written by George Friedman, Board Director

Here’s my read on American Express Co. v. Italian Colors. In another in a series of very pro-arbitration rulings, the U.S. Supreme Court enforced a predispute arbitration agreement even though proving the claim in an individual arbitration might be very costly compared to a class action.

In American Express Co. v. Italian Colors, the Court in a 5-3 decision rejected an argument that the high cost of an economic analysis needed to prove an individual’s antitrust claim in arbitration meant that the arbitration clause was not enforceable.

Here, the parties expressly provided in their arbitration agreement that there would be no class wide arbitrations. Thus the plaintiffs’ sole recourse in this antitrust matter was an individual arbitration. Yet, the claimants contended, the cost of an economic analysis needed to assert their claim would be on average “several hundred thousand dollars, and might exceed $1 million.” The average claim would be $38,549 (including treble damages).

Prior Supreme Court decisions permit arbitration of claims arising out of federal statutes as long as the parties have the same opportunity to effectively vindicate their federal statutory right in arbitration as they would have in court. The challengers here said the cost of proving individual claims in arbitration compared to the possible individual recovery made it impossible for them to effectively vindicate their rights.

The Court rejected this assertion. First, it affirmed prior SC cases holding that a challenger must show that Congress in enacting the involved federal statute intended to bar arbitration of claims thereunder arising. There was no such preclusion in the Antitrust Act. Second, it held that as long as the claimant has the opportunity to vindicate their rights, arbitration was permissible. “As we have described, the exception [to PDAA enforcement under the FAA] finds in its origin the desire to prevent ‘prosective waiver of a party’s right to pursue statutory remedies,’… The class-action waiver merely limits arbitration to the two contracting parties. It no more eliminates those parties’ right to pursue their statutory remedy than did federal law before its adoption of the class action rule for legal relief in 1938″ [emphasis in original]; see (slip opinion pp. 6-7).

In dicta the court noted that very high arbitration fees were another matter, since they would make pursuit of the claim “impracticable.” Here the argument centered around the cost of proving the claim see (slip opinion pp. 6-7).

All in all, this is another in a series of very pro-arbitration rulings by the Court. This decision comes on the heels of the Court’s unanimous ruling on June 10 in Oxford Health Plans v. Sutter strongly supporting arbitration.