On June 20, 2013, the United States Supreme Court reversed the United States Court of Appeals for the Second Circuit and held that a class action waiver contained in standard form contract between American Express and various merchants was enforceable and could not be invalidated under the Federal Arbitration Act on the ground that the cost for an individual plaintiff to proceed would outstrip the recovery to plaintiff. See American Express Co. v. Italian Colors Restaurant, Case No. 12-133 (June 20, 2013). The decision by the United States Supreme Court continued the trend set by the Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) when it held that a party may not be compelled to submit to class arbitration absent an agreement to do so.
The decision in American Express Co. v. Italian Colors is important because the Supreme Court emphasized a number of points. Courts “must rigorously enforce” arbitration agreements according to their terms and the Federal Arbitration Act reflects the overarching principle that arbitration is a matter of contract. See American Express Co. v. Italian Colors Restaurant, Case No. 12-133 (June 20, 2013, ), citing, Rent-A-Center, West, Inc. v. Jackson, 561 U.S.___, ___ (2010) (slip op., at 3) (“overarching principle) and Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985) (rigorous enforcement). The Supreme Court also distinguished American Express Co. v. Italian Colors Restaurant from cases where the “right to pursue a claim is eliminated” under the effective vindication exception set out in dicta by the Court in Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc., where a contractual provision forbids the raising of certain statutory claims or a high filing fee makes the forum impracticable. The fact that a case is not worth the expense does not constitute an elimination of the right to pursue the remedy. See American Express Co. v. Italian Colors Restaurant, Case No. 12-133 (June 20, 2013), citing, Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc., 473 U.S. 614 (1985). The Supreme Court reiterated that the regime set out by the Second Court of Appeals of a legal requirements of success on the merits claim-by-claim and theory-by-theory determination on enforceability of an arbitration agreement was not built into the Federal Arbitration Act and would “undoubtedly destroy the prospect of speedy resolution that arbitration” was meant to secure. The court specifically emphasized the switch from bilateral to class arbitration “sacrifices the principal advantage of arbitration –its informality-and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.” See American Express Co. v. Italian Colors Restaurant, Case No. 12-133 (June 20, 2013), citing, AT & T Mobility LLC. v. Concepcion, 563 U.S. __ (2011) (slip op., at 14). The short version of the ruling is simply that courts should enforce arbitration agreements as written and not engage in expensive evidentiary challenges to enforcement under the Federal Arbitration Act because arbitration is a matter of contract and to do so defeats the purpose of arbitration-informality, speed and lower cost.
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