On June 20, the U.S. Supreme Court held that the Federal Arbitration Act (FAA) does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery. Am. Express Co. v. Italian Colors Rest. 133 S. Ct. 2304 (2013) (No. 12-133) (Amex III). The case involved merchants who accept credit cards and who sued the credit card company for alleged antitrust violations. The Court held that, in accordance with their arbitration agreements, the merchants were required to arbitrate their claims individually, even though the cost of individual arbitration of their claims may exceed their potential individual recovery and could prevent them from effectively vindicating their claims.

Since then, many people have commented on this case. Business is hailing it as the panacea for the failure of state courts to enforce certain arbitration agreements on the ground that they are unconscionable. This is mostly due to the two main concepts running through the opinion:

Arbitration is a matter of contract:

The first concept is the reiteration that arbitration is a matter of contract and that courts must "rigorously enforce" arbitration agreements according to their terms, unless the FAA’s mandate has been “ ‘overridden by a contrary congressional command.’ ” This concept is mostly attributable to the High Court's earlier opinion in Dean Witter Reynolds, Inc. v. Byrd, 470 U. S. 213, 221, which was reinforced by the Court's recent holding in CompuCredit Corp. v. Greenwood, 565 U. S. ___, ___ (2012). Pp. 3–4.

The SCOTUS found no contrary congressional command that required rejection of the class-arbitration waiver here. The antitrust laws do not guarantee an affordable procedural path to the vindication of every claim, see Rodriguez v. United States, 480 U. S. 522, 525–526, or “evince an intention to preclude a waiver” of class-action procedure, Mitsubishi Motors Corp. v. Soler-Chrysler-Plymouth, Inc., 473 U. S. 614, 628 (Mitsubishi). Nor does congressional approval of a class action procedure entitle litigants to class proceedings for the vindication of statutory rights.

The "effective vindication" argument used to invalidate some arbitration agreements only applies to the right to pursue a remedy:

The “effective vindication” exception that originated as dictum in Mitsubishi comes from a desire to prevent “prospective waiver of a party’s right to pursue statutory remedies,” Id., at 637, n. 19; but the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy. Cf. Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20, 32; Vimar Seguros y Reaseguros, S. A. v. M/V Sky Reefer, 515 U. S. 528, 530, 534. In AT&T Mobility LLC v. Concepcion, 563 U. S. ___, the SCOTUS found that a law that conditioned enforcement of arbitration on the availability of class procedure interfered with fundamental arbitration attributes, Id., at ___, the Court specifically rejected the argument that class arbitration was necessary to prosecute claims “that might otherwise slip through the legal system,” Id., at ___. Pp. 5–9.

The enforceability of the arbitration provision in the LAW 553-CA-ARB form retail installment sale contract is under California Supreme Court review in Sanchez v. Valencia Holding Company. The Sanchez court of appeal opinion failed to acknowledge the first concept; that arbitration is a matter of contract. It ignored the business realities of a transaction for the purchase of a vehicle and the parties' agreed upon processes to vindicate their rights in connection with a dispute involving the purchase and sale of a vehicle. Instead, it picked apart those processes, examining them under a microscope, with an eye toward "worst case scenarios" of how the process could be abused or go badly for a consumer, without regard to the equal downside for the dealer.

Amex III supports the dealer's argument in Sanchez that arbitral process that shields against "outlier" results cannot be invalidated as unconscionable when it comports with business realities and the reasonable expectations of the parties to the transaction contemplated by the agreement that contains the arbitration provision. But a reasonable inference from the California Supreme Court's recent opinion in Sonic-Calabasas A, Inc. v. Frank Moreno is that the court might create a new standard for determining unconscionability in arbitration agreements. So it remains to be seen what effect, if any, Amex III will have on the California Supreme Court's reasoning.