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Amex v. Italian Colors: Another Arb. Decision Favors Clear Clauses

By William Peacock, Esq. on June 20, 2013 | Last updated on March 21, 2019

Now that is a clear arbitration clause.

In the wake of the Supreme Court's holding in Oxford Health Plans v. Sutter, we warned you to clarify your arbitration clauses. Now, weeks later, the Supreme Court has addressed arbitration clauses again, this time showing how much deference the parties' choice to dispute resolution in the contract will receive.

The clause at issue in the Oxford case provided for individual arbitration, but was silent on the matter of class-action arbitration. The parties agreed to have the arbitrator decide the issue of arbitrability. The Supreme Court allowed class-action arbitration to proceed on that basis, as the complaining party already conceded the issue when it allowed the arbitrator to make the decision, right or wrong.

The takeaway was this: if you want to avoid class-action arbitration (or any other form of dispute resolution), you better make it explicit -- silence is deadly.

Today's American Express v. Italian Colors Restaurant decision reaffirms that notion, and narrows the "effective vindication" means of avoiding arbitration.

The Second Circuit had held that, because the plaintiffs were unable to effectively vindicate their rights via individual arbitration (explicitly provided for in the agreement), they could avoid the terms of the written contract due to a judicially-created doctrine of "effective vindication. In other words, because it would cost far more to pursue each individual claim than that claim was worth, they could avoid the plain terms of the arbitration clause.

The majority of the Supreme Court disagreed, holding that "antitrust laws do not guarantee an affordable procedural path to the vindication of every claim." The "effective vindication" exemption, which originated in dicta of a 1985 case, only applies when the contract outright denies a remedy -- not when it prices it out of reach.

For companies, this is another positive development. So long as your contract clearly spells out potential remedies, the holdings of these two cases, as well as another recent Supreme Court decision, AT&T v. Concepcion, supports the notion that the clear dispute resolution terms of the contract are to be respected, even where the result may be considered unconscionable at the time of enforcement.

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