Supreme Court upholds AmEx's merchant contract

On June 20, 2013, the United States Supreme Court ruled in favor of the American Express Co. concerning contractual obligations of retailers when they sign up to accept AmEx-branded cards at the POS. In a five-to-three decision, the Court ruled that retailers must abide by contract terms that specify they cannot sue AmEx on a class-action basis, but that each retailer must seek arbitration over disputes with AmEx individually.

The case of American Express Co. et al v. Italian Colors Restaurant et al involved whether the contract entered into by an individual retailer with AmEx was binding even if the contract made it financially impossible for that retailer to sue the card company. The majority Court decision held that federal law does not permit courts to invalidate arbitration agreements just because the path of individual arbitration may be costly.

A brief for the prosecution

Italian Colors Restaurant, located in Oakland, Calif., filed a class-action lawsuit against AmEx, arguing that the card brand violated antitrust law by using its monopoly power to charge retailers excessive interchange fees. (AmEx's fees are roughly 30 percent higher than the card acceptance fees charged by Visa Inc. and MasterCard Worldwide).

But the contract signed by retailers when they agree to accept AmEx cards at the POS strictly forbids them from forming class actions to sue AmEx. Italian Colors Restaurant et al said that restriction makes suing the card company monetarily difficult, with antitrust claims brought by any single retailer costing at least several hundred thousand dollars, while potential recovery of damages would be a fraction of that cost.

Italian Colors Restaurant formed a class action to challenge the contract, which by its action violated the very terms of the contract. After years of legal wrangling, the United States Court of Appeals for the Second Circuit ruled that AmEx could not compel retailers to seek individual arbitration. In July 2012, AmEx took the matter to the Supreme Court.

Taking sides

Justice Antonin Scalia delivered the majority opinion, stating that "antitrust laws do not guarantee an affordable procedural path to the vindication of every claim." Justice Elena Kagan delivered the minority opinion. She wrote that the terms of AmEx's contract allow the "monopolist to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse."

Meanwhile on the GS Online MLS Forum, ccguy rendered an opinion shared by many payments industry professionals when he said "no one is hold[ing] a gun to the merchant's head saying take these cards or else."

The Supreme Court's decision can be accessed at www.supremecourt.gov/opinions/12pdf/12-133_19m1.pdf .

Editor's Note:

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.