By Andrew Longstreth
WASHINGTON (Reuters) - The U.S. Supreme Court appeared
divided during oral arguments over a disputed arbitration clause
that American Express Co has with merchants who accept its
As part of a contract with American Express, merchants agree
to settle disputes in arbitration. But a group of them brought
antitrust class action claims in court, arguing it would not
have been feasible for each merchant to arbitrate.
The issue before the Supreme Court on Wednesday was whether
the arbitration clause, which prohibits class claims, should be
enforced if plaintiffs can prove they would not be able to
effectively exercise their federal rights as a result.
At oral argument, Paul Clement, an attorney for the
merchants, said the record in lower courts established that it
would have been prohibitively expensive for each merchant to
bring an individual arbitration.
Conservative Justice Antonin Scalia was skeptical of the
argument. When the antitrust statute at issue in the case, the
Sherman Act, was passed in 1890, it did not allow for private
class actions, he said.
He said that before antitrust class actions were introduced,
plaintiffs routinely decided not to bring a Sherman Act claim
because it was too expensive.
"I don't see how a federal statute is frustrated or is
unable to be vindicated if it's too expensive to bring a federal
suit," Scalia said.
In the class action before the Supreme Court, a group of
small businesses, including the name plaintiff Italian Colors
Restaurant from California, accused American Express of an
illegal tying arrangement. They claimed that American Express
required them to accept its consumer credit cards that come with
high-transaction fees as a condition of accepting its personal
charge cards and corporate cards, in which areas it has a
The merchants argue that the costs of bringing individual
arbitration claims would have dwarfed the small recoveries they
could receive. If there were not a feasible alternative to
bringing their claims, they argued that no claims would be
brought at all.
Justice Stephen Breyer said under that theory, other
plaintiffs may be able to avoid arbitration simply by finding
expensive experts or employing an elaborate theory for
relatively simple cases.
"I'm concerned about that," Breyer said.
IN AN 'ODD POSITION'
Clement responded that it was the district court's job to
sort out whether the plaintiffs have met their burden of proof
as to whether it would be feasible to bring a claim in
arbitration. He faulted American Express for not contesting the
cost estimates put forth by the merchants.
Chief Justice John Roberts said that forcing defendants to
contest those findings put them in an "odd position."
Michael Kellogg, who argued for American Express, framed the
case as a direct assault on the Supreme Court's 2011 AT&T
Mobility LLC v. Concepcion decision, which ruled that the
Federal Arbitration Act pre-empted a California state-law rule
that prohibited certain arbitration agreements that did not
allow for classwide clams.
Kellogg faced some tough questioning from Justices Elena
Kagan and Ruth Bader Ginsburg, both on the court's liberal wing.
Ginsburg noted that the arbitration agreement at issue in
the Concepcion case had features that made it more attractive
than American Express's agreement for plaintiffs to bring
Kellogg conceded that the AT&T agreement had features that
could save plaintiffs costs, but he said that ultimately the
issues of cost were not relevant to the case before the court.
Justice Sonia Sotomayor, who sat on a 2nd U.S. Circuit Court
of Appeals panel that considered the case, did not participate
in oral arguments.
A decision is expected by the end of June.
The case is American Express Co v. Italian Colors
Restaurant, U.S. Supreme Court, No. 12-133.
For Italian Colors: Paul Clement of Bancroft.
For American Express: Michael Kellogg of Kellogg, Huber,
Hansen, Todd, Evans & Figel.
For the United States of America: Deputy Solicitor General
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