United States Supreme Court limits victims’ ability to band together against large companies that have violated the law.
After being convicted of price fixing, four of the world’s largest shipping companies argued that their victims could not bring an antitrust “class arbitration” against them, because the contract that governed the parties’ arbitration proceedings did not specify that victims could band together in a single action.
This case exemplifies a growing trend, in which large companies use their superior bargaining power to make it more difficult for consumers or employees (or, here, other companies) to obtain legal redress in court. Arbitration provisions in employment and consumer contracts (contracts that are almost invariably written by the company) regularly require parties with less bargaining power to waive their right of access to court in favor of private arbitration, with fewer safeguards for plaintiffs and with “private judges” likely to favor the large companies who provide them with repeat business. Although some courts, including the California Supreme Court, have placed significant safeguards on the arbitration process—including close review of the fairness of arbitration provisions in contracts—other courts, especially the United States Supreme Court, have interpreted the Federal Arbitration Act (FAA) more expansively and have greatly enhanced companies’ ability to shift cases out of courts and into private fora.
Meanwhile, large companies have succeeded in raising legal hurdles to bringing class actions in court – often the only effective way of achieving a remedy in situations where many individuals have been harmed but none has a large enough claim to make individual litigation feasible. The ability of consumers and employees to bring “class arbitrations” allowed individuals to band together in such circumstances, even when they were contractually required to litigate in a private forum.
The Court’s decision for defendants threatens to make it difficult for employees and consumers to seek redress for violations of their rights, even when the law is on their side. Public Good joined an amicus brief authored by Public Justice, defending the right of victims to band together in a “class” even when they are contractually required to resolve their dispute with a business in private arbitration.
The Supreme Court, in a 5-3 decision, sided with the shipping companies, holding that arbitration is a procedure created wholly by contract. Consequently, the Court reasoned, the fact that the contract between the parties did not affirmatively permit class arbitration meant that the victims could not use the procedure in this case.
130 S.Ct. 1758, (2010). 548 F. 3d 85 (2d Cir. 2008), reversed, remanded.