Canada: Third Time’s The Charm – The United States Supreme Court To Consider The Availability Of Class Arbitration For The Third Time In American Express Company v. Italian Colors Restaurant

Last Updated: December 11 2012
Article by Ronald Podolny

Most Read Contributor in Canada, September 2018

Introduction

The United States Supreme Court has granted leave to appeal in a case that will clarify whether federal arbitration law permits the invalidation of arbitration agreements on the basis that they do not permit class arbitration.  This decision will have implications on the development of class arbitration, an emerging area of both American and Canadian class actions law.

Decisions Below

The case arose out of a dispute over the costs of acceptance of credit cards and charge cards issued by American Express ("Amex").  The merchant plaintiffs alleged Amex compelled them to accept its high cost revolving credit products by virtue of the Honor All Cards rule contained in its Card Acceptance Agreement with the merchants.  The Honor All Cards rule mandated the acceptance of all Amex products, rather than the ability to select particular credit card products which the merchant would accept or reject.

The arbitration clause in the Card Acceptance Agreement contained the following language: "If arbitration is chosen by any party with respect of a claim, neither you nor we will have the right to litigate that claim in court or have a jury trial on that claim ... Further, you will not have the right to participate in a representative capacity or as a member of any class of claimants pertaining to any claim subject to arbitration."

Amex moved to compel arbitration.  The district court granted Amex's motion, holding that the enforceability of class arbitration waivers was an issue for the arbitrator to resolve.

The United States Court of Appeal for the Second Circuit reversed, holding (on the basis of an affidavit of an economist adduced by the Plaintiffs) that individual arbitrations were not economically feasible to pursue in this case.  In light of the practical impossibility of pursuing individual arbitrations, and the clause banning class arbitrations, the Circuit Court held that the arbitration provision of the Card Acceptance Agreement was invalid, because it granted Amex "de facto immunity from antitrust liability" by removing the plaintiffs' only feasible means of recovery.

Amex appealed.  The Supreme Court remanded the case back to the Circuit Court, in light of the Supreme Court's recent decision in Scott-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758.  In Scott-Nielsen, the U.S. Supreme Court held that "a party may not be compelled under the Federal Arbitration Act to submit to class arbitration unless there is a contractual basis for concluding that he party agreed to do so." (emphasis in original).  In other words, where the arbitration agreement is silent on the question of class arbitration, the arbitrator is not at liberty to permit it.

On remand to the Circuit Court, the original Amex decision was upheld.  The Circuit Court determined that Scott-Nielsen did not mandate the reversal of its original decision.  It found that Scott-Nielsen did not engage the issues of the case.  At issue in Amex was whether the mandatory class action waiver was enforceable even if the plaintiffs were able to demonstrate that eh practical effect of enforcement of the waiver would be to preclude their bringing anti-trust claims against Amex.  Amex appealed, once again.

Shortly after the Amex II decision, the Supreme Court issued its decision in AT&T Mobility LLC v. Conception, 131 S. Ct. 1740.  The question in Concepcion was "whether the FAA prohibits States form conditioning the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures.  Under California common law, class action waivers contained in arbitration clauses were regularly found unconscionable, especially in consumer contracts.  The Supreme Court held that the FAA pre-empted California common law on this point and that the scheme created by California common law was inconsistent with the FAA.

The Supreme Court then remanded the Amex case to the Circuit Court for the second time.  In Amex III, The Circuit Court again upheld its previous decision.  It held:

"Concepcion and Scott-Nielsen, taken together, stand squarely for the principle that parties cannot be forced to arbitrate disputes in a class-action arbitration unless the parties agree to class action arbitration."

In contrast, the Circuit Court in Amex II was not ordering the parties to participate in class arbitration.  It was merely stating that a class action waiver is unenforceable where class arbitration is not an option available to the parties.  Scott-Nielsen and Conception do not stand for the proposition that all class action waivers are per se enforceable, and thus do not contradict Amex II.

The Court then offered a few policy observations.  As the Supreme Court has observed in Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), "[t]he policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights."  The Supreme Court has also recognized arbitration as an effective vehicle for vindicating statutory rights, but only "so long as the prospective litigant may effectively vindicate its statutory cause of action in the arbitral forum."  Furthermore, the Supreme Court has acknowledged in Green Tree Financial Corp. – Alabama v. Randolph, 531 U.S. 79 (2000) that "the existence of large arbitration costs could preclude a litigant ... from effectively vindicating her federal statutory rights in the arbitral forum."  The Circuit Court found this dictum from Randolph controlling.  Thus, it held that causes that in effect make it impossible for the plaintiffs to assert their rights, by prohibiting class arbitration despite individual arbitration being economically unfeasible, must be held invalid.

Potential Significance

The case will be the latest clarification in the emerging area of class arbitrations in the United States.  The idea of class arbitrations holds the promise of combining the benefits of class actions (arbitration of individually non-viable claims, economy of adjudicative resources etc.) with the benefits of arbitration (confidentiality, procedural flexibility, speed of adjudication).  The field of class actions involves the inherent conflict between the freedom of parties to contract to arbitrate their claims and the need to ensure consumers are not disenfranchised from their right to commence a class action, granted by legislation.  There is now substantial divergence between the U.S. Supreme Court's and Canadian Supreme Court's views on this issue.  In Seidel v. TELUS Communications Inc., 2011 SCC 15, the Supreme Court of Canada permitted a consumer class action to proceed in court, in the face of an arbitration clause in a cellular phone service contract, on the basis of its interpretation of the Business Practices and Consumer Protection Act of British Columbia. The majority of the Supreme Court of Canada emphasized that "[i]t is clearly open to a legislature to utilize private consumers as effective enforcement partners operating independently of the formal enforcement bureaucracy and to conclude that the most effective form is not a 'private and confidential' alternative dispute resolution behind closed doors, but very public and well-publicized proceedings in a court of law."  Conversely, in CompuCredit Corp. v. Greenwood, 565 US ____ 2012, the U.S. Supreme Court refused to invalidate an arbitration clause in the face of a consumer protection statute that mandated the disclosure of a "right to sue."  The U.S. Supreme Court took a cautious, technical interpretation to the consumer protection statute, consistent with the strongly expressed federal legislative policy favouring arbitration.

For more on this divergence, see our posts here and here. See also: Ron Podolny, "U.S. Supreme Court Rules on Enforceability of Arbitration Clauses" 1 Commercial Litigation and Arbitration Review 3 (August 2012).

Perhaps because of the U.S. Supreme Court's deference to the language of the arbitration agreement, class arbitration is far more important for U.S. class plaintiffs than for Canadian ones.  This may explain the relative paucity of judicial dicta on class arbitrations in Canada. In contrast with several U.S. Supreme Court decisions that have dealt with the subject, the Supreme Court of Canada has never approached it.  The Ontario Superior Court, in Kanitz v. Rogers Cable Inc. (2002), 58 O.R. (3d) 299 (Sup. Ct. J.) explicitly recognized the possibility of a class action arbitration in Ontario.  In the words of Nordheimer J.:

"Without deciding the point, it would appear that section 20(1)[of the Arbitration Act, 1991] would permit an arbitrator, at the very least, to consolidate a number of arbitrations which raise the same issue.  Therefore, it appears at least arguable that if each of the five named representative plaintiffs here chose to seek arbitrations of their claims, an arbitrator might well decide that those arbitrations could be dealt with together thereby saving time and expense for all parties.  Such possibilities serve to mitigate against the central assertion of the plaintiffs that the arbitration clause operates so as to erect an economic wall barring customers of the defendant from effectively seeking relief."

The possibility of class action arbitration has similarly been recognized in Ruddell v. B.C. Rail Ltd., 2007 BCCA 269, where stated:

"Further, in my view, the chambers judge did not give effect to the language of [the applicable pension legislation] which provides that an arbitration decision is 'final and binding on the parties and any person affected by the decision.'  Given that provision, a successful arbitration by even one member would bind these similarly placed.  Harkening to the history of class actions recounted in Western Canadian Shopping Centres Inc.., it is within an arbitrator's mandate, in my view, to recognize an arbitration advanced by an individual on a point of principle, as is here the case, and fashion a response applicable to others who are in the same position.  Alternatively, the solution proposed in Kanitz v. Rogers Cable is available." [citations omitted, emphasis added.]

Conversely, the Ontario Court of Appeal, in Smith v. National Money Mart Company (2005), 258 D.L.R. (4th) 453, may have closed the door on class arbitration in Ontario by stating that "under the [Ontario] Class Proceedings Act, only a justice of the Superior Court has jurisdiction over class proceedings and arbitrators cannot assume jurisdiction."  However, the Circuit Court in Smith did not rule on the availability of class action arbitration, but rather on jurisdiction to interpret arbitration clauses, and thus the development of class action arbitrations remains a possibility in Ontario and Canada generally.  Should class arbitration be utilized in Canada in the future, Canadian courts will have to grapple with the questions raised by cases such as Italian Colours Restaurant.

Case Information

American Express Company v. Italian Colors Restaurant

Decision below: 667 F.3d 204.

Cert. Granted: 11/9/2012.

To view original article, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Lerners
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Lerners
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions