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Consumers, business both served by arbitration

Feb 20, 2013
Carter Wood

Anticipating arguments in the U.S. Supreme Court in American Express Co. v. Italian Colors Restaurant (Scotusblog coverage), the Manhattan Institute's Ted Frank explains why arbitration provisions in contracts can be a powerful too for consumers.

His new paper for the Manhattan Institute's Center for Legal Policy is, "Class Actions, Arbitration, and Consumer Rights: Why Concepcion is a Pro-Consumer Decision."

On February 27, 2013, the Supreme Court will hold oral arguments in American Express Co. v. Italian Colors Restaurant,[1] an appeal from a decision by the U.S. Court of Appeals for the Second Circuit that invalidated a mandatory arbitration provision under federal law. Italian Colors follows on the heels of the 2011 5–4 Supreme Court decision in AT&T Mobility LLC v. Concepcion[2] striking down the Ninth Circuit's use of California state law to invalidate a mandatory arbitration provision. The Concepcion decision has generated a lot of hand-wringing in certain circles, with numerous scholars and activists complaining that the Court's ruling would result in untold harm to consumers and even in the "death" of the class action itself; these complaints are usually matched with calls for congressional legislation.[3] While a full assessment of the Supreme Court's class action jurisprudence should await its decision in Italian Colors, the scholars' and activists' complaints about Concepcion are generally overstated. Competitive market pressures generally ensure that consumers are unambiguously better off by being given the option to pre-commit to mandatory arbitration. And if the Court in Italian Colors adheres to the general principles it embraced in Concepcion, there will still be plenty of class actions, and perhaps too many at the margin.

Business Roundtable has joined the National Chamber Litigation Center in filing an amicus brief in support of American Express' arguments, with counsel of record being Andrew Pincus of Mayer Brown. America Express' counsel in the litigation is Michael Kellog of Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C.

The National Law Journal interviewed both counsels in previewing the case. From "Arbitration case this term could lead to broadest ruling against class actions":

In the Supreme Court, American Express' Kellogg urges a clean, straightforward rule: Absent an express limitation by Congress on the arbitration of a federal statutory claim, there is no basis for courts to refuse to enforce the FAA's command that arbitration agreements be enforced according to their terms.

He accuses the Second Circuit of engrafting onto the FAA "a pro-class-action public policy" with no basis in that law. Relying on Stolt-Nielsen and Concepcion, he writes, "Twice in its last three terms, this Court has made clear that [the FAA mandate] requires courts to enforce arbitration agreements even when they call for bilateral rather than classwide proceedings."

"If plaintiffs were to win, the problem is every plaintiff or plaintiffs' lawyer is going to make the same claim," said Mayer Brown's Pincus. "Every time someone moves to enforce the clause, there's going to be at a minimum a trial over whether claims can be effectively vindicated. The problem is that can be a very broad and expensive process. Once that condition gets imposed, that's a situation where arbitration is undermined. If you're telling me, a business, that I'm going to have huge litigation costs, then I won't have arbitration."








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