The U.S. Supreme Court recently issued its opinion in American Express Company v. Italian Colors Restaurant, No. 12-133, addressing whether an arbitration clause prohibiting class-action arbitrations is enforceable when the cost of arbitrating a federal statutory claim on an individual basis exceeds the potential recovery.  The Court held, 5-3, that such prohibitions on class arbitrations are permissible.  I expect this decision will result in an expansion of the use of arbitration by companies facing class action exposure.  Insurance companies to date have not significantly increased their use of arbitration following the Supreme Court’s decision two years ago in AT&T v. Concepcion, 131 S. Ct. 1740 (2011).  While insurers today appear to face somewhat smaller class action exposure than some other industries that deal with consumers, if insurers continue to stay on the sidelines with respect to arbitration, and other industries continue to adopt it, insurers might become larger targets for class actions.  That risk might lead to some efforts by insurers to increase the use of arbitration.

In American Express, merchants brought a putative antitrust class action against AmEx, alleging that it exercised monopoly power with respect to charge cards (where the full bill must be paid every month) to force merchants to accept AmEx credit cards at higher fees than those charged for other credit cards.  (Slip op. at 1-2.)  AmEx sought to compel an individual, non-class arbitration. The merchants asserted that the class-action waiver in the arbitration provision was unenforceable because the cost of an individual arbitration, requiring an economic expert report that would cost “at least several hundred thousand dollars,” and this would far exceed the maximum potential individual recovery ($38,549 including treble damages).  (Id. at 2.)

Justice Scalia’s relatively short majority opinion (joined by Chief Justice Roberts, and Justices Kennedy, Thomas and Alito) concluded that: (1) “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim”: (2) Rule 23 does not “establish an entitlement to class proceedings for the vindication of statutory rights”; (3) “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy”; and (4) AT&T Mobility “specifically rejected the argument that class arbitration was necessary to prosecute claims ‘that might otherwise slip through the legal system.’”  (Id. at 4-9.)  Justice Thomas joined the majority opinion but also wrote a concurrence reiterating his view that, under the plain language of the Federal Arbitration Act, only a defense to the formation of an arbitration agreement (such as fraud or duress) can prevent enforcement of the arbitration agreement.  Justice Kagan wrote a dissent, joined by Justices Ginsburg and Breyer.  The dissenters would have held that, under the “effective vindication rule” previously articulated by the Court (which the majority opinion characterized as merely dictum), the class-action waiver was invalid because there was no effective means of pursuing the antitrust claims in arbitration.  The dissent hinted that the class-action waiver might have been permissible if the arbitration clause had allowed joinder or consolidation of multiple claims, or sharing of expert reports between arbitrations (which apparently was precluded by a confidentiality provision in the AmEx arbitration agreement), or allowed shifting of costs if the merchants prevailed.  (Slip op., Kagan, J., dissenting, at 7.)

At the most basic, technical level this case is unlikely to have a direct impact on insurance class actions involving claims or underwriting issues, because those are governed by state law, and American Express focuses on arbitrations of federal statutory claims (whereas AT&T Mobility addressed federal preemption, under the FAA, of state law invalidating a class-action waiver).  Where I see a greater potential impact here is from the relatively strong reaffirmance of the basic principles of AT&T Mobility (in a case which did not involve a consumer-friendly arbitration clause), and the potential for a decrease in class actions against other industries.  If there are fewer employment class actions, and fewer class actions against banks and credit card companies, and perhaps even against product manufacturers, then the plaintiffs’ class action bar will either largely give up their line of work (which seems unlikely), or they will focus more intently on the industries that have not adopted arbitration.  If insurance remains one of those industries, it could become a larger target.

I’ve written previously here about some of the regulatory and practical obstacles that insurers face in expanding the use of arbitration, and some potential downsides – see my August 22, 2011 blog post.  I expect that insurers will be giving the idea of arbitration further thought following this decision.  American Express also raises some interesting questions about how to draft an arbitration clause, given the substantial difference between the clause at issue in American Express and the more consumer-friendly clause at issue in AT&T Mobility.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.