Evan Schuman's StorefrontBacktalk

A couple of years ago, the Supreme Court stated that a person who was charged $30 for a “free” cellphone had to file an individual arbitration request to get their 30 bucks back, and could not file a class-action lawsuit or arbitration (even though California state law permitted it) because the Federal Arbitration Act superseded the state law and made the arbitration agreement binding.

So Justice Scalia argued in the Amex decision that allowing an antitrust lawsuit might further the goals of dissuading agreements in restraint of trade, but it would undermine Congress’ intent in the FAA to promote arbitration. Right?

Sure. But that’s not really what the FAA does—especially in cases like the Amex case. As applied, the FAA does not promote arbitration—it merely discourages any remedy. The choice is not between arbitration and litigation. It is between a single antitrust lawsuit by all merchants against Amex and, well, nothing.

As Justice Breyer noted in the lawsuit against AT&T: “What rational lawyer would have signed on to represent the (clients) in litigation for the possibility of fees stemming from a $30.22 claim? The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”

In the Amex decision, the Supreme Court essentially doubled down on the AT&T decision.

The merchants pointed out that the “tying” arrangement affected all merchants that wanted to accept American Express Cards, that the harm of damage to any one of them may not have been significant, but the impact on the marketplace was significant. That even though Congress expressly created a right to class action for antitrust violations, and created a right to treble (triple) damages for antitrust violations, merchants could waive those rights and remedies by contract under the FAA. Congress giveth (antitrust law) and Congress taketh away (the Federal Arbitration Act).

Justice Kagan disagreed. She wrote: “The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract’s arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool’s errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse. And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.”

I would not have used the word “darn.”

That’s the nature of unequal bargaining power. If you get unequal power by antitrust or violation of the law, you can use the unequal power to force those damaged by the violation to agree not to sue you for the antitrust violation. Got it? It’s a perfect plan.

Justice Kagan points out that not all terms in an arbitration agreement are binding. She says: “We would refuse to enforce an exculpatory clause insulating a company from antitrust liability—say, ‘Merchants may bring no Sherman Act claims’—even if that clause were contained in an arbitration agreement. Congress created the Sherman Act’s private cause of action not solely to compensate individuals, but to promote ‘the public interest in vigilant enforcement of the antitrust laws.’ Accordingly, courts will not enforce a prospective waiver of the right to gain redress for an antitrust injury, whether in an arbitration agreement or any other contract.”

What does it all mean? Effectively, it means that arbitration agreements—even those coerced by undue bargaining power—will likely be enforced. It means that they will likely be enforced even when that means that other provisions of federal law will be gutted. It means that merchants and others will be putting more arbitration agreements into place as a matter of routine to keep pesky customers from ever suing them. It means that your lawyers will be very busy either writing and defending these agreements when they benefit the company, or challenging or renegotiating them when they are not. But effectively don’t look to the courts for help, because you probably have waived that right.

If you disagree with me, I’ll see you in court, buddy. If you agree with me, however, I would love to hear from you.