Last week’s U.S. Supreme Court decision in American Express Co. v. Italian Colors Restaurant, 570 U. S. ___ (2013) has occasioned diverse responses, ranging from the usual “nothing to see here” from more Pollyanic plaintiffs’ advocates, to the defense bar proclaiming that Amex III is apocalypse, again, for class actions, after having predicted roughly the same thing following the Supreme Court’s Dukes, Concepcion, and Comcast decisions.

The always thoughtful Paul Bland, of Trial Lawyers for Public Justice, has titled his piece on Amex III “Worst Supreme Court Arbitration Decision Ever,” and focuses on the Amex III majority’s candid embrace of class arbitration waivers as de facto exculpatory clauses: “You see, until now, the Supreme Court has said that courts should only enforce arbitration clauses where a party could ‘effectively vindicate its statutory rights.’ Today, in a sleight of hand, the five conservative justices said that this means that arbitration clauses should be enforced even when they make it impossible for parties to actually vindicate their statutory rights, so long as they have a theoretical ‘right’ to pursue that remedy.” 

Kimberly Kraweloc’s respected and much-watched UCL Practitioner also accentuated the negative, noting that “the Court held 5-3 that the arbitration clause was enforceable even though an arbitration proceeding would provide no effective means to vindicate the plaintiffs’ statutory rights under the federal antitrust laws.”

However, recalling the extreme predictions that immediately followed earlier decisions concerning similar subject matter, Paul Karlsgrodt is more measured in his ultimate assessment, asking “Will Amex III finally be the case to end class actions as we know them?” and responding: “Concepcion hasn’t, so I doubt Amex III will either.”

Blogger Michael Fox described the most likely practical consequence of Amex III for employers as follows: “a large number of employers who have not implemented arbitration plans will be re-thinking the decision.” With the Supreme Court also having recently endorsed class-wide arbitration in Oxford Health Plans LLC v. Sutter, employers will likely seek to provide for a waiver of class actions along with mandatory arbitration clauses.

Finally, the ever-florid Cato Institute proclaimed that Amex III “is a victory for freedom of contract, a boost for arbitration as an alternative to litigation, and a step forward in the Court’s ongoing recognition that the class action is just one legal vehicle among many, not some priority express train to be favored over other traffic.”

One wonders, though, whether the Scalia-led arbitration crusade even views class actions as “just one legal vehicle,” or aims to consign class actions to something even less significant. And while prior legislative responses have stalled, efforts such as the Arbitration Fairness Act of 2013, which would among other things prohibit arbitration agreements and class action waivers as a condition of employment, are drafted and ready to be acted on should the Supreme Court overreach.

The Supreme Court has issued its highly-anticipated decision in “Amex III”, the latest installment in an attack on class actions thinly disguised as an affection for the “liberal federal policy favoring arbitration.” The 5-3 majority (Justice Sotomayor abstained) reversed the Second Circuit and held that the Court of Appeals ruled contrary to the Federal Arbitration Act (FAA) when it invalidated an arbitration clause’s class action waiver, even though a class action would have been the plaintiff’s only way of effectively vindicating its antitrust claims against the defendant, American Express. See American Express Co. v. Italian Colors Restaurant, 570 U. S. ___ (2013) (slip opinion available here).

Italian Colors Restaurant, joined by other restaurants and retailers, sued American Express alleging that the credit card mainstay violated antitrust law by forcing merchants to accept its debit cards as a condition of accepting its charge cards. American Express sought to enforce an arbitration agreement, which included a class action waiver, but was rebuffed by the Second Circuit, which held that a prohibition against collective actions would impair the plaintiffs’ ability to enforce their statutory rights under the Sherman Act because the cost of plaintiffs’ individually arbitrating their dispute would be prohibitive and would thus effectively deprive them of protection under the antitrust laws. See In re Amer. Express Merchants’ Litig., 667 F. 3d 204 (2d Cir. 2012).

However, the majority opinion written by Justice Antonin Scalia stated that “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.” Slip op. at 4. After some odd bedfellow-ing in recent Fourth Amendment decisions, the Court returned to its familiar split, with Justices Alito, Thomas and Kennedy joining Scalia, along with Chief Justice Roberts. Justice Kagan wrote a dissent supported by three votes that will no doubt be widely described as “stinging,” which explains that: “here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.” Slip op., dissent, at 1. Justice Sotamayer recused herself because she had been on the Second Circuit when the case was before it.

Ostensibly at least, the decision turned on careful consideration of the “effective vindication doctrine,” which is widely regarded to have originated in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), and which stands for the reasonable proposition that an arbitration clause that functions as an exculpatory clause (e.g., a clause prohibiting all antitrust claims) need not be enforced. The majority suggests that the doctrine “originated as dictum” (slip op. at 6), before going into several paragraphs of analysis that treat the doctrine as if it were in fact dictum (slip op. at 6-7). On this point, the dissent gets the better of the argument, and in doing so likely saves what it portrays as a narrow doctrine. See slip op., dissent at 8, n.3. Justice Kagan persuasively argues that the majority is “dead wrong” when it contends that, in Mitsubishi, the Supreme Court didn’t reach the issue of whether an arbitration agreement’s potential deprivation of the right to pursue federal remedies is a permissible ground for deeming the arbitration agreement unenforceable, by noting that Mitsubishi merely did not reach whether the at-issue arbitration clause did in fact nullify the ability to vindicate a federal right. Id. (“But [in Mitsubishi] we stated expressly that if the agreement did so (as Amex’s does), we would invalidate it.”)

A similar issue of particular importance in California — whether an arbitration agreement that purports to waive a person’s ability to seek civil penalties under PAGA may be deemed unenforceable — is unaffected by the Amex III decision, as the controlling law remains that PAGA waivers in arbitration agreements may be properly found unenforceable, since a PAGA action is “fundamentally a law enforcement action designed to protect the public and not to benefit private parties,” and thus does not frustrate the purposes of the FAA. See Brown v. Ralphs Grocery, 197 Cal. App. 4th 489, 502 (2011). Likewise, while Amex III exclusively discusses the economic factors that could impede the vindication of a right, it does not address or alter the non-economic factors that the California Supreme Court identified in Gentry v. Super. Ct. that are to be considered in determining whether an arbitration agreement in the employment context impermissibly blocks vindication of an unwaivable right. See Gentry, 42 Cal. 4th 443 (2007).

In Amex III, however, the majority brought to bear arguments more compelling than those in earlier arbitration/class action rulings, noting that the at-issue class action waiver “no more eliminates those parties’ right to pursue their statutory remedy than did federal law before its adoption of the class action for legal relief in 1938.” Slip op. at 7. While the Kagan dissent didn’t directly address that argument, it had a provocative retort, styled around arbitration provisions that would be permissible under the majority’s scheme and are indistinguishable from candidly exculpatory provisions that the majority would have to concede the invalidity of, including the Amex CEO as the designated arbitrator, no relief even on a finding of liability, and prohibiting economic testimony in an antitrust case. See slip op., dissent at 3.

Perhaps naively, the three-member dissent argues that “[w]hat the FAA prefers to litigation is arbitration, not de facto immunity.” Slip op., dissent at 5. While that might be an accurate statement of what the drafters of the FAA intended, it appears that the majority is tacitly on the side of providing businesses not just with access to the arbitration forum, but also the de facto immunity that is any rational company’s most desired endgame when it aims to catch consumers or employees in arbitration’s adhesive flypaper.

Ebook publishers continue to pay a steep price in settling actions alleging that prices were elevated well above what a truly competitive market would have determined. With ebook prices of as much as $12 or $15 – far above the marginal cost plus modest profit that standard economic theory predicts of competitive markets – three publishers have already agreed to substantial settlements: Hachette, $31.7 million; HarperCollins, $19.5 million, and Simon & Schuster, $17.7 million.

Now, Penguin has agreed to the largest such settlement, more than twice that of the Hachette settlement: $75 million to resolve claims brought by state attorneys general, after having earlier settled with the U.S. Department of Justice. Specifically, the settlement provides that Penguin will refund $75 million to consumers through credits to buy Penguin books through online retailers. Penguin’s parent company, Pearson PLC, has anticipated the settlement by way of a $40 million accounting charge, reflecting that the actual cost to Penguin is likely to be considerably less than the $75 million proffered.

California’s Second Appellate District has held that a trial court erred by dismissing the plaintiffs’ PAGA action (Cal. Lab. Code §§ 2698 et seq.) for essentially the same reasons as it denied the plaintiff’s class certification motion. Nelson v. Southern California Gas Co., No. B238845 (Cal. Ct. App. May 30, 2013) (Slip opinion available here). The oral argument in Nelson – which strongly suggested that the Second District would rule as it did – was covered here. 

In Nelson, the plaintiffs, drivers for the SoCal Gas Company, brought a putative class action seeking unpaid wages and other damages arising from alleged meal and rest break violations, “off-the-clock” work, and other derivative violations. Slip op. at 2. The plaintiffs also sought separate relief, as the proxy of the State seeking the recovery of civil penalties pursuant to PAGA. Slip op. at 3. The defendant filed a motion for an order that would both declare the suit inappropriate for class treatment and deny the plaintiffs’ PAGA claim. Soon after, the plaintiffs filed a motion for class certification. The trial court denied the motion for class certification, reasoning that common questions would not predominate. Applying substantially the same analysis, the trial court also held that the plaintiffs could not bring their PAGA claim “because individual issues would predominate and a representative action would not be manageable.” Slip op. at 13.

The plaintiffs appealed both the trial court’s denial of their class certification motion and the effective dismissal of the PAGA claim. While this Court of Appeal held that the trial court had not abused its discretion in denying class certification (see slip op. at 14-29), it reversed the trial court’s PAGA analysis and holding, concluding that “the trial court abused its discretion in applying class action requirements to the PAGA claim.” Slip op. at 29.

Although Arias v. Superior Court, 46 Cal.4th 969 (2009), firmly held that class action requirements are inapplicable to PAGA, Arias did not address a case where the PAGA claim is alleged alongside class claims, which is a common type of pleading. The Arias court therefore had no occasion to draw rigorous distinctions between class actions and PAGA representative actions. Indeed, the Nelson trial court was convinced by the defendant’s argument that it could dismiss the plaintiffs’ PAGA claim on the ground that the PAGA litigation would be “unmanageable”― an element found nowhere in the PAGA statute but which is functionally identical to one aspect of the class certification “superiority” analysis. See slip op. at 31. The Court of Appeal identified the fallacy in the defendant’s argument, noting that the trial court’s conclusion that the PAGA claims would be unmanageable was based entirely on a class certification commonality analysis, and found that “[s]ince, under Arias, a plaintiff need not even plead a representative PAGA claim in accordance with class action requirements, it seems anomalous to require that the plaintiff establish the community of interest class action requirement with respect to a PAGA claim, in the context of a class certification procedure.” Slip op. at 31.

Though Nelson has been designated “unpublished,” it is expected that requests for publication will be filed by the June 19th deadline, at least as to the decision’s PAGA reasoning and holding.