In Re American Express Merchants’ Litigation, No. 06-1871 (2d Cir. Feb. 1, 2012)

| Feb 1, 2012 | Class Actions |

In this long-lived appeal, involving an antitrust tying claim against the American Express Company, the Second Circuit reaffirms its prior holding that an arbitration clause preventing class-action litigation of a medium-dollar claim may be unenforceable if its practical effect is to prevent the plaintiffs from vindicating their statutory rights.

In Re American Express Merchants’ Litigation, No. 06-1871 (2d Cir. Feb. 1, 2012): This appeal, first argued on December 10, 2007, and already once vacated and remanded by the U.S. Supreme Court, is rooted in an arbitration agreement between AmEx and merchants who accept AmEx charge cards. The merchants challenged what they considered to be excessively high “merchant discount fees,” charged as a percentage of each purchase made with an AmEx card. These fees, they claim, “are at least 35% higher than competitive rates” applicable to such widely-used credit cards as Visa, MasterCard, and Discover.

The merchants’ contracts with AmEx required that all disputes be arbitrated, and forbid class actions. The representative plaintiffs opposed enforcement of the arbitration clause on the ground that the class-action waiver would prevent the merchants from vindicating their rights under the federal Sherman Act. The merchants’ claims were worth possibly $12,850, or $38,549, while the cost of mounting an antitrust case could wind up costing – according to their expert economist – in “just for the expert economic study and services, . . . at least several hundred thousand dollars, and might exceed $1 million.”

A previous decision of the Second Circuit held that, in view of the low-return to high-cost in this case, the merchants could not effectively vindicate their antitrust rights in the arbitral forum, and the arbitration agreement was Therefore unenforceable. In re Am. Express Merchs. Litig., 554 F.3d 300 (2d Cir. 2009) (AmEx I). This decision was subsequently vacated and remanded by the U.S. Supreme Court, without opinion, for reconsideration based on Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010). Stolt-Nielsen held that an arbitration agreement silent about the availablity of class-action procedures could not be presumed – as a matter of public policy – to permit class arbitration.

On remand, the Second Circuit reaffirmed its prior decision. In re Am. Express Merchs. Litig., 634 F.3d 187 (2d Cir. 2011) (Amex II). It then placed a hold on the mandate to allow the parties to address yet another recent, intervening Supreme Court decision, AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011). Concepcion held that a California state-law contract defense of unconscionability, which had the effect of making most class-action waivers in arbitration agreements unenforceable, was preempted by the Federal Arbitration Act.

In its third opinion, the Second Circuit once again affirms its original holding. The panel notes that neither of the intervening Supreme Court case law overruled the principle, established in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 632 (1985), that an arbitration agreement was enforceable only “so long as the prospective litigant may effectively vindicate its statutory cause of action in the arbitral forum” (emphasis added). 

The panel holds that the more recent Supreme Court decisions do not broadly stand for the proposition that class arbitrations may always be waived:

“It is tempting to give both Concepcion and StoltNielsen such a facile reading, and find that the cases render class action arbitration waivers per se enforceable. But a careful reading of the cases demonstrates that neither one addresses the issue presented here: whether a class-action arbitration waiver clause is enforceable even if the plaintiffs are able to demonstrate that the practical effect of enforcement would be to preclude their ability to vindicate their federal statutory rights.”

In support of its decision, the panel cited a case in which Outten & Golden and co-counsel Lieff Cabraser Heimann & Bernstein, LLP are presently making a similar argument under Title VII, Chen-Oster v. Goldman, Sachs & Co., No. 10 CIV 6950, 2011 WL 2671813, at *2-5 (S.D.N.Y. July 7, 2011) (declining to apply Concepcion where the question before the court involved the plaintiff’s ability to vindicate a federal statutory right).

The panel also addresses the impact of the recently-decided compucredit Corp. v. Greenwood, No. 10-948, – S.Ct. -, 2012 WL 43517 (Jan. 10, 2012), involving the Credit Repair Organizations Act, and holds that this case likewise does not overrule Mitsubishi. “Plaintiffs here do not allege that the Sherman Act expressly precludes arbitration or that it expressly provides a right to bring collective or class actions, but instead argue that enforcement of the class arbitration waiver would effectively deprive them of their ability to vindicate their statutory rights.”

The panel notes, as in its prior decisions, the impracticability of individual Sherman Act antitrust cases, noting the high expense and citing the plurality opinion in Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 90 (2000), in which the Supreme Court acknowledged in dicta “that the existence of large arbitration costs could preclude a litigant . . . from effectively vindicating her federal statutory rights in the arbitral forum.” As the Second Circuit observes, “neither Stolt-Nielsen nor Concepcion overrules Mitsubishi, and neither makes mention of Green Tree.”

Finally, to remedy the unenforceable arbitration clause, the panel holds:

“Which leads to the issue of how to proceed from here. As detailed above, we are persuaded by the record before us that if plaintiffs cannot pursue their allegations of antitrust law violations as a class, it is financially impossible for the plaintiffs to seek to vindicate their federal statutory rights. Since the plaintiffs cannot pursue these claims as class arbitration, either they can pursue them as judicial class action or not at all. If they are not permitted to proceed in a judicial class action, then, they will have been effectively deprived of the protection of the federal antitrust-law. The defendant will thus have immunized itself against all such antitrust liability by the expedient of including in its contracts of adhesion an arbitration clause that does not permit class arbitration, irrespective of whether or not the provision explicitly prohibits class arbitration.

“Therefore, in light of the fact that the arbitration provision at issue here does not allow for class arbitration, under Stolt-Nielsen and by its terms, if the provision were enforced it would strip the plaintiffs of rights accorded them by statute. We conclude that this arbitration clause is unenforceable. We remand to the district court with the instruction to deny the defendant’s motion to compel arbitration.”

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