Supreme Court Again Enforces Contract Arbitration Requirements

Many business owners and executives incorporate mediation and arbitration clauses into their contracts hoping to avoid lengthy, public, unpredictable, and costly lawsuits. Those decisions often make sense because disputes regarding complex and sophisticated commercial issues many times are resolved faster, more predictably, and more efficiently when an arbitrator or mediator with specialized knowledge in the pertinent field is involved. Additionally, resolving disputes through mediation and arbitration allows for procedural flexibility, including limited discovery, that is not available in lawsuits, and permits resolution out of the public eye.

For businesses that rely on arbitration clauses, the United States Supreme Court’s recent decision in American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013), is welcome affirmation that such provisions generally will be enforced. American Express incorporated into its agreements with merchants clauses requiring all disputes to be resolved by arbitration, and providing that claims could not be arbitrated on a class-action basis. Against this background, the merchants sued, claiming that American Express violated antitrust laws. The merchants argued that the class action prohibition was unenforceable because litigation costs would be prohibitive for individual plaintiffs. The Supreme Court, however, disagreed, and concluded that the arbitration requirement, and the prohibition on class arbitration were enforceable. Importantly, the Supreme Court reiterated that “arbitration is a matter of contract” and that courts must, therefore, “‘rigorously enforce’ arbitration agreements according to their terms.” The Court went on to emphasize that such enforcement includes “terms that ‘specify with whom [the parties] choose to arbitrate their disputes’ and ‘the rules under which the arbitration’” is conducted.

The American Express decision, thus, provides businesses with added confidence that (except under circumstances permitting a successful challenge to the formation of a contract) they have the ability to contractually mandate arbitration of disputes, and to set forth in their contracts how and with whom arbitration will be conducted.