Ilya Somin reconsiders federalism and the protection of individual freedoms.
The Supreme Court, I lamented yesterday, routinely falls down on its job of protecting interstate commerce against state depredation unless Congress has (arguably, sort of) made the first move. Mercifully, though, the Court is very generous both in finding that Congress has made such a move and in spinning out what that move entails. Exhibit A is the Federal Arbitration Act, on deck in tomorrow’s argument in American Express C. v. Italian Colors Restaurant.
The FAA’s crucial Section 2 commands that private arbitration agreements shall be “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (Italics added.) In a slew of decisions, the Supreme Court has held that the statute embodies a firm congressional preference in favor of arbitration (as opposed to litigation) and, moreover and relatedly, preempts state law that conflicts with or impedes the purposes of the act. As a matter of history and statutory interpretation, both of these tenets are very likely wrong: the pre-New Deal FAA simply meant to counteract the “old” Court’s habit of setting aside arbitration agreements as an illicit form of private lawmaking. Tellingly, the broad pro-FAA decisions date back to the 1970s and 1980s and thus pre-date the rise of formalism on the Court. There’s no way the cases would come out that way today. Even so, the Court and especially its conservative members have gone to town and broadened the scope of the FAA in case after case.
The attraction of this course, I’ve explained here, is to provide a means of protecting private (interstate) commerce without running up against formalist-originalist commitments. Without a congressional statute, the theory goes, no dormant Commerce Clause nor any other federal common law protects parties in interstate commerce: under Erie Railroad (1938), their disputes must be decided (even in federal court) under state law—usually, the state chosen by the plaintiff. In this fashion, Erie transforms the Constitution’s commercial order into a trial lawyers’ bill of rights. However, on account of its brutal positivism, Erie is the foundation of all modern-day formalist thought. Enter the FAA: read in a sufficiently broad and preemptive fashion, it allows corporations and their customers to contract out of Erie’s mayhem. Formalist-originalists don’t even have to justify that reading as a matter of first impression: they can just mutter something about statutory stare decisis and congressional acquiescence. And so they have.
Appellate courts have had a hard time keeping up with the Supreme Court’s rapid flow of pro-arbitration rulings; and in candor, some of them haven’t tried very hard. Witness Amex v. Italian Colors. Class action plaintiffs here are merchants alleging a Sherman Act tying claim against American Express for allegedly forcing them to accept American Express credit cards and debit cards as a condition of accepting American Express charge cards. They filed suit. Amex moved to compel arbitration under an agreement that bars class action arbitration. The merchants want the class action waiver declared unenforceable because it would effectively deprive them of any means of vindicating their statutory claims. Tying and similar antitrust claims require expensive expert testimony, they say, and individual parties can’t afford that.
Pretty thin gruel if you ask me (why can’t they just agree to subsidize an individual merchant’s expenses?), but the Second Circuit bought it. (Justice—then judge—Sonya Sotomayor served on that panel and is therefore recused from the Supreme Court’s consideration of the case.) Subsequently, the Supreme Court decided an arbitration case called Stolt-Nielsen v. AnimalFeeds International Corp., holding, 5-3, that a party may not be compelled—for public policy or other reasons—under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so. And, the justices granted cert in Amex and remanded the case for reconsideration in light of Stolt-Nielsen. The Second Circuit panel (now without Judge Sotomayor) reaffirmed its earlier holding. Herewith a little nugget, to convey the spirit of Amex II:
Amex argues that Stolt-Nielsen expressly rejects the use of public policy as a basis for finding contractual language void. We disagree. While Stolt-Nielsen plainly rejects using public policy as a means for divining the parties’ intent, nothing in Stolt-Nielsen bars a court from using public policy to find contractual language void.
And away we go.
In short order, the Supreme Court decided yet another FAA case: AT&T Mobility LLC v. Concepcion, upholding, 5-4, a consumer contract that required arbitration (on very generous terms) but prohibited class arbitration. While California state law deemed many class action waivers (in arbitration or otherwise) “unconscionable,” the Supreme Court’s conservative majority found the state law doctrine preempted on the grounds that it posed an “obstacle” to the FAA’s firm preference in favor of arbitrability. The Second Circuit ordered supplemental briefing in Amex in light of Concepcion, and again ruled for the plaintiffs. The petition for cert and the grant followed.
What’s at stake? Quite a bit. We may find out, in Amex and in Oxford Health Plans LLC v. Sutter, yet another class action arbitration case teed up for argument in late March, whether Concepcion’s seemingly broad endorsement of class action waivers will hold or instead be shot through with exceptions. Ted Frank has a very good piece on the importance and the beneficial effects of class action waivers here. Scotusblog features a concise argument preview.
The argument may attract little press coverage: it’s being held on the same day as Shelby County v. Holder, a humdinger of a case over the constitutionality of Section 5 of the Voting Rights Act. However (to quote a phrase that probably cost a great judge a seat on the Court), Amex promises an “intellectual feast” for aficionados, featuring as it does two exceptional lawyers fighting, in a manner of speaking, with inverted fronts: Michael Kellogg, hailing from a firm that usually serves as the trial lawyers’ (and Verizon’s) go-to outfit for Supreme Court argument, will be doing the honors for Amex; Paul Clement will argue for the pasta people.
Likewise, it’s worth watching the broader fight over arbitration and class action waivers. Even and especially if the justices get this right, the CFPB may yet decide that waivers are abusive, cruel and unusual, and otherwise unlawful. On the upside and in reply, that’s also true of the CFPB itself. One fight at a time.