Supreme Court Rules in Favor of Big Corporations Regarding Arbitration Clauses, with Michelle Schwartz of Alliance for Justice

Michelle Schwartz  Alliance for Justice

Michelle Schwartz

Alliance for Justice

A restaurant, Italian Colors, had recently challenged American Express's monopolistic practice, which is that it uses the monopoly it has on charge cards and debit cards to force merchants to accept its credit and debit cards at a much higher fee than other credit or debit card companies.  Michelle Schwartz, of Alliance for Justice, says that this restaurant wanted to challenge this practice under the anti-trust law and wanted to join together with some other similarly-situated merchants.

However, in the contracts between American Express and merchants, there is a "force arbitration clause," that says if you have a problem with anything AMEX does, the merchant needs to pursue it through arbitration, not through court or banding together with other merchants to do a class arbitration.  The clause also prohibits any showing of costs, says Schwartz. 

Italian Colors has been able to show that any recovery they could get through arbitration would be miniscule compared to the costs of the arbitration so they challenged this arbitration clause, says Schwartz. 

The "conservative, pro-business" majority of the Supreme Court held that it didn't matter and that there was really no way for merchants to vindicate their rights through individual arbitration, says Schwartz, adding that they still upheld the arbitration clause and said essentially "too darn bad." 

The second circuit heard the case a few times and repeatedly said that they stood by the merchants, as they saw there was no effective way for these small businesses to get their rights vindicated through arbitration.  The Supreme Court, Schwartz says, said theoretically a business can go through arbitration and get their rights vindicated and  there is no practical way for them to vindicate their rights because it costs too much. 

Justice Scalia wrote the decision which he said was based on the Federal Arbitration Act, written in 1925.  He said that this trumps every law in the books.  The dissent, written by Justice Kagan, said that AMEX had insulated itself from anti-trust liability.   

Schwartz finds this decision hard to reconcile because it gives AMEX a license to opt out of all federal laws.  Even though Americans have to follow these federal laws, big corporations are shielded from them. 

Schwartz says it is now time for Congress to act and the Alliance for Justice strongly supports the Arbitration Fairness Act, which prevents claims from going into arbitration. 

Michelle Schwartz is with Alliance for Justice and spoke with The Legal Broadcast Network, providing online, on-demand, legal video content.

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