AMERICAN EXPRESS CO., ET AL. v. ITALIAN COLORS RESTAURANT
American Express Company provides charge card services to supermarkets and other merchants throughout the United States. When a store decides to accept American Express cards, it must enter into a Card Acceptance Agreement. This standard form contract outlines the basic relationship between American Express and the merchant. A clause within the agreement requires arbitration of all claims brought against American Express and prohibits merchants from bringing any class action claims.
Several merchants, including Italian Colors Restaurant, brought individual lawsuits against American Express, claiming that the Card Acceptance Agreement violates U.S. antitrust laws. The United States District Court for the Southern District of New York consolidated the cases and American Express moved to dismiss in order to force the merchants to arbitrate. The district court enforced the arbitration clause and dismissed the case. The merchants appealed and the United States Court of Appeals for the Second Circuit held that the arbitration clause, in particular the class action waiver, is unenforceable because it would essentially protect American Express from antitrust suits. American Express further appealed and the United States Supreme Court granted certiorari. The Court vacated the ruling and remanded for further proceedings in light of its decision in Stolt-Nielsen v. Animalfeeds International. The appellate court reevaluated its decision and still found the class action waiver to be unenforceable. The Supreme Court granted certiorari again to resolve this issue.
Is American Express Company’s arbitration clause prohibiting class action suits enforceable, even though it would compel arbitration of antitrust claims?
Legal provision: Federal Arbitration Act
Yes. Justice Antonin Scalia delivered the opinion for the 5-3 majority. The Court held that the prohibitively high cost of arbitration is not a sufficient reason for a court to overrule an arbitration clause that forbids class action suits. Federal law does not guarantee that a claim will be resolved affordably. The fact that it can be more expensive to litigate individual arbitrations than they are worth does not negate the right to pursue a statutory remedy. Therefore, no exception to the Federal Arbitration Act (FAA) can be applied.
Justice Elena Kagan wrote a dissent in which she argued that the purpose of the FAA is to resolve disputes and facilitate compensation of injuries. By barring any means of sharing or shrinking arbitration costs, the arbitration clause in the American Express form contract functions to confer immunity from potentially meritorious federal claims, which runs counter to the purpose of the FAA. The contract also violates the Sherman Act by depriving parties of a chance to challenge allegedly monopolistic conduct. Justices Ruth Bader Ginsburg and Stephen G. Breyer joined in the dissent.
Justice Sonia Sotomayor did not participate in the discussion or decision of hte case.
NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
AMERICAN EXPRESS COMPANY, et al., PETITIONERS v. ITALIAN COLORS RESTAURANT et al.
on writ of certiorari to the united states court of appeals for the second circuit
[June 20, 2013]
Justice Scalia delivered the opinion of the Court.
We consider whether a contractual waiver of class arbitration is enforceable under the Federal Arbitration Act when the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery.I
Respondents are merchants who accept American Express cards. Their agreement with petitioners—American Express and a wholly owned subsidiary—contains a clause that requires all disputes between the parties to be resolved by arbitration. The agreement also provides that “[t]here shall be no right or authority for any Claims to be arbitrated on a class action basis.” In re American Express Merchants’ Litigation, 667 F. 3d 204, 209 (CA2 2012).
Respondents brought a class action against petitioners for violations of the federal antitrust laws. According to respondents, American Express used its monopoly power in the market for charge cards to force merchants to accept credit cards at rates approximately 30% higher than the fees for competing credit cards. 1 This tying arrangement, respondents said, violated §1 of the Sherman Act. They sought treble damages for the class under §4 of the Clayton Act.
Petitioners moved to compel individual arbitration under the Federal Arbitration Act (FAA), 9 U. S. C. §1 et seq. In resisting the motion, respondents submitted a declaration from an economist who estimated that the cost of an expert analysis necessary to prove the antitrust claims would be “at least several hundred thousand dollars, and might exceed $1 million,” while the maximum recovery for an individual plaintiff would be $12,850, or $38,549 when trebled. App. 93. The District Court granted the motion and dismissed the lawsuits. The Court of Appeals reversed and remanded for further proceedings. It held that because respondents had established that “they would incur prohibitive costs if compelled to arbitrate under the class action waiver,” the waiver was unenforceable and the arbitration could not proceed. In re American Express Merchants’ Litigation, 554 F. 3d 300, 315–316 (CA2 2009).
We granted certiorari, vacated the judgment, and remanded for further consideration in light of Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010) , which held that a party may not be compelled to submit to class arbitration absent an agreement to do so. American Express Co. v. Italian Colors Restaurant, 559 U. S. 1103 (2010) . The Court of Appeals stood by its reversal, stating that its earlier ruling did not compel class arbitration. In re American Express Merchants’ Litigation, 634 F. 3d 187, 200 (CA2 2011). It then sua sponte reconsidered its ruling in light of AT&T Mobility LLC v. Concepcion, 563 U. S. ___ (2011), which held that the FAA pre-empted a state law barring enforcement of a class-arbitration waiver. Finding AT&T Mobility inapplicable because it addressed pre-emption, the Court of Appeals reversed for the third time. 667 F. 3d, at 213. It then denied rehearing en banc with five judges dissenting. In re American Express Merchants’ Litigation, 681 F. 3d 139 (CA2 2012). We granted certiorari, 568 U. S. ___ (2012), to consider the question “[w]hether the Federal Arbitration Act permits courts . . . to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal-law claim,” Pet. for Cert. i.II
Congress enacted the FAA in response to widespread judicial hostility to arbitration. See AT&T Mobility, supra, at ___ (slip op., at 4). As relevant here, the Act provides:
“A written provision in any maritime transaction or contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U. S. C. §2.
This text reflects the overarching principle that arbitration is a matter of contract. See Rent-A-Center, West, Inc. v. Jackson, 561 U. S. ___, ___ (2010) (slip op., at 3). And consistent with that text, courts must “rigorously enforce” arbitration agreements according to their terms, Dean Witter Reynolds Inc. v. Byrd, 470 U. S. 213, 221 (1985) , including terms that “specify with whom [the parties] choose to arbitrate their disputes,” Stolt-Nielsen, supra, at 683, and “the rules under which that arbitration will be conducted,” Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468, 479 (1989) . That holds true for claims that allege a violation of a federal statute, unless the FAA’s mandate has been “ ‘overridden by a contrary congressional command.’ ” CompuCredit Corp. v. Greenwood, 565 U. S. ___, ___ (2012) (slip op., at 2–3) (quoting Shearson/American Express Inc. v. McMahon, 482 U. S. 220, 226 (1987) ).III
No contrary congressional command requires us to reject the waiver of class arbitration here. Respondents argue that requiring them to litigate their claims individually—as they contracted to do—would contravene the policies of the antitrust laws. But the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim. Congress has taken some measures to facilitate the litigation of antitrust claims—for example, it enacted a multiplied-damages remedy. See 15 U. S. C. §15 (treble damages). In enacting such measures, Congress has told us that it is willing to go, in certain respects, beyond the normal limits of law in advancing its goals of deterring and remedying unlawful trade practice. But to say that Congress must have intended whatever departures from those normal limits advance antitrust goals is simply irrational. “[N]o legislation pursues its purposes at all costs.” Rodriguez v. United States, 480 U. S. 522 –526 (1987) (per curiam).
The antitrust laws do not “evinc[e] an intention to preclude a waiver” of class-action procedure. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U. S. 614, 628 (1985) . The Sherman and Clayton Acts make no mention of class actions. In fact, they were enacted decades before the advent of Federal Rule of Civil Procedure 23, which was “designed to allow an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.” Califano v. Yamasaki, 442 U. S. 682 –701 (1979). The parties here agreed to arbitrate pursuant to that “usual rule,” and it would be remarkable for a court to erase that expectation.
Nor does congressional approval of Rule 23 establish an entitlement to class proceedings for the vindication of statutory rights. To begin with, it is likely that such an entitlement, invalidating private arbitration agreements denying class adjudication, would be an “abridg[ment]” or modif[ication]” of a “substantive right” forbidden to the Rules, see 28 U. S. C. §2072(b). But there is no evidence of such an entitlement in any event. The Rule imposes stringent requirements for certification that in practice exclude most claims. And we have specifically rejected the assertion that one of those requirements (the class-notice requirement) must be dispensed with because the “prohibitively high cost” of compliance would “frustrate [plaintiff’s] attempt to vindicate the policies underlying the antitrust” laws. Eisen v. Carlisle & Jacquelin, 417 U. S. 156 –168, 175–176 (1974). One might respond, perhaps, that federal law secures a nonwaivable opportunity to vindicate federal policies by satisfying the procedural strictures of Rule 23 or invoking some other informal class mechanism in arbitration. But we have already rejected that proposition in AT&T Mobility, 563 U. S., at ___ (slip op., at 9).IV
Our finding of no “contrary congressional command” does not end the case. Respondents invoke a judge-made exception to the FAA which, they say, serves to harmonize competing federal policies by allowing courts to invalidate agreements that prevent the “effective vindication” of a federal statutory right. Enforcing the waiver of class arbitration bars effective vindication, respondents contend, because they have no economic incentive to pursue their antitrust claims individually in arbitration.
The “effective vindication” exception to which respondents allude originated as dictum in Mitsubishi Motors, where we expressed a willingness to invalidate, on “public policy” grounds, arbitration agreements that “operat[e] . . . as a prospective waiver of a party’s right to pursue statutory remedies.” 473 U. S., at 637, n. 19 (emphasis added). Dismissing concerns that the arbitral forum was inadequate, we said that “so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.” Id., at 637. Subsequent cases have similarly asserted the existence of an “effective vindication” exception, see, e.g., 14 Penn Plaza LLC v. Pyett, 556 U. S. 247 –274 (2009); Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20, 28 (1991) , but have similarly declined to apply it to invalidate the arbitration agreement at issue. 2
And we do so again here. As we have described, the exception finds its origin in the desire to prevent “prospective waiver of a party’s right to pursue statutory remedies,” Mitsubishi Motors, supra, at 637, n. 19 (emphasis added). That would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights. And it would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable. See Green Tree Financial Corp.-Ala. v. Randolph, 531 U. S. 79, 90 (2000) (“It may well be that the existence of large arbitration costs could preclude a litigant . . . from effectively vindicating her federal statutory rights”). But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy. See 681 F. 3d, at 147 (Jacobs, C. J., dissenting from denial of rehearing en banc). 3 The class-action waiver merely limits arbitration to the two contracting parties. It no more eliminates those parties’ right to pursue their statutory remedy than did federal law before its adoption of the class action for legal relief in 1938, see Fed. Rule Civ. Proc. 23, 28 U. S. C., p. 864 (1938 ed., Supp V); 7A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure §1752, p. 18 (3d ed. 2005). Or, to put it differently, the individual suit that was considered adequate to assure “effective vindication” of a federal right before adoption of class-action procedures did not suddenly become “ineffective vindication” upon their adoption. 4
A pair of our cases brings home the point. In Gilmer, supra, we had no qualms in enforcing a class waiver in an arbitration agreement even though the federal statute at issue, the Age Discrimination in Employment Act, expressly permitted collective actions. We said that statutory permission did “ ‘not mean that individual attempts at conciliation were intended to be barred.’ ” Id., at 32. And in Vimar Seguros y Reaseguros, S. A. v. M/V Sky Reefer, 515 U. S. 528 (1995) , we held that requiring arbitration in a foreign country was compatible with the federal Carriage of Goods by Sea Act. That legislation prohibited any agreement “ ‘relieving’ ” or “ ‘lessening’ ” the liability of a carrier for damaged goods, id., at 530, 534 (quoting 46 U. S. C. App. §1303(8) (1988 ed.))—which is close to codification of an “effective vindication” exception. The Court rejected the argument that the “inconvenience and costs of proceeding” abroad “lessen[ed]” the defendants’ liability, stating that “[i]t would be unwieldy and unsupported by the terms or policy of the statute to require courts to proceed case by case to tally the costs and burdens to particular plaintiffs in light of their means, the size of their claims, and the relative burden on the carrier.” 515 U. S., at 532, 536. Such a “tally[ing] [of] the costs and burdens” is precisely what the dissent would impose upon federal courts here.
Truth to tell, our decision in AT&T Mobility all but resolves this case. There we invalidated a law conditioning enforcement of arbitration on the availability of class procedure because that law “interfere[d] with fundamental attributes of arbitration.” 563 U. S., at ___ (slip op., at 9). “[T]he switch from bilateral to class arbitration,” we said, “sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.” Id., at ___ (slip op., at 14). We specifically rejected the argument that class arbitration was necessary to prosecute claims “that might otherwise slip through the legal system.” Id., at ___ (slip op., at 17). 5* * *
The regime established by the Court of Appeals’ decision would require—before a plaintiff can be held to contractually agreed bilateral arbitration—that a federal court determine (and the parties litigate) the legal requirements for success on the merits claim-by-claim and theory-by-theory, the evidence necessary to meet those requirements, the cost of developing that evidence, and the damages that would be recovered in the event of success. Such a preliminary litigating hurdle would undoubtedly destroy the prospect of speedy resolution that arbitration in general and bilateral arbitration in particular was meant to secure. The FAA does not sanction such a judicially created superstructure.
The judgment of the Court of Appeals is reversed.
It is so ordered.
Justice Sotomayor took no part in the consideration or decision of this case.
1 A charge card requires its holder to pay the full outstanding balance at the end of a billing cycle; a credit card requires payment of only a portion, with the balance subject to interest.
2 Contrary to the dissent’s claim, post, at 8–9, and n. 3 (opinion of Kagan, J.), the Court in Mitsubishi Motors did not hold that federal statutory claims are subject to arbitration so long as the claimant may effectively vindicate his rights in the arbitral forum. The Court expressly stated that, “at this stage in the proceedings,” it had “no occasion to speculate” on whether the arbitration agreement’s potential deprivation of a claimant’s right to pursue federal remedies may render that agreement unenforceable. 473 U. S., at 637, n. 19. Even the Court of Appeals in this case recognized the relevant language in Mitsubishi Motors as dicta. In re American Express Merchants’ Litigation, 667 F. 3d 204, 214 (CA2 2012).
3 The dissent contends that a class-action waiver may deny a party’s right to pursue statutory remedies in the same way as a clause that bars a party from presenting economic testimony. See post, at 3, 9. That is a false comparison for several reasons: To begin with, it is not a given that such a clause would constitute an impermissible waiver; we have never considered the point. But more importantly, such a clause, assuming it makes vindication of the claim impossible, makes it impossible not just as a class action but even as an individual claim.
4 Who can disagree with the dissent’s assertion that “the effective-vindication rule asks about the world today, not the world as it might have looked when Congress passed a given statute”? Post, at 12. But time does not change the meaning of effectiveness, making ineffective vindication today what was effective vindication in the past. The dissent also says that the agreement bars other forms of cost sharing—existing before the Sherman Act—that could provide effective vindication. See post, at 11–12, and n. 5. Petitioners denied that, and that is not what the Court of Appeals decision under review here held. It held that, because other forms of cost sharing were not economically feasible (“the only economically feasible means for . . . enforcing [respondents’] statutory rights is via a class action”), the class-action waiver was unenforceable. 667 F. 3d, at 218 (emphasis added). (The dissent’s assertion to the contrary cites not the opinion on appeal here, but an earlier opinion that was vacated. See In re American Express Merchants’ Litigation, 554 F. 3d 300 (CA2 2009), vacated and remanded, 559 U. S. 1103 (2010) .) That is the conclusion we reject.
5 In dismissing AT&T Mobility as a case involving pre-emption and not the effective-vindication exception, the dissent ignores what that case established—that the FAA’s command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low-value claims. The latter interest, we said, is “unrelated” to the FAA. 563 U. S., at ___ (slip op., at 17). Accordingly, the FAA does, contrary to the dissent’s assertion, see post, at 5, favor the absence of litigation when that is the consequence of a class-action waiver, since its “ ‘principal purpose’ ” is the enforcement of arbitration agreements according to their terms. 563 U. S., at ___ (slip op., at 9–10) (quoting Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468, 487 (1989) ).
SUPREME COURT OF THE UNITED STATES
AMERICAN EXPRESS COMPANY, et al., PETITIONERS v. ITALIAN COLORS RESTAURANT et al.
on writ of certiorari to the united states court of appeals for the second circuit
[June 20, 2013]
Justice Kagan, with whom Justice Ginsburg and Justice Breyer join, dissenting.
Here is the nutshell version of this case, unfortunately obscured in the Court’s decision. 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.
That answer is a betrayal of our precedents, and of federal statutes like the antitrust laws. Our decisions have developed a mechanism—called the effective-vindication rule—to prevent arbitration clauses from choking off a plaintiff’s ability to enforce congressionally created rights. That doctrine bars applying such a clause when (but only when) it operates to confer immunity from potentially meritorious federal claims. In so doing, the rule reconciles the Federal Arbitration Act (FAA) with all the rest of federal law—and indeed, promotes the most fundamental purposes of the FAA itself. As applied here, the rule would ensure that Amex’s arbitration clause does not foreclose Italian Colors from vindicating its right to redress antitrust harm.
The majority barely tries to explain why it reaches a contrary result. It notes that we have not decided this exact case before—neglecting that the principle we have established fits this case hand in glove. And it concocts a special exemption for class-arbitration waivers—ignoring that this case concerns much more than that. Throughout, the majority disregards our decisions’ central tenet: An arbitration clause may not thwart federal law, ir-respective of exactly how it does so. Because the Court today prevents the effective vindication of federal statutory rights, I respectfully dissent.I
Start with an uncontroversial proposition: 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. See ante, at 6. 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.” Lawlor v. National Screen Service Corp., 349 U. S. 322, 329 (1955) . 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. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U. S. 614 , and n. 19 (1985). The same rule applies to other important federal statutory rights. See 14 Penn Plaza LLC v. Pyett, 556 U. S. 247, 273 (2009) (Age Discrimination in Employment Act); Brooklyn Savings Bank v. O’Neil, 324 U. S. 697, 704 (1945) (Fair Labor Standards Act). But its necessity is nowhere more evident than in the antitrust context. Without the rule, a company could use its monopoly power to protect its monopoly power, by coercing agreement to contractual terms eliminating its antitrust liability.
If the rule were limited to baldly exculpatory provi-sions, however, a monopolist could devise numerous ways around it. Consider several alternatives that a party drafting an arbitration agreement could adopt to avoid antitrust liability, each of which would have the identical effect. On the front end: The agreement might set outlandish filing fees or establish an absurd (e.g., one-day) statute of limitations, thus preventing a claimant from gaining access to the arbitral forum. On the back end: The agreement might remove the arbitrator’s authority to grant meaningful relief, so that a judgment gets the claimant nothing worthwhile. And in the middle: The agreement might block the claimant from presenting the kind of proof that is necessary to establish the defendant’s liability—say, by prohibiting any economic testimony (good luck proving an antitrust claim without that!). Or else the agreement might appoint as an arbitrator an obviously biased person—say, the CEO of Amex. The possibilities are endless—all less direct than an express exculpatory clause, but no less fatal. So the rule against prospective waivers of federal rights can work only if it applies not just to a contract clause explicitly barring a claim, but to others that operate to do so.
And sure enough, our cases establish this proposition: An arbitration clause will not be enforced if it prevents the effective vindication of federal statutory rights, however it achieves that result. The rule originated in Mitsubishi, where we held that claims brought under the Sherman Act and other federal laws are generally subject to arbitration. 473 U. S., at 628. By agreeing to arbitrate such a claim, we explained, “a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.” Ibid. But crucial to our decision was a limiting principle, designed to safeguard federal rights: An arbitration clause will be enforced only “so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum.” Id., at 637. If an arbitration provision “operated . . . as a prospective waiver of a party’s right to pursue statutory remedies,” we emphasized, we would “condemn[ ]” it. Id., at 637, n. 19. Similarly, we stated that such a clause should be “set[ ] aside” if “proceedings in the contractual forum will be so gravely difficult” that the claimant “will for all practical purposes be deprived of his day in court.” Id., at 632 (internal quotation marks omitted). And in the decades since Mitsubishi, we have repeated its admonition time and again, instructing courts not to enforce an arbitration agreement that effectively (even if not explicitly) forecloses a plaintiff from remedying the violation of a federal statutory right. See Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20, 28 (1991) ; Vimar Seguros y Reaseguros, S. A. v. M/V Sky Reefer, 515 U. S. 528, 540 (1995) ; 14 Penn Plaza, 556 U. S., at 266, 273–274.
Our decision in Green Tree Financial Corp.-Ala. v. Randolph, 531 U. S. 79 (2000) , confirmed that this principle applies when an agreement thwarts federal law by making arbitration prohibitively expensive. The plaintiff there (seeking relief under the Truth in Lending Act) argued that an arbitration agreement was unenforceable because it “create[d] a risk” that she would have to “bear prohibitive arbitration costs” in the form of high filing and administrative fees. Id., at 90 (internal quotation marks omitted). We rejected that contention, but not because we doubted that such fees could prevent the effective vindication of statutory rights. To the contrary, we invoked our rule from Mitsubishi, making clear that it applied to the case before us. See 538 U. S., at 90. Indeed, we added a burden of proof: “[W]here, as here,” we held, a party asserting a federal right “seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs.” Id., at 92. Randolph, we found, had failed to meet that burden: The evidence she offered was “too speculative.” Id., at 91. But even as we dismissed Randolph’s suit, we reminded courts to protect against arbitration agreements that make federal claims too costly to bring.
Applied as our precedents direct, the effective-vindication rule furthers the purposes not just of laws like the Sherman Act, but of the FAA itself. That statute reflects a federal policy favoring actual arbitration—that is, arbitration as a streamlined “method of resolving disputes,” not as a foolproof way of killing off valid claims. Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U. S. 477, 481 (1989) . Put otherwise: What the FAA prefers to litigation is arbitration, not de facto immunity. The effective-vindication rule furthers the statute’s goals by ensuring that arbitration remains a real, not faux, method of dispute resolution. With the rule, companies have good reason to adopt arbitral procedures that facilitate efficient and accurate handling of complaints. Without it, companies have every incentive to draft their agreements to extract backdoor waivers of statutory rights, making arbitration unavailable or pointless. So down one road: More arbitration, better enforcement of federal statutes. And down the other: Less arbitration, poorer enforcement of federal statutes. Which would you prefer? Or still more aptly: Which do you think Congress would?
The answer becomes all the more obvious given the limits we have placed on the rule, which ensure that it does not diminish arbitration’s benefits. The rule comes into play only when an agreement “operate[s] . . . as a prospective waiver”—that is, forecloses (not diminishes) a plaintiff’s opportunity to gain relief for a statutory violation. Mitsubishi, 473 U. S., at 637, n. 19. So, for example, Randolph assessed whether fees in arbitration would be “prohibitive” (not high, excessive, or extravagant). 531 U. S., at 90. Moreover, the plaintiff must make that showing through concrete proof: “[S]peculative” risks, “unfounded assumptions,” and “unsupported statements” will not suffice. Id., at 90–91, and n. 6. With the inquiry that confined and the evidentiary requirements that high, courts have had no trouble assessing the matters the rule makes relevant. And for almost three decades, courts have followed our edict that arbitration clauses must usually prevail, declining to enforce them in only rare cases. See Brief for United States as Amicus Curiae 26–27. The effective-vindication rule has thus operated year in and year out without undermining, much less “destroy[ing],” the prospect of speedy dispute resolution that arbitration secures. Ante, at 9.
And this is just the kind of case the rule was meant to address. Italian Colors, as I have noted, alleges that Amex used its market power to impose a tying arrangement in violation of the Sherman Act. The antitrust laws, all parties agree, provide the restaurant with a cause of action and give it the chance to recover treble damages. Here, that would mean Italian Colors could take home up to $38,549. But a problem looms. As this case comes to us, the evidence shows that Italian Colors cannot prevail in arbitration without an economic analysis defining the relevant markets, establishing Amex’s monopoly power, showing anticompetitive effects, and measuring damages. And that expert report would cost between several hundred thousand and one million dollars. 1 So the expense involved in proving the claim in arbitration is ten times what Italian Colors could hope to gain, even in a best-case scenario. That counts as a “prohibitive” cost, in Randolph’s terminology, if anything does. No rational actor would bring a claim worth tens of thousands of dollars if doing so meant incurring costs in the hundreds of thousands.
An arbitration agreement could manage such a mismatch in many ways, but Amex’s disdains them all. As the Court makes clear, the contract expressly prohibits class arbitration. But that is only part of the problem. 2 The agreement also disallows any kind of joinder or consolidation of claims or parties. And more: Its confidentiality provision prevents Italian Colors from informally arranging with other merchants to produce a common expert report. And still more: The agreement precludes any shifting of costs to Amex, even if Italian Colors prevails. And beyond all that: Amex refused to enter into any stipulations that would obviate or mitigate the need for the economic analysis. In short, the agreement as applied in this case cuts off not just class arbitration, but any avenue for sharing, shifting, or shrinking necessary costs. Amex has put Italian Colors to this choice: Spend way, way, way more money than your claim is worth, or relinquish your Sherman Act rights.
So contra the majority, the court below got this case right. Italian Colors proved what the plaintiff in Randolph could not—that a standard-form agreement, taken as a whole, renders arbitration of a claim “prohibitively expensive.” 531 U. S., at 92. The restaurant thus established that the contract “operate[s] . . . as a prospective waiver,” and prevents the “effective[ ] . . . vindicat[ion]” of Sherman Act rights. Mitsubishi, 473 U. S., at 637, and n. 19. I would follow our precedents and decline to compel arbitration.II
The majority is quite sure that the effective-vindication rule does not apply here, but has precious little to say about why. It starts by disparaging the rule as having “originated as dictum.” Ante, at 6. But it does not rest on that swipe, and for good reason. As I have explained, see supra, at 3–4, the rule began as a core part of Mitsubishi: We held there that federal statutory claims are subject to arbitration “so long as” the claimant “effectively may vindicate its [rights] in the arbitral forum.” 473 U. S., at 637 (emphasis added). The rule thus served as an essential condition of the decision’s holding. 3 And in Randolph, we provided a standard for applying the rule when a claimant alleges “prohibitive costs” (“Where, as here,” etc., see supra, at 5), and we then applied that standard to the parties before us. So whatever else the majority might think of the effective-vindication rule, it is not dictum.
The next paragraph of the Court’s decision (the third of Part IV) is the key: It contains almost the whole of the majority’s effort to explain why the effective-vindication rule does not stop Amex from compelling arbitration. The majority’s first move is to describe Mitsubishi and Randolph as covering only discrete situations: The rule, the majority asserts, applies to arbitration agreements that eliminate the “right to pursue statutory remedies” by “forbidding the assertion” of the right (as addressed in Mitsubishi) or imposing filing and administrative fees “so high as to make access to the forum impracticable” (as addressed in Randolph). Ante, at 6 (emphasis deleted; internal quotation marks omitted). Those cases are not this case, the majority says: Here, the agreement’s provisions went to the possibility of “proving a statutory rem-edy.” Ante, at 7.
But the distinction the majority proffers, which excludes problems of proof, is one Mitsubishi and Randolph (and our decisions reaffirming them) foreclose. Those decisions establish what in some quarters is known as a principle: When an arbitration agreement prevents the effective vindication of federal rights, a party may go to court. That principle, by its nature, operates in diverse circumstances—not just the ones that happened to come before the Court. See supra, at 3–4. It doubtless covers the baldly exculpatory clause and prohibitive fees that the majority acknowledges would preclude an arbitration agreement’s enforcement. But so too it covers the world of other provisions a clever drafter might devise to scuttle even the most meritorious federal claims. Those provisions might deny entry to the forum in the first instance. Or they might deprive the claimant of any remedy. Or they might prevent the claimant from offering the necessary proof to prevail, as in my “no economic testimony” hypothetical—and in the actual circumstances of this case. See supra, at 3. The variations matter not at all. Whatever the precise mechanism, each “operate[s] . . . as a prospective waiver of a party’s [federal] right[s]”—and so confers immunity on a wrongdoer. Mitsubishi, 473 U. S., at 637, n. 19. And that is what counts under our decisions. 4
Nor can the majority escape the principle we have established by observing, as it does at one point, that Amex’s agreement merely made arbitration “not worth the expense.” Ante, at 7. That suggestion, after all, runs smack into Randolph, which likewise involved an allegation that arbitration, as specified in a contract, “would be prohibitively expensive.” 531 U. S., at 92. Our decision there made clear that a provision raising a plaintiff’s costs could foreclose consideration of federal claims, and so run afoul of the effective-vindication rule. The expense at issue in Randolph came from a filing fee combined with a per-diem payment for the arbitrator. But nothing about those particular costs is distinctive; and indeed, a rule confined to them would be weirdly idiosyncratic. Not surprisingly, then, Randolph gave no hint of distinguishing among the different ways an arbitration agreement can make a claim too costly to bring. Its rationale applies whenever an agreement makes the vindication of federal claims impossibly expensive—whether by imposing fees or proscribing cost-sharing or adopting some other device.
That leaves the three last sentences in the majority’s core paragraph. Here, the majority conjures a special reason to exclude “class-action waiver[s]” from the effective-vindication rule’s compass. Ante, at 7–8, and n. 4. Rule 23, the majority notes, became law only in 1938—decades after the Sherman Act. The majority’s conclusion: If federal law in the interim decades did not eliminate a plaintiff’s rights under that Act, then neither does this agreement.
But that notion, first of all, rests on a false premise: that this case is only about a class-action waiver. See ante, at 7, n. 4 (confining the case to that issue). It is not, and indeed could not sensibly be. The effective-vindication rule asks whether an arbitration agreement as a whole precludes a claimant from enforcing federal statutory rights. No single provision is properly viewed in isolation, because an agreement can close off one avenue to pursue a claim while leaving others open. In this case, for example, the agreement could have prohibited class arbitration without offending the effective-vindication rule if it had provided an alternative mechanism to share, shift, or reduce the necessary costs. The agreement’s problem is that it bars not just class actions, but also all mechanisms—many existing long before the Sherman Act, if that matters—for joinder or consolidation of claims, informal coordination among individual claimants, or amelioration of arbitral expenses. See supra, at 7. And contrary to the majority’s assertion, the Second Circuit well understood that point: It considered, for example, whether Italian Colors could shift expert expenses to Amex if its claim prevailed (no) or could join with merchants bringing similar claims to produce a common expert report (no again). See 554 F. 3d 300, 318 (2009). It is only in this Court that the case has become strangely narrow, as the majority stares at a single provision rather than considering, in the way the effective-vindication rule demands, how the entire contract operates. 5
In any event, the age of the relevant procedural mechanisms (whether class actions or any other) does not matter, because the effective-vindication rule asks about the world today, not the world as it might have looked when Congress passed a given statute. Whether a particular procedural device preceded or post-dated a particular statute, the question remains the same: Does the arbi-tration agreement foreclose a party—right now—from effectively vindicating the substantive rights the statute provides? This case exhibits a whole raft of changes since Congress passed the Sherman Act, affecting both parties to the dispute—not just new procedural rules (like Rule 23), but also new evidentiary requirements (like the demand here for an expert report) and new contract provisions affecting arbitration (like this agreement’s confidentiality clause). But what has stayed the same is this: Congress’s intent that antitrust plaintiffs should be able to enforce their rights free of any prior waiver. See supra, at 2–3; Mitsubishi, 473 U. S., at 637, n. 19. The effective-vindication rule carries out that purpose by ensuring that any arbitration agreement operating as such a waiver is unenforceable. And that requires courts to determine in the here and now—rather than in ye olde glory days—whether an agreement’s provisions foreclose even meritorious antitrust claims.
Still, the majority takes one last stab: “Truth to tell,” it claims, AT&T Mobility LLC v. Concepcion, 563 U. S. ___ (2011), “all but resolves this case.” Ante, at 8. In that decision, the majority recounts, this Court held that the FAA preempted a state “law conditioning enforcement of arbitration on the availability of class procedure.” Ibid.; see 563 U. S., at ___ (slip op., at 9). According to the majority, that decision controls here because “[w]e specifically rejected the argument that class arbitration was necessary.” Ante, at 9.
Where to begin? Well, maybe where I just left off: Italian Colors is not claiming that a class action is necessary—only that it have some means of vindicating a meritorious claim. And as I have shown, non-class options abound. See supra, at 11. The idea that AT&T Mobility controls here depends entirely on the majority’s view that this case is “class action or bust.” Were the majority to drop that pretense, it could make no claim for AT&T Mobility’s relevance.
And just as this case is not about class actions, AT&T Mobility was not—and could not have been—about the effective-vindication rule. Here is a tip-off: AT&T Mobility nowhere cited our effective-vindication precedents. That was so for two reasons. To begin with, the state law in question made class-action waivers unenforceable even when a party could feasibly vindicate her claim in an individual arbitration. The state rule was designed to preserve the broad-scale “deterrent effects of class actions,” not merely to protect a particular plaintiff’s right to assert her own claim. 563 U. S., at ___ (slip op., at 3). Indeed, the Court emphasized that the complaint in that case was “most unlikely to go unresolved” because AT&T’s agreement contained a host of features ensuring that “aggrieved customers who filed claims would be essentially guaranteed to be made whole.” Id., at ___ (slip op., at 17–18) (internal quotation marks and brackets omitted). So the Court professed that AT&T Mobility did not implicate the only thing (a party’s ability to vindicate a meritorious claim) this case involves.
And if that is not enough, AT&T Mobility involved a state law, and therefore could not possibly implicate the effective-vindication rule. When a state rule allegedly conflicts with the FAA, we apply standard preemption principles, asking whether the state law frustrates the FAA’s purposes and objectives. If the state rule does so—as the Court found in AT&T Mobility—the Supremacy Clause requires its invalidation. We have no earthly interest (quite the contrary) in vindicating that law. Our effective-vindication rule comes into play only when the FAA is alleged to conflict with another federal law, like the Sherman Act here. In that all-federal context, one law does not automatically bow to the other, and the effective-vindication rule serves as a way to reconcile any tension between them. Again, then, AT&T Mobility had no occasion to address the issue in this case. The relevant decisions are instead Mitsubishi and Randolph.* * *
The Court today mistakes what this case is about. To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled. So the Court does not consider that Amex’s agreement bars not just class actions, but “other forms of cost-sharing . . . that could provide effective vindication.” Ante, at 7, n. 4. In short, the Court does not consider—and does not decide—Italian Colors’s (and similarly situated litigants’) actual argument about why the effective-vindication rule precludes this agreement’s enforcement.
As a result, Amex’s contract will succeed in depriving Italian Colors of any effective opportunity to challenge monopolistic conduct allegedly in violation of the Sherman Act. The FAA, the majority says, so requires. Do not be fooled. Only the Court so requires; the FAA was never meant to produce this outcome. The FAA conceived of arbitration as a “method of resolving disputes”—a way of using tailored and streamlined procedures to facilitate redress of injuries. Rodriguez de Quijas, 490 U. S., at 481 (emphasis added). 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.
1 The evidence relating to these costs comes from an affidavit submitted by an economist experienced in proving similar antitrust claims. The Second Circuit found that Amex “ha[d] brought no serious challenge” to that factual showing. See, e.g., 667 F. 3d 204, 210 (2012). And in this Court, Amex conceded that Italian Colors would need an expert economic report to prevail in arbitration. See Tr. of Oral Arg. 15. Perhaps that is not really true. A hallmark of arbitration is its use of procedures tailored to the type of dispute and amount in controversy; so arbitrators might properly decline to demand such a rigorous evidentiary showing in small antitrust cases. But that possibility cannot disturb the factual premise on which this case comes to us, and which the majority accepts: that Italian Colors’s tying claim is an ordinary kind of antitrust claim; and that it is worth about a tenth the cost of arbitration.
2 The majority contends that the class-action waiver is the only part we should consider. See ante, at 7–8, n. 4. I explain below why that assertion is wrong. See infra, at 11–12.
3 The majority is dead wrong when it says that Mitsubishi reserved judgment on “whether the arbitration agreement’s potential deprivation of a claimant’s right to pursue federal remedies may render that agreement unenforceable.” Ante, at 6, n. 2. What the Mitsubishi Court had “no occasion to speculate on” was whether a particular agreement in fact eliminated the claimant’s federal rights. 473 U. S., at 673, n. 19. But we stated expressly that if the agreement did so (as Amex’s does), we would invalidate it. Ibid.; see supra, at 4.
4 Gilmer and Vimar Seguros, which the majority relies on, see ante, at 8, fail to advance its argument. The plaintiffs there did not claim, as Italian Colors does, that an arbitration clause altogether precluded them from vindicating their federal rights. They averred only that arbitration would be less convenient or effective than a proceeding in court. See Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20 –32 (1991); Vimar Seguros y Reaseguros, S. A. v. M/V Sky Reefer, 515 U. S. 528, 533 (1995) . As I have explained, that kind of showing does not meet the effective-vindication rule’s high bar. See supra, at 6.
5 In defense of this focus, the majority quotes the Second Circuit as concluding that “the only economically feasible means” for Italian Colors to enforce its statutory rights “is via a class action.” Ante, at 7–8, n. 4 (quoting 667 F. 3d, at 218; internal quotation marks omitted; emphasis added by the Court). But the Court of Appeals reached that conclusion only after finding that the agreement prohibited all other forms of cost-sharing and cost-shifting. See 554 F. 3d 300, 318 (2009). (That opinion was vacated on other grounds, but its analysis continued to inform—indeed, was essential to—the Second Circuit’s final decision in the case. See 667 F. 3d, at 218.) The Second Circuit therefore did exactly what the majority refuses to do—look to the agreement as a whole to determine whether it permits the vindication of federal rights.
SUPREME COURT OF THE UNITED STATES
AMERICAN EXPRESS COMPANY, et al., PETITIONERS v. ITALIAN COLORS RESTAURANT et al.
on writ of certiorari to the united states court of appeals for the second circuit
[June 20, 2013]
Justice Thomas, concurring.
I join the Court’s opinion in full. I write separately to note that the result here is also required by the plain meaning of the Federal Arbitration Act. In AT&T Mobility LLC v. Concepcion, 563 U. S. ___ (2011), I explained that “the FAA requires that an agreement to arbitrate be enforced unless a party successfully challenges the formation of the arbitration agreement, such as by proving fraud or duress.” Id., at ___ (concurring opinion) (slip op., at 1–2). In this case, Italian Colors makes two arguments to support its conclusion that the arbitration agreement should not be enforced. First, it contends that enforcing the arbitration agreement “would contravene the policies of the antitrust laws.” Ante, at 4. Second, it contends that a court may “invalidate agreements that prevent the ‘effective vindication’ of a federal statutory right.” Ante, at 6. Neither argument “concern[s] whether the contract was properly made,” Concepcion, supra, at ___ (Thomas, J., concurring) (slip op., at 5–6). Because Italian Colors has not furnished “grounds . . . for the revocation of any contract,” 9 U. S. C. §2, the arbitration agreement must be enforced. Italian Colors voluntarily entered into a contract containing a bilateral arbitration provision. It cannot now escape its obligations merely because the claim it wishes to bring might be economically infeasible.
ORAL ARGUMENT OF MICHAEL KELLOGG ON BEHALF OF THE PETITIONERS
Chief Justice John G. Roberts: This is Case Number 12-133, American Express v. Italian Colors Restaurant.
Michael Kellogg: Thank you, Mr. Chief Justice, and may it please the Court:
The court below thrice refused to enforce the parties' arbitration agreement, because he thought that class procedures were necessary to vindicate the plaintiff's Sherman Act claims.
That holding was reversible error for at least three reasons.
First, it has no basis in either the FAA or the Sherman Act.
Second, it creates an unworkable threshold inquiry.
And third, it is unnecessary to any legitimate policy concerns raised by the court below.
Justice Ruth Bader Ginsburg: Mr. Kellogg, suppose it goes to arbitration as you think it should, and the arbitrator says to the merchant, to prove your case, you have to show the relevant market, you have to show that American Express has market power, that it used that power to the detriment of its competitors, and the way these sections -- the way these kinds of cases have gone is to get an expert.
And I don't see that you can prove it in -- in a new way.
I mean, the whole point of this is that the expense to win one of these cases is enormous.
And no single person is worth that person's while.
Michael Kellogg: Well, three responses to that, Your Honor.
The first is, that it is up to the arbitrator in the first instance to devise procedures to deal with claims in an efficient and cost-effective manner.
Second, to the extent that an expert report is required that would cost a lot of money, we have conceded below that the parties could share costs of that expert just as they could share the costs of a lawyer.
And third, the alternative is to have an inquiry upfront, that this Court has rejected in Concepcion, that you cannot condition the enforcement of an arbitration agreement on the availability of class procedures.
It's up to--
Justice Ruth Bader Ginsburg: What was the -- what was the -- I missed that.
The sharing of the costs, how does that work?
It's certainly not in the agreement, not in the arbitration agreement, that -- that American Express is going to pay for the expert for the other side.
Michael Kellogg: --We acknowledge below that they could share costs among multiple plaintiffs--
Justice Ruth Bader Ginsburg: Oh.
Michael Kellogg: --before that.
The sharing of costs.
Now, under the court below's regime--
Justice Ruth Bader Ginsburg: And then what you would you have, five, six different arbitrations going, and in each of those five or six cases, you would have -- they could share?
They could share the million dollar cost of this -- the experts?
Michael Kellogg: --They can share the cost of the expert.
And, of course, they get their attorneys' fees back, plus reasonable statutory costs, plus potentially treble damages.
The alternative, as the court below held, is that the district court has to decide in the first instance, I'm not going to send it to arbitration because I think they need a class action.
To make that determination, he first has to do a Rule 23 analysis.
Would there even be a class certified in this case?
Only 20 percent of putative classes are certified.
And that's not an inquiry that the Court should be making at the outset.
Justice Ruth Bader Ginsburg: I -- I'm sorry, but I don't think I got the answer to my question.
The -- the arbitrator has now said we have to have an expert, and the plaintiff says -- or the complainant says, I haven't got the wherewithal, and if I have six friends who bring individual arbitrations, that's not nearly enough.
So what happens then, the case ends, and it's not possible--
Michael Kellogg: As we said, they would be able to share an expert between multiple plaintiffs, but there is no guarantee in the law that every claim has a procedural path to its effective vindication.
This Court held in Eisen, for example, even though the Court acknowledged that it was a $70 claim, it could only be brought as a class action, but the plaintiff in that case said, I can't afford to do the notice costs, and the Court said well, then, the class is decertified, because the plaintiff has to put up the notice.
The whole point of arbitration of course is that it expands the universe of claims that can be brought efficiently and effectively for small consumers.
Justice Elena Kagan: Mr. Kellogg, do you think that if in your arbitration agreement you had a clause which just said, I hereby agree not to bring any Sherman Act claim against American Express, could -- could your arbitration agreement do that?
Michael Kellogg: Under this Court's decision in Mitsubishi, I believe not.
Justice Elena Kagan: It -- it couldn't, right, because we would say no, there has to be an -- an opportunity for a vindication of statutory rights; is that right?
Michael Kellogg: Correct.
Justice Elena Kagan: And -- and suppose that the arbitration clause said something different.
Suppose that the arbitration clause said, I -- I hereby agree that I will not present any economic evidence in an antitrust action against American Express.
Could it do that?
Michael Kellogg: I think that would be subject to review under State unconscionability principles, and would probably be struck down, Your Honor, just like any other provision that essentially prevents--
Justice Elena Kagan: Well, even putting aside State unconscionability principles, wouldn't you think that our Mitsubishi case and our Randolph case would again come in and say, my gosh, this arbitration clause prevents any effective vindication of the rights to bring an antitrust suit.
Wouldn't you say that?
Michael Kellogg: --I -- I don't think Mitsubishi can be read that broadly, Your Honor.
To the contrary, the whole point of Mitsubishi was that arbitration is an effective forum for vindicating Federal statutory rights.
Justice Elena Kagan: So you think -- I'm sorry.
Michael Kellogg: --I'm sorry.
Mitsubishi dealt with the very specific question of a waiver, a substantive waiver of your rights, not with the procedures to vindicate those rights.
As, for example, in the Vimar Seguros case, where the Court said, well, you might have to go to Japan, but we're not going to get into the business of weighing the costs and benefits.
Justice Elena Kagan: So I just want to make sure I understand your answer, which is that you read Mitsubishi and Randolph as so narrow that you would say that the principle that they embody does not prevent American Express from saying, you cannot produce -- you cannot use any economic expert or any economic testimony in an antitrust suit.
Michael Kellogg: You know, I think the better place to handle that would be State unconscionability law.
Whether the Court would want to expand the ports of Mitsubishi to say that.
It's not clear to me what the statutory justification for that would be, given that the Sherman Act -- the question here, of course, concerns class procedures.
And given that the Sherman Act was passed at a time when there were no class procedures, and given that the Court in Concepcion--
Justice Elena Kagan: Well, my -- my question is not about class procedures, it's about allowing economic evidence to help prove your claim.
And you said, no problem, even though it is, of course, true in the real world that to prove a successful antitrust claim, you need economic evidence.
Michael Kellogg: --Correct.
Justice Elena Kagan: And you said that's fine, because you're going to read Mitsubishi and Randolph in such a way that it allows an arbitration clause to 100 percent effectively absolutely frustrate your ability to bring a Sherman Act suit.
Michael Kellogg: I have no doubt that such a provision would be struck down.
I think the proper way to do that would be under State unconscionability law, which Section 2 specifically preserves.
But if the Court felt the need to expand Mitsubishi in that narrow respect, that would still not help the Respondents here, who are saying that you should condition the enforcement of the arbitration clause on the availability of class procedures, which this Court held in Concepcion is fundamentally inconsistent with the purposes of the FAA.
Justice Elena Kagan: Well, I think -- I think what they are saying is something a little bit different, which is that if you go -- if you accept my premise that the arbitration clause could not say no economic evidence, what the Respondents here are saying is, well, now you have to give us the ability to produce economic evidence and maybe that involves class procedures, maybe it involves something else.
It could involve some other cost-sharing mechanism.
But if the arbitration clause works to prevent us from sharing costs in such a way that we can produce that evidence, then once again we have a problem about completely frustrating the effect of the Sherman Act.
Michael Kellogg: Well, I think -- I think not true.
And I think we have to return to the fact that the only provision at issue here was the class action waiver.
That was the only issue that they raised below.
It was the issue decided by the Court.
It was the issue on which this Court granted certiorari, and it's directly contrary to this Court's decision in Concepcion.
I have no doubt that if there were provisions in a contract that essentially prevented a plaintiff from raising a substantive claim or from presenting evidence that they might have in support of that claim, that it would be struck down under State unconscionability principles or under Mitsubishi.
But I don't think we can expand Mitsubishi into a free-floating inquiry for district courts into the costs and benefits of each case.
They would have to sit down and say, well, what evidence is going to be needed in this case and how much evidence is going to be required.
They would have to say, what are the document production costs?
According to the court of appeals, they would even need to say, what are your chances of winning?
Because, say it's going to cost a million dollars but you only have a 50 percent chance--
Justice Ruth Bader Ginsburg: --I thought the only thing that the court of appeals said is, you have to pay 300,000 minimum for the expert, the most you can get in treble damages is 5,000.
It didn't go into all the other things that you were saying.
It said nobody in his right mind will bring such a lawsuit to pay $300,000 to get $5,000.
Michael Kellogg: --And nobody in their right mind in Eisen would pay a million dollars in notice costs to get $70 on--
Justice Antonin Scalia: I guess you could have said the same thing under the Sherman Act before Rule 23 existed, right?
Michael Kellogg: --You could have.
Justice Antonin Scalia: Before there was such as thing as class actions.
Michael Kellogg: Under that position--
Justice Antonin Scalia: The same thing would have been true.
If, indeed, your claim was so small that you can't claim -- can't pay an expert, you as a practical matter don't bring the suit.
Michael Kellogg: --That was true.
In fact, Congress at the time of passing the Sherman Act specifically considered adding class procedures and declined to do so.
For the first 4 decades of the Sherman Act, there were no class procedures even left.
Even today, in court, as I noted, only 20 percent of cases actually get the class certified.
The whole point of arbitration, as I noted, is to expand the scope of claims, small consumer claims, that can be brought in an efficient and cost-effective manner.
Justice Samuel Alito: Do you think the nature of their underlying -- their antitrust claim is relevant to this?
They are claiming that they were unlawfully compelled to enter into the contract that they say, as a practical matter, precludes them from raising the antitrust issue.
Does that -- does it matter?
Michael Kellogg: Well, a couple of points on that.
They certainly weren't compelled to enter the contract.
Lots of merchants don't take American Express.
It was a voluntary choice on their part.
But more fundamentally, the only provision that they have ever challenged in this case is the class action waiver.
They have not suggested below that there was any problem with cost-sharing or other ways that they might deal with the specific question how to present their case in arbitration.
Justice Ruth Bader Ginsburg: In the AT&T Mobility case, the Court remarked that this was a -- that the arbitration agreement had certain provisions that made it easier for the consumer to use the arbitral forum.
Is there anything like that in this arbitration clause?
Michael Kellogg: I'm sorry, I didn't -- I didn't quite follow that, Your Honor.
A provision in the arbitration clause that makes it easier to--
Justice Ruth Bader Ginsburg: Yes, where not some other consumer in another arbitration, not that sharing of the costs, but wasn't AT&T Mobility going to pick up a good part of the tab of the cost of the arbitration?
Michael Kellogg: --That's correct, there were provisions in AT&T that the Court said would make small value claims easier to process.
I would note that in Concepcion the Court said even if small value claims could not be brought, it would still fundamentally change the nature of arbitration to insist upon class procedures.
So I don't think that helped them in distinguishing Concepcion.
Justice Anthony Kennedy: One of the ways I have been thinking about this case is to think about arbitration and the whole point of arbitration is to have a procedure where you don't have costs, you have as an arbitrator an antitrust expert or the best in the class in the third year antitrust course in law school.
And they cite reports, and, you know, it's classic to have contractors sit in as arbitrators in construction claims; just because it's cheaper and they know -- so I was thinking that that's substantial justification for your position.
But your argument so far seems to say that doesn't make any difference.
Even if they can't bring the suit in an economic way, the arbitration in an economic way, that that's irrelevant.
That's -- that's what I'm getting from your argument.
Michael Kellogg: I did not mean to imply that, Your Honor.
The key point is that it's up to the arbitrator in the first instance to find the most efficient and cost effective way to resolve a particular claim.
And it's not necessarily the case that complicated -- that huge numbers of documents -- plaintiff said, we will need 5 million documents and we will need a very, very expensive expert and they got an affidavit from a very, very expensive expert saying, this is what I would charge to do this.
The whole point of arbitration, of course, is that its informality actually expands the universe of claims, of small value claims that can be brought effectively.
Justice Elena Kagan: Mr. Kellogg, are you suggesting that you can win an antitrust suit in arbitration without presenting economic evidence of such things as monopoly power, antitrust injury, damages?
How could somebody do that?
Michael Kellogg: No, I acknowledge that they would probably need a report in this case.
Justice Stephen G. Breyer: Why?
I mean, I could be your arbitrator.
I know exactly what I would do.
I would ask for five things, which will be admitted, and one thing that's going to be difficult for them to prove.
I don't see why an expert in antitrust would have to have this enormous report.
Michael Kellogg: Well, I -- perhaps I--
Justice Stephen G. Breyer: Do you want to concede--
Michael Kellogg: --conceded too much to Justice Kagan.
Justice Stephen G. Breyer: --Yes, maybe.
Michael Kellogg: But in this case, if you look at the complaint, the market definition that they're seeking to establish is, if I might put it, somewhat gerrymandered.
Justice Stephen G. Breyer: If you want to argue that stuff, which I -- then I guess maybe they're right.
Maybe you do need experts on that.
I don't know that we want to get into this, but I just want to know if you want to concede that there is no way to win this case in arbitration unless they spend $300,000.
Michael Kellogg: --I did not mean to concede that at all, Your Honor.
The whole point of arbitration is the informality and the speed of the procedures.
And in addition, to the extent that there does need to be some sort of safety valve, of course Congress can deal with that question.
Congress recently in the Dodd-Frank Act said, in certain circumstances we're going to allow the Consumer Financial Protection Board to determine whether class action waivers will be permitted.
But obviously there's nothing either in the FAA or in the Sherman Act that would justify such an inquiry here.
Justice Elena Kagan: Well, Mr. Kellogg, could I go back to Justice Alito's point, because I'm not sure I quite understood your -- your answer to it.
Essentially, the claim here, right, is that this is a party with a monopolistic power such that -- and this is just the Plaintiff's allegation, it may or may not be true, but -- but they say that American Express is using its market power to impose particular contract terms.
And they have a tying thing, but it could just as easily be the case that American Express could be using its economic power to impose terms essentially making arbitration of antitrust claims impossible.
And why shouldn't we understand this problem as connected to the very allegation that's being brought?
That, you know, how is it, how is it going to be possible in a case where there's a monopoly power able -- able to impose contracts terms that -- that you can create an arbitration clause which essentially prevents that from being challenged?
Michael Kellogg: Well, there is a separate issue below which the court did not reach about whether the arbitration clause itself had been improperly imposed.
But the question before the Court has to do with the class action waiver, which this Court in Concepcion said there's no statutory basis for the courts to preclude application of that waiver.
It's also -- would create a completely unworkable inquiry at the outset of litigation in order to determine whether to refer a case to arbitration in the first place, and it's unnecessary because State law, unconscionability, can deal with contracts of adhesion or unfair terms.
The arbitrator in the first instance can deal with how to cost effectively arbitrate the claims in issue.
Justice Ruth Bader Ginsburg: Did -- did American Express say, as Justice Breyer suggested, that, well, we will concede A, B, and C, so the only issue on which you need proof is D?
As I understood it, American Express never took the position that it would -- it would concede certain issues so that you could limit the proof.
Michael Kellogg: Well, Your Honor, we took the position even in district court that they could pool their resources--
Justice Ruth Bader Ginsburg: No, I'm not talking about--
Michael Kellogg: --and share the cost of the claim.
Justice Ruth Bader Ginsburg: --I'm not talking about pooling with other single merchants bringing single arbitrations.
I'm asking whether American Express -- so here's the complaint.
It says, I have to prove relevant lawsuits separately.
And did American Express take the position, no, you don't have to prove all that.
I think that's what Justice Breyer was suggesting.
There's only one thing that's really in controversy and the rest we could stipulate.
But I didn't see anything in all the time this case has been in the courts on American Express's part to that say that we are not going to demand the full breadth of proof.
Michael Kellogg: Well, that's -- that's not actually correct.
We did not say that we're going to relieve them of their burden of proof on any issues, but we did say, and the district court agreed with us, that the arbitrators are capable of dealing with these claims in an efficient and cost-effective way that would allow the plaintiffs to bring them.
Justice Antonin Scalia: I suppose that American Express wouldn't have had to agree to arbitration at all, right?
They could have just said, you know, you -- you have a cause of action, you sue us in court, right?
They could say that, legally, couldn't they?
Michael Kellogg: We could.
Justice Antonin Scalia: And until Rule 23 was adopted, that would mean, you know, if you had a small claim, tough luck, right?
De minimis non curate lex.
If it's just negligible, it's impracticable for you to bring a Federal claim.
And that would not violate the Sherman Act, would it?
Michael Kellogg: --Correct.
That -- that very issue was present in the Eisen case.
Chief Justice John G. Roberts: I'm a little confused about this business about pooling resources and whether it's prohibited or permitted.
Tell me exactly what your position is on that.
Michael Kellogg: Our position is that multiple claimants in arbitration could share the costs of an expert for preparation of a report.
Chief Justice John G. Roberts: Well, it seems to me -- I don't see how that concession is at all needed by the other side.
I mean, let's just say they have a trade association or something.
They -- they can all get together and say we want to prepare an antitrust expert report about what American Express is doing, and they do, and then presumably, one of them can use it in the arbitration.
Any problem with that?
Michael Kellogg: That -- no problem with that, and that's absolutely right.
But the plaintiffs below said that wasn't good enough.
They said, we need the aggregate damages provided in a class action to make this worthwhile, because if we're just going to essentially get costs--
Justice Antonin Scalia: But they could borrow the money from a lawyer instead of from the trade association, right?
Michael Kellogg: --Well, or from a hedge fund, which increasingly finances litigation.
Chief Justice John G. Roberts: Well, again, that doesn't seem too difficult.
You either have your trade association or you have a big meeting of all them and say we need to pay for this expert report and once we've got it, you know, I'm going to represent each of you individually in individual arbitrations and I'm going to win the first one, and then the others are going to fall into place and they'll get a settlement from American Express that's going to be -- satisfy their concerns.
Michael Kellogg: Absolutely right.
Chief Justice John G. Roberts: Okay.
And you have no problem with that.
Michael Kellogg: I have no problem with that.
And that's why this case is about the class action waiver.
Justice Elena Kagan: And, Mr. Kellogg--
Chief Justice John G. Roberts: I'm sorry, I'm sorry.
Just to follow-up one, briefly.
Is the -- is there collateral estoppel effect in the arbitration that would be applied to subsequent--
Michael Kellogg: That is unclear.
I have tried to look at that issue.
You know, even in court, non-mutual use of offensive collateral estoppel is sometimes at the discretion of court.
Chief Justice John G. Roberts: --Okay.
Michael Kellogg: I couldn't find anything in the arbitration contract.
Justice Elena Kagan: --Just to be sure I understand it, that you're saying that it does not violate the confidentiality agreement of this clause to -- to all get together and produce one report?
Michael Kellogg: Correct.
Justice Elena Kagan: Okay.
Michael Kellogg: And if you look at actually the affidavit put in by the plaintiff's expert and you look at all the things he says I need to study in my report, they're all issues in common.
They're not specific to a--
Justice Elena Kagan: And did -- did you say that below as well, that -- that the confidentiality clause does not sweep so widely as to prevent this?
Because clearly, the court below thought that the confidentiality clause did sweep so widely as to prevent this.
Michael Kellogg: --The Second Circuit did say that after we suggested that they could pool resources.
And we think that was an indication of the Court's, shall we say, urgency to strike down the class action waiver.
Nobody challenged the confidentiality provision below.
Justice Elena Kagan: So but you're saying the confidentiality position would not apply in that circumstance.
Michael Kellogg: It would not apply.
We took that position below.
If I might reserve the remainder of my time?
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE RESPONDENTS
Paul D. Clement: Mr. Chief Justice, and may it please the Court:
This case is about the scope and continuing existence of a doctrine that has been a feature of this Court's cases and a necessary corollary of its willingness to extend arbitration to Federal statutory claims, the vindication of rights doctrine.
Ever since this Court 30 years ago, roughly, got in the business of extending arbitration to Federal statutory claims, it's used the effective vindication doctrine as an assurance that Federal statutory claims would not go unvindicated just because of the arbitral forum.
And so, if you look at this Court's cases, they stand for a simple proposition.
When the choice is arbitration or litigation, surely the FAA favors arbitration and it's no threat to the underlying statute, because the underlying statutory claim is vindicated in the arbitral forum.
Justice Antonin Scalia: I don't see -- I don't see how a Federal statute is frustrated or is unable to be vindicated if it's too expensive to bring a Federal suit.
That happened for years before there was such a thing as class action in Federal courts.
Nobody thought the Sherman Act was a dead letter, that it couldn't be vindicated.
Paul D. Clement: Well, Justice Scalia, let me take--
Justice Antonin Scalia: And I don't see why it's any different when you transpose the situation to the -- to the arbitration situation.
Paul D. Clement: --Justice Scalia, let me take on the premise and then we get -- then also say where really the concern comes in for the differential treatment.
I would take issue with the premise, which is, sure, there wasn't a Sherman Act -- there wasn't a class action Rule 23 back when the Sherman Act was first passed.
But there were procedures in like joinder that allowed for multiple claims to be litigated together; there were not confidentiality agreements that came in and limited your ability to share information from one claim to another, and, of course, back in the good old days, you didn't necessarily need a $300,000 expert to bring a Sherman Act claim.
But what I think is the problem is when you have a difference, and that is the assumption on which this case comes to the Court, where you could vindicate this claim in court, because there are mechanisms to share or shift costs and you cannot vindicate them in the arbitration because of a combination of features of the arbitration agreement that prevent any sharing or shifting of costs.
Justice Stephen G. Breyer: Before you get to that, I have two questions.
One is on the point you've just made, because I -- I agree, I understand it is fairly well established, this doctrine, but I don't see quite how it works.
Suppose there's a Tyler claim, a Truth in Lending Act, you know, something like that, and the claim is a fairly -- it's worth about $10,000 or so.
And so the plaintiff says you violated the act, pay me the $10,000.
Now, he happens to come up with a theory that is really far out; and the more far out the theory, the harder it is to prove.
And the harder it is to prove, the more you need expensive experts.
And do we go case by case, saying, you know, you have a really weird theory that's going to require 17 experts and endless studies, you don't have to have an arbitration claim, or you don't have to follow it in this instance, but everybody else does.
Now -- now, is -- is that something, in other words, we're supposed to look at case by case, which would produce the odd result I suggested?
Or do we do it by categories?
How does the doctrine work?
Paul D. Clement: Well, you could do it by category, and I suppose you could treat antitrust claims differently, but I think there's an answer that's already built into the Court's cases, which is Randolph, and it's putting the burden on the plaintiff to make a nonspeculative showing.
And in the case you've described, I would think you would say: Boy, that's speculative.
I mean, you know, you don't need that--
Justice Stephen G. Breyer: No, what I'll do, because I work with my own hypothetical, I'll have a far-out case, but yet not quite speculative.
In other words, what I'm trying to suggest is it's an odd doctrine that just says, plaintiff by plaintiff, you can ignore an arbitration clause if you can get a case that's expensive enough, and there we are.
I haven't seen it work, and I haven't seen enough to know how it does work.
And I guess you haven't either, but -- but I'm concerned about that.
Paul D. Clement: --Well -- well, don't be too concerned, Justice Breyer.
First of all, if you look at the cases where the doctrine's been applied, it's largely been in antitrust cases.
The First Circuit Kristian case is an antitrust case.
And I don't think that's an accident.
I mean, if you look at the Hovenkamp amicus brief, it make clear that you just can't bring this type of claim--
Justice Stephen G. Breyer: Well, that sounds expert to me.
Now, Hovenkamp would be the person I would hire as the arbitrator.
So surely he does know -- or Phil Arita -- a blessed memory.
And they're under the instruction to get this done cheap.
Well, I think that might be possible.
That might be possible, because it's only the question of damages that's tough here, because if you don't have the double -- there's only one monopoly profit at the two levels, da, da, da, and we don't need to go through that.
But I can think of a way of getting it done pretty cheap.
But regardless, your expert here didn't talk about the cost of arbitration.
He did use the word once.
But as I read pages 88 through 92, it seemed to me he was talking about the cost of litigation, not the cost of arbitration.
And -- and I wouldn't proceed necessarily with all those reports he does to impress to the jury, or even the judge.
This is Phil Arita.
You don't need to impress him.
And -- so, so, so -- hasn't the Second Circuit looked, assuming your doctrine's in place, to the wrong set of costs: The cost of litigation?
Even though they use the word “ arbitration ”, that isn't what your expert told me.
Paul D. Clement: --Well, I mean, Justice Breyer, none of us can know for sure what Professor Arita would say.
But we know what Professor Hovenkamp says, and he says to bring these claims you need an expert.
Justice Stephen G. Breyer: In arbitration or in court?
Paul D. Clement: --He says in arbitration or anywhere.
He assumes that anywhere you bring these claims, you're going to need a market power expert.
Justice Stephen G. Breyer: Does he take into account the fact that the arbitrator can be him?
And moreover, could in fact work under an instruction to keep these costs down?
Paul D. Clement: And what I would say, Justice Breyer, is the place for that debate, if it were going to take place, was in the district court.
Because we made our case, as Randolph requires -- and it was a nonspeculative case.
We said it's going to cost $300,000 to $500,000 or even a million dollars to get a market power expert.
They didn't come back and say: No, in arbitration, I think you can do it for 50,000.
Justice Stephen G. Breyer: No, that isn't the point.
If I were doing this offhand, I would say everything is conceded but for one thing: Since there is no double monopoly power, there is only one monopoly power at the two levels which can be exercised, the only way the person is damaged is if in fact you've raised entry barriers.
So you'd say to the plaintiff, how are you going to prove that?
And you'd read it and submit a report.
Now, I'm not saying this is the right way to go about it.
All I'm saying is it's hard for me to figure out on the basis of that affidavit, which talks about courts, why this has to be so expensive.
So what do I do?
Paul D. Clement: I think what you do is you, with all due respect, fault Petitioners for that.
Because we put in that report -- they could have criticized it exactly the way you are and we'd have a different case.
But they argued before the district court and the court of appeals just what they argued to you, Justice Kennedy, it doesn't matter if you can do it.
It doesn't matter if it's too expensive.
We don't think this doctrine exists, or we don't think it extends to this kind of cases, and having put their -- their money on that extreme position that the effective vindication doctrine doesn't exist, I think it's--
Justice Stephen G. Breyer: One other thing which I didn't understand, and that's why I am asking.
What they chose as the remedy here was sever the arbitration clause if you want, it seemed to be, and go to court.
Now, I don't know where that power comes from.
So if you were going to improve this contract in the direction that you would like, why couldn't you sever the part about the confidentiality, or why couldn't you require -- you have some awfully big merchants.
Like, I don't know -- probably, you have maybe Costco, maybe Walmart, maybe -- you know, these people are not without money.
They're your client, maybe.
But -- go get these contributions.
Go for -- there are many ways you can treat this particular set of words in the arbitration clause, short of severing it entirely.
And -- and what about that?
What's your view on that?
What do you think?
Paul D. Clement: --Well, our -- our view on that is -- you know, the Court is balancing two things here.
It's trying to apply the effective vindication doctrine, but it's also trying to honor the principle of this Court that you treat the parties to the bargain that they have committed.
Now, if they would have come in and said in the district court -- which they didn't -- that we'll get rid of the confidentiality -- they said you could share costs, but they -- you know, the confidentiality was the problem.
It was the problem the Second Circuit saw.
You can look at 92a of the Petition appendix.
And they didn't petition on that issue, so I don't know how they get to say, well, the Second Circuit was wrong about that, but isn't that a shame.
I mean, if they thought that was wrong, they should have petitioned.
And that just shows you, these issues were in front of the Court.
Justice Antonin Scalia: You -- you -- I don't understand.
You think they could have appealed on that -- on that issue?
Paul D. Clement: --Sure.
I don't think this Court would have necessarily granted it, because it's not very cert-worthy.
But it's also -- I don't know how they can keep that issue in their back pocket and then say well, we got cert -- we got cert on the cert-worthy issue and now we have this factual finding where the Second Circuit held that the confidentiality agreement precludes the sharing of this information from arbitration to arbitration.
Justice Antonin Scalia: Let me ask you.
Your effective vindicability principle depends upon a comparison with what you could do in Court.
Paul D. Clement: It doesn't, Justice Scalia.
Justice Antonin Scalia: It doesn't?
Paul D. Clement: It doesn't.
It's a simple comparison of the necessary unrecoupable costs of bringing the claim in arbitration compared to the maximum recovery.
Justice Antonin Scalia: Yes, but if you couldn't do it -- if you couldn't do it either -- even if there had been no arbitration agreement, how could the arbitration agreement be -- be harming you?
I don't understand that.
Paul D. Clement: If you have -- if you have a claim, Justice Scalia, that can't be vindicated in arbitration or in court, that claim's not going--
Justice Antonin Scalia: Or in court.
Paul D. Clement: --Right.
Justice Antonin Scalia: You have to compare it to court.
If you couldn't do it in court, you don't have to be able to do it in arbitration, it seems to me.
Paul D. Clement: --With respect, Justice Scalia, you don't have to make that comparison part of the test, because the cases that can't be vindicated in either place won't show up at the courthouse door.
So once you show up at the courthouse door, you've got a plaintiff's lawyer.
They may be crazy, but you have a plaintiff's lawyer that thinks I can do this in the litigation system.
And so at that point, the only question is, all right, I think I can do this in the litigation system.
If the only thing that's precluding me from doing it is this arbitration agreement -- so this arbitration agreement is not operating as a real arbitration agreement, it's operating as a de facto as-applied exculpatory clause.
If they can make that showing, then -- and the option is not arbitration or litigation--
Justice Anthony Kennedy: No.
It's saying that there's an alternate mechanism for resolving disputes.
It's called arbitration.
And arbitration does not necessarily or even as a matter of fact often as a practical matter involve the costs and formalities of litigation.
Paul D. Clement: --And -- and God bless it, Justice Kennedy -- when it does that, and it can effectively address claims that can't be addressed in the litigation system, that's exactly what we want arbitration to do.
But there are some cases where the arbitration system -- not generally -- I mean, if you have the kind of pro-vindication agreement you had in Concepcion, or that Sovereign Bank had that we mentioned in our brief, then you can vindicate these claims in arbitration.
But when you have a specific arbitration agreement that has a variety of clauses that don't allow for any mechanism to shift or share the costs, so you know it's not litigation versus arbitration, of course we'll go with arbitration.
It's litigation or nothing.
In those circumstances, this Court has always said that we'll have--
Justice Anthony Kennedy: Well, I mean maybe it is litigation if you need a $300,000 report.
But why do you need a $300,000 report?
That's what we're asking.
And I just can't -- it seems to me that I have to engage in speculation about the limits of arbitration in order to resolve in your favor.
Now, to be sure, they took a -- a more rigid view below, so we don't have much of a record.
Paul D. Clement: --Well -- and, Justice Kennedy, I would say that -- I mean, shame on them, with all due respect.
Because there was an opportunity in the district court to make an apples to apples comparison, and they could have said: No, $300,000 is way off; you can do this for $25,000, and here's how.
But they didn't make that showing.
They said: You know, we don't think the effective vindication doctrine applies in these circumstances at all.
Chief Justice John G. Roberts: It's a little much to expect them to come back and say: Oh no, no, no, you don't have to prove all this.
The only thing you've got to prove is it's going to cost you $25,000.
That's an odd position to put them in.
Paul D. Clement: Well, I don't think it is, Mr. Chief Justice.
I -- they don't have to say -- you know -- they don't have to tell us how to prove our case to the lowest possible price.
They just have to show us something that will allow us to vindicate our claim--
Justice Stephen G. Breyer: There is no authority that I could find for the prop -- I mean, if in fact it costs you $10,000 to buy the arbitrator -- system, you know, you buy the system--
But I mean, you know, hire -- whatever it is, if those are obstacles, it's pretty well established, I think, that that arbitration is not something that you can use to vindicate the Federal claim.
And the part that's bothering me about this, though, is that those aren't obstacles.
It's just you brought a very expensive claim.
And the real problem here is the reason they can go into court is they can get a class action in court.
And then this Court has said, you can't get the class action in arbitration.
There we have it.
So -- so the -- the question in my mind is, well, is there a way that some of the beneficial aspects of class action can be used in an arbitration that does not formally have a class action?
And there it seems yours is a good case, because a lot of them can.
You say, well, the one part that can't is getting this private information.
So maybe we should send it back and say, well, why do you need the private information?
On a good theory of antitrust, you're going to show that the price of the Tide product was higher than what it would have been had the entry barriers not been raised from the Tide.
That's a general entry question which I don't think you need private information from them to answer.
But that's -- and now we're really into the depths of the merits.
So I thought of sending it back and saying, let's -- let them explore this kind of thing about other ways of trying to get some of these advantages of class action into your -- you're going to say I'm too far out on this.
Paul D. Clement: --Well, what I'm going to say, Justice--
Justice Antonin Scalia: They could write a treatise on it, maybe.
Paul D. Clement: --But -- but what I was going to say is look, I mean, take a step back.
You know, one of the great things about the effective vindication doctrine is it gets the incentives rights.
It gives companies incentives to draft clauses that will allow for the maximum vindication of Federal rights.
And so there are lots of clauses out there that would allow for even this claim, because they have cost shifting of expert costs or they don't have confidentiality agreements or they'll waive the confidentiality--
Justice Antonin Scalia: Suppose this class could not -- could not qualify for certification in Federal court.
Are you asserting that there is some arbitration principle that -- that allows you to create some new class?
Paul D. Clement: --No, Justice Scalia.
Justice Antonin Scalia: So you have to make -- you have to make a comparison to what can be done in Federal court, don't you?
Paul D. Clement: No, it's not part of the inquiry because--
Justice Antonin Scalia: It isn't.
So that any class that the arbitrator thinks is okay is required.
Paul D. Clement: --No, it's just that by virtue of showing up in court and saying, I want to litigate my claim, the lawyer has already made a judgment that I can vindicate it in Federal court.
Maybe it's because of class action, maybe it's just because of joinder, maybe it's because there's no confidentiality rule in the Federal proceedings, so it can bring a lot of these claims, maybe it's a difference in collateral estoppel.
Whatever it is, that lawyer has already spoken that I can make this claim work in litigation.
Justice Antonin Scalia: But he wants a class.
What he wants in arbitration is the ability to sue on behalf of a class, doesn't he?
Paul D. Clement: That might be what they most want, but they don't get that.
They just get some way to vindicate the claim.
And if this had a cost-shifting provisions that the expert costs were shifted, that would get the job done, that's the Sovereign Bank example we talked about in our brief.
There are more than one way.
We're not trying to get a guarantee for class treatment in one form or the other.
Justice Antonin Scalia: Is -- is that what you asked for below, anything, class action or compensation or whatever?
Paul D. Clement: We -- in fairness, we focused below on the class action because that's--
Justice Antonin Scalia: That's what I thought.
That's what I thought this case was about.
What's the question presented anyway?
Paul D. Clement: --Well, don't just look at the question presented, look at the opinion below.
And look at 91(A) and 92(A).
The questions that the Second Circuit addressed--
Justice Antonin Scalia: Whether -- whether the Federal Arbitration Act permits courts invoking the Federal substantive law of arbitrability to invalidate arbitration agreements on the ground that they do not permit class arbitration of a Federal law claim.
Now, you're saying that -- that whether they permit class arbitration is not going to be decided on the basis of whether you could certify a class under Rule 23, but just what?
And -- and -- and if it does depend on that, what is the Court supposed to do?
Before it can -- it can give you your claim, it has to -- it has to decide whether this class would be certifiable, wouldn't it?
Paul D. Clement: --No, it would not--
Justice Antonin Scalia: --this is a very complicated procedure.
Paul D. Clement: --Your Honor.
You just have to answer the question, is there a problem with the arbitration, is there something with this specific agreement that precludes this claim going forward.
Here it's a combination of no class arbitration, no way to shift costs, because they don't provide cost shifting, and no way to share costs because of the confidentiality.
Whatever they put in the question presented, they can't make the Second Circuit's holding that the confidentiality provision blocks the sharing of information to go away.
They're stuck with that.
Chief Justice John G. Roberts: What is -- tell me how the no -- no sharing of information and confidentiality, how does that work again?
You can't, if you're a trade association, get together and say, I think we should have a study of Amex's whatever.
And then you put together the study, and then one of your members says, you know, that's a good study, I'm going to go -- go to arbitration.
They can't do that?
Paul D. Clement: They -- they could do that much, Mr. Chief Justice.
The critical point at which the confidentiality provision creates a practical problem is you're trying to get all the information, you're trying to get a single expert report in order to share the costs, and you're trying to do not just the market survey, but do a damage calculation, have a damage formula.
Because when you have a market like this where the allegations are they've distorted the market, so we can't rely on the market price, we need to know the sales volumes of all the individual stores.
Their confidentiality agreement protects that and doesn't allow that to be shared.
That's not that unusual.
This Court in Nielsen and Concepcion both remarked that one of the features of arbitration is you generally keep it confidential.
And that's something that the Second Circuit said, because of that--
Chief Justice John G. Roberts: Well, what if you do -- I mean, what if you do it, is that just part of your trade associations, they think this is -- you know, they're not talking about particular arbitration or anything.
They just prepare a -- a report, and then once you see the report, you say, my gosh, I had no idea, and then you file your claim for arbitration.
Paul D. Clement: --With all due respect, Mr.--
Chief Justice John G. Roberts: It seems to me my point is simply that there's no sharing, confidence, it seems like an awfully amorphous provision that would be very difficult to enforce.
Paul D. Clement: --Well, I mean, I don't think it's that difficult, Mr. Chief Justice.
Certainly, cost shifting is not difficult, and there are other ways to solve this problem.
But the Amex agreement forecloses all of them.
And the question for this Court is, do you say, well, tough or do you say what you've said every time you've confronted this problem, the effective vindication doctrine provides the solution.
Chief Justice John G. Roberts: We'll afford you some rebuttal time.
Oh, no, we won't.
Justice Antonin Scalia: You should have said, “ I accept ”, very quickly.
Chief Justice John G. Roberts: Just being generous this morning.
ORAL ARGUMENT OF MR. MALCOLM L. STEWART, ON BEHALF OF THE UNITED STATES, AS AMICUS CURIAE, SUPPORTING RESPONDENTS
Malcolm L. Stewart: Mr. Chief Justice, and may it please the Court:
At the beginning of the argument, Justice Kagan asked whether a pure exculpatory clause, a provision in a contract that simply said, we promise not to seek relief under the arbitration -- under the antitrust clause period would be enforceable, and Mr. Kellogg replied that it would not.
And I think the unenforceability of such a provision would not depend on any analysis of what was likely to happen if the suit was brought in court; that is, a pure exculpatory clause could be set aside and the plaintiff could still lose for any number of reasons.
The plaintiff could be denied class certification and decide it's uneconomical to proceed with an individual suit.
He could lose on a threshold ground like the statute of limitations or he could lose on the merits.
But the unenforceability of the pure exculpatory clause wouldn't require the Court to make a comparison between being kicked out of court on that basis and what would likely happen if the suit were able to be brought.
And we would submit that the same mode of analysis applies when the arbitration agreement can be shown to have the same practical effect as an exculpatory clause; that is, if it is the case that given the amount of money at stake, the arbitration procedure specified in the contract and the modes of proof that would be necessary in arbitration, if it can be shown persuasively by the plaintiff who bears the burden that no reasonable plaintiff would find it economically feasible to proceed, then the arbitration agreement can't be enforced--
Justice Antonin Scalia: Would that be the case even before Rule 23 was -- was adopted?
Malcolm L. Stewart: --Yes.
And it would be--
Justice Antonin Scalia: Even though you couldn't vindicate it in the Federal courts, you must be able to vindicate it in arbitration?
Malcolm L. Stewart: --The question would be whether the arbitration agreement could be enforced.
And before Rule 23 was adopted, if there had been a pure exculpatory clause, it would have been unenforceable and--
Justice Antonin Scalia: I'm not even talking about a pure exculpatory clause.
I'm talking about the mere fact that as a practical matter, it's impossible to bring it in arbitration.
In a context in which it is also impossible to bring it in Federal court.
And you would say, still, you must permit it to be brought in arbitration, even though it can't be brought in Federal court.
Malcolm L. Stewart: --In the same way that we would say a pure exculpatory clause would be invalid and unenforceable, even if it were clear from the plaintiff's complaint that he was not entitled to relief on the merits.
Justice Elena Kagan: And, Mr. -- Mr. Stewart, isn't that also consistent with the way the Court addressed the issue in Randolph?
Because what the Court said there was it might be that these arbitration fees are prohibitive.
And if those arbitration fees are prohibitive, then this doctrine kicks in.
And it didn't look to say, well, let's compare how these fees relate to whatever costs you would wind up with in litigation.
It just said, if the arbitration fees are prohibitive in such -- in such a manner that it prevents you from vindicating your Federal claim in arbitration, that's enough.
Malcolm L. Stewart: That's correct.
And I would make two real world--
Justice Antonin Scalia: What -- what are the arbitration fees?
It's not -- not -- not lawyers' fees.
Do they include lawyers' fees?
Malcolm L. Stewart: --No, the attorneys' fees would be recoupable under the substantive law.
Justice Antonin Scalia: Okay.
So I don't know, what do you--
Justice Stephen G. Breyer: Expert costs.
Justice Antonin Scalia: --So what are you comparing it to in court litigation?
Malcolm L. Stewart: We are not really--
Justice Antonin Scalia: A filing fee?
Malcolm L. Stewart: --No, I think we are not comparing it to anything.
That is, our -- our position is in determining whether the arbitration agreement has the same practical effect as an exculpatory clause, we asked could any reasonable plaintiff proceed under the terms and conditions that are set up?
And if the answer to that is no, then the arbitration agreement is unenforceable.
Now, I would make two real-world points, one of which Mr. Clement has already alluded to.
The first is the only cases that are going to wind up in court are those in which the plaintiff at least believes that it would be feasible to vindicate the claim in court, and so they are likely to be those in which there is a potential difference between the outcome in court and the outcome in arbitration.
The other is, even if a plaintiff believes wrongly that he can proceed in court through a class action mechanism and class action -- class certification is denied under Rule 23, presumably at that point the plaintiff is going to give up and the outcome at the end of the day is going to be the same as if the arbitration agreement had been enforced.
Justice Stephen G. Breyer: This is exactly -- I found no authority for the proposition that what hinders -- plenty of authority, you can't make the person go to arbitration if the fees involved are too high, because he's blocked.
But you're quite an advance over that.
You are saying the thing that keeps him out is his own theory of wrong, which will involve hiring a lot of experts and others.
Now, once that's adopted, it seems to me in practice we have reversed in many, many cases the proposition that you can in fact require Federal causes of action to be arbitrated, because all you have to do to get out of the arbitration is to allege a theory of your case which is hard and complicated to prove.
Now you are back in court.
Now that's a significant erosion, it seems to me.
So I want to know if you have any standard there, if we're just supposed to accept that, if in fact you are trying to reverse in practice what was the holding that you can arbitrate these Federal causes of action.
What is going on here?
And an addendum to that is if you are going to convince me, which you might, that, well, that's okay, do it, do it, do it, is it a possible remedy to monkey with the arbitration clause and provide for a sharing of costs, say if you win the loser will pay the expert fees, which is of course a much more pro-arbitration way than just throwing it out entirely?
Malcolm L. Stewart: Well, let me start--
Justice Stephen G. Breyer: That's a long question, but do you see what I'm driving at?
Malcolm L. Stewart: --Let me start with your last question and work backwards.
It is possible and it sometimes has happened in the lower court cases that a plaintiff will come into court and say: I can't proceed through arbitration because the arbitral fees are too high in relation to my likely recovery.
And the defendant at that point will say, we offer to waive the fees or we offer to pay your share of the arbitral fees, and a court will be persuaded that, given that consensual modification of the contract, it is feasible for the claims to be brought in arbitration and the plaintiff is kicked out of court.
Now, this is consensual.
This is something that the court has -- that the court has done at the company's behest, and it would be different question of whether the court could do that over the company's objection.
But another thing that the company could do is put in a severability clause in the contract that would specify what results should obtain if one provision of the contract were held to be invalid.
I guess another thing I would say in response to your question is we do have one data point, the First Circuit's decision in Kristian, which I believe Mr. Clement referred to, in 2006, which essentially held on facts similar to these that the arbitration clause as written was not enforceable because the cost of the expert fees in an antitrust case would dwarf any potential recovery, and we haven't seen the floodgates opened.
The last thing I would say is if this is the concern, Petitioner's proposed rule really doesn't match the argument in its favor.
That is, Petitioner is not just arguing for a rule that would cover cases in which the relevant costs are those of experts or similar authorities.
Petitioner's rule would say even if the contract provides for a non-recoupable $500 filing fee and the amount of the claim at stake is $200, so it's absolutely apparent on the face of the contract that the claim can't be brought, the agreement is still enforceable and the plaintiff is deprived of his day in court.
The other thing I would say about Petitioner's argument is the challenge to the Second Circuit's decision has really changed drastically since the cert petition was filed.
That, is the Second Circuit took it as essentially undisputed that the costs of the expert report would render it economically infeasible to proceed in arbitration, and it took the further step of saying, therefore the arbitration agreement is unenforceable.
Now, the cert petition challenged only the “ therefore ” part of the Second Circuit's analysis.
There wasn't a suggestion that the Petitioner intended to challenge the antecedent determination that these claims couldn't feasibly have been brought in individualized proceedings.
And I think as Paul -- Mr. Clement said, the likely reason is that wouldn't look like a cert-worthy issue.
That sort of fact-specific inquiry wouldn't seem like a wise use of this Court's resources.
So having gotten cert granted on the important legal question whether the inefficacy of arbitration procedures is a basis for invalidating the agreement, Petitioners are now spending a great deal of time arguing that it would in fact have been feasible to pursue these claims through individualized arbitration.
And one thing we would say in response, as Mr. Clement said--
Justice Antonin Scalia: Excuse me.
They didn't get cert granted on that question at all.
As I pointed out before, they got it granted on whether the mere fact that the arbitration agreement did not permit class arbitration renders it invalid.
Malcolm L. Stewart: --But they did get cert--
Justice Antonin Scalia: That's what I thought the question before us.
Malcolm L. Stewart: --They got cert granted on that question, but neither the question as so framed or the body of the cert petition suggests any challenge to the Second Circuit's factual determination that these claims could not feasibly have been brought in individualized arbitration.
Justice Ruth Bader Ginsburg: Mr. Stewart, is it -- the arbitration agreement is a one-on-one, right?
They can't, or can they have -- they have the 12 similarly situated people, not a class, showing in the arbitration, or is it one on one?
Malcolm L. Stewart: That's correct.
Chief Justice John G. Roberts: Which is correct?
Malcolm L. Stewart: It is correct that it has to be one on one, that the agreement requires only--
Justice Ruth Bader Ginsburg: And even in the days before we had Rule 23, when you were bringing a suit in Federal court you could have multiple plaintiffs joining together.
Malcolm L. Stewart: --That's correct.
The agreement prohibits even the types of joinder mechanisms that might have been available when the Sherman Act was passed.
Chief Justice John G. Roberts: Thank you, counsel.
Mr. Kellogg, you have rebuttal time, 6 minutes.
REBUTTAL ARGUMENT OF MICHAEL KELLOGG ON BEHALF OF PETITIONERS
Michael Kellogg: Thank you, Mr. Chief Justice.
Let me focus on what the court of appeals held below.
At 3a of our appendix, the court said:
"The only issue before us is the narrow question of whether the class action waiver provision contained in the contract between the parties should be enforced. "
That is the question on which we sought certiorari.
That is the question that the Court granted.
It is Respondents who have now tried to rewrite that question by talking about other possible ways of vindicating their rights that they claim are foreclosed, that they claim wrongly are foreclosed by the contract at issue here.
This is not--
Justice Anthony Kennedy: Well, do we have a factual record?
Suppose I think, based in substantial part on Justice Breyer's suggestion, that we could have an arbitration that's effective and we could have a trade association prepare a report, and we could do one arbitration and then see if it applies to others.
Suppose I think that.
Do I -- doesn't that bear on this question?
And if it does, I don't have a factual record to support my assumptions.
Michael Kellogg: --I don't think you need a factual record, because Respondents acknowledge the burden is on them to show that the arbitration-specific costs would preclude them from pursuing their claim.
And they have not done that by putting in an affidavit saying, well, in litigation we have to do -- get 5 million documents and spend $300,000 prosecuting them and get an expert report which could cost up to $1 million.
Justice Stephen G. Breyer: But suppose we answer--
Michael Kellogg: That is not--
Justice Stephen G. Breyer: --the question -- the answer is yes, a class action waiver can be enforced.
Michael Kellogg: --Correct.
Justice Stephen G. Breyer: Now, what are the circumstances here?
The record leaves us uncertain, we remand it for further consideration of what they are.
Michael Kellogg: Well, the court could certainly--
Justice Stephen G. Breyer: Because that isn't the issue they decided, whether it could be enforced.
They decided whether you can -- whether the whole arbitration agreement could be enforced.
Michael Kellogg: --The holding of the court of appeals is the arbitration agreement cannot be enforced because it has a class action waiver.
That is clearly reversible error.
I don't even hear--
Justice Ruth Bader Ginsburg: It was because -- it was because Judge Pooler said:
"I have been instructed by the Supreme Court that I may not require class arbitration. "
That's -- and she was bound by our decision that a court can't order class arbitration; isn't that correct?
So that was not an option for her.
Michael Kellogg: --But the Court also in Concepcion said you can condition the enforceability of an arbitration agreement on the availability of class procedures, and that is what the Court below violated.
So the decision below has to be vacated.
I do not think you should remand for a detailed factual showing on just how they are going to vindicate their rights in arbitration, because most of those questions, what evidence is required, et cetera, are for the arbitrator in the first instance.
That said, we made -- we did respond to their showing below.
We did not put in a dueling affidavit saying, no, in litigation, it only requires a $200,000 report or a $25,000 report.
We said, that's irrelevant, because we're talking about arbitration-specific costs.
And there's lots of ways that they can proceed with their claims.
One is by sharing the costs of an expert, and they specifically rejected that.
They said, even if we could shift the costs of the experts to the other side, that wouldn't be good enough, because then all we'd be doing is expending much money to get it back.
We need aggregated damages of the sort available in class suit--
Justice Stephen G. Breyer: Or you have to do without.
I -- you just said what -- I thought that the expert talked about litigation costs, not about arbitration costs.
So how is that handled?
Michael Kellogg: --That is how I read -- that is how I read the report.
And certainly with an expert arbitrator--
Justice Stephen G. Breyer: You said you waived that point, whatever -- however it is.
You waived it.
Never raised it.
The Court of Appeals took it as if it were arbitration costs.
Michael Kellogg: --No, we raised -- we've argued that all along.
In fact, I can refer the Court to page 27 of our -- the--
Justice Ruth Bader Ginsburg: The Second Circuit never said anything about, this is what it would cost in court.
The court -- the Court of Appeals said, this is what it would cost to prove this kind of tying, right?
It didn't say one word distinguishing what it would cost in litigation from what it would cost in arbitration.
It was simply what it was going to cost.
Michael Kellogg: --We did, in fact.
But let me answer Justice Breyer's question first, at page 27 of our Court of Appeals--
Justice Stephen G. Breyer: I believe you.
Justice Antonin Scalia: I'd like to hear the answer, if nobody--
Michael Kellogg: --We specifically said,
"The declaration of merchant's expert is similarly un-illuminating, as he too studiously avoided projecting the costs for an individual arbitration of these disputes. "
So we did argue against that point.
This is not an exculpatory clause.
The Court has made clear that a class action waiver is not an exculpatory clause.
This Court has also made clear that you cannot assume that the arbitral forum will be inadequate to vindicate Federal substantive rights.
And they cannot now change the nature of the question presented by arguing that well, there should have been another provision to allow -- specifically allow cost-sharing, or specifically allow cost-shifting.
Justice Elena Kagan: Well, Mr. Kellogg, it does seem like both of the parties have changed what they're saying a bit.
And, you know, if this case as presented to us was presented to us in the first instance that the premise was that if you go into arbitration, it would not provide an effective way to vindicate the claim.
And, now, people are saying different things about the confidentiality clause, and people may be saying different things about the necessity of an expert.
It suggests that the premise on which this case was presented to us was not quite right.
Michael Kellogg: Well, I -- I don't believe that's the case.
The premise on which the Court accepted the case, presumably, is that the decision below which conditioned the enforceability of the arbitration agreement on a -- on the availability of class procedures, was wrong under Concepcion.
Chief Justice John G. Roberts: Thank you, counsel.
The case is submitted.
Chief Justice John G. Roberts: Justice Scalia has our opinion this morning in case 12-133, American Express versus Italian Colors Restaurant.
Justice Antonin Scalia: This case is here on writ of certiorari to the United States Court of Appeals for the Second Circuit.
The respondents are merchants who accept the American Express cards.
Their agreement with petitioners, American Express and a wholly owned subsidiary of American Express, contains a clause that requires all disputes between the parties to be resolved by arbitration.
That agreement also prohibits “any claims to be arbitrated on a class-action basis.”
Despite this arbitration agreement, respondents brought a class-action in Court against petitioners for violations of the federal antitrust laws.
Petitioners moved to compel individual arbitration under the Federal Arbitration Act.
In resisting the motion, respondents argued that the cost of an expert analysis necessary to prove the antitrust claims would greatly exceed the maximum recovery for any individual plaintiff.
The District Court granted the motion to compel individual arbitration and dismissed the lawsuit.
The Court of Appeals reversed and remanded for further proceedings.
It held that because respondents had established that they would incur prohibitive costs if compelled to arbitrate under the class-action waiver, the waiver was unenforceable and the arbitration could not proceed.
The Court of Appeals stood by its reversal when we remanded in light of Stolt-Nielsen versus AnimalFeeds International Corporation which held that a party may not be compelled to submit the class arbitration absent in agreement to do so.
We granted certiorari and today reversed.
The Federal Arbitration Act does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff's cost of individually arbitrating a federal statutory claim exceeds the potential recovery.
Courts must rigorously enforce arbitration agreements according to their terms unless the act's mandate has been overridden by a contrary congressional command.
No contrary congressional command requires us to reject the waiver of class arbitration here.
The antitrust laws do not guarantee an affordable procedural path to the vindication of every claim or evince an intention to preclude a waiver of class-action procedure.
Respondents invoke a judge-made exception to the Federal Arbitration Action, which they say, allows courts to invalidate agreements that prevent “effective vindication” of a federal statutory right.
That exception finds its origin in the desire to prevent “prospective waiver of a party's right to pursue statutory remedies,” but the fact that it is not worth the expense involved improving a statutory remedy does not constitute elimination of the right to pursue that remedy.
The class-action waiver merely limits arbitration to the two contracting parties.
It no more eliminates the parties' rights to pursue their statutory remedy than did federal law before its adoption of the class-action for damages.
Our decision in AT&T Mobility versus Concepcion all but resolves this case.
There, in finding that a law that conditioned the enforcement of arbitration on the availability of class procedure interfered with fundamental arbitration attributes, we specifically rejected the argument that class arbitration was necessary to prosecute claims that “might, otherwise, slip through the legal system.”
The regime established by the Court of Appeals' decision would require before a plaintiff could be held to contractually agreed bilateral arbitration that a federal court determine and the parties litigate the legal requirements for -- for success on the merits claim-by-claim and theory-by-theory, the evidence necessary to meet those requirements, the cost of developing that evidence, and the damages that would be recovered in the event of success.
Such a preliminary litigating hurdle would undoubtedly destroy the prospect of speedy resolution that arbitration in general and bilateral arbitration in particular was meant to secure.
The Federal Arbitration Act does not sanction such a judicially created superstructure.
Accordingly, the judgment of the Court of Appeals for the Second Circuit is reversed.
Justice Thomas has filed a concurring opinion.
Justice Kagan has filed a dissenting opinion in which Justices Ginsburg and Breyer joined.
Justice Sotomayor took no part in the consideration or decision of the case.