The Supreme Court Versus the Common Man


Respectfully submitted by Lawrence E. Rafferty (rafflaw)-Guest Blogger

A recent United State Supreme Court decision has made it almost impossible for small businesses and individuals to bring class action lawsuits against large corporations who may be in violation of antitrust laws. Not only did the case fly under the mass media radar, it also may allow corporations to use contractual language to insulate them from many other federal laws.  I am talking about the American Express v. Italian Colors case that was decided by a 5-3 margin.  What the Supreme Court majority did here was to allow American Express to force its small business customers to sign a contract that included language that precluded those same customers from having any viable access to judicial review of American Express’ business practices.

The Washington Post provides a good synopsis of the case.  “In a second case, American Express Co. v. Italian Colors Restaurant , the same five justices ruled that corporations can insulate themselves from liability for violating federal law by inserting clauses in their contracts that prohibit class-action arbitration. A group of small merchants argued that American Express had violated antitrust laws by using its monopoly power to charge credit card fees 30 percent higher than those of its competitors. But American Express had used the same monopoly power to draft a form contract that directed all legal disputes into arbitration — and then forbade arbitration on a class-wide basis. The merchants argued that because antitrust claims are so expensive to prove, they are not worth pursuing on an individual basis and can be vindicated only through collective, class-wide proceedings.

The Supreme Court previously ruled that contracts may require arbitration rather than court litigation only if the arbitration proceeding provides an adequate forum for individuals to vindicate their rights. In Italian Colors, the court’s majority conceded that requiring individual arbitrations would make it too expensive to challenge American Express’s conduct, but, as Justice Elena Kagan paraphrased the majority’s response in her dissent: “Too darn bad.” ‘ Washington Post

Does it surprise anyone at this point when the Roberts Court favors large corporate interests over those of small businesses?  The arbitration clause in the American Express contract that all of its customers were required to sign, was a take it or leave it proposition.    I think that type of take or leave it contract was referred to in law school as an “adhesion contract”.

Prior to reaching the Supreme Court, the Second Circuit Court of Appeals heard the Italian Colors case three times and each time it found for the merchants based on the expense involved for each individual business or person to bring an individual arbitration case against the behemoth American Express.

“The small businesses’ claims were pretty small individually, not more than around $5,000 per shop. So, to make their case worth enough for a lawyer to take it, they banded together to file a class action on behalf of all small businesses affected by the practice. In response, Amex invoked the small print in its contract with them: a clause that not only banned the companies from suing individually but also prevented them from bringing a class action. Instead, Amex insisted the contract required each little businesses to submit to the decision of a private arbitrator paid by Amex, and individually press their claims. (Arbitration is heavily stacked in favor of the big companies, as you can read more about here and here.)

The restaurants estimated, with good evidence, that because of the market research required to press an antitrust case, arbitration would cost each of them almost $1 million to collect a possible maximum of $38,000, making it impossible to bring their claims at all. After a lot of litigation, the little guys prevailed in the 2nd Circuit Court of Appeals, which found that the arbitration clause was unconscionable because it prevented the plaintiffs from having their claims heard in any forum. The court said the arbitration contract should be invalidated and that the class action should go forward in a regular courtroom. (Sonia Sotomayor sat on one of the appeals before heading to the high court and is recusing herself from the case as a result.)”  Mother Jones

If the negative impact on small businesses and individuals was not great enough, the decision in Italian Colors may allow corporations to avoid other Federal laws by merely including language in any contract that prohibits the aggrieved party from filing suit or joining in a class action suit.  In fact, AARP filed an amicus brief with the Supreme Court warning about that very concern.

“In an amicus brief submitted in this case on the side of the small businesses, lawyers for AARP, Public Justice, and the American Association for Justice warned that if the court sided with Amex, “statutes intended by Congress to protect weaker parties against stronger parties will essentially be gutted. Small businesses might as well move to a different country where they no longer enjoy the protection of the antitrust laws. At the whim of an employer, workers could be required to prospectively waive their Title VII [anti-discrimination] rights. Consumer protection laws such as the Truth in Lending Act could be silently, but inescapably, repealed by corporations with the stroke of a pen.”

Indeed, if the court ruled that Amex could use an arbitration clause in a contract with a much less powerful party to escape punishment under the Sherman Antitrust Act, there’s no reason why a big company couldn’t create contracts that prevent people from filing sex discrimination, consumer fraud, or other similar claims in any venue. Laws that Congress passed to protect the public could simply be voided through artfully written arbitration clauses that create expensive hurdles to pressing a claim.” Mother Jones

Of course, the Supreme Court majority is unconcerned with the little guy losing any viable means to attain justice.  Justice Scalia merely claimed in his majority decision that the law does not guarantee the average person a cheap method of enforcing the law against big corporations.  Once again, does that attitude surprise anyone at this point in the history of the Roberts Court?  Justice Elena Kagan pulled no punches in a blunt dissent.

Her closing sums up the damage done by the majority in their politically designed decision.  “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”  Kagan Dissent

It should be no surprise that the Roberts Court is pro-business, but the road it has traveled to insure that large corporations are sacred cows that are infallible and immune to legal precedents and possibly Federal law is amazing.  It is shocking that a case of this importance was so overlooked by the mass media.  Even by a corporate owned mass media.  Do you think the Roberts majority has gone too far in ignoring precedent?  Do you think that the decision will open the flood gates to corporations using arbitration clauses to avoid other Federal laws?

If you agree with the majority in this decision, how can small businesses ever get a reasonable hearing on their legal complaints if they are forced to sign an adhesion contract with a large supplier of services?  This decision should concern citizens of any political stripe.  What do  you think?

68 thoughts on “The Supreme Court Versus the Common Man”

  1. The problem with the ‘don’t like Amex, go somewhere else’ argument is that SCOTUS just handed ALL credit card companies a get-out-of-jail-free card. If the other credit card companies haven’t started re-writing their contracts then they are just plain stupid.

  2. Porkchop,

    Remember its form over substance….I tend to think you’re right based upon the readings I’ve done…. But hey….

  3. Eh, I’ll buy that argument, Porkchop. But still, fully Federalized at conception or fully Federalized after the Civil War, its still a Federal form of government. Part of the argument was over the degree and strength, not whether or not a Federal government existed.

  4. Gene H.

    “True enough, Porkchop, but 1776 was when the basic form was established.”

    Well, no, not really.

    The Articles of Confederation (drafted in 1777, but not fully ratified until 1781) definitely did not “federalize” the states — the weakness of the central government was the primary reason for the Constitutional Convention.

    Indeed, arguably, the primacy of the federal government did not occur de facto until the end of the Civil War or de jure until the ratification of the 13th and 14th amendments, aided by later Commerce Clause jurisprudence.

    Tellingly, I think, it was not until after the Civil War that “United States” began to be used commonly as a grammatical singular. Previously, one wrote or said, “The United States are . . .”. See, for example, the text of the Thirteenth amendment, which refers to the United States “or any place subject to _their_ jurisdiction”.

  5. Ay! I come home from the boys at the hood and open the computer and I have to look at that photo of Scalia. What a schmuck. Save that sort of scare tactic for Monday night.

  6. The Corporate Hoods are thriving. The Boyz in the CorporateHood are generally better educated than the plain boyz in the hood.

    The CorporateHoods slogan about laws is
    ……………. “We don’t break em We make em”

    Some of the Boyz in those Corporate Hoods wear Black robes.

  7. ** The market will work if you let it.**


    Car/home/CC/Student/Biz loans by Wallst/City London are in turn sold to investors. (Pension funds etc…)

    They are being used to commit fraud by pledging the same collateral to multiple investors. IE: MF Global, Lehman Brothers, etc….

    DC/States/Courts say little & allow it to continue because they are also living off that fraud in the bond market to finance things like all these foreign wars, take over of nation’s sovereignty like Greece, Ireland, etc….

    The standing financial recommendations I’m hearing is don’t walk, run, get the heck as far away financially from those aholes as you can before they blow again.

  8. Binding arbitration clause along with the rest of the contract is unenforceable/null n void if one party to the contract failed to disclose that they intended to use the other parties signature on the contract as a means to commit criminal/civil fraud.

    AMEX is another one of those Wallst firms engaging daily in fraud though the use of OTC derivative contracts.

    This AMEX case being discussed, I’m not completely clear on all of it, but it appears the plaintiffs are being denied equal protection.

    And did their lawyers bring a faulty case in front of the courts?

    This legal site below deals with contract fraud/Wallst’s derivative frauds

  9. Gene H:

    when there are 4 or 5 other companies who provide credit cards that is not an unequal bargaining position.

    They can put anything they want in a contract, it is their business. If people are stupid enough to use them, then so be it. The law doesnt protect people from stupidity or at least it shouldnt.

    My guess is that Amex is going to take a big hit and they will adjust. The market will work if you let it.

    There should be 100 plus credit card companies but government regulations have made it all but impossible.

  10. Bron,

    You’re completely ignoring that the contracting terms are imposed from an unequal bargaining position and eliminate legal remedy otherwise legally available by essentially out spending individual consumers who might have a beef with them. It’s a divide and conquer strategy that effectively eliminates AMEX liability in case of breach. They can effectively breach and not worry about sanction because so few customers could afford the arbitration process. It’s not just a prime facie unconscionable contract provision. It’s privatized “justice” that is anything but just as it limits access to remedy by aggrieved parties.

  11. mahtso:

    I accept credit cards and they all want about 3%, I think Amex charges a little more and so many companies dont accept Amex and neither do I.

    I also write my contracts to benefit me.

    People are free to deal with me or not. I dont understand how freedom of contract is fascist either.

    Dont like AMEX terms and fees? Dont deal with them. Most people use Visa and MasterCard.

    I guess anyone who looks after their own business interests is a fascist.

    And we should all just bend over and work for free or a small return for our efforts.

    But then we would be socialists so that is OK.

  12. “As a condition of bail being granted, and being sprung from the Gray Bar
    Inn, you agree to plead guilty at the time of your trial.”

  13. True enough, Porkchop, but 1776 was when the basic form was established.

  14. By the way, Oky and Gene, the Constitution went into effect in 1789 (March 4, to be precise), not 1776.

  15. This is an unfortunate result, but the problem here is not the Supreme Court — it is the text of the Federal Arbitration Act, specifically 9 U.S.C. sec 2:

    “A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

    There’s not a lot of wiggle room in that statute.

    I keep hearing from both political parties that the engine of the American economy is small business — maybe all those congresspersons would like to do something that would help small business, or maybe even consumers.

    Nah, probably not.

  16. But to the point raff is making….. The small businessperson is screwed…. And the Vaseline is furnished….. By the Sct….

  17. Do it like Europe….most small to medium size business’s do not accept AE….. Only at the upper scale hotels are they generally taken…

  18. ** Gene H. 1, July 4, 2013 at 1:25 pm

    Bad news, Oky1.

    The Constitution Federalized the states in 1776 when it created a constitutional presidential democratic federal representative republic as our form of government.



    Sorry, but I never came up with an adequate response to your post even though I think it worthy of one.

    I used to be studied up on that subject long ago & I did looked at some of that Shay’s Rebellion stuff.

    With many areas I have to defer to wiser legal council.

    For now I’ll just pound the table some more & insist I’m correct. 🙂

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