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Italian Colors Restaurant v. American Express Co.

Supreme Court of the United States · 2013 · Civil Procedure

Civil ProcedureArbitrationFederal Arbitration ActClass arbitration waiversFAAarbitrationclass action waiverclass arbitration

Facts

The merchants' agreement with American Express required arbitration of all disputes and stated that there was no right or authority for claims to be arbitrated on a class action basis. The merchants nonetheless filed a class action alleging that American Express used monopoly power in the market for charge cards to force merchants to accept credit cards at higher rates, in violation of §1 of the Sherman Act, and sought treble damages under §4 of the Clayton Act. In opposing a motion to compel individual arbitration, the merchants submitted evidence that expert analysis needed to prove the antitrust claims would cost several hundred thousand dollars to more than $1 million, while the maximum individual recovery would be $12,850, or $38,549 when trebled.

Issue

Does the Federal Arbitration Act permit a court to invalidate a contractual waiver of class arbitration on the ground that the cost of individually arbitrating a federal statutory claim exceeds the potential recovery? More specifically, does either the antitrust laws or the effective vindication exception require nonenforcement of the waiver here?

Rule

Under the FAA, courts must rigorously enforce arbitration agreements according to their terms, including bilateral-arbitration terms, unless the FAA's mandate has been overridden by a contrary congressional command. A class-arbitration waiver is not invalid merely because the plaintiff's cost of individually proving a federal statutory claim exceeds the potential recovery; the effective vindication exception is aimed at provisions that prospectively waive a party's right to pursue statutory remedies or make access to the arbitral forum impracticable, not at claims that are simply not worth the expense to prove individually.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Riverton Pharmacy, a small drugstore in Columbus, signed a supply agreement with Lakeview Health Processing, a fictional claims-network company. The contract requires arbitration of all disputes and states that claims may be arbitrated only on an individual basis. Riverton later brings a federal price-fixing claim and shows that expert analysis will likely cost $180,000, while its maximum individual recovery is about $25,000.

If Lakeview moves to compel individual arbitration, what is the strongest result under the governing rule?

Explanation. The majority held that courts must rigorously enforce arbitration agreements according to their terms, including bilateral-arbitration provisions, unless a contrary congressional command overrides the FAA. A class-arbitration waiver is not invalid simply because the cost of proving the claim individually exceeds the potential recovery. The problem described is economic infeasibility, not elimination of the statutory remedy itself. (Derived from Italian Colors Restaurant v. American Express Co. (2013).)