Class action waivers in arbitration agreements are strictly enforceable under the Federal Arbitration Act (FAA), even in circumstances where an individual’s arbitration costs surpass the potential recovery. Due to the tremendous disparity in the costs of individual arbitration compared with minimal financial recovery, Italian Colors Restaurant and merchants filed a class action suit against American Express Co., challenging the arbitration clause in their contracts that denied the right for claims to be collectively arbitrated. The Court maintained the strictest adherence to the FAA, which defines arbitration as a matter of contract and ensures that arbitration clauses are enforceable, and decided that the class action waiver did not prevent Italian Colors Restaurant from obtaining remedies. With the goal to provide consistency in clear structure and predictability, the ruling reaffirmed the authority of the FAA and requires judges to strictly uphold arbitration agreements regardless of equity principles that are essential to contract law.
Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2306 (2013); Federal Arbitration Act, 9 U.S.C.A. § 2 (1947); AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1742 (2011) (dictating the FAA’s enforcement of class arbitration waiver over the preclusion of such waivers under California statute).
(Development authored by Amy Chen)