited resources available to the Department of Justice for enforcing the antitrust laws and deterring violations. Indeed, nearly 20 times as many private antitrust actions are currently pending in the federal courts as actions filed by the Department of Justice. 

When the Court strikes down or blunts the power of duly-enacted legislation, legal commentators - conservative and progressive alike-- often invoke the term “judicial activism,” charging that the Court overstepped its bounds.  But in AmEx, the Court will consider whether corporations can wield that power.  While big business and consumer groups recognize what's at stake -the U.S. Chamber of Commerce and Public Citizen both filed amicus briefs- the media apparently does not.    Even The Wall Street Journal's Law Blog's post on the Carnival Triumph debacle, while accurately noting that the cruise industry has adopted mandatory arbitration clauses, didn't note that the scope of these clauses is currently before the Court.

There are exceptions, such as conservative attorney Theodore H. Frank.  Frank is an adjunct fellow at the Manhattan Institute's Center for Legal Policy, which according to its website “has been a leader in analyzing class action abuses and developing solutions.”* In an Investor's Business Daily op-ed, Frank attempts to turn attention away from the problem of illegal tying arrangements, pointing out that the real problem is class actions themselves.  He writes "[i]n reality, consumers would be better off if they had the right to promise that they would avoid bringing the class action in the first place."   According to Frank, lawyers who pursue class actions are interested because these cases are lucrative for them.

Former Solicitor General Paul Clement, who is representing the merchants in AmEx, doesn't see it that way.  His firm often represents big corporate clients like Exxon Mobil.  Clement, whose strong oral argument performance attacking the Affordable Care Act was the talk of the last Court term, and who is in the headlines again for defending the Defense of Marriage Act before the Court this term, is not a class-action attorney. He has made clear that the case is not about attacking arbitration provisions, but preserving the merchants' statutory rights:  “This is thus truly a case in which the alternative to litigation is not arbitration, but nothing.”

Frank also claims that those who are concerned about the dangers of reversing the Second Circuit's decision are “Chicken Littles,” and recasts the AmEx case as a struggle to preserve arbitration itself.  That would probably come as a surprise to the group of professional arbitrators, mediators, and arbitration professors who filed an amicus brief in support of the merchants.  They state that

[American Express's] argument that the [Federal Arbitration Act] requires enforcement of an arbitration clause even where it is undisputed that the consequence is that the resolution of the underlying claims in arbitration is impossible, if adopted, will reduce public confidence in the arbitration system and leave it a more weakened institution.

With less than a week left until oral argument, AmEx is something of a sleeper case.  But that has everything to do with inadequate media coverage and nothing to do with how much is at stake.

*This post previously linked to reports that Mr. Frank's organization, the Center for Class Action Fairness, was funded by Donors Trust that Media Matters for America did not independently verify.