Effective Vindication of Rights | Alexandra Lahav | January 17, 2014


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Effective Vindication of Rights


TO: Alexandra Lahav

FROM: Meg Houlihan, Research Assistant

DATE: November 15, 2013

RE: The Vindication of Rights Doctrine



            The United States Supreme Court decided American Express v. Italian Colors Restaurant early this year. 133 S. Ct. 2304 (2013). In the decision, the Court severely limited the vindication of rights doctrine, which allows courts to invalidate arbitration agreements that prevent parties from effectively vindicating their statutory rights. How did this doctrine develop and how did it come to be rejected by the Court? Is there any other area of law—outside the interpretation and enforcement of arbitration agreements—in which courts construe statutes to allow people to affect their rights?


            The United States Supreme Court articulated the vindication of rights doctrine in two important cases: Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), and Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79 (2000). However, the Court rejected the core values of these cases—that arbitration agreements should not be enforced if they prevent litigants from affecting their statutory rights or impose prohibitive costs—in Italian Colors.

            The vindication of rights doctrine does not seem to exist in areas of law outside arbitration. However, the Supreme Court does protect the vindication of constitutional rights. Additionally, the Court experimented with implied rights of private action, a concept that resembles the doctrine of vindication of rights, but has largely disavowed this experiment as well.


A. Development Of The Doctrine In Arbitration Cases

1. Before Italian Colors

            The United States Supreme Court first recognized the vindication of rights doctrine in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985). In this case, the Court held that antitrust claims could be subject to arbitration. However, the court stated that an arbitration agreement is only enforceable “so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum.” Id. at 637. The Court also noted that if an arbitration clause operated “as a prospective waiver of a party’s right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy.” Id. at 637, n.19. While recognizing the legitimacy of arbitration agreements in the antitrust context, the Court nonetheless carved out protections for prospective litigants’ seeking to vindicate statutory rights.

            The Court expanded the vindication of rights doctrine in Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79 (2000). While upholding the particular arbitration agreement at issue, the Court concluded that litigants cannot be subjected to arbitration where they would incur prohibitive costs. “It may well be that the existence of large arbitration costs could preclude a litigant such as Randolph from effectively vindicating her federal statutory rights in the arbitral forum,” the Court stated. Id. at 90. In such as case, the party seeking to invalidate the agreement because “arbitration would be prohibitively expensive” would “bear[] the burden of showing the likelihood of incurring such costs.” Id. at 92. Together, Mitsubishi and Green Tree created a test for arbitration agreements: such agreements are enforceable as long as a plaintiff may still effectively vindicate his or her statutory rights without incurring prohibitive costs.

2. The Italian Colors Decision

            The Italian Colors case rejected the core values of the vindication of rights doctrine. The case arose out of American Express’s credit card policy for small merchants. In order for a business to accept American Express personal and corporate credit cards, the business must also accept American Express’s general-purpose credit card. The general-purpose credit card usually generates less profit for the merchant. See Rebecca Wolf, “To A Hammer Everything Looks Like A Nail”: The Supreme Court’s Misapplication of the Vindication of Rights Doctrine, 21 Am. U. J. Gender Soc. Pol’y & L. 951, 953 (2013). Merchants must pay the same fee for all the cards, a fee that is about thirty percent higher than what American Express’s competitors charge. Am. Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2308 (2013). This policy of conditioning acceptance of one credit card on acceptance of other cards is known as a “tying arrangement” and may violate §1 of the Sherman Act. Id.

            Italian Colors Restaurant, a California merchant that contracted with American Express, filed a suit and attempted to get class certification for a group of similarly-situated merchants. However, the contract Italian Colors signed with American Express contained an arbitration clause that prohibited class action. Accordingly, American Express moved to compel individual arbitration under the Federal Arbitration Act (FAA). Italian Colors responded with a showing that the expert analysis required to bring an antitrust claim would cost between several hundred thousand and one million dollars. This amount was far more than individual merchants could recover on a single claim. Id. Relying on the vindication of rights doctrine, the Second Circuit ultimately invalidated the arbitration agreement because “if the provision were enforced it would strip the plaintiffs of rights accorded them by statute.” In re Am. Exp. Merchants’ Litig., 667 F.3d 204, 219 (2d Cir. 2012), cert. granted, 133 S. Ct. 594 (2012). The Supreme Court reversed the decision.

            In its decision, the Supreme Court scaled back the vindication of rights doctrine. The Court recognized that such a doctrine exists and could, in the right circumstances, call for invalidating an arbitration agreement: “[the effective vindication exception] would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights. And it would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable.” Italian Colors, 133 S. Ct. at 2310-11. However, the Court also found that “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy. The class-action waiver merely limits arbitration to the two contracting parties.” Id. at 211. Under Italian Colors, courts cannot invalidate arbitration clauses simply because a party has a low-value claim and no economic incentive to individually affect a statutory right.

            The dissent vigorously disagreed with the majority’s opinion. According to the dissent, “What the FAA prefers to litigation is arbitration, not de facto immunity. The effective-vindication rule furthers the statute’s goals by ensuring that arbitration remains a real, not faux, method of dispute resolution.” Id. at 2315 (Kagan, J., dissenting). The vindication of rights doctrine should apply “whenever an agreement makes the vindication of federal claims impossibly expensive—whether by imposing fees or proscribing cost-sharing or adopting some other device.” Id. at 2318 (Kagan, J., dissenting). The dissent would have affirmed the Second Circuit’s interpretation of prior Supreme Court precedent and use of the vindication of rights doctrine to invalidate American Express’s arbitration clause.

            Because the Court rejected the Second Circuit and the dissent’s reasoning, the vindication of rights doctrine is essentially useless unless an arbitration clause expressly prevents a party from pursuing a statutory right. According to Myriam Gilles, “[T]he vindication of rights doctrine presents the last line of defense against a world where contractual bans on aggregate claiming are per se enforceable . . . .” Geo. Wash. Class Actions Conference, Gutting the Vindication-of-Rights Challenge to Arbitration Agreements, Mar. 7-8 (Feb. 4 draft) (manuscript at 1).[1] This last line of defense now seems to have vanished. Rebecca Wolf also fears that “[n]ow that the Court has rejected the vindication of rights doctrine, the class action mechanism may be largely unavailable in both state and federal courts.” Wolf, supra, at 993. In the future, litigants will likely be unable to persuade courts to invalidate arbitration agreements and allow class actions based on the prohibitive cost of individual arbitration.

B. The Vindication of Rights Doctrine Beyond Arbitration

            The vindication of rights doctrine seems limited to the arbitration context except for a very few exceptions. The Court construes the law to allow for the effective vindication of constitutional rights. In Davis v. Passman, the Court held that a cause of action and damages remedy can be implied directly under the Constitution when the Due Process Clause of the Fifth Amendment is violated. 442 U.S. 228 (1979). The Court thus allowed petitioner, who alleged gender discrimination, to bring her claim under federal-question jurisdiction where the judiciary was the only effective means to vindicate her rights. According to the Court:

[W]e presume that justiciable constitutional rights are to be enforced through the courts. And, unless such rights are to become merely precatory, the class of those litigants who allege that their own constitutional rights have been violated, and who at the same time have no effective means other than the judiciary to enforce these rights, must be able to invoke the existing jurisdiction of the courts for the protection of their justiciable constitutional rights.


Id. at 242. While the effective vindication of statutory rights does not seem to be guaranteed in all contexts, the Court has concluded that litigants must have effective avenues to vindicate their constitutional rights.

            The Court also once recognized the general power of federal courts to imply private rights of action for the vindication of statutory rights. In J.I. Case Co. v. Borak, the Court held that section 14(a) of the Securities Exchange Act of 1934 contained an implied private right of action. 377 U.S. 426 (1964). “[I]t is the duty of the courts to be alert to provide such remedies as are necessary to make effective the congressional purpose,” the Court emphasized. Id. at 433. Moreover:

The power to enforce implies the power to make effective the right of recovery afforded by the Act. And the power to make the right of recovery effective implies the power to utilize any of the procedures or actions normally available to the litigant according to the exigencies of the particular case.


Id. at 433-34 (quoting Deckert v. Independence Shares Corp., 311 U.S. 282, 288 (1940)). Borak represented the high-water mark for implied private rights of action.

            After Borak, the Court gradually scaled back implied rights of private action. In Cort v. Ash, the Court articulated a four-part test for finding a private right of action.[2] This test led to the denial of such rights under the Trade Secrets Act, the Indian Civil Rights Act, and the Williams Act. See Chrysler Corp. v. Brown, 441 U.S. 281 (1979); Santa Clara Pueblo v. Martinez, 436 U.S. 49 (1978); Piper v. Chris-Craft Indus., 430 U.S. 1 (1977). Then in Cannon v. University of Chicago, the Court moved toward an even stricter test under which courts analyzed statutory construction to identify whether Congress affirmatively intended a private right of action. 441 U.S. 677 (1979); see Tamar Frankel, Implied Rights of Action, 67 Va. L. Rev. 553, 560 (1981).

Finally, in Transamerica Mortgage Advisors, Inc. v. Lewis, the Court concluded, “The dispositive question remains whether Congress intended to create any such remedy. Having answered that question in the negative [for the Investment Advisors Act of 1940], our inquiry is at an end.” 444 U.S. 11, 24 (1979). The power of federal courts to find implicit rights of action was thus severely limited. According to Tamar Frankel, “[T]he Supreme Court has fashioned an extraordinarily restrictive doctrine of implication. The Court has retreated from the notion, central to Borak, that the federal judiciary has inherent power to create private remedies for statutory violations absent a contrary congressional intent.” Frankel, supra, at 562. The experiment with implied private rights of enforcement, similar to the doctrine of vindication of rights, also seems largely at an end.


            In the future, courts will not be able to use the vindication of rights doctrine to nullify arbitration agreements that impose high costs on litigants. Courts will not be able to nullify these agreements, or allow class actions, even if the costs are so high that litigants have no economic incentive to pursue their statutory rights individually. We have reached this point despite Green Tree’s promise of a more equal playing field in 2000.

            Outside the arbitration context, the vindication of rights doctrine essentially does not exist. Litigants are ensured avenues to vindicate their constitutional rights, but not their statutory rights. The concept of implied private rights of action is similar to the vindication of rights doctrine, but the Supreme Court has largely rejected this concept in the last few decades. If a litigant has statutory right, he or she may nonetheless be unable to vindicate that right when faced with the financial burdens of pursuing a claim. The legal superstructure does not make it easy for the average person to enforce the rights conferred by Congress.

[1] This is the only version of Gilles’s paper that I could find. There is a note on the manuscript that it should not be cited without permission. I cite it for the purposes of this informal memo, but this paper draft should not be cited for a formal, published work without contacting Myriam Gilles.

[2] 1) Does the plaintiff belong to the class for whose especial benefit the statute was enacted? 2) Is there any indication of legislative intent, express or implied, to create or deny a private right of action? 3) Is a private right of action consistent with the underlying purposes of the legislative scheme? 4) Is the cause of action one traditionally relegated to state law, so that a cause of action based solely on federal law would be inappropriate? 422 U.S. 66, 78 (1975).


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January 25, 2014

arbitration Class actions

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Alexandra Lahav


University of Connecticut

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