SUPREME COURT OF THE UNITED STATES
_________________
No. 12–133
_________________
AMERICAN EXPRESS COMPANY, et al.,
PETITIONERS v. ITALIAN COLORS RESTAURANT et al.
on writ of certiorari to the united states
court of appeals for the second circuit
[June 20, 2013]
Justice Kagan, with
whom Justice Ginsburg and Justice Breyer join, dissenting.
Here is the nutshell
version of this case, unfortunately obscured in the Court’s
decision. The owner of a small restaurant (Italian Colors) thinks
that American Express (Amex) has used its monopoly power to force
merchants to accept a form contract violating the antitrust laws.
The restaurateur wants to challenge the allegedly unlawful
provision (imposing a tying arrangement), but the same
contract’s arbitration clause prevents him from doing so.
That term imposes a variety of procedural bars that would make
pursuit of the antitrust claim a fool’s errand. So if the
arbitration clause is enforceable, Amex has insulated itself from
antitrust liability—even if it has in fact violated the law.
The monopolist gets to use its monopoly power to insist on a
contract effectively depriving its victims of all legal
recourse.
And here is the
nutshell version of today’s opinion, admirably flaunted
rather than camouflaged: Too darn bad.
That answer is a
betrayal of our precedents, and of federal statutes like the
antitrust laws. Our decisions have developed a
mechanism—called the effective-vindication rule—to
prevent arbitration clauses from choking off a plaintiff’s
ability to enforce congressionally created rights. That doctrine
bars applying such a clause when (but only when) it operates to
confer immunity from potentially meritorious federal claims. In so
doing, the rule reconciles the Federal Arbitration Act (FAA) with
all the rest of federal law—and indeed, promotes the most
fundamental purposes of the FAA itself. As applied here, the rule
would ensure that Amex’s arbitration clause does not
foreclose Italian Colors from vindicating its right to redress
antitrust harm.
The majority barely
tries to explain why it reaches a contrary result. It notes that we
have not decided this exact case before—neglecting that the
principle we have established fits this case hand in glove. And it
concocts a special exemption for class-arbitration
waivers—ignoring that this case concerns much more than that.
Throughout, the majority disregards our decisions’ central
tenet: An arbitration clause may not thwart federal law,
ir-respective of exactly how it does so. Because the Court today
prevents the effective vindication of federal statutory rights, I
respectfully dissent.
I
Start with an
uncontroversial proposition: We would refuse to enforce an
exculpatory clause insulating a company from antitrust
liability—say, “Merchants may bring no Sherman Act
claims”—even if that clause were contained in an
arbitration agreement. See ante, at 6. Congress created the Sherman
Act’s private cause of action not solely to compensate
individuals, but to promote “the public interest in vigilant
enforcement of the antitrust laws.” Lawlor v. National Screen
Service Corp., 349 U. S. 322, 329 (1955) . Accordingly, courts
will not enforce a prospective waiver of the right to gain redress
for an antitrust injury, whether in an arbitration agreement or any
other contract. See Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U. S. 614 , and n. 19 (1985). The
same rule applies to other important federal statutory rights. See
14 Penn Plaza LLC v. Pyett, 556 U. S. 247, 273 (2009) (Age
Discrimination in Employment Act); Brooklyn Savings Bank v.
O’Neil, 324 U. S. 697, 704 (1945) (Fair Labor Standards
Act). But its necessity is nowhere more evident than in the
antitrust context. Without the rule, a company could use its
monopoly power to protect its monopoly power, by coercing agreement
to contractual terms eliminating its antitrust liability.
If the rule were
limited to baldly exculpatory provi-sions, however, a monopolist
could devise numerous ways around it. Consider several alternatives
that a party drafting an arbitration agreement could adopt to avoid
antitrust liability, each of which would have the identical effect.
On the front end: The agreement might set outlandish filing fees or
establish an absurd (e.g., one-day) statute of limitations, thus
preventing a claimant from gaining access to the arbitral forum. On
the back end: The agreement might remove the arbitrator’s
authority to grant meaningful relief, so that a judgment gets the
claimant nothing worthwhile. And in the middle: The agreement might
block the claimant from presenting the kind of proof that is
necessary to establish the defendant’s liability—say,
by prohibiting any economic testimony (good luck proving an
antitrust claim without that!). Or else the agreement might appoint
as an arbitrator an obviously biased person—say, the CEO of
Amex. The possibilities are endless—all less direct than an
express exculpatory clause, but no less fatal. So the rule against
prospective waivers of federal rights can work only if it applies
not just to a contract clause explicitly barring a claim, but to
others that operate to do so.
And sure enough, our
cases establish this proposition: An arbitration clause will not be
enforced if it prevents the effective vindication of federal
statutory rights, however it achieves that result. The rule
originated in Mitsubishi, where we held that claims brought under
the Sherman Act and other federal laws are generally subject to
arbitration. 473 U. S., at 628. By agreeing to arbitrate such
a claim, we explained, “a party does not forgo the
substantive rights afforded by the statute; it only submits to
their resolution in an arbitral, rather than a judicial,
forum.” Ibid. But crucial to our decision was a limiting
principle, designed to safeguard federal rights: An arbitration
clause will be enforced only “so long as the prospective
litigant effectively may vindicate its statutory cause of action in
the arbitral forum.” Id., at 637. If an arbitration provision
“operated . . . as a prospective waiver of a
party’s right to pursue statutory remedies,” we
emphasized, we would “condemn[ ]” it. Id., at 637,
n. 19. Similarly, we stated that such a clause should be
“set[ ] aside” if “proceedings in the
contractual forum will be so gravely difficult” that the
claimant “will for all practical purposes be deprived of his
day in court.” Id., at 632 (internal quotation marks
omitted). And in the decades since Mitsubishi, we have repeated its
admonition time and again, instructing courts not to enforce an
arbitration agreement that effectively (even if not explicitly)
forecloses a plaintiff from remedying the violation of a federal
statutory right. See Gilmer v. Interstate/Johnson Lane Corp., 500
U. S. 20, 28 (1991) ; Vimar Seguros y Reaseguros, S. A. v. M/V
Sky Reefer, 515 U. S. 528, 540 (1995) ; 14 Penn Plaza, 556
U. S., at 266, 273–274.
Our decision in Green
Tree Financial Corp.-Ala. v. Randolph, 531 U. S. 79 (2000) ,
confirmed that this principle applies when an agreement thwarts
federal law by making arbitration prohibitively expensive. The
plaintiff there (seeking relief under the Truth in Lending Act)
argued that an arbitration agreement was unenforceable be- cause it
“create[d] a risk” that she would have to “bear
prohibitive arbitration costs” in the form of high filing and
administrative fees. Id., at 90 (internal quotation marks omitted).
We rejected that contention, but not because we doubted that such
fees could prevent the effective vindication of statutory rights.
To the contrary, we invoked our rule from Mitsubishi, making clear
that it applied to the case before us. See 538 U. S., at 90.
Indeed, we added a burden of proof: “[W]here, as here,”
we held, a party asserting a federal right “seeks to
invalidate an arbitration agreement on the ground that arbitration
would be prohibitively expensive, that party bears the burden of
showing the likelihood of incurring such costs.” Id., at 92.
Randolph, we found, had failed to meet that burden: The evidence
she offered was “too speculative.” Id., at 91. But even
as we dismissed Randolph’s suit, we reminded courts to
protect against arbitration agreements that make federal claims too
costly to bring.
Applied as our
precedents direct, the effective-vindication rule furthers the
purposes not just of laws like the Sherman Act, but of the FAA
itself. That statute reflects a federal policy favoring actual
arbitration—that is, arbitration as a streamlined
“method of resolving disputes,” not as a foolproof way
of killing off valid claims. Rodriguez de Quijas v.
Shearson/American Express, Inc., 490 U. S. 477, 481 (1989) .
Put otherwise: What the FAA prefers to litigation is arbitration,
not de facto immunity. The effective-vindication rule furthers
the statute’s goals by ensuring that arbitration remains a
real, not faux, method of dispute resolution. With the rule,
companies have good reason to adopt arbitral procedures that
facilitate efficient and accurate handling of complaints. Without
it, companies have every incentive to draft their agreements to
extract backdoor waivers of statutory rights, making arbitration
unavailable or pointless. So down one road: More arbitration,
better enforcement of federal statutes. And down the other: Less
arbitration, poorer enforcement of federal statutes. Which would
you prefer? Or still more aptly: Which do you think Congress
would?
The answer becomes all
the more obvious given the limits we have placed on the rule, which
ensure that it does not diminish arbitration’s benefits. The
rule comes into play only when an agreement “operate[s]
. . . as a prospective waiver”—that is,
forecloses (not diminishes) a plaintiff’s opportunity to gain
relief for a statutory violation. Mitsubishi, 473 U. S., at
637, n. 19. So, for example, Randolph assessed whether fees in
arbitration would be “prohibitive” (not high,
excessive, or extravagant). 531 U. S., at 90. Moreover, the
plaintiff must make that showing through concrete proof:
“[S]peculative” risks, “unfounded
assumptions,” and “unsupported statements” will
not suffice. Id., at 90–91, and n. 6. With the inquiry
that confined and the evidentiary requirements that high, courts
have had no trouble assessing the matters the rule makes relevant.
And for almost three decades, courts have followed our edict that
arbitration clauses must usually prevail, declining to enforce them
in only rare cases. See Brief for United States as Amicus Curiae
26–27. The effective-vindication rule has thus operated year
in and year out without undermining, much less
“destroy[ing],” the prospect of speedy dispute
resolution that arbitration secures. Ante, at 9.
And this is just the
kind of case the rule was meant to address. Italian Colors, as I
have noted, alleges that Amex used its market power to impose a
tying arrangement in violation of the Sherman Act. The antitrust
laws, all parties agree, provide the restaurant with a cause of
action and give it the chance to recover treble damages. Here, that
would mean Italian Colors could take home up to $38,549. But a
problem looms. As this case comes to us, the evidence shows that
Italian Colors cannot prevail in arbitration without an economic
analysis defining the relevant markets, establishing Amex’s
monopoly power, showing anticompetitive effects, and measuring
damages. And that expert report would cost between several hundred
thousand and one million dollars. [
1 ] So the expense involved in proving the claim in
arbitration is ten times what Italian Colors could hope to gain,
even in a best-case scenario. That counts as a
“prohibitive” cost, in Randolph’s terminology, if
anything does. No rational actor would bring a claim worth tens of
thousands of dollars if doing so meant incurring costs in the
hundreds of thousands.
An arbitration
agreement could manage such a mismatch in many ways, but
Amex’s disdains them all. As the Court makes clear, the
contract expressly prohibits class arbitration. But that is only
part of the problem. [
2 ] The
agreement also disallows any kind of joinder or consolidation of
claims or parties. And more: Its confidentiality provision prevents
Italian Colors from informally arranging with other merchants to
produce a common expert report. And still more: The agreement
precludes any shifting of costs to Amex, even if Italian Colors
prevails. And beyond all that: Amex refused to enter into any
stipulations that would obviate or mitigate the need for the
economic analysis. In short, the agreement as applied in this case
cuts off not just class arbitration, but any avenue for sharing,
shifting, or shrinking necessary costs. Amex has put Italian Colors
to this choice: Spend way, way, way more money than your claim is
worth, or relinquish your Sherman Act rights.
So contra the majority,
the court below got this case right. Italian Colors proved what the
plaintiff in Randolph could not—that a standard-form
agreement, taken as a whole, renders arbitration of a claim
“prohibitively expensive.” 531 U. S., at 92. The
restaurant thus established that the contract “operate[s]
. . . as a prospective waiver,” and prevents the
“effective[ ] . . . vindicat[ion]” of
Sherman Act rights. Mitsubishi, 473 U. S., at 637, and n. 19.
I would follow our precedents and decline to compel
arbitration.
II
The majority is quite
sure that the effective-vindication rule does not apply here, but
has precious little to say about why. It starts by disparaging the
rule as having “originated as dictum.” Ante, at 6. But
it does not rest on that swipe, and for good reason. As I have
explained, see supra, at 3–4, the rule began as a core part
of Mitsubishi: We held there that federal statutory claims are
subject to arbitration “so long as” the claimant
“effectively may vindicate its [rights] in the arbitral
forum.” 473 U. S., at 637 (emphasis added). The rule
thus served as an essential condition of the decision’s
holding. [
3 ] And in Randolph,
we provided a standard for applying the rule when a claimant
alleges “prohibitive costs” (“Where, as
here,” etc., see supra, at 5), and we then applied that
standard to the parties before us. So whatever else the majority
might think of the effective-vindication rule, it is not
dictum.
The next paragraph of
the Court’s decision (the third of Part IV) is the key: It
contains almost the whole of the majority’s effort to explain
why the effective-vindication rule does not stop Amex from
compelling arbitration. The majority’s first move is to
describe Mitsubishi and Randolph as covering only discrete
situations: The rule, the majority asserts, applies to arbitration
agreements that eliminate the “right to pursue statutory
remedies” by “forbidding the assertion” of the
right (as addressed in Mitsubishi) or imposing filing and
administrative fees “so high as to make access to the forum
impracticable” (as addressed in Randolph). Ante, at 6
(emphasis deleted; internal quotation marks omitted). Those cases
are not this case, the majority says: Here, the agreement’s
provisions went to the possibility of “proving a statutory
rem-edy.” Ante, at 7.
But the distinction the
majority proffers, which excludes problems of proof, is one
Mitsubishi and Randolph (and our decisions reaffirming them)
foreclose. Those decisions establish what in some quarters is known
as a principle: When an arbitration agreement prevents the
effective vindication of federal rights, a party may go to court.
That principle, by its nature, operates in diverse
circumstances—not just the ones that happened to come before
the Court. See supra, at 3–4. It doubtless covers the baldly
exculpatory clause and prohibitive fees that the majority
acknowledges would preclude an arbitration agreement’s
enforcement. But so too it covers the world of other provisions a
clever drafter might devise to scuttle even the most meritorious
federal claims. Those provisions might deny entry to the forum in
the first instance. Or they might deprive the claimant of any
remedy. Or they might prevent the claimant from offering the
necessary proof to prevail, as in my “no economic
testimony” hypothetical—and in the actual circumstances
of this case. See supra, at 3. The variations matter not at all.
Whatever the precise mechanism, each “operate[s] . . . as a
prospective waiver of a party’s [federal]
right[s]”—and so confers immunity on a wrongdoer.
Mitsubishi, 473 U. S., at 637, n. 19. And that is what
counts under our decisions. [
4
]
Nor can the majority
escape the principle we have established by observing, as it does
at one point, that Amex’s agreement merely made arbitration
“not worth the expense.” Ante, at 7. That suggestion,
after all, runs smack into Randolph, which likewise involved an
allegation that arbitration, as specified in a contract,
“would be prohibitively expensive.” 531 U. S., at
92. Our decision there made clear that a provision raising a
plaintiff’s costs could foreclose consideration of federal
claims, and so run afoul of the effective-vindication rule. The
expense at issue in Randolph came from a filing fee combined with a
per-diem payment for the arbitrator. But nothing about those
particular costs is distinctive; and indeed, a rule confined to
them would be weirdly idiosyncratic. Not surprisingly, then,
Randolph gave no hint of distinguishing among the different ways an
arbitration agreement can make a claim too costly to bring. Its
rationale applies whenever an agreement makes the vindication of
federal claims impossibly expensive—whether by imposing fees
or proscribing cost-sharing or adopting some other device.
That leaves the three
last sentences in the majority’s core paragraph. Here, the
majority conjures a special reason to exclude “class-action
waiver[s]” from the effective-vindication rule’s
compass. Ante, at 7–8, and n. 4. Rule 23, the majority notes,
became law only in 1938—decades after the Sherman Act. The
majority’s conclusion: If federal law in the interim decades
did not eliminate a plaintiff’s rights under that Act, then
neither does this agreement.
But that notion, first
of all, rests on a false premise: that this case is only about a
class-action waiver. See ante, at 7, n. 4 (confining the case
to that issue). It is not, and indeed could not sensibly be. The
effective-vindication rule asks whether an arbitration agreement as
a whole precludes a claimant from enforcing federal statutory
rights. No single provision is properly viewed in isolation,
because an agreement can close off one avenue to pursue a claim
while leaving others open. In this case, for example, the agreement
could have prohibited class arbitration without offending the
effective-vindication rule if it had provided an alternative
mechanism to share, shift, or reduce the necessary costs. The
agreement’s problem is that it bars not just class actions,
but also all mechanisms—many existing long before the Sherman
Act, if that matters—for joinder or consolidation of claims,
informal coordination among individual claimants, or amelioration
of arbitral expenses. See supra, at 7. And contrary to the
majority’s assertion, the Second Circuit well understood that
point: It considered, for example, whether Italian Colors could
shift expert expenses to Amex if its claim prevailed (no) or could
join with merchants bringing similar claims to produce a common
expert report (no again). See 554 F. 3d 300, 318 (2009). It is
only in this Court that the case has become strangely narrow, as
the majority stares at a single provision rather than considering,
in the way the effective-vindication rule demands, how the entire
contract operates. [
5 ]
In any event, the age
of the relevant procedural mechanisms (whether class actions or any
other) does not matter, because the effective-vindication rule asks
about the world today, not the world as it might have looked when
Congress passed a given statute. Whether a particular procedural
device preceded or post-dated a particular statute, the question
remains the same: Does the arbi-tration agreement foreclose a
party—right now—from effectively vindicating the
substantive rights the statute provides? This case exhibits a whole
raft of changes since Congress passed the Sherman Act, affecting
both parties to the dispute—not just new procedural rules
(like Rule 23), but also new evidentiary requirements (like the
demand here for an expert report) and new contract provisions
affecting arbitration (like this agreement’s confidentiality
clause). But what has stayed the same is this: Congress’s
intent that antitrust plaintiffs should be able to enforce their
rights free of any prior waiver. See supra, at 2–3;
Mitsubishi, 473 U. S., at 637, n. 19. The
effective-vindication rule carries out that purpose by ensuring
that any arbitration agreement operating as such a waiver is
unenforceable. And that requires courts to determine in the here
and now—rather than in ye olde glory days—whether an
agreement’s provisions foreclose even meritorious antitrust
claims.
Still, the majority
takes one last stab: “Truth to tell,” it claims,
AT&T Mobility LLC v. Concepcion, 563 U. S. ___ (2011),
“all but resolves this case.” Ante, at 8. In that
decision, the majority recounts, this Court held that the FAA
preempted a state “law conditioning enforcement of
arbitration on the availability of class procedure.” Ibid.;
see 563 U. S., at ___ (slip op., at 9). According to the
majority, that decision controls here because “[w]e
specifically rejected the argument that class arbitration was
necessary.” Ante, at 9.
Where to begin? Well,
maybe where I just left off: Italian Colors is not claiming that a
class action is necessary—only that it have some means of
vindicating a meritorious claim. And as I have shown, non-class
options abound. See supra, at 11. The idea that AT&T Mobility
controls here depends entirely on the majority’s view that
this case is “class action or bust.” Were the majority
to drop that pretense, it could make no claim for AT&T
Mobility’s relevance.
And just as this case
is not about class actions, AT&T Mobility was not—and
could not have been—about the effective-vindication rule.
Here is a tip-off: AT&T Mobility nowhere cited our
effective-vindication precedents. That was so for two reasons. To
begin with, the state law in question made class-action waivers
unenforceable even when a party could feasibly vindicate her claim
in an individual arbitration. The state rule was designed to
preserve the broad-scale “deterrent effects of class
actions,” not merely to protect a particular
plaintiff’s right to assert her own claim. 563 U. S., at
___ (slip op., at 3). Indeed, the Court emphasized that the
complaint in that case was “most unlikely to go
unresolved” because AT&T’s agreement contained a
host of features ensuring that “aggrieved customers who filed
claims would be essentially guaranteed to be made whole.”
Id., at ___ (slip op., at 17–18) (internal quotation marks
and brackets omitted). So the Court professed that AT&T
Mobility did not implicate the only thing (a party’s ability
to vindicate a meritorious claim) this case involves.
And if that is not
enough, AT&T Mobility involved a state law, and therefore could
not possibly implicate the effective-vindication rule. When a state
rule allegedly conflicts with the FAA, we apply standard preemption
principles, asking whether the state law frustrates the FAA’s
purposes and objectives. If the state rule does so—as the
Court found in AT&T Mobility—the Supremacy Clause
requires its invalidation. We have no earthly interest (quite the
contrary) in vindicating that law. Our effective-vindication rule
comes into play only when the FAA is alleged to conflict with
another federal law, like the Sherman Act here. In that all-federal
context, one law does not automatically bow to the other, and the
effective-vindication rule serves as a way to reconcile any tension
between them. Again, then, AT&T Mobility had no occasion to
address the issue in this case. The relevant decisions are instead
Mitsubishi and Randolph.
* * *
The Court today
mistakes what this case is about. To a hammer, everything looks
like a nail. And to a Court bent on diminishing the usefulness of
Rule 23, everything looks like a class action, ready to be
dismantled. So the Court does not consider that Amex’s
agreement bars not just class actions, but “other forms of
cost-sharing . . . that could provide effective
vindication.” Ante, at 7, n. 4. In short, the Court does
not consider—and does not decide—Italian Colors’s
(and similarly situated litigants’) actual argument about why
the effective-vindication rule precludes this agreement’s
enforcement.
As a result,
Amex’s contract will succeed in depriving Italian Colors of
any effective opportunity to challenge monopolistic conduct
allegedly in violation of the Sherman Act. The FAA, the majority
says, so requires. Do not be fooled. Only the Court so requires;
the FAA was never meant to produce this outcome. The FAA conceived
of arbitration as a “method of resolving
disputes”—a way of using tailored and streamlined
procedures to facilitate redress of injuries. Rodriguez de Quijas,
490 U. S., at 481 (emphasis added). In the hands of
today’s majority, arbitration threatens to become more nearly
the opposite—a mechanism easily made to block the vindication
of meritorious federal claims and insulate wrongdoers from
liability. The Court thus undermines the FAA no less than it does
the Sherman Act and other federal statutes providing rights of
action. I respectfully dissent.