Monday, March 14, 2011

Class Action Waiver in AmEx Agreements Held Invalid

This posting was written by Jeffrey May,Editor of CCH Trade Regulation Reporter.

The U.S. Court of Appeals in New York City has once again held that a class action waiver provision contained in commercial contracts between merchants and charge card issuer/servicer American Express Co. was unenforceable.

In light of its 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. (2010-1 Trade Cases ¶76,982), the U.S. Supreme Court vacated the Second Circuit’s earlier decision (2009-1 Trade Cases ¶76,478), rejecting the class action waiver provision.

The Supreme Court held in Stolt-Nielsen that, under the Federal Arbitration Act, the agreement of the parties was the basis for determining whether to subject claims to class action.

The appellate court decided that the waiver was void because it precluded the complaining merchants from enforcing their statutory rights under the antitrust laws.

The record demonstrated that the size of any potential recovery by an individual plaintiff would be too small to justify the expense of bringing an individual action.

The court noted that there was no rule that class action waivers in arbitration agreements were per se unenforceable or per se unenforceable in the context of antitrust actions.

The enforceability of a class action waiver in an arbitration agreement had to be considered on its own merits, in the court’s view.

The March 9 decision is In re American Express Merchants’ Litigation, 2011-1 Trade Cases ¶77,366.

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