The Supreme Court heard arguments in AmEx III today, the case that presents the question whether an arbitration agreement precluding class actions can be invalid if it makes it impossible for plaintiffs to vindicate federal statutory rights (in this case, because individual antitrust cases would be prohibitively expensive).  The full transcript is available here.

After a first read of the transcripts, here is what grabbed my attention:

  • • Appellant’s primary arguments were that the Second Circuit’s opinion in AmEx is contrary to Concepcion, and that affirming it would create an enforcement nightmare for district courts.  (“I don’t think we can expand Mitsubishi into a free-floating inquiry for district courts into the costs and benefits of each case.”)
  • • Appellant’s counsel (taking the pro-arbitration position here) was immediately asked a series of questions by Justice Ginsburg about the high costs of pursuing antitrust claims, and whether those could be shared among individual plaintiffs.  After the fourth question, the attorney responded pointedly “there is no guarantee in the law that every claim has a procedural path to its effective vindication.”
  • • Justice Kagan then asked a series of hypothetical questions of the Appellant’s counsel, centered on whether Appellant’s position is that under substantive federal law a valid arbitration agreement can explicitly prohibit someone from presenting economic evidence in arbitration.  When the Appellant took the position that federal law would allow that (although state law may declare it unconscionable), Justice Kagan was incredulous: “you’re going to read Mitsubishi and Randolph in such a way that it allows an arbitration clause to 100 percent effectively absolutely frustrate your ability to bring a Sherman Act suit”?
  • • Justices Kennedy and Breyer suggested that maybe the cost-effectiveness problem could be solved by having antitrust experts sitting as arbitrators, thereby reducing the need for the parties to have their own experts.  Kennedy also asked: “why do you need a $300,000 [expert] report?”  To which Respondent’s counsel noted that American Express had not made any showing in the district court that a less expensive alternative was available.
  • • Justices Kagan and Alito asked questions about whether the plaintiffs had been coerced into the arbitration agreements at issue, which the Appellant said is not an issue properly before the Court.
  • • Justice Scalia repeatedly asked the lawyers to consider what would have happened before Rule 23 and without an arbitration clause, noting that in the normal litigation context, parties do not bring small value claims.  “I don’t see how a Federal statute is frustrated or is unable to be vindicated if it’s too expensive to bring a Federal suit. That happened for years before there was such a thing as class action in Federal courts. Nobody thought the Sherman Act was a dead letter, that it couldn’t be vindicated.” (Scalia even said it earlier, and fancier, in Latin: “De minimis non curate lex.”)
  • • The Respondent’s counsel responded to Scalia by saying “With respect, Justice Scalia, you don’t have to make that comparison [costs to arbitrate versus to litigate] part of the test, because the cases that can’t be vindicated in either place won’t show up at the courthouse door. So once you show up at the courthouse door, you’ve got a plaintiff’s lawyer. They may be crazy, but you have a plaintiff’s lawyer that thinks ‘I can do this in the litigation system. . . . the only thing that’s precluding me from doing it is this arbitration agreement’ — so this arbitration agreement is not operating as a real arbitration agreement, it’s operating as a de facto as-applied exculpatory clause.”
  • • Justice Roberts and others suggested it would be possible for multiple plaintiffs, with individual arbitrations, to pool their resources and hire a joint expert to provide a report.
  • • Justice Breyer expressed concern about embroiling the district courts in assessing whether a federal claim could be effectively pursued in arbitration, and about incentivizing plaintiffs to dream up expensive claims to avoid arbitration agreements.
  • • There was also significant discussion of whether the Appellant had changed its theory of the case– asking for cert on one question, but largely arguing something else.  Justice Kagan suggested that “the premise on which this case was presented to us was not quite right.”

After reading this transcript, I sense that the Justices are frustrated with having to decide this important rule of law on this particular set of facts.  They may remand for further consideration (seriously?  AmEx IV?), or say cert was improvidently granted.  Or they may affirm, but strike a compromise position in their reasoning.