With only a week left in the Term, the decisions are coming fast and furious. This Update will cover two of the three decisions released Thursday: American Express Co. v. Italian Colors Restaurant (12-133), reaffirming the enforceability of arbitration clauses containing a class and collective action waiver; and Descamps v. United States (11-9540), addressing when a “modified categorical” approach may be used to determine whether a prior conviction counts toward a sentencing enhancement under the Armed Career Criminal Act.

The Court continued its march of pro-arbitration decisions in American Express Co. v. Italian Colors Restaurant (12-133), where the Court held that an arbitration clause containing a class and collective action waiver was enforceable even if the costs of litigating an individual case were so disproportionate to the potential recovery as to be prohibitive.

Italian Colors Restaurant and other merchants brought a putative class action suit against American Express (“AmEx”) alleging that it used its monopoly power in the charge card market to force merchants to accept its credit cards notwithstanding that it charged 30% more than its competitors. The merchants argued that this tying arrangement was unlawful under § 1 of the Sherman Act. Relying on its contracts with the merchants, which required arbitration of disputes on an individual basis, AmEx moved to compel arbitration under the Federal Arbitration Act (“FAA”). The merchants resisted, arguing that the expert economic analysis required to support the merchants’ antitrust claims would cost hundreds of thousands of dollars while the maximum individual recovery for any single merchant was in the tens of thousands, making individual arbitration unfeasible.

The district court granted AmEx’s motion to compel, but the Second Circuit reversed, finding the class waiver unenforceable and ruling that the arbitration could not proceed. AmEx sought cert and the Court vacated and remanded for additional consideration in light of its decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. (2010), which held that a party may not be compelled to submit to class arbitration absent an agreement to do so. On remand, the Second Circuit stood firm, stating that its earlier decision did not compel class arbitration (it had, instead, eradicated the arbitration agreement entirely). On the heels of the Second Circuit’s second decision, the Court decided AT&T Mobility LLC v. Concepcion (2011), which held that the FAA pre-empted a state law barring enforcement of a class-arbitration waiver. The Second Circuit sua sponte reconsidered its decision, but reached the same conclusion for the third time, this time distinguishing AT&T Mobility on the ground that it dealt with state law, which was pre-empted to the extent it conflicted with the FAA, whereas AmEx dealt with substantive federal law. Rehearing en banc was denied over the dissent of five judges.

In a 5-3 decision – which almost certainly would have been 5-4 but for the fact that Justice Sotomayor, who participated in an earlier Second Circuit decision in the case, did not participate – the Court reversed. Justice Scalia delivered the majority opinion, which was brief. The FAA requires that arbitration clauses be enforced by their terms “save upon grounds as exist at law or in equity for the revocation of any contract.” The FAA thus makes arbitration a creature of contract and requires that courts enforce these contracts according to their terms. Here, the parties agreed to arbitrate their claims individually. There is nothing in the antitrust laws that evinces an intent to preclude a waiver of class action procedures. Indeed, the antitrust laws existed before the class action procedural device even existed. Nor did Congress’s approval of Rule 23 establish an entitlement to class proceedings. Had it attempted to do so, with the effect of invaliding private arbitration agreements, it likely would have been invalid under the Rules Enabling Act, which prohibits the rules from modifying substantive rights. The Court then addressed what it considered to be “dictum” from prior cases that had been read to support an “effective vindication” exception to the FAA. That is, if the arbitration agreement makes it impossible for a person to obtain effective vindication of federal rights, it must fall. The Court did not reject the exception in its entirety, recognizing that an arbitration agreement that contained a prospective waiver of a right to pursue a statutory claim or remedy, or an agreement that made the filing and administrative fees so high as to make access to arbitration impracticable, may be invalid. “But 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.” Limiting arbitration to two contracting parties merely changes the procedures involved; it does not eliminate the availability of any substantive right. The majority concluded by explaining the practical perils of any other route, which would eliminate the efficiency of arbitration by requiring a lengthy judicial analysis of each putative class action case to determine if plaintiffs could “effectively vindicate” their rights without access to the class action device.

Justice Thomas wrote a separate concurrence to express his view that one need only review the text of the FAA to decide this case. An agreement to arbitrate must be enforced absent a successful challenge to the formation of the agreement – such as fraud or duress.

Justice Kagan penned a fiery dissent, joined by Justices Ginsburg and Breyer. In her view, the majority misinterpreted the issue. The question was not whether the class action waiver standing alone made it impossible for the merchants to vindicate their federal legal rights. Instead, the entirety of the agreement had to be considered. The agreement barred not just class actions, but also any collective action (i.e., prohibiting the consolidation of various individual actions) and contained confidentiality requirements that barred the plaintiffs from sharing the cost of an expert report. The totality of these provisions effectively worked not just to eliminate the possibility of class litigation but to deprive the merchants of any economically viable way of pursuing their legal rights. The effective vindication rule is not “dictum,” but has been relied on repeatedly by the Court. And it makes no sense to limit this exception to situations of bald exculpatory clauses or filing fees. A defendant could devise numerous creative ways to obtain the same result – one of them present here. Further, in the dissent’s view, AT&T Mobility does not control this case for two reasons. First, the Court made clear that the arbitration clause in AT&T Mobility did permit effective vindication since it contained cost-shifting and minimum recovery provisions. Second, that case dealt with a state law prohibition against class waivers. State law is pre-empted by the FAA. In contrast, “[i]n the all federal context, one law does not automatically bow to the other, and the effective vindication rule serves as a way to reconcile tension between them.” In sum, the majority missed the boat by viewing this case as one about the validity of class action waivers instead of looking at the arbitration clause in its totality – which provides no financially feasible means of vindicating federal antitrust claims in light of its confidentiality restrictions, ban on cost-shifting, and prohibition of collective and class actions. “The Court today mistakes what this case is about. To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled.”

Next, Descamps v. United States (11-9540) represents the Court’s latest attempt to clarify what sentencing courts may consider in determining whether a prior conviction counts toward a sentencing enhancement under the Armed Career Criminal Act (“ACCA”). ACCA prescribes enhanced sentences for certain federal defendants who have three prior convictions for a “violent felony,” including, as relevant here, “burglary, arson, or extortion.” Petitioner Michael Descamps was convicted of being a felon in possession of a firearm, a federal offense subject to ACCA. At sentencing, Descamps argued that one of his three prior convictions, for burglary under California law, should not count toward ACCA because the state statute defined “burglary” more broadly than the generic definition of burglary.

Here, we must take a modest detour through the Court’s ACCA predicate caselaw. In Taylor v. United States (1990), the Court adopted a “formal categorical approach” for determining whether a defendant’s prior conviction counts as an ACCA predicate offense. Under the formal categorical approach, a sentencing court may only look to the statutory elements of the crime, and not to the particular facts underlying a conviction. If the state statute defines the crime in the same way or more narrowly than the “generic” ACCA crime, then the prior conviction can serve as an ACCA predicate. But if the state statute defines the crime more broadly than the generic ACCA crime – in other words, if the state statute criminalizes conduct beyond what has traditionally been considered burglary, arson, or other enumerated ACCA felony – then the conviction may not serve as an ACCA predicate, even if the defendant’s actual conduct falls within the generic definition of the crime. At the same time, Taylor recognized that a “modified categorical approach” might be necessary in a “narrow range of cases” where the state statute provides alternative elements, some of which fall within the generic definition of the crime, others of which do not. In these cases, the Court posited, sentencing courts may look to a limited class of documents, such as indictments or jury instructions, to determine whether the defendant was convicted of a version of the crime that fell within the generic definition. In Shepard v. United States (2005), the Court applied the “modified categorical approach” to a guilty plea, permitting sentencing courts to look at plea agreements and colloquies.

Back in Descamps’ case, Decamps argued that the California statute defined “burglary” more broadly than the generic definition because it did not require proof of unlawful entry as most burglary laws do. But instead of applying the formal categorical approach, the District Court applied the modified categorical approach and proceeded to examine the plea colloquy. The District Court found that Descamps had not objected when the prosecutor proffered that his crime involved unlawful entry into a grocery store. Thus, the District Court held, Descamps actually pled guilty to conduct that fell within the generic definition of burglary, and was subject to ACCA’s sentencing enhancement. The Ninth Circuit affirmed, holding that a sentencing court may apply the modified categorical approach whenever it considers a conviction under a statute that is broader than the generic offense.

The Court reversed, 7-1-1. Justice Kagan wrote for the majority, joined by the Chief and Justices Scalia, Kennedy, Ginsburg, Breyer, and Sotomayor. Under the Court’s precedents, the modified categorical approach may only be used as a tool to implement the categorical approach in cases involving state statutes listing alternative elements – so-called “divisible” statutes. The modified categorical approach therefore had “no role to play” in Descamps’ case,” because the California burglary statute did not include a list of alternative elements. It simply defined burglary more broadly than generic burglary. The Ninth Circuit’s approach would undo all the benefits of the categorical approach. Among other things, it would require sentencing courts to determine facts beyond identifying the fact of a prior conviction, implicating Sixth Amendment concerns. It would also create “‘daunting’ difficulties” for sentencing courts in deciphering old records, and “inequities” for defendants who most likely were not aware that they needed to preserve a good record in case they committed a future federal offense subject to ACCA.

Justice Kennedy wrote a separate concurrence. While he agreed with the Court’s analysis, he was concerned that the Court’s decision would require state legislatures to amend their “indivisible” statutes in order to come within ACCA’s terms, something he felt was an “intrusive demand on the States.” Justice Kennedy called on Congress instead to “determine whether ACCA’s design and structure should be modified” so that the federal policy underlying ACCA may be pursued in a “proper and efficient way without mandating uniformity among the States with respect to their criminal statutes for scores of serious offenses.”

Justice Thomas concurred in the judgment. Building on his opinion this past Monday in Alleyne v. United States, vigorously reaffirming Apprendi v. New Jersey (2000), Justice Thomas would find that ACCA always runs afoul of Apprendi and the Sixth Amendment because it allows a sentencing judge to find facts that increase a defendant’s punishment. In Thomas’ view, there was no need to struggle with the contours of the modified categorical approach and whether statutes were “divisible” or “indivisible” – it was all unconstitutional. But he concurred in the judgment because the majority’s decision “at least limits the situations in which courts make factual determinations about prior convictions.”

Justice Alito was the lone dissenter. He would give ACCA a “more practical reading,” as follows: “When it is clear that a defendant necessarily admitted or the jury necessarily found that the defendant committed the elements of generic burglary, the conviction should qualify.” Alito criticized the majority’s exclusive focus on the elements of an offense. While ACCA refers to “convictions,” when it is said in ordinary speech that a person was convicted of doing something, that “something” may include facts that go beyond the bare elements of the statute. Alito added that determining whether a statute is “divisible” or “indivisible” will often be harder than the Court acknowledged, requiring reference to state court decisions and jury instructions, which may be unavailable, unclear, or conflicting. Fundamentally, in Alito’s view, the Court’s position frustrates Congress’s goals of ensuring that violent, dangerous recidivists are subject to enhanced penalties, regardless of state-law variations, by “artificially limiting ACCA’s reach and treating similar convictions differently based solely on the vagaries of state law.”

That’s all for now, but we’ll be back next week with the remaining decision from Thursday, along with the ones that are sure to come on Monday!