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    The latest ruling by the Supreme Court saying that merchants could not join in a class action against American Express may seem removed from most of our lives, and may appear to involve a straightforward ruling on a contract issue, but the fact is it continues the efforts of the present Court to bring back frightening legal principals from a century ago that previously were moribund.
     The case involved American Express and many small merchants who used Amex's services in accepting their cards.  Because what was at stake for each merchant individually was relatively small, so that each on its own would be unlikely to take on Amex in court or in arbitration.  In the aggregate, though, if the matter was decided in favor of all of the merchants, it would mean a large benefit to them and a major cost to Amex.  
     SCOTUS ruled, very simply, that the merchants' contracts with Amex precluded a class action and required arbitration.  But the law is hardly that simple, and the ruling reflects a scary trend.

    The legal hisotrian F.W. Maitland is credited with the idea that "the law is a seamless web."  That is, individual parts do not stand in isolation, but must be understood in the context of all other parts of the law.  Think of the legal process like an old fashioned radio, with numerous wires and tubes.  If you simply follow one wire it will get you from the power cord to the speaker, but it would not explain how the radio can play anything.  You have to look at how all the wires and tubes work together to modulate the input.  In the same way, it is easy to do what the Court did, look at the contracts that say "no arbitration and no class action", and say, that's the contract, you have to live by it.
     For a contract to be enforceable, a host of conditions must be met -- is the contract legal (you cannot contract to violate the law)?  Are the parties competent to agree to the contract (minors cannot enter into binding contracts)?  Is the contract conscionable (if it takes too great advantage of one party, it may not be enforced)?  A more nuanced issue involves balancing provisions within a contract.  For example, what if there is a small lapse in performance - is that a breach of the entire contract (a "material" breach), or is it something that requires correction, but does not vitiate the contract?  If you are late on a payment, you may need to pay a penalty, but it usually doesn't mean you have broken the whole contract.
     In the late 1800s, the very pro-business courts began to stress the idea of "freedom of contract", an idea much like today's mantra of "personal responsibility."  The assumption was that everyone had the competence and ability to pick and choose the contracts they liked, and courts should not interfere.  If children chose to work - so be it.  If individuals entered into one-sided contracts imposed upon them by large companies - so be it.  Some of the excesses were controlled by state legislatures, who passed things like labor laws.  In the famous case of Lochner v. New York i 1905, the Supreme Court struck a blow even to state legislation, ruling that NY could not put a statutory cap on bakers' overtime, because that interfered with the bakers' freedom of contract.
     In the century since then, the courts have cut back on that ruling, recognizing that when one side has an overwhelming advantage at the bargaining table, the other cannot truly negotiate a contract freely.  Today the Supreme Court has again revived the long dead Lochner doctrine.
     The underlying questions are whether a large company - in this case Amex, one of a handful of charge card providers - has such overwhelming power in the marketplace that it is able to impose whatever conditions it chooses on those deal with it, and whether as a result the Court should interfere with the contract by refusing to enforce some provisions.  
     The simplest version of what the Court said is that the merchants signed an agreement with Amex of their own free will, that they didn't have to (there are other card providers), and the contract should be enforced as written.
     The sad fact is that the Court refused to set aside the very clause that multiplies Amex's already enormous bargaining advantage - the class action bar.
     There is not space here to go into all the reasons class actions are favored by individuals who take on large corporations.  What is at stake for an individual often fails to justify the costs of a lawsuit;  only by lumping together numerous claims in a class action can plaintiffs afford to take on litigation expenses.  Class actions are public proceedings, of record, so people who may be affected by the issues have a way of finding out about the action.  The record helps ensure witnesses tell the truth, and affords litigants the opportunity to appeal flawed decisions.  Litigation in court also gives both sides the ability to conduct discovery to turn up the underlying facts of the case.
     In contrast arbitration is done in private, and produces no record, so what happens is kept secret.  Arbitration panels are notoriously bad about giving unsatisfactory results, or "splitting the baby" without really getting to the bottom of the dispute.  Discovery is limited in arbitration, so it is difficult to force your way through to get to the truth.  Sadly, witnesses can lie with impunity.
     In a way, a class action resembles a labor union -- while an individual cannot negotiate effectively against a large corporation, there is strength in numbers, and when many workers band together they can bargain more evenly.  (True, there are always excesses, but in such a case "freedom of contract" still bows to the need to achieve a workable contract:  no matter how much the union may threaten to strike, it will seldom be able to insist on a contract that ultimately drives the employer out of business.)  Similarly, a class action allows a large group of individuals with small claims to effectively contest those claims against a large company that would otherwise have the power to overwhelm any individual claimant.
     Freedom to contract goes hand in hand with freedom to dispute a contract.  When one party is so large that it can impose its will on those who feel they must contract with it, the freedom to contract is illusory.  There should be recourse in the courts to show that the contract was imposed without a real opportunity to negotiate -- essentially under a mild form of economic duress.  But the only real recourse in the courts is through a class action.  When arbitration is required and class actions are banned, the ability to dispute the contract is also illusory.
    The sad thing in this case is that the Court has taken one more step in reviving the Lochner doctrine, saying not only that the biggest player gets to set the rules, but also gets to choose the referees.
     None of this comes as a surprise.  It shows how important the balance in the Supreme Court, and what a long shadow the Court casts through the decades.  It should motivate us to fight tooth and nail every election to be sure our individual voices are heard collectively.

     

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