Contracts asking you to sign away your rights to a trial by jury and instead consent to arbitration are so common these days, you probably don't even realize you're signing them. Just check your credit card agreement, or the one your mobile carrier asked you to sign, and you're likely to find the legalese.
If you haven't paid attenton to these clauses in the past, you'll want to do so now, because they're getting even more restrictive.
In a little-observed ruling, on June 20 in a Supreme Court case called American Express v. Italian Colors Restaurant, the high court ruled that if a grievance comes up, consumers and small businesses must adhere to that arbitration consent, rather than pursue class actions in court.
What This Means if You're Up Against Big Firms
"This ruling makes it much easier for [large] businesses to immunize their conduct from judicial review," says Robert Nelson, partner at Lieff, Cabraser, Heimann & Bernstein, a prominent anti-trust and class action law firm in San Francisco. "The arbitration clauses do not just require arbitration but they also ban participation in a class action."
Arbitration and litigation are both expensive, and the cost to do either usually far exceeds the individual cost of damages a merchant may have suffered. The value of class actions is that they allow wronged parties to band together for a total award that is much larger, and thus more economical to pursue.
The ruling overturns decades of Supreme Court precedent that tended to lean toward federal anti-trust legislation, primarily the Sherman Act, which allows for class action suits. Instead, the Supreme Court has now chosen to prioritize the more restrictive Federal Arbitration Act as the primary set of laws, which favors big businesses.
The judgement is consistent with the court's generally pro-big business agenda under the leadership of Chief Justice John G. Roberts. The key milestone for that is the Citizen's United ruling in 2010, which opened doors to unlimited corporate spending on political campaigns, and was also exemplified in a Monday ruling that curtailed the ability of employees to sue successfully in discrimination cases.
In addition to anti-trust laws, the Italian Colors ruling is also likely to make it harder for courts to enforce consumer laws and employment discrimination laws if an arbitration clause bars the claim, Nelson says.
American Express v. Italian Colors: What Happened
The small business case at hand involves American Express and Italian Colors, an Oakland, California-restaurant that employs 28 people and has $1.8 million in annual revenue. Italian Colors had sued the card company for the higher fees associated with a lesser, bank-issued version of its credit card, which it was forced to accept. The restaurant had signed an arbitration clause, which contained a provision waiving its right to class actions. Nevertheless, it brought a class action against American Express on grounds it had violated anti-trust laws, and won on the state level.
On appeal at the Supreme Court, however, Justice Antonin Scalia writing the majority opinion, said the restaurant did not have any standing to file a class action because it had signed a contract waiving its right to that. Scalia invoked the Federal Arbitration Act, rather than anti-trust laws, which would have allowed it.
"This was another big blow for small businesses, and now the corporate giants can do whatever they want," Alan Carlson, Italian Colors chef and co-owner says.
He adds: "Big businesses know it will cost you a fortune to litigate against them, so no one wlll bother to spend $250,000 to collect $50."
The judgment follows a previous Supreme Court judgment in 2011, AT&T Mobility v. Concepcion, where conservative members of the court held that consumers must accept arbitration, rather than class-action, in cases that seem straightforward and there isn't a financial burden for them--say, for example, when the large company involved in the suit pays for the arbitration.
How Class Actions Have Helped Owners Before
The outcome of one of the largest class-action suits in history, in which 8,000,000 merchants charged Mastercard and Visa with price-fixing for interchange fees and won, might have been different if it had been decided today. Last August, the suit resulted in a settlement worth $7 billion for merchants.
"The threat of class action forces very large companies to follow the law," says Mitch Goldstone, president and chief executive of ScanMyPhoto.com, the 17-employee lead merchant in the Mastercard and Visa suit.
Goldstone says he began seeking a legal remedy about eight years ago after he grew frustrated with the lack of response from the credit card companies when he tried to question them about the cost of the interchange rates they charged him.
That quickly changed when he retained an attorney and got involved in the class action, he says. "Eight million businesses is certainly better than one," Goldstone says. "When [Visa and Mastercard] got the voicemail of the law firm, they very quickly changed their position."
K. Craig Wildfang, a partner at Robins, Kaplan, Miller & Ciresi, a law firm in Minneapolis, and the lead attorney representing ScanMyPhoto.com and the other merchants against Mastercard and Visa, says it's important for you to avoid signing arbitration clauses with other companies, particularly ones that waive your right to a class action.
That's going to be difficult, for sure, but depending on how competitive the market is for the particular service you need, he says: "You could try to get them to agree not to put that clause in."