The Court on Thursday continued its recent trend of strictly enforcing the terms of arbitration agreements, holding that a contractual waiver of class arbitration is enforceable under the Federal Arbitration Act (FAA) even if the cost of proving an individual claim in arbitration exceeds the potential recovery.  The Court’s opinion likely makes such class action waivers ironclad in the absence of specific legislation to the contrary or evidence – such as unconscionability under state law – that would establish “grounds . . . for the revocation of any contract” under the FAA’s savings clause, 9 U.S.C. § 2.

American Express’s arbitration agreement with merchants contained a class arbitration waiver.  The merchants brought an antitrust class action against American Express in federal court and opposed American Express’s motion to compel individual arbitration.  The Court held that the class arbitration waiver was enforceable and could not be invalidated despite the high cost of individually proving the merchants’ antitrust claims against American Express.  The Court’s broadly worded decision provides important guidance on how the FAA is applied to agreements to arbitrate all types of federal statutory claims, not just antitrust claims.  The vote was five to three, with Justice Sotomayor recusing herself because she sat on the Second Circuit panel that originally decided the case.

Justice Scalia wrote the opinion for the majority.  The majority’s opinion turned on three grounds:  (1) there is no congressional command that trumps the FAA’s mandate that arbitration agreements must be “rigorously enforced” according to their terms; (2) the “effective vindication” exception doesn’t guarantee class arbitration simply because an individual claim is expensive to prove; and (3) to hold otherwise would destroy the prospect of speedy resolution of claims in arbitration because courts and parties would have to preliminarily determine the costs of proving each element of plaintiffs’ claims and the potential damages that could be recovered.

The Court has repeatedly held that arbitration is a matter of contract and that the terms of arbitration agreements will be strictly enforced.  It began its analysis here by reaffirming these principles.  Citing its recent decision in CompuCredit Corp. v. Greenwood, the Court explained that these principles apply equally when federal statutory rights are involved, unless they are overridden by a contrary congressional command.  In this instance, there was no contrary command.  The Court considered the Sherman and Clayton Acts as well as Federal Rule of Civil Procedure 23, and found that neither the federal antitrust laws nor Rule 23 created an entitlement to class proceedings.  Congress did not intend to pursue its antitrust goals at any cost, and already provides for treble antitrust damages under 15 U.S.C. § 15 to advance its antitrust goals.  Furthermore, the antitrust laws predate the advent of class actions, and make no mention of class actions. Considering these factors leads to the conclusion that “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.”  Similarly, Rule 23 does not “establish an entitlement to class proceedings for the vindication of statutory rights,” because it has stringent requirements that are often not met.

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