U.S. Supreme Court

Supreme Court to Hear Another Case Involving an Arbitration Clause Barring Class Actions

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The U.S. Supreme Court has agreed to hear an appeal by American Express contending a federal appeals court has created a “sweeping, unwritten loophole” in federal arbitration law.

The ruling by the New York-based 2nd U.S. Circuit Court of Appeals allowed retailers to pursue a class action lawsuit alleging antitrust violations against American Express despite contracts requiring disputes to be arbitrated and barring class claims, report Bloomberg News, Reuters and SCOTUSblog.

The 2nd Circuit said a class action was the only economically feasible means for the merchant to pursue its federal law claim over American Express swipe fees, and the company’s mandatory arbitration violated antitrust law, Reuters explains.

The U.S. Supreme Court ruled last year in AT&T Mobility v. Concepcion that the Federal Arbitration Act pre-empted a state common-law rule that allowed some consumers to avoid contracts in which they waived class-action rights. The cert petition (PDF) by American Express claims the 2nd Circuit disregarded the Concepcion decision and created a circuit split.

“The panel’s ‘labored’ effort to distinguish Concepcion on the ground that this case implicates the ‘federal substantive law of arbitrability’ rather than state contract law is nonsensical,” the cert petition says.

The merchants want to accept American Express charge cards that require payment in full each month without having to accept the company’s newer mass-market credit cards that don’t require full payment and are more expensive than competing bank-issued cards.

Justice Sonia Sotomayor, who was a member of the 2nd Circuit when the case was heard there, recused herself from cert grant. The case is American Express v. Italian Colors Restaurant.

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