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Supreme Court Affirms Notion That Class Actions Can Be Avoided Through Arbitration

On Thursday, the U.S. Supreme Court decided American Express Co. v. Italian Colors Restaurant, and upheld the enforceability of arbitration agreements that deny the right to class action litigation. The 5-3 ruling, authored by Justice Scalia, reversed the Second Circuit and is significant for companies trying to avoid class action litigation.

The case involved claims by Italian Colors Restaurant and similarly situated merchants, that American Express used an illegal tying arrangement to charge inflated fees. Agreements between the merchants and American Express required all disputes to be mediated through bi-lateral arbitration, and not on a class basis. However, the merchants claimed that it would not be economically feasible to have their claims handled through individual arbitration proceedings. Thus, they pursued their claims on a class-wide basis, arguing that the Supreme Court’s prior ruling on a similar issue in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), did not forestall their case. The Second Circuit agreed with the merchants, and did not uphold the arbitration agreements.

The Supreme Court reversed and found that the merchants were required to engage in individual arbitration where, as here, they had agreed to waive the right to class representation in a contract. The Court rejected the notion that its prior decision in Concepcion was somehow limited in scope. Instead, the Supreme Court interpreted Concepcion broadly, embracing the idea of broad enforceability of arbitration agreements. At bottom, the Court’s decision found that unless a federal statute explicitly requires that a right be enforced through class based litigation, it can be waived and it is improper for judges to read a right to class representation into the statutes.

This decision is clearly favorable to corporations that use arbitration agreements and class representation waivers to avoid the time and expense of class action litigation. But it is not going to be the death knell of class actions. Because judges across the country have found defects in the formation of arbitration agreements due to things like unconscionability or confusion, class actions can still be brought if the underlying arbitration agreement is found to be invalid.

Accordingly, careful drafting of such arbitration agreements is key and any company considering the use of arbitration agreements should consult with their attorneys.

©2022 MICHAEL BEST & FRIEDRICH LLPNational Law Review, Volume III, Number 173
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About this Author

Paul E. Benson, product and tort liability litigator, michael best law firm
Partner

For more than 25 years, Paul has specialized in product liability defense, class action defense, insurance litigation, and complex commercial litigation. He is particularly well known for his work in the class action and food and beverage sectors, where he is a nationally and locally recognized speaker and thought leader on product liability issues and regulatory trends.

In all of these areas, Paul has established a reputation for outstanding results. He has used motion practice to obtain summary judgment and/or dismissal in more than half of the cases he has defended in Wisconsin...

414-225-2757
Joseph Olson, Michael Best Law Firm, Employee Benefits Litigation Attorney
Partner

Joe is a trial attorney practicing primarily in the areas of class action defense, wage and hour litigation, employee benefits litigation, regulatory compliance, and complex commercial litigation. In this capacity, he:

  • Routinely helps clients deal with class actions suits across all subject matters

  • Handles all aspects of complex employment litigation including wage and hour suits arising under the federal Fair Labor Standards Act (FLSA) and applicable state laws, plus benefits litigation...

414-277-3465
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