|Manne Signs onto Brief Asking Court to not Create a New Brand of “Judicial Hostility to Arbitration Agreements"|
Geoffrey Manne, Executive Director of the International Center for Law and Economics, along with ICLE Board Member Richard Epstein and ICLE Affiliates M. Todd Henderson and Todd Zywicki have signed onto an brief for American Express Company v. Italian Colors Restaurant, et al.
The case arises from a putative class action antitrust challenge to American Express’s “Honor All Cards” policy, which requires merchants that wish to accept American Express cards to accept charge cards as well as credit cards. In district court, American Express won a motion to compel arbitration, which it brought to enforce an arbitration clause in its Card Acceptance Agreement. On appeal, the Second Circuit reversed, finding a class action waiver provision in the agreement was invalid. The Supreme Court granted certiorari, vacated the Second Circuit’s decision, and remanded for further consideration in light of Stolt-Nielsen. On remand, the Second Circuit still refused to enforce the arbitration agreement. Shortly thereafter, the Supreme Court decided Concepcion, and the Second Circuit sua sponte considered rehearing.
But the Second Circuit again would not enforce the arbitration agreement. The court held that a mandatory class action waiver clause is not enforceable if the plaintiffs are able to demonstrate that the practical effect of enforcement would be to prevent them from vindicating their federal statutory rights. The court relied on a single affidavit from an expert witness as evidence that it would not be economically rational to bring an individual action in antitrust against American Express because out-of-pocket costs for expert fees incurred to make a case in antitrust would exceed an individual’s damages award. On that basis, the court concluded that the practical effect of enforcing the agreement would be to prevent plaintiffs from vindicating their federal statutory rights under the Sherman Act.
At a high level, we propose that the amicus brief present a few points. First, the Second Circuit’s “vindication of federal statutory rights” rationale rests upon a fundamental misunderstanding of Green Tree Financial Corp. v. Randolph. Green Tree focused on whether costs unique to arbitration might foreclose a claimant from relief, and the Second Circuit declined to enforce the arbitration agreement upon finding that litigation expenses (expert fees and of course attorneys’ fees) would interfere with plaintiffs’ ability to vindicate their federal statutory rights. Second, reading Green Tree’s rationale more broadly to require class procedures to ensure that would-be plaintiffs’ have sufficient financial incentive to advance their claims conflicts with the rule of law announced in Concepcion. At bottom, the Second Circuit declared the arbitration agreement unenforceable because it does not make class procedures available. Concepcion prohibits this result. Third, adopting an overly broad view of the Green Tree “vindication of statutory rights” rationale would permit courts to engage in a free-wheeling inquiry to look for reasons to invalidate arbitration agreements, contrary to the entire purpose of the Federal Arbitration Act—ending the judicial hostility to arbitration agreements and enforcing arbitration agreements as written.