Header graphic for print
Insurance Class Actions Insider

Supreme Court Grants Certiorari in American Express Case Involving Arbitration Provisions That Prohibit Class Action Arbitrations

Posted in Arbitration/Appraisal

On November 9, the U.S. Supreme Court granted certiorari in American Express Co. v. Italian Colors Restaurant, No. 12-133 (order granting certiorari; docket).  The question presented is “Whether the Federal Arbitration Act permits courts, invoking the ‘federal substantive law of arbitrability,’ to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal-law claim.”  For my thoughts on the Second Circuit’s decision in this case and its potential impact on insurance class actions see my February 8, 2012 blog post. Justice Sotomayor, who sat on the original Second Circuit panel in this case, is recused from this case, which creates the possibility of a 4-4 decision if the Court is sharply divided (when this happens, it results in an affirmance of the lower court).  Subsequent to the decision that was the subject of my February 8 blog post, another set of opinions was issued when the Second Circuit denied rehearing en banc, with five judges voting to grant rehearing.  See In re American Express Merchants’ Litig., 681 F.3d 139 (2d Cir. 2012).  In dissenting from the denial of rehearing, Chief Judge Jacobs wrote:

[T]he panel opinion in this case uses public policy to hold that arbitration agreements containing class-action waivers are unenforceable when applied to federal statutory claims if (as is always so easy to assert) a claim would not be “economically rational” to pursue individually. In re Am. Express Merchs.’ Litig., 667 F.3d 204, 214 (2d Cir.2012) (Amex III). The panel opinion thus impairs the Federal Arbitration Act’s strong federal policy favoring the enforcement of arbitration agreements, and frustrates the goals of arbitration by multiplying claims, lawsuits, and attorneys’ fees. “[T]he longstanding judicial hostility to arbitration agreements,” Gilmer, 500 U.S. at 24, 111 S.Ct. 1647, is undiminished.

. . .

As I undertake to show, the public policy rationale which Amex III relies upon is wrong because: [1] it runs counter to the public policy that the Supreme Court has made paramount in the context of the Federal Arbitration Act (“FAA”); [2] it employs a dubious ground of distinction to overcome Concepcion, which teaches that the FAA does not allow courts to invalidate class-action waivers even if “class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system,” Concepcion, 131 S.Ct. at 1753; and [3] the dicta on which the panel precariously relies—that large “arbitration costs” cannot be allowed to prevent a plaintiff from “effectively vindicating” a statutory right—is pulled out of context and distorted.

Id. at 142-43 (Jacobs, C.J., dissenting).

With this addition, this Term will have several class action cases, also including Comcast Corp. v. Behrend, involving the applicability of Daubert at class certification (see blog post) and Standard Fire Ins. Co. v. Knowles, involving the Class Action Fairness Act (blog post).