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Supreme Court clamps down on class actions in merchants' case

American Express and American Express corporate cards are pictured in Encinitas, California October 17, 2011. REUTERS/Mike Blake
American Express and American Express corporate cards are pictured in Encinitas, California October 17, 2011. REUTERS/Mike Blake

By Lawrence Hurley and Andrew Longstreth

WASHINGTON/NEW YORK (Reuters) - The U.S. Supreme Court delivered its latest blow to class action lawsuits on Thursday when it enforced an arbitration agreement that prevents merchants from banding together to make antitrust claims against American Express Co .

The nine-member court ruled on a 5-3 vote, with liberal Justice Sonia Sotomayor recused.

The merchants had challenged the legality of an arbitration clause in a contract with American Express that prevented them from coming together to pursue disputes against the credit card company.

The Supreme Court's majority opinion is the latest to make it harder to bring class actions. In March, the court ruled 5-4 in favor of Comcast Corp in an antitrust class action.

Class-action lawsuits typically are filed by individuals or small businesses acting on behalf of large groups.

The American Express shares were weaker at $73.73 in above-average trading volume at midday on Thursday, after closing at $74.23 the previous day.

In Thursday's case, the merchants, including restaurants, retailers and others, sued in 2003 alleging that American Express violated antitrust law by forcing them to accept its credit cards as a condition of accepting its charge cards.

Charge cards require their holders to pay the full outstanding balance at the end of a billing cycle; credit cards require payment of only a portion, with the balance subject to interest.

The merchants argued that the arbitration clause effectively prevented them from seeking redress because pursuing individual claims against the company would be prohibitively expensive.

Siding with the merchants, consumer advocates said such clauses gave unfair advantages to bigger companies like American Express.

But American Express argued that the contracts at issue served the dispute-resolution policies established by the Federal Arbitration Act, and the Supreme Court agreed.

SCALIA FOR THE MAJORITY

The opinion was written by Justice Antonin Scalia and joined by the other four conservatives on the court. Justice Elena Kagan wrote the dissent for the three liberals who heard the case.

Scalia wrote that "the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim."

The Supreme Court ruling is the latest to require people or businesses that sign arbitration clauses with companies to resolve their disputes through arbitration rather than the courts.

American Express applauded the decision in a statement.

"We believe the Supreme Court's ruling confirms the viability of the Federal Arbitration Act and prior Supreme Court decisions on arbitration," it said.

Deepak Gupta, an attorney for the merchants, called the ruling "disappointing" but he predicted that the decision would attract scrutiny from regulators and legislators.

"The Supreme Court may not have the last word on this," he said.

The case had been closely watched by major corporations, which have increasingly relied on arbitration agreements to settle disputes with consumers and other parties.

Those arbitration clauses also frequently prohibit plaintiffs from banding together to bring one action on behalf of a larger class.

KAGAN LEADS DISSENT

In her dissent, Kagan wrote that the terms of the American Express arbitration agreement imposed "procedural bars" that made pursuing antitrust claims by the merchants individually "a fool's errand."

"And here is the nutshell version of today's opinion, admirably flaunted rather than camouflaged: Too darn bad," she wrote.

In the Comcast decision, the court said a group of cable TV subscribers in the Philadelphia area who accused Comcast of overcharging them as part of an effort to monopolize the market could not sue as a group because they did not show they could adequately measure damages for the entire class.

That decision followed a landmark 2011 decision in Wal-Mart Stores Inc v. Dukes where the court threw out a giant employment discrimination lawsuit because the female plaintiffs did not have enough in common to sue together.

The case is American Express Co et al v. Italian Colors Restaurant et al, U.S. Supreme Court, No. 12-133.

(Editing by Howard Goller and Eric Walsh)

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