Supreme Court to Hear Amex Appeal on Mandatory Arbitration Clause

By and | November 11, 2012

The U.S. Supreme Court on Friday agreed to consider whether American Express Co may invoke an arbitration clause to prevent merchant customers from banding together in an antitrust lawsuit against the company.

The court accepted the credit card and travel services company’s appeal from a February ruling by the 2nd U.S. Circuit Court of Appeals in New York that voided the clause, and allowed merchants including the Italian Colors Restaurant in Oakland, California to pursue a class-action lawsuit.

A decision could determine the extent to which companies might rely on arbitration clauses to fend off class-action lawsuits, which can allow litigants to obtain larger recoveries at lower cost.

Since 1999, American Express has required merchant customers to waive their right to sue the company in a class action.

But a group of restaurants, retailers and other customers sued in 2003, saying the New York-based company violated antitrust law in its effort to force them to pay inflated fees on charge card transactions.

A two-judge panel of the 2nd Circuit said the company’s mandatory arbitration clause violated antitrust law, because many merchants would find it economically unfeasible to pursue their claims individually.

American Express said that ruling created a “sweeping, unwritten loophole” in federal arbitration law that should be overturned.

The Supreme Court has in recent years shown deference to arbitration clauses, while narrowing the ability of various plaintiffs to bring class-action lawsuits.

In a 2011 case involving AT&T Inc., the court gave businesses a big victory by upholding contracts that required customers to submit to individual arbitrations to resolve disputes, and waive their right to pursue class-action litigation. A California law had prohibited such waivers.

The same year, the court decertified a class of as many as 1.5 million female workers at Wal-Mart Stores Inc. who alleged gender bias in pay and promotions.

The Supreme Court will likely hear oral arguments in the American Express case early next year, with a decision to follow by the end of June.

Justice Sonia Sotomayor, who was involved with the case when she was a federal appeals court judge, did not take part in the decision to accept American Express’ appeal.

The case is American Express Co. et al v. Italian Colors Restaurant et al, U.S. Supreme Court, No. 12-133.

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