Antitrust Law Daily Wrap Up, ANTITRUST NEWS: FTC, DOJ File Amicus Brief Favoring “Effective Vindication Rule” in Agreements to Arbitrate Federal Statutory Claims, (Jan 30, 2013)

By Tobias J. Gillett, J.D., LLM.

The staffs of the Federal Trade Commission and the Department of Justice have filed an amicus curiae brief with the U.S. Supreme Court arguing that courts should not enforce arbitration agreements pursuant to the Federal Arbitration Act (FAA) when the agreements would effectively prevent private litigants from pursuing their federal statutory claims (American Express Co. v. Italian Colors Restaurant, Dkt. 12-133).

The brief supports the Second Circuit’s 2012 decision in In re American Express Merchants’ Litigation, 667 F.3d 204, which had invalidated an arbitration agreement containing a class action waiver and prohibitions on cost sharing among plaintiffs on the grounds that enforcement would deny the plaintiff merchants from pursuing their Sherman Act claims against American Express Co., since the merchants would have to pay prohibitively high costs to engage in individual arbitration when compared to their possible recoveries. American Express had invoked the clause in response to a lawsuit by the merchants challenging a purported illegal tying arrangement requiring merchants who accepted American Express’s charge card to also accept all of American Express’s credit cards.

The brief acknowledges that the Supreme Court has held the FAA to be “fully applicable” to agreements to arbitrate federal statutory claims, but contends that such agreements should be enforced only when they permit private litigants a reasonable opportunity to vindicate their claims. It argues for an effective vindication rule that would deny enforcement of agreements that would amount to a “prospective waiver of substantive rights,” due to the prohibitive costs involved in arbitration. The brief concludes that the merchants in the American Express litigation established the “effective vindication” exception by providing an unrebutted expert declaration stating that the costs to any named plaintiff would greatly exceed any possible recovery in arbitration, in circumstances in which the applicable arbitration procedures did not permit cost shifting or sharing.

The brief distinguishes the Supreme Court’s 2011 decision in AT&T Mobility v. Concepcion, 131 S. Ct. 1740, which held that the FAA preempted a California state law rule prohibiting class-arbitration waivers, on the ground that the arbitration procedures in the Concepcion case did not prevent the plaintiffs from seeking redress of their claims. The brief argues that denying plaintiffs the “effective vindication” exception would hinder enforcement of the federal antitrust laws, as well as many other federal laws providing for a private right of action, frustrating the purposes of the statutes.

The Commission voted to authorize its staff to join the DOJ in filing the brief by a vote of 3-2, with Commissioners Maureen Ohlhausen and Joshua D. Wright voting against it. Companies: American Express Co.

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