American Express v. Italian Colors: Supreme Court Oral Argument Stakes Positions in Critical post-Concepcion Action

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Just over a year ago, the Second Circuit issued perhaps the strongest limitation on the U.S. Supreme Court’s ruling in Concepcion v. AT&T, invalidating a class action waiver contained in the arbitration agreement between American Express and the merchant plaintiffs. See In re American Express Merchants’ Litigation, 667 F.3d 204 (2nd Cir. 2012). The Second Circuit held the waiver of class treatment to be unenforceable because a prohibition against collective actions would impair the plaintiffs’ ability to enforce their statutory rights under federal antitrust law.

American Express’ cert petition was granted, however, throwing the Second Circuit holding into considerable doubt. After months of briefing, the Supreme Court oral argument was held on February 27th. Justice Ginsberg took the lead by questioning Michael Kellogg, an American Express lawyer, as to whether the class action waiver would operate just as the Second Circuit supposed, by making it impossible for individual plaintiffs to afford the experts necessary to establish a defendant’s monopoly power. See Transcript of Oral Argument at 3-5, American Express Co. v. Italian Colors Restaurant, No. 12-133 (February 27, 2013). Kellogg’s response focused on the Second Circuit’s ruling requiring a threshold class certification analysis: “The alternative, as the court below held, is that the district court has to decide in the first instance, I’m not going to send it to arbitration because I think they need a class action. To make that determination, he first has to do a Rule 23 analysis.” Transcript at 5. Unsatisfied, Ginsburg persisted, and Kellogg conceded that “there is no guarantee in the law that every claim has a procedural path to its effective vindication” (Transcript at 6), illuminating the fundamental difference in outlook between American Express and the Second Circuit on the key issue of effective access to legal remedies and whether an arbitration clause is enforceable under federal law if it inhibits the vindication of statutory rights.

Justice Kagan picked up the thread, asking Kellogg whether his client’s arbitration clause could candidly prohibit merchants from “bring[ing] any Sherman Act claim against American Express,” which Kellogg conceded it could not. See Transcript at 6-7. Kagan thus made vivid that American Express is purporting that it is permissible to accomplish indirectly — denial of an effective vindication of rights — what it cannot do directly. Justice Kagan then expounded on this argument, asking Kellogg whether a contract provision whereby American Express merchants were not permitted to adduce expert evidence of monopoly power in an antitrust suit would be permissible under existing Supreme Court precedents. See Transcript at 8-9. After initially contending that such a question would be better addressed under state unconscionability law, Kellogg responded “Correct” when Justice Kagan re-stated the same hypothetical. Transcript at 9. As Kellogg pontificated on the reasoning behind the Second Circuit decision, Justice Ginsberg interjected to note that the Second Circuit had based its ruling in part on the fact that a suitable antitrust expert would cost an individual plaintiff roughly $300,000, whereas even with an award of treble damages, the same individual plaintiff would be compensated with only $5,000, making such a case per se irrational without the cost spreading attendant to a class action. Transcript at 11.

Initially, at least, the justices likely to support upholding the Second Circuit decision were getting the better of the arguments. Perhaps sensing this, Justice Scalia intervened to note “I guess you could have said the same thing under the Sherman Act before Rule 23 existed, right?”, seemingly assuming that procedures equivalent to class actions were impossible before Rule 23’s modern incarnation in 1966. See Transcript at 12. In fact, class action-type procedures have existed in Anglo-American jurisprudence at least since the year 1200, with U.S. court decisions and equity rules antedating Rule 23 having approved of similar procedures that bind absent parties, according to one of the foremost experts in the area. See generally Stephen C. Yeazell, From Medieval Group Litigation to the Modern Class Action (Yale Univ. Press, 1987). Despite Scalia’s tenuous grasp of legal history, he pointed Kellogg toward perhaps his most compelling argument of the session: that on four different occasions Congress had considered adopting, and each time declined to adopt, class action procedures attendant to the Sherman Antitrust Act. See Transcript at 12.

Justice Kennedy, a frequent swing vote, briefly expressed skepticism about American Express’ argument. See Transcript at 14-15. However, Justice Stephen Breyer, who taught an introductory antitrust law course at Harvard Law School while he sat on the First Circuit, questioned the premise that an antitrust expert would necessarily be costly. See Transcript at 15-16. Breyer posited that an antitrust expert, like himself, could serve as the arbitrator, and in that capacity could streamline what would be extensive expert discovery in civil court, thereby capturing the efficiency and cost containment often cited as a motivating force behind the Federal Arbitration Act. See Transcript at 16. Similarly, Chief Justice Roberts elicited from Kellogg that there would be no bar to a law firm, trade association, or hedge fund financing the costs of an expert or other expense too prohibitive for an individual antitrust plaintiff. See Transcript at 20-21. Justice Kennedy appeared amenable to Breyer’s suggestion about the arbitrator also serving as a joint expert (see Transcript at 54-55), and only Justices Kagan and Ginsberg evinced a strong aversion to American Express’ arguments, suggesting that those hoping to preserve the Second Circuit’s decision have their work cut out for them.

For his part, Paul Clement, the lawyer for the plaintiffs below, focused his oral argument on the “vindication of rights doctrine,” arguing that the much-invoked strong federal policy favoring arbitration must yield where arbitration would effectively nullify a statutory right. See Transcript at 24-26. Additionally, Clement corrected Scalia’s earlier (and repeated) contention that there were no class actions before Rule 23. See Transcript at 25. However, much of Clement’s time was expended on relatively arcane exchanges with Justice Breyer, reminiscent of the discussions that arose when Breyer was a professor.

A decision from the Court is expected this summer.