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Supreme Court blocks class-action claim against American Express

The 5-3 ruling was the court's third in three years to shut down class-action efforts brought on behalf of employees, consumers and now small-business owners.

June 20, 2013|By David G. Savage, Los Angeles Times
  • The U.S. Supreme Court ruled that American Express can use its arbitration agreement to squelch a class-action claim from the restaurants, even if the dominant credit card company is violating antitrust laws and the class suit is the only affordable way to raise the claim.
The U.S. Supreme Court ruled that American Express can use its arbitration… (Chris Gardner / Associated…)

WASHINGTON — The Supreme Court, in its latest ruling to bar class-action claims against big corporations, blocked restaurant owners from joining together to sue American Express Co. over high credit card fees.

In a 5-3 decision Thursday, Justice Antonin Scalia said American Express can use its arbitration agreement to squelch the class-action claim from the restaurants, even if the dominant credit card company is violating antitrust laws and the class suit is the only affordable way to raise the claim.

"The antitrust laws do not guarantee an affordable path to the vindication of every claim," Scalia said.

In a strongly worded dissent, Justice Elena Kagan said the decision means "the monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse."

The ruling was the third in three years to shut down class-action efforts brought on behalf of employees, consumers and now small-business owners.

Lawyers on both sides of the issue said the court's conservative wing was determined to shield companies from these broad lawsuits.

The court has taken "another big step down the road of permitting companies to use arbitration agreements to entirely insulate themselves from class-action liability," said Vanderbilt Law professor Brian Fitzpatrick, a former Scalia clerk.

"The writing is on the wall now: There is little future for consumer and employment class actions, and even shareholder class actions may not survive," Fitzpatrick said.

Public Justice, a public interest law firm, said the decision "gave corporations a license to steal."

Paul Bland, a consumer-rights lawyer for the group, said the ruling can be used by companies to block claims based on civil rights laws and consumer protection laws as well as antitrust laws.

"They have turned the Federal Arbitration Act into the Federal Corporate Immunity Act," he said.

Two years ago, the Supreme Court blocked a class-action lawsuit brought on behalf of 1.6 million current and former female employees at Wal-Mart Stores Inc. who contended that the retailer engaged in gender discrimination. Scalia said the women could not show that they had suffered a common problem.

About the same time, the court in another 5-4 vote blocked a consumer class-action suit against AT&T Inc. over charges for cellphones in California. Scalia said the arbitration agreement and its ban on class-action claims trumped California's consumer protection act.

The restaurant owners' case was brought under federal antitrust laws. In the past, the court had said an arbitration clause may not stand in the way of an "effective vindication" of someone's legal rights.

The restaurant owners from California and New York, joined by a group of independent supermarkets, had complained that American Express was forcing them to accept high-fee credit cards from ordinary customers if they also wanted corporate customers who used AmEx cards. They said this "tying" arrangement violated antitrust laws.

In response, American Express invoked its arbitration clause, which forbids class actions. But the U.S. 2nd Circuit Court of Appeals in New York said individual arbitrations could not work in this case.

It would cost as much as $1 million for lawyers and economists to prove an antitrust violation, the appellate judges said, yet each restaurant owner could win no more than $38,000 in damages. It cleared the suit to move forward in court.

The Supreme Court reversed that decision in American Express vs. Italian Colors Restaurant. Scalia said the ruling preserves "the prospect of speedy resolution" by upholding mandatory arbitration. Chief Justice John G. Roberts Jr. and Justices Anthony Kennedy, Clarence Thomas and Samuel A. Alito Jr. agreed with him.

Kagan said the ruling does no such thing. It allows arbitration clauses to "block the vindication of meritorious federal claims and insulate wrongdoers from liability," she said.

Justices Ruth Bader Ginsburg and Stephen G. Breyer agreed with her. Justice Sonia Sotomayor was recused because she was on the appeals court in New York when the case arrived there.

david.savage@latimes.com

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