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U.S. Supreme Court Backs Use of Arbitration Over Class Actions

The New York Times reports that the Supreme Court on Thursday “reinforced the ability of corporations to impose arbitration on their customers” by ruling that “merchants could not bring a class-action suit against American Express, even if the cost of arbitrating individual claims is prohibitive.” Arbitration is usually seen by businesses as a cheaper and more efficient avenue for the resolution of disputes, while consumer advocates believe the process often lets firms avoid accountability, and the Times notes that courts have increasingly sided with businesses on the question. A lower court had agreed with the merchants in this case that the arbitration terms imposed by American Express as part of a credit card contract prevented them from seeking damages, but the Supreme Court overturned that ruling, with the “five conservative justices in the majority and three liberal justices in dissent.”

The Washington Post reports, “As it has in most recent cases involving arbitration, the court split along ideological lines, with Justice Antonin Scalia writing for the majority. ‘The antitrust laws do not guarantee an affordable procedural path to the vindication of every claim,’ Scalia wrote, saying that courts must ‘vigorously enforce’ arbitration contracts according to their terms.” The Post notes, “Experts in the field said it has become clear that a majority of the high court will make it hard to pursue class-action arbitration claims. ‘The Supreme Court took another big step down the road of permitting companies to use arbitration agreements to entirely insulate themselves from class-action liability,’ said Brian Fitzpatrick, a law professor and class-action expert at Vanderbilt University. ‘The writing is on the wall now more clearly than ever: There is little future for consumer and employment class actions, and even shareholder class actions may not survive.’”

The AP reports that Justice Scalia “said the merchants should be held to their agreements with American Express, which contained a waiver of class action, preventing multiple parties from joining together to press a common claim. He said it didn’t matter if ‘it is not worth the expense involved’ to the merchants to proceed individually. Justice Elena Kagan filed a dissent that was joined by Justices Ruth Bader Ginsburg and Stephen Breyer. The contracts between American Express and the merchants effectively deprive the merchants of any legal recourse, Kagan said. ‘And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad,’ she said.”

Bloomberg News reports that Kagan “said the ruling would let wrongdoers immunize themselves against lawsuits. She said American Express had used its market clout to foist the contract on retailers. ‘If the arbitration clause is enforceable, Amex has insulated itself from antitrust liability – even if it has in fact violated the law,’ she wrote.”

The Wall Street Journal reports Deepak Gupta, an attorney for the merchants, said the ruling shows “that there really is no safety valve in the system. Arbitration really can be used to shut the courthouse doors.’” The Journal notes that the Obama Administration had filed a briefing urging the court to allow the merchants to sue.

The Los Angeles Times reports that Paul Bland, an attorney for Public Justice, “called the decisions ‘catastrophic for the antitrust laws, as well as for civil rights and consumer rights.’ He said that many small claims can only be resolved through a class-action suit. But Washington attorney Andrew Pincus welcomed the ruling. It may crimp ‘the huge legal fees’ won by plaintiffs lawyers, but it preserves ‘fair, efficient arbitration systems that increase access to justice for consumers.’”

The National Law Journal reports, “The decision was a high-stakes follow-on to AT&T Mobility v. Concepcion, the controversial 2011 ruling that the Federal Arbitration Act pre-empts state laws barring the waiver of class arbitration in consumer agreements. Consumer groups complained that without class action arbitration, the high cost of pursuing individual complaints against a company, compared with the small damages a single plaintiff might collect, would discourage claims and effectively make companies immune from challenge on issues of antitrust or labor and employment law.”

Reuters notes that the ruling is yet another in series of recent Supreme Court decisions against class-actions brought by consumers or small businesses against corporate defendants.

From the American Association for Justice news release.

Bob Kraft

I am a Dallas, Texas lawyer who has had the privilege of helping thousands of clients since 1971 in the areas of Personal Injury law and Social Security Disability.

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