The Supreme Court’s conservatives Roberts, Scalia, Kennedy, Thomas, and Alito are not the monolithic bloc often depicted. Roberts and Kennedy sometimes line up with the liberal justices on First Amendment issues. Scalia often breaks from the conservatives on Fourth Amendment issues. But the five are quite consistently together in voting to cut back legal remedies in civil litigation.
Five of the five-vote decisions so far this term have pitted the conservatives against the four liberal justices in rulings that limited civil lawsuits – by consumers, workers, opponents of government wiretapping, and victims of atrocities committed abroad. In the most recent, the Court last week [June 20] torpedoed a federal antitrust complaint against American Express for allegedly using its monopoly position in corporate credit cards to force merchants to pay the high fees charged for its mass-market consumer cards.
The Court’s 5-3 decision in American Express v. Italian Colors Restaurant held the plaintiff, a small Italian restaurant in Oakland, California, to a one-sided arbitration agreement that blocked it from joining with other merchants to press the case. The three liberal dissenters – with Sotomayor recused -- rightly said the ruling made it impossible as a practical matter to pursue the complaint.
With the court’s biggest cases still pending gay marriage, affirmative action, voting rights the decision was a distraction for most court watchers and the general public. But corporate lawyers took note. They hailed the decision as a victory against run-amok litigation even as public interest groups blasted the ruling in the words of the group Public Justice as “the worst Supreme Court arbitration decision ever.”
The case represents the latest setback for merchants in a long fight against American Express’s “Honor All Cards” policy. American Express has an effective monopoly on corporate credit cards. As a result, businesses that serve corporate customers are effectively forced to honor American Express’s consumer credit cards too even though the service charges are 30 percent higher than those for competing cards.
In antitrust terms, American Express’s policy is a “tying arrangement” – conditioning the use or purchase of one product or service on the use or purchase of another. Tying arrangements can be legal or not depending on the company’s market power for the particular good or service and the effect of the arrangement on competition.
Those are issues for a court to sort out and rule on, but the evidence needed costs real money. An expert report in this case was likely to cost between several hundred thousand and one million dollars. Italian Colors’ potential recovery was nowhere near that much: around $38,000. No economically rational plaintiff would bring that case.
A class action on behalf of all similarly situated plaintiffs either in court or in arbitration solves the financing problem by allowing costs to be shared and by offering the prospect of a big recovery. But American Express made sure that was not going to happen. American Express’s agreement with merchants requires all disputes to be resolved in arbitration and on an individual rather than classwide basis. The agreement goes even further, as Justice Elena Kagan pointed out in her dissent. A confidentiality agreement prevented any informal cooperation with other merchants; and a merchant could not recover expenses from American Express even if successful.
The Supreme Court conservatives enforce arbitration agreements, even with onerous terms like those, on the ground that that is what Congress intended when it passed the Federal Arbitration Act back in 1923. The justices apparently indulge the fiction that these fine-print agreements are voluntary contracts. The federal appeals court in New York City looked at these terms and said, in short, no way. It relied on a doctrine in Supreme Court precedents that allow agreements to be invalidated if they prevent the “effective vindication” of a federal statutory right.
For the Supreme Court majority, however, Justice Antonin Scalia was not buying it. “[T]he fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy,” Scalia wrote in the key passage.
Kagan accurately summed up the result. “The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse,” she wrote. The message from the Court, she added, is quite simple: “Too darn bad.”
Two business lawyers briefing reporters at a U.S. Chamber of Commerce-sponsored event the next day applauded the ruling and disputed Kagan’s dire assessment. Theodore Boutrous, victorious lawyer two terms ago in defanging the big sex discrimination case against Wal-Mart, insisted that the Justice Department and the Federal Trade Commission could bear the load on antitrust cases. “The notion that we need private lawyers to bring these cases is wrong,” he said. Kannon Shanmugam joined in debunking class action litigation in general. “What Justice Kagan doesn’t appreciate is that these cases are lawyer-driven,” he said.
Perhaps, but Congress approved Rule 23, the class action rule in the Federal Rules of Civil Procedure, to allow some forms of mass litigation to ensure effective vindication of legal rights. Brian Fitzpatrick, a civil litigation expert at Vanderbilt Law School, said the latest decision continued a series of Roberts Court rulings that allow companies to use arbitration to protect themselves from class actions. “There is little future” for class actions, he warned.