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In the battle over class action bans, the latest casualty may be logic

In the battle over class action bans, the latest casualty may be logic

By Leslie Bailey, Staff Attorney

As an undergraduate philosophy major, I lived for all things logical. I relished Alfred North Whitehead and wrote essays seeking to prove that propositions about the future are true at the time they are stated. There was something deeply reassuring to me about the idea that even in our confusing world it is possible to identify truth.

Years later, I can’t tell Kierkegaard from Kant, but as an attorney I’m on a constant quest to make sure my legal premises and conclusions are logical. When they aren’t, it eats at me.

I hold our opponents to the same standard. While we may have different ideas of what the outcome should be in a given case, I expect that their conclusions will follow logically from their premises. Which is why I’m blown away by how casually the defendant and the business community have sacrificed basic logic in American Express v. Italian Colors Restaurant, the latest mandatory arbitration case before the U.S. Supreme Court.

The plaintiffs in the AmEx case, restaurants and other small merchants, claim the credit card company uses its monopoly power to force them to accept all AmEx-branded cards as a condition of accepting certain AmEx charge cards (and pay higher rates than they would for competing networks) — a pact known as a “tying arrangement.” If the merchants are right, AmEx’s conduct violates the federal antitrust laws.

For the plaintiffs in a case like this, the challenge is money; it requires extensive economic proof that costs hundreds of thousands of dollars. But each individual merchant has lost — and thus can only hope to recover — a small fraction of that amount.

The only economically feasible way the plaintiffs can bring a case like this is by joining together in a class action, and sharing the costs of expert witnesses and legal representation. Well aware of this, AmEx (like lots of other big businesses) has an arbitration clause in its contract that prohibits class actions. The Second Circuit, after seeing the evidence, concluded that if AmEx’s individual-only clause were enforced, it would effectively eliminate the merchants’ statutory rights under the federal antitrust laws. And while arbitration clauses are frequently enforced, there is a key exception on which the legitimacy of arbitration as an institution depends: according to a long line of Supreme Court cases, arbitration clauses are enforceable only when they permit the parties to vindicate their statutory rights.

In the AmEx v. Italian Colors case, the major premise is the rule set out by the Supreme Court — that an arbitration clause is enforceable only if it does not eliminate statutory rights. Here’s the Second Circuit’s reasoning in the form of a syllogism (a logical argument in which one proposition is inferred from two others):

a. If an arbitration clause eliminates statutory rights, it is unenforceable.

b. AmEx’s arbitration clause eliminates statutory rights.

c. Therefore, AmEx’s arbitration clause is unenforceable.

Pretty basic stuff, right? Given these parameters, it would make sense if AmEx sought to persuade the Supreme Court to reverse the Second Circuit by arguing for an exception to the major premise (e.g., that some arbitration clauses that eliminate statutory rights are enforceable). Or that the lower court got the evidence wrong, a less viable but still logical argument.

Instead, in a logical sleight of hand that must have Whitehead spinning in his grave, AmEx and the U.S. Chamber of Commerce have formulated their own brand of logic.

They start (as they must) with the Supreme Court’s major premise — that arbitration clauses that eliminate statutory rights are not enforceable. But then they skip straight to the desired conclusion and work backwards to the minor premise:

a. If an arbitration clause eliminates statutory rights, it is unenforceable.

b. Arbitration clauses are enforceable.

c. Therefore, AmEx’s arbitration clause does not eliminate statutory rights.

Setting aside that AmEx’s proposed conclusion was already proven false (AmEx itself conceded that it would costs hundreds of thousands of dollars to prove this kind of antitrust violation, and that the plaintiffs couldn’t win without that kind of proof), this argument turns logic on its head. AmEx has transformed the Supreme Court’s rule (arbitration clauses are enforceable if they permit vindication of rights) into a tautology (arbitration clauses are enforceable because they permit vindication of rights).

In order to adopt AmEx’s reasoning, the Supreme Court would not only have to pretend what is true is actually false, it would have to embrace a syllogistic fallacy. Which is worse? I bet you know my answer.