This article provides commentary on the Supreme Court’s decision relating to classwide waivers in arbitration clauses in American Express Co. v. Italian Colors Restaurant, and immediate reception of the Court’s decision by the Second Circuit Court of Appeals. In one of the most closely-watched classwide arbitration cases on the 2012-13 docket, the Supreme Court in Italian Colors Restaurant was asked whether the “effective vindication rule” required access to class arbitration in federal antitrust litigation where an individual plaintiff’s claim was too small to be litigated separately. In a 5-3 decision (with Justice Kagan not participating) a divided Court―led by its conservative wing―responded with a resounding “no”.
The Court’s majority in Italian Colors advanced the conservatives’ harsh approach to classwide arbitration and represented a resounding setback for the plaintiffs’ class action bar. Critics immediately attacked the decision as a pro-corporate, anti-plaintiff, anti-class action, denial-of-access-to-justice, ideologically-based decision. Justice Kagan dissented, joined by Justices Breyer and Ginsburg.
Merely six weeks after issuance of the Italian Colors decision, the Second Circuit applied and extended the Italian Colors holdings to litigation under the Fair Labor Standards Act (“FSLA”). Sutherland v. Ernst & Young LLP, 2013 WL 4033844 (2d Cir. Aug. 9, 2013). The Second Circuit concluded that the Italian Colors decision abrogated the district court’s previous basis for invalidating a class action waiver provision in an arbitration clause promulgated by Ernst & Young. The Second Circuit therefore concluded that the district court had erred in denying Ernst & Young’s motion to compel arbitration.
The Sutherland decision is significant because it heralds the Second Circuit’s recognition of the Italian Colors repudiation of class action waivers, as well as the evisceration of the “effective vindication rule,” which that Circuit previously had championed in several decisions. In addition, the Sutherland decision extends the Italian Color principles from Rule 23 antitrust class actions to FSLA wages and overtime litigation. By extending the Italian Colors holdings to FSLA litigation, the Sutherland decision embodies a further encroachment on plaintiffs’ access to classwide arbitration.
Linda S. Mullenix, The Not-So-Effective Vindication Decision, National Law Journal, September 8, 2013, at 30.