Tuesday, June 25, 2013

Supreme Court Rules Against Oakland Restaurant in AmEx Suit

By Luke Tsai
Tue, Jun 25, 2013 at 7:00 AM

It’s not every day that an Oakland restaurant headlines a Supreme Court ruling, but that’s what happened last Thursday when, with little fanfare, the court handed down its decision for American Express v. Italian Colors Restaurant. The case hinged on whether Italian Colors (2220 Mountain Blvd.) and several other restaurants could file a class-action suit against American Express for what they believed to be unjust fees — despite the fact that they’d all signed a contract specifically waiving their right to class-action arbitration.

If you accept Italian Colors chef-owner Alan Carlson’s characterization of the lawsuit as a case of “David and Goliath” — well, in this instance Goliath won out: The court voted 5 to 3 in favor of American Express, with the conservative majority ruling, essentially, that the contract that Carlson and other restaurant owners had signed took precedence over all other considerations.

“[The ruling is] very unfair,” Carlson, who is also a partner in James Syhabout’s new Rockridge restaurant venture Box and Bells, told What the Fork. “It’s in favor of big business and against small business.”

Italian Colors chef-owner Alan Carlson (via Facebook)
  • Italian Colors chef-owner Alan Carlson (via Facebook)
The crux of the argument that Carlson, along with the other claimants in the suit, put forth is that American Express is wielding monopolistic powers by forcing restaurants to pay very high — and often obscure or hidden — fees and then also refusing to allow class-action arbitration. As Justice Elena Kagan pointed out in her dissenting opinion, the most that Italian Colors stood to win from its suit against AmEx was $38,549. However, the cost of putting together an expert report to prove that American Express had violated antitrust laws would have been at least several hundred thousand dollars. “So the expense involved in proving the claim in arbitration is ten times what Italian Colors could hope to gain, even in a best-case scenario,” Kagan wrote.

Despite those numbers, which showed that one-on-one arbitration was essentially untenable for small businesses like Italian Colors, the court ruled that the initial contract — in which restaurant owners agreed never to file a class-action lawsuit — needed to be upheld.

The Italian Colors case was tied up in the lower courts in New York (where AmEx is based) for years, and more than ten years have passed since Carlson first filed the suit in 2003. It has been such a long haul that Carlson long ago stopped following the case’s day-to-day progress and only found out about Thursday’s Supreme Court decision when a customer called him to relay the news. Although the ruling is a serious blow, Carlson believes that small businesses like his still have future recourse.

Perhaps — as Philip Bump, who covers the Supreme Court for The Atlantic Wire, surmised — Congress could step in and pass a measure to clarify that antitrust regulations ought to prevent a large, powerful company like American Express from avoiding even the possibility of class action arbitration. As Bump noted, however, “Whether or not the current Congress takes such concerns to heart is another question entirely.”

Mostly, Carlson is hoping that the public backlash against the Supreme Court decision will force American Express to change its policies. But, given the relative paucity of media coverage of the ruling thus far, how realistic that expectation is remains to be seen.

For what it’s worth: Italian Colors still accepts American Express credit cards, and Carlson said that, despite this disappointing ruling, the restaurant has no immediate plans to stop doing so.

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