Attorneys at Pintas & Mullins Law Firm report on a broad decision Thursday by the Supreme Court, which blocked a group of merchants from joining together in a class-action claim against American Express, forcing them to arbitrate their claims on an individual basis.
This decision has a significant impact on consumer rights, because many consumers cannot afford the significant legal costs associated with arbitrating a dispute against a major corporation on their own.
The case was brought by a group of merchants, challenging a policy by American Express that allegedly forced them to accept the company’s credit cards at rates 30 percent higher than those of other credit card competitors. The merchants argued that the policy violated federal antitrust laws, and they attempted to pool their resources to bring a class-action suit against the company.
However, standard American Express service contracts contain a mandatory arbitration clause, stating that multiple parties cannot join together in a common claim. Instead, each party must individually arbitrate disputes against the corporation, even if is not economically sensible for them to do so. American Express argued that the merchants voluntarily signed the contract, thus waiving any opportunity for a class-action claim.
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In their defense, the merchants presented expert testimony, which revealed that the cost of filing individual arbitration claims would dwarf prospective recoveries. While it would cost hundreds of thousands of dollars to individually arbitrate a claim against the deep-pocketed corporation, recoveries would be limited to just $10,000-$40,000.
Gaining class-action status is, realistically, the only way for individuals or small businesses to gain legal recourse and potentially receive a fair settlement.
Speaking for the majority, Justice Scalia stated that the law does not award everyone “an affordable procedural path” to pursue a claim. In her dissent, Justice Kagan spoke out against what she believed to be a fraudulent contract that deprived consumers of important legal rights.
Throughout the case, merchants argued that Amex was using its monopoly to force small businesses to accept extraordinarily high credit card rates and prevent them from filing complaints as a group. By forcing merchants to adhere to the arbitration clause, Amex effectively insulated itself from antitrust liability and squandered any hope that the merchants had of bringing a successful claim.
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Consumer advocates argue the terms of these arbitration agreements allow businesses to escape accountability, reinforce monopolies, and bury consumers in arbitration fees. As Reuters notes, the high courts have consistently sided with corporate defendants this year, from decisions for Comcast, Sears, and Whirlpool, to now American Express, leading many to accuse the Court of being pro-big business.
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The Sears and Whirlpool case is still ongoing, involving consumers’ class-action over defective washing machines manufactured by Whirlpool and sold by Sears. In March 2013, SCOTUS ruled in favor of Comcast, reinforcing how mass claims must be certified. The dissenting opinion, supported by four of the justices and written by Justice Ginsberg, affirmed that the court never should have picked up the case, calling it “hardly fit for our consideration.”
The Comcast, Wal-Mart, and Amex decisions all lend support to large corporations and limit consumer’s ability to file class-action lawsuits against companies with unfair business practices, that sell defective products, and those that attempt to evade federal law by creating monopolies. Corporations like American Express can now, with full backing of our nation’s highest court, use these forced contracts and arbitration clauses to make themselves immune to federal antitrust laws.
Undoubtedly, major corporations will now use arbitration agreements even more often in their contracts, although it is unclear exactly how far this issue will extend – potentially, it could affect contracts signed with nursing homes, hospitals, automakers, and other companies with which consumers routinely sign contracts.
Justice Kagan went so far as the say that the decision is a “betrayal of our precedents,” and that these arbitration clauses choke off “a plaintiff’s ability to enforce congressionally created rights.” The impact of this broad decision will affect small businesses and consumers nationwide.