The U.S. Supreme Court today delivered a knock-out punch to the last major court challenge to the use of class action waivers in consumer arbitration agreements. In American Express Co. v. Italian Colors Restaurants, the Court reversed the Second Circuit's decision that the class action waiver in an arbitration agreement entered into by merchants who accept American Express cards could not be enforced because it would effectively preclude them from asserting federal antitrust claims against American Express.

Writing for the 5-3 majority, Justice Scalia flatly rejected the merchants' attempt to create a "vindication of federal statutory rights" exception to the landmark ruling in AT&T Mobility LLC v. Concepcion that class action waivers in consumer arbitration agreements are valid and enforceable even if some claims might "slip through the legal system." The ruling means that plaintiffs' class action attorneys will no longer be able to argue that there is an exception to Concepcion based upon the alleged inability to prove a statutory claim because it is too expensive to do so in an individual arbitration.

As we predicted after attending the February 27, 2013, oral argument, the Court emphasized that federal statutory claims are subject to arbitration unless Congress has expressly said they are not. It found no indication that Congress intended to exempt the federal antitrust statutes from the Federal Arbitration Act (FAA).

The Court confirmed that Concepcion "established … that the FAA's command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low-value claims." According to the Court, the FAA "favor[s] the absence of litigation when that is the consequence of a class-action waiver, since its 'principal purpose' is the enforcement of arbitration agreements according to their terms."

The plaintiffs in American Express had argued that language in earlier Supreme Court rulings provided a basis for courts to create a "vindication of rights" exception to Concepcion on a case-by-case basis. The Court, however, characterized that language as "dictum."

Ballard Spahr submitted an amicus brief to the Supreme Court in support of American Express on behalf of the American Bankers Association, the American Financial Services Association, and the Consumer Bankers Association.

Attention will now focus on the consumer arbitration study presently being conducted by the Consumer Financial Protection Bureau. On June 22, 2012, we submitted extensive comments on the study to the CFPB on behalf of the American Bankers Association, the Consumer Bankers Association, and The Financial Services Roundtable.

Earlier this month, as part of the study, the CFPB asked the Office of Management and Budget to approve the Bureau's plans to conduct a national telephone survey of 1,000 credit card holders as part of its study of the use of mandatory arbitration agreements in connection with the offering of consumer financial products and services. It is also seeking comments on its approval request, which must be submitted by August 6, 2013. 

Ballard Spahr's Consumer Financial Services Group pioneered the use of pre-dispute arbitration provisions in consumer financial services agreements. It is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

The CFS Group also produces CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments. To subscribe to the blog, use the link provided to the right.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, or Mark J. Levin at 215.864.8235 or levinmj@ballardspahr.com.


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