Score One For The Little Guys

I realize that trying to convince Republicans that class action lawyers are sticking up for the little guy is a bit like trying to convince Democrats to court the NRA (notwithstanding Senator Gillibrand), but as a lifelong vaguely Scoop Jackson-y registered Democrat, I’ve often found Republicans too reflexive in their blanket support for tort reform. The GOP is often portrayed as a tool of multinational conglomerates, i.e. “Big Business”, but notwithstanding the Left’s mantras about Dick Cheney and Halliburton or price gouging oil companies, President Obama showed demonstrable talent during the campaign at raising significantly more money from the financial services industry and much of corporate America than Senator McCain did. Those committed to changing public perceptions of the GOP should devote some thought to the damage created when Republicans are seen as reflexive defenders of Big Business. Instead, going forward, Republicans (and, to be fair, no small number of Democrats) should explore meaningful ways to defend and protect small businesses and consumers.

A recent decision by the Second Circuit Court of Appeals, In re American Express Merchants’ Litig., is a useful example of where “Sam’s Club” Republicans should sensibly part ways from the Chamber of Commerce. The American Express case was filed by small business merchants aggravated by AmEx’s policies concerning the fees it charged them for accepting AmEx cards. For many years, AmEx was best known for its “charge card” products, in which the card balance is paid off in its entirety monthly. Beginning in 1999 AmEx decided to expand its presence into the credit and debit card market to compete more aggressively with VISA and Mastercard. As AmEx gained market share against other credit cards, it allegedly compelled merchants who accepted the old “charge cards” to pay the same high fees for all AmEx cards. This is what federal antitrust law refers to as an illegal “tying arrangement” because merchants refusing to pay AmEx’s fees risked losing their ability to accept charge cards, and, by extension, a significant portion of sales made to wealthier AmEx charge card consumers.

The Second Circuit didn’t actually rule that AmEx violated any antitrust laws, but it did find AmEx’s arbitration clause requiring merchants to waive their right to pursue class-action remedies had to be stricken because, as a practical matter, its enforcement would render AmEx immune from liability under the antitrust laws. Essentially, the Circuit concluded that the merchants had demonstrated that the costs of fighting the alleged “tying arrangement” through arbitration were so cost-prohibitive that no individual small business could realistically challenge AmEx’s conduct. For example, each small business might have annual damages of less than $1,000.00, but could easily incur costs of nearly $1 million dollars to prove their claims.

The Circuit also recognized that private antitrust lawsuits, particularly class actions, serve as an important compliment to the “limited resources available to the Department of Justice for enforcing the antitrust laws and deterring violations.” The court did not say AmEx violated the antitrust laws; it did not strike arbitration clauses per se, and it did not even conclude that class-action waiver clauses should be voided uniformly. It recognized that each case, each arbitration clause, and each class-action waiver, and the “real world” impacts its enforcement may yield, must be analyzed on its own particular facts.

The same can be said for tort reform as a whole. There is no denying that there are litigation abuses – including abuses of the class action process. But at the same time, the S&P 500 can and do, for the most part, take care of themselves. They can afford to hire the most expensive lawyers and lobbyists and donate generously, in a variety of ways, to both political parties (campaign finance reform notwithstanding). That doesn’t mean Republicans need to embrace the Lily Ledbetter Fair Pay Restoration Act, but it does suggest that the GOP needs to be careful not to reflexively attack the “trial lawyers,” greet every class action as a gratuitous attack on the economy, or constantly press for legal claims to get shunted to the world of “alternate dispute resolution.” Instead, like the Second Circuit in In re American Express, Republicans need to judge each legal issue on its own procedural and substantive merits, and make sure they’re on the right side of small businesses and consumers.