High Court to Consider Enforceability of Arbitration Clause’s Class Action Waiver in Antitrust Case

This posting was written by William Zale.

In a case involving merchants’ class antitrust claims against American Express, the U.S. Supreme Court has agreed to decide whether the Federal Arbitration Act permits courts, invoking the “federal substantive law of arbitrability,” to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim. The Court granted the petition for certiorari in American Express Co. v. Italian Colors Restaurant, Dkt. 12-133, on November 9, 2012.

At issue is a decision of the U.S. Court of Appeals in New York holding unenforceable a class action waiver contained in the mandatory arbitration clause of their commercial contracts with American Express, In re American Express Merchants’ Litigation, 667 F.3d 204 (2nd Cir. 2012).

 If the plaintiffs could not pursue their allegations of antitrust law violations as a class, it would be financially impossible for them to seek to vindicate their federal statutory rights, according to the appeals court. American Express thus would 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, the court observed.

The petition for certiorari appears here.

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.

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.