Is Arbitration The New "Lochnerism?" -- American Express v. Italian Colors

Some of our readers may recall from their days taking Constitutional Law that Lochner v. New York was a landmark 1905 Supreme Court decision striking down a maximum 60-hour workweek law in the baking industry as contrary to a Constitutional "right to contract."  During the New Deal the Court eventually had a change of heart (arguably in response to FDR's Court-packing scheme) and came to the epiphany that contract rights may be overridden by legislation with at least a "rational basis" in public policy.  

Generations of legal scholars have since wielded the phrase "Lochnerism" as a term of abuse for judicial activism that would judicially preempt remedial legislation enacted by democratically elected state and federal representatives.  And the supremacy of contract rights espoused by "Lochnerism" seemed to be a historical dead letter. 

Until now, that is.  The recent Supreme Court decision in American Express Co. v. Italian Colors Restaurant (aka "Amex III"), seems to have breathed new life into the idea that private contract rights may once again reign supreme at the expense of public legislation.    

In Amex III, a small merchant sought to file a class action lawsuit alleging that Amex exploited its monopoly position in the market for revolving charge cards to impose anti-competitive prices.  However, the "take-it-or-leave-it" arbitration agreement which Amex required merchants to sign contained a "divide-and-conquer" clause that barred them from joining together to share litigation costs or to jointly prove-up their mutual allegations of a common anti-competitive scheme by Amex.  

The Majority recognized that under these ground rules no individual merchant would have the financial incentive to prosecute an anti-trust claim against Amex, which would thereby avoid any exposure to the claims regardless of their merit.  As the court explained, however, federal arbitration law "reflects the overarching principle that arbitration is a matter of contract" and the Court is therefore duty-bound to "rigorously enforce arbitration agreements according to their terms."  Thus, the Majority held that Amex's right to contract for arbitration rules of its choosing must preempt any right to effectively enforce anti-trust laws for the benefit of the public.  In the summary of the Dissent, if the arbitration agreement is framed in a way that prevents anti-trust enforcement that's just "too darn bad." 

Of course the Court's rationale is different from good, old-fashioned Lochnerism in that the source of the right to contract is now located in the federal arbitration act rather than the Due Process Clause of the Constitution itself.  But the principle is largely the same  -- by invoking the right to contract a company may effectively "opt-out" of unfavorable legislation.  

It remains to be seen whether an arbitration agreement can be so aggressively one-sided that even the present Court would not enforce it "according to its terms."  But in response to Amex III, corporate lawyers across the country are undoubtedly drafting agreements that will be testing these limits in short order.  For the time being, however, it appears that contract rights are once again clearly ascendant over statutory rights.                  

 

 

    

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