Supreme Court Considers New Restrictions for Class Actions
By Sarah Pierce
The future of class action lawsuits continues to hang in the balance as the Supreme Court heard another case last week that could add even more restrictions to plaintiffs hoping to band together against major corporations.
The case involves various merchants that are asking the high court to strike down a provision in their contracts with American Express forbidding them from forming class actions. The contractual clause requires the merchants to settle disputes with the company through individual arbitration.
Lawyers for the merchants argued that individual arbitration is too expensive to handle their dispute, which involves antitrust claims against the credit card giant. Hiring the legal experts necessary to handle the complex issues of the case could cost hundreds of thousands of dollars – more than any one merchant can afford, they argued. Banding together as a group to share these costs makes their case an ideal class action, they told the court.
It’s the same argument that has been made in numerous lawsuits filed since the Supreme Court’s 2011 decision in AT&T v. Concepcion, which allowed companies to enforce arbitration clauses in their contractual agreements. Plaintiffs argue that denying consumers the right to band together against major corporations means many victims of corporate wrongdoing will never have their day in court. The costs of individual arbitration can simply be too high, especially if it exceeds the potential payout.
While the justices did not make an immediate decision in the American Express case, they seemed unimpressed by the merchants’ arguments, according to reporters in the court room. Ruling against the merchants could have a devastating effect on class action lawsuits, as was the case in Concepcion.
Within the first year of the Concepcion ruling, more than 75 class actions were stopped or significantly hampered, according to the consumer advocacy group Public Citizen. In addition, a slew of major corporations updated their agreements with consumers to include arbitration clauses in order to take advantage of the court’s decision.
If the Supreme Court sides with corporations again, a similar fallout will likely happen. Whatever the decision, the case underscores the important for consumers to diligently read their customer contracts.
Updated March 8th, 2013
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