Yesterday, we attended the highly anticipated oral argument before the U.S. Supreme Court in Italian Colors Restaurant v. American Express Travel Related Services Co. While no one can predict with certainty how the Court will rule, the questioning by the Justices strongly suggested that at least five of them (Roberts, Scalia, Alito, Kennedy, and Thomas), and perhaps a sixth (Breyer), are poised to reverse the Second Circuit. Two Justices (Ginsburg and Kagan) appeared to be firmly in the plaintiffs’ camp, while Justice Sotomayor recused herself because she was on the original Second Circuit panel.

Under review is the Second Circuit’s ruling of February 1, 2012, 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.

The Second Circuit concluded, as it had twice before, that the class action waiver precluded the merchants from vindicating their federal statutory rights. The court cited two reasons on which the ruling was based: it would be necessary for the merchants to hire an expert who would charge exponentially more than the merchants’ potential recovery, and those expert fees could not be recovered under the Sherman Act even if the merchants prevailed in an individual arbitration.

Based on yesterday’s argument, it appears that a majority of the Court will reject 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.” It also appears unlikely that the Court will second-guess its prior holding in CompuCredit v. Greenwood that federal statutory claims are subject to arbitration unless Congress has expressly said they are not.

Several of the Justices emphasized that arbitration is more economical and efficient than class action litigation. Therefore, an arbitrator could determine how the merchants’ antitrust claims could be adjudicated without excessive costs. Justice Breyer expressed concern that a ruling in the merchants’ favor would open the floodgates to assertions by plaintiffs’ lawyers that their claims were too expensive to arbitrate and severely erode the long-established principle that federal statutory claims are subject to arbitration. 

It is possible, though not likely, that the Court will remand the case to the lower courts for further fact-finding on whether the merchants could use less costly alternatives to prove their case. The merchants had alleged they would have to spend up to $1 million for an expert report. A decision is expected by June.

We 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.

On a related note, only days before the Italian Colors argument, a FINRA Hearing Panel ruled that a broker-dealer can enforce the class action waiver in its customer arbitration agreements because the FINRA rule prohibiting such waivers is preempted by the Federal Arbitration Act. That ruling would be substantially bolstered if American Express prevails in Italian Colors.

In the meantime, we have learned that FINRA is appealing the Hearing Panel’s decision to the National Adjudicatory Council, an appellate body for FINRA disciplinary decisions. We will keep you posted on further developments in this important matter, and we will issue an alert when Italian Colors is decided.

On Wednesday, March 20, 2013, Ballard Spahr will host a webinar from 12 p.m. to 1 p.m. ET on the implications of the FINRA Hearing Panel’s opinion.

Ballard Spahr’s Consumer Financial Services Group 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 throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

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

For more information, please contact Alan S. Kaplinsky at 215.864.8544 or, or Mark J. Levin at 215.864.8235 or

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