Decision Invalidating Class Action Waiver in AmEx Agreements Will Not Be Reviewed

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

The full U.S. Court of Appeals in New York City will not review a panel’s decision holding that a class action waiver provision contained in commercial contracts between merchants and charge card issuer/servicer American Express Company was unenforceable. A request from American Express for an en banc rehearing of the decision denying enforcement of the class action waiver provision (2011-1 Trade Cases ¶77,366) was denied.

In March 2011, the panel decided that the class action 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.

It was the second time that the court had considered the issue. An earlier decision (2009-1 Trade Cases ¶76,478), also rejecting the class action waiver provision, was vacated (2010-1 Trade Cases ¶76,994) in light of the U.S. Supreme Court’s 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 2010-1 Trade Cases ¶76,982. In Stolt-Nielsen, the Supreme Court held that under the Federal Arbitration Act (FAA) the agreement of the parties was the basis for determining whether to subject claims to class arbitration.

Shortly, after the panel’s March 2011 decision was published, the Supreme Court decided AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740. In that decision, the High Court held that state law may not be used to invalidate a class action waiver in an arbitration agreement on the ground that the only economical way to litigate the claim was through a class action.

Dissent

A strong dissent from the denial of rehearing en banc was written by Chief Judge Dennis Jacobs. The dissent contended that the holding could not be squared with the FAA, employed a dubious ground of distinction to overcome the U.S. Supreme Court’s 2011 holding in Concepcion, and precariously relied on dicta that large “arbitration costs” cannot be allowed to prevent a plaintiff from “effectively vindicating” a statutory right.

A separate dissent suggested that “[t]his is one of those unusual cases where one can infer that the denial of in banc review can only be explained as a signal that the matter can and should be resolved by the Supreme Court.”

The May 29 decision is In re: American Express Merchants’ Litigation, 2012-1 Trade Cases ¶77,910.