Class Action Arbitration Jurisprudence Marches On: In Re American Express Merchants’ Litigation

Contract Law Basics and Tips

The Second Circuit struck down an arbitration provision in an American Express Card Acceptance Agreement, which contained a class action waiver, for the third time Wednesday. I found the case yesterday via a post on Howard Ullman’s My Distribution Law blog.

Probably no case has been more affected by the Supreme Court’s recent arbitration decisions, as the case was sent back down to the appeals court after the Supreme Court’s April 2010 decision in Stolt-Nielsen v. AnimalFeeds and it was revisited again after the Supreme Court’s April 2011 decision in AT&T Mobility v. Concepcion.

At issue in In Re American Express Merchants’ Litigation was an arbitration provision in the standard form Card Acceptance Agreement between American Express and small merchants. In a putative class action the merchants alleged that American Express violated federal antitrust laws by using its market power in the charge card industry to force merchants to pay higher fees for its credit card products. American Express attempted to have the case dismissed on the basis that the merchants had agreed to submit disputes to binding arbitration under a provision contained in the Card Acceptance Agreement.

Amex I and II

The Second Circuit initially held that the arbitration provision was unenforceable “because enforcement of the clause would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.”

On remand, the Second Circuit found its original analysis unaffected by Stolt-Nielsen, which held that class action arbitration was not available under a binding arbitration agreement that is silent as to class actions. The appeals court again held that the arbitration clause in the Card Acceptance Agreement was unenforceable because the “record evidence before us establishes, as a matter of law, that the cost of plaintiffs individually arbitrating their dispute with Amex would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws.”

Arbitration Ruled Unenforceable a Third Time

While a writ of certiorari was pending, the Supreme Court issued its opinion in Concepcion, which upheld an arbitration clause in a consumer contract that contained a class action waiver, and the Second Circuit again revisited the arbitration provision in the American Express Card Acceptance Agreement in light of the new decision.

The Second Circuit distinguished Concepcion and once again found that the arbitration clause was unenforceable because the practical effect of enforcement would be to preclude the plaintiffs’ ability to vindicate their federal statutory rights.

Class Arbitration Waivers

Commentators have expressed concern that the Supreme Court’s decisions in Stolt-Nielsen and, especially, Concepcion would seriously harm consumers because they would no longer have access to class actions. In my post AT&T Mobility v. Concepcion: Is Class Arbitration Dead?, I noted that the arbitration provision in Concepcion struck me as unusually good for AT&T Mobility’s customers and that if the cost to companies of avoiding class arbitration was providing real relief to consumers, that might not be a bad result. While Concepcion makes it possible for companies to opt out of class actions, it doesn’t necessarily leave consumers out in the cold, because companies arguably can only opt out of being exposed to class actions if they provide real relief to their customers who have claims against them.

I look forward to hearing what arbitration experts have to say about the Second Circuit’s decision, which distinguishes Concepcion and will serve to narrow it, unless of course the Supreme Court revisits the case and reverses the decision.

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