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Arbitration versus sovereign debt: Where will YOU be on February 27?

posted by Mark Weidemaier
February 27 is a big day for people interested in financial markets, consumer credit, and... well, many things of interest to Credit Slips readers. I'll be in New York, attending round two of the Second Circuit oral arguments in NML v. Argentina. Meanwhile, the Supreme Court will be hearing argument in In re American Express Merchants Litigation - the latest big arbitration case. Much of my academic writing deals with arbitration, so I want to take a minute to highlight the significance of the AmEx case.

Like many credit providers, American Express tries to escape class action liability by pairing an arbitration clause with a class action waiver, thus requiring customers to bring claims in arbitration, as individuals. In AT&T v. Concepcion, the Court rejected an attempt to use state law unconscionability doctrine to invalidate a clause like this. In the AmEx case, the Court must resolve an arguable conflict between two federal laws. Plaintiffs are merchants who accuse American Express of violating the Sherman Antitrust Act and want to bring a class action in federal court. (Actually, they waffle a bit on this (pp. 35-36), but let's just say they wouldn't turn up their nose at a federal class action...) Relying on the Federal Arbitration Act, American Express argues that the plaintiffs must honor their agreement to pursue these claims individually in arbitration. In its prior cases, the Court has resolved such disputes in favor of arbitration so long as that forum allows claimants to "effectively vindicate" their statutory rights.

In the proceedings below, the plaintiffs presented evidence that it would cost an individual antitrust claimant hundreds of thousands of dollars to prove their case. They argue that, because each claimant suffered far less in damages, they can't vindicate their rights without a class action. American Express counters that arbitration needn't involve the expensive procedures typically found in court. An arbitrator could, presumably, fashion streamlined procedures that would make it economical to pursue a $5000 antitrust claim (flipping a coin, say, although sadly this method is often biased; perhaps rock-paper-scissors, then, or a canal jumping competition for the lawyers).

The depressing thing about cases like this is that they are about arbitration at all. As I have written elsewhere, when you look at what actually happens in arbitration, you don't see stark differences between it and litigation. Arbitrators are usually lawyers, and often former judges, and while they are concerned about costs, they generally employ streamlined versions of familiar procedures. When arbitration is problematic, it is typically because one party is using it to avoid rather than resolve disputes. American Express has no particular interest in arbitration; it wants to avoid class actions. In all likelihood, it picked arbitration over litigation only because the Supreme Court's arbitration law has made it easier to "launder" legally-questionable contract terms (i.e., class action waivers) by pairing them with an arbitration clause. That's an unfortunate byproduct of the Supreme Court's arbitration case law, much of which is otherwise quite sensible.

Anyway, the AmEx case is a big deal, if only because it requires the Court to flesh out the reasoning underlying its "effective vindication of rights" line of cases. Now if only we can find a way to combine sovereign debt, arbitration, and collective methods of dispute resolution like (but not just) the class action. Oh, right. Argentina: The gift that keeps on giving...

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