The U.S. Supreme Court continues to add business law cases to its docket. The most recent case, American Express Co et al. v. Italian Colors Restaurant et al., may determine the extent to which businesses can adopt contract provisions mandating that disputes be individually arbitrated.
The underlying anti-trust lawsuit involves the “swipe fees” American Express charges merchants for every credit card transaction. Merchants, including the Italian Colors Restaurant in Oakland, California, contend that they are being overcharged and want to pursue a class-action lawsuit. Meanwhile, American Express points to a long-standing arbitration provision in its contracts that waives the right to pursue a class-action lawsuit.
Earlier this year, the Second Circuit Court of Appeals refused to enforce the provision and allowed the plaintiffs’ federal antitrust claims to proceed as a putative class action. It concluded, “The practical effect of enforcement would be to preclude [plaintiffs’] ability to vindicate their federal statutory rights.” The Second Circuit specifically noted that it would be “economically unfeasible” for the merchants to pursue their claims individually.
On appeal, American Express argues that the Second Circuit ignored the precedent established in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), in which the Court held that the Federal Arbitration Act (FAA) preempts state laws invalidating commercial arbitration agreements that preclude class arbitration. In doing so, the Second Circuit created a “sweeping, unwritten loophole in the FAA” that must be addressed by the Supreme Court, American Express argues.
Thus, the business community will be watching closely as the Supreme Court will again consider the interplay between the FAA and class-action lawsuits. Oral argument will likely be scheduled for in the first part of 2013. We will provide updates as they become available.