Rethinking class arbitration in light of US Supreme Court’s decision

 American Express co. et. al. v. Italian Colors Restaurant
The US Supreme Court has recently addressed the issue of the validity of a contractual waiver to the class action (http://www.supremecourt.gov/opinions/12pdf/12-133_19m1.pdf).

The waiver was included in a contract stipulated by American Express (‟Amex”), on one side, and merchants who accepted Amex cards, on the other side. It entailed that all disputes between the parties should be resolved by individual arbitration while the possibility for any claim to be arbitrated on a class action basis was expressly excluded.

Notwithstanding this waiver, merchants filed a class action.

Amex started individual arbitrations under the Federal Arbitration Act (‟FAA”).

In support of their argument that they should not be precluded from bringing their claims as a class, respondents submitted an expert report drafted by an economist, who claimed that each single respondent would have to spend substantially more on experts to support its case (“at least several hundred thousand dollars, and might exceed $1 million”) than it would ultimately be entitled to recover, if successful in the merits (about $40,000 at maximum).

In 2013, the US Supreme Court upheld the agreement (and the waiver therein included), based on the argument that arbitration agreements are contracts and courts are bound to strictly stick to and enforce them.

The implication of this decision is huge, as it allows consumer-catering industries to avoid ordinary class-actions, class-arbitration, or any other kind of aggregate decision.

The Court maintains that class action is not a consumer’s right.

From now onwards, major corporations will have the power to autonomously put an end to class actions by way of imposing waivers to class arbitration, to the detriment of consumers.

Despite the huge costs individual arbitration may entail for single customers, in light of the Supreme Court’s decision, the waiver will be lawful, valid, irrevocable and enforceable.

Despite a residual number of “consumer-friendly” corporations may not take advantage of the liability insulation permitted by the Amex decision, consumers’ class actions in the United States seem to coming to an end.

Dissenting Judge in this case, Ms. Elena Kagan, summed up the decision as follows: ‟The monopolist gets to use its monopoly power to insist on a contract that effectively deprives its victims of all legal recourse”.

Which side are you on?

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