Today, the United States Supreme Court held that an arbitration clause in a contract was more important the federal antitrust law.  This decision is incredibly damaging to antitrust, civil rights, and consumer rights laws because of its far-reaching scope and the ability of the more powerful party to a contract to block the path to justice via a contractual arbitration clause.  The Court today provided another example of the ongoing erosion of individual consumer rights to the benefit of big corporations.

Companies often include arbitration clauses to force any disputes into a private and expensive arbitration process that lacks the transparency or public record of a court trial.  When there are two parties to a contract, arbitration clauses almost always benefit the larger party because arbitration favors the business with more resources, influence, and power.

Today’s decision in American Express v. Italian Colors Restaurant, authored by Justice Scalia, further affirmed big business rights and eroded the basic fundamental rights of regular citizens.

The Facts of the Amex Case

When a merchant wanted to accept American Express credit cards, they were forced by American Express to accept two other provisions.  First, that any dispute would be settled in a one-on-one arbitration and, second, that the merchant had to also accept American Express debit cards.  The problem is that the fees the merchant has to pay that are associated with the Amex debit card are quite high.

The Italian Colors Restaurant of Oakland claimed that this type of “tying arrangement” violated U.S. antitrust laws: that Amex was using its monopoly power over one product (credit cards) to hike the price of another product (debit cards) to rates that were higher what it could charge in a competitive marketplace.

They filed a class action lawsuit in federal court claiming arbitration should not be enforced because:

  1. Proving an antitrust violation would cost several hundreds of thousands of dollars.
  2. Each potential individual recovery was between $12,000-$38,000.
  3. Therefore, the requirement of one-on-one arbitration would allow Amex to get away with this conduct because no individual would challenge this conduct if they needed to alone.

The trial court and court of appeal agreed and allowed the case to continue as a class in a court of law.

The Supreme Court Decision Reversed the Lower Courts

The Supreme Court, however, saw it differently.  The Court held that the Federal Arbitration Act, which says that a contract can remove a dispute from a court of law into arbitration, was the operative law here, even when the net effect would be to grant immunity to Amex.

Have you ever seen a user agreement when you downloaded software or rented a car?  These agreements now can be used to shield the corporations from other statutory violations by requiring one-on-one arbitrations.  The Court basically said that if a person doesn’t want to agree to an arbitration clause, they have the power to choose not to.  Asserting that a regular person has the power to negotiate these contracts or go elsewhere is an out of touch concept, because all big money interests include these clauses in their contracts.

The Court said that the contract was the most important consideration, and that nothing in the federal law guarantees a plaintiff an affordable path to vindication of claims.

Supreme Court Justice Kagan dissented from the majority opinion and pointed out:

As a result, Amex’s contract will succeed in depriving Italian Colors of any effective opportunity to challenge monopolistic conduct allegedly in violation of the Sherman Act. … In the hands of today’s majority, arbitration threatens to become … a mechanism easily made to block the vindication of meritorious federal claims and insulate wrongdoers from liability.

This is only the latest example of how fundamental rights of US citizens are being taken away every day.