Truth or Consequences: The Truth is There are No Consequences
If you are among those who think that the U.S. Supreme Court has lately been more solicitous of big business, you are not alone. Legal commentators have noted this trend in Supreme Court jurisprudence since John Roberts became Chief Justice. With rare exceptions, the Court’s opinions have come down decisively on the side of big business and against consumers, workers, patients, labor unions and others whose interests differ from those represented by the U.S. Chamber of Commerce. Nowhere is this shift more pronounced than in the Court’s recent decisions relating to compelled arbitration.
Arbitration is not new. Businesses have been entering into agreements to resolve disputes outside of the traditional court system for more than a century. It was the hostility of the courts to arbitration that led to the passage of the Federal Arbitration Act in 1925. Under the FAA, written agreements to arbitrate a dispute arising out of a transaction affecting interstate commerce are enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 1 et seq., at § 2.
In 2011, the Supreme Court strode into this relatively quiet corner of the legal landscape and started a major conflagration. That term the Court decided AT&T Mobility, LLC v. Concepcion, which held that the FAA preempted a California judicial rule that class arbitration waivers in consumer contracts were unconscionable.
The perils of Concepcion were obvious at the outset. One of the purposes of the class action mechanism is to enable plaintiffs who individually suffered a relatively small loss to band together to share the costs and risks of litigation and seek relief as a group. The class device also stands as a deterrent to rapacious corporate behavior, presenting at least the threat that ill-gotten gains from conduct that violates, for instance, antitrust or consumer protection laws, may be stripped away in litigation. However, without the class mechanism, individual consumers often lack the means to pursue their claims. After Concepcion, all corporations have to do to immunize their conduct from scrutiny is to include an arbitration clause with a class action waiver in every agreement they impose upon their customers. In practice, this is accomplished by sending a lengthy form “agreement” to customers, which few read and even fewer contest, and which requires them to submit any dispute with the corporation to individual arbitration. The result is absolute immunity. Or, put more eloquently by Seventh Circuit Judge Richard Posner in a related context, “[t]he realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.” Carnegie v. Household Intern., Inc., 376 F. 3d 656, 661 (7th Cir. 2004).
Despite the dark clouds gathered by the Concepcion decision, there was still hope that the Supreme Court would permit some limitations on corporate greed by requiring that the FAA yield in the face of a superior federal interest. The Court had long held that a plaintiff may avoid arbitration if she can prove that she will be unable to vindicate her federal statutory rights in arbitration. This was done by showing that proceedings “in the contractual forum will be so gravely difficult and inconvenient that [the resisting party] will for all practical purposes be deprived of [her] day in court.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 632 (1985).
Sadly, it was not to be. In a decision this term, the Court held that even federal interests as important as those in the antitrust laws must yield when an agreement includes an arbitration clause with a class action waiver. Justice Kagan summed up the world as the Court’s majority would have it:
Here is the nutshell version of this case, unfortunately obscured in the Court’s decision. The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract’s arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool’s errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability — even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.
And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.
American Express v. Italian Colors Restaurant, 133 S. Ct. 2304, 2313 (2013) (Kagan, J., dissenting).
We only recently lived through a period when the absence of consequences for bankers’ unlawful conduct and unrestrained greed nearly led to the collapse of the international economic system. In my experience as a federal prosecutor, and as a private practitioner representing both plaintiffs and defendants, it is the threat of consequences, far more often than the impulse to behave honorably, that deters misconduct. The Supreme Court’s arbitration jurisprudence effectively strips away the possibility of real consequences for a large swath of corporate misconduct. We all now have a front row seat at the Court’s grand experiment in corporatism unbound.
David M. Buckner
Grossman Roth, P.A.
2525 Ponce de Leon Blvd., Suite 1150
Coral Gables, FL 33134
305-442-8666
www.grossmanroth.com