Circuit Court Advances Policy Based Rationale Contradicting Supreme Court On Class Action Arbitration
The named plaintiffs in these consolidated cases are retail businesses that entered into a written Card Acceptance Agreement with American Express. The gravamen of plaintiffs’ complaint is that American Express’s “Honor All Cards” policy, which requires merchants that wish to accept American Express cards to accept American Express’s charge cards as well as its credit cards, constitutes an unlawful tying arrangement under § 1 of the Sherman Act. The named plaintiffs seek to bring suit on behalf of “all merchants that have accepted American Express charge cards.” The Card Acceptance Agreement contains a provision requiring bilateral (or “individual”) arbitration, rather than class arbitration (sometimes referred to as a “class-arbitration waiver”).
At issue in this case is a provision, of a kind commonly used in arbitration agreements, that bars class actions and class arbitration. In In re American Express Merchants’ Litigation, 554 F.3d 300 (2d Cir. 2009) (Amex I), the Second Circuit panel held that such a bar ran afoul of the federal “substantive law of arbitration” because the litigation expense of proving an antitrust claim – specifically the cost of adducing expert testimony – would make it too expensive for claimants to pursue individual arbitrations. The panel held that a class action may proceed in court notwithstanding the agreement to arbitrate.
This Court vacated Amex I and remanded the case to the Second Circuit for reconsideration in light of Stolt-Nielsen S.A. v. AnimalFeeds Int’lCorp., 130 S. Ct. 1758 (2010) (“Stolt-Nielsen”).2 Am. Express Co. v. Italian Colors Rest., 130 S. Ct. 2401 (2010). On remand the two-judge panel reached the same conclusion as it had in Amex I. See In re Am. Express Merchs.’ Litig., 634 F.3d 187, 198 (2d Cir. 2011) (“Amex II”), relying on the same “expert evidence” proffered by the merchants as to the high cost of producing expert evidence to support their claims. Shortly after the Second Circuit issued its opinion in Amex II, but before the mandate issued, this Court decided AT&T Mobility LLC v. Concepcion, 563 U.S. ___, 131 S. Ct. 1740 (2011) (“Concepcion”), in which the Court held that state law may not be invoked to invalidate a class-action waiver in an arbitration agreement on the ground that the only economical way to litigate the claim is through a class action. Id. at 1748.
After supplemental briefing on the impact of Concepcion, the same Second Circuit two judge panel issued that court’s third opinion, In re Am. Express Merchs’ Litig., 667 F.3d 204 (2d Cir. 2012) (“Amex III”) In Amex III, the panel again concluded, relying on the same affidavit of a consultant for the merchants, that expert costs would be so high relative to potential recovery that the only effective way to litigate the antitrust claims was by a class action and that the class action waiver is unenforceable. Amex III, 667 F.3d at 218-219.4 En banc review was denied, with vigorous dissents, In re Am. Exp. Merchants’ Litigation, 681 F.3d 139 (2d Cir. 2012).
Free Enterprise, Individual Liberty
American Express v. Italian Colors Restaurant (Supreme Court) (petition stage)
Read the Amicus Brief:
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.
ALF’s Amicus Brief:
In an amicus brief ALF argues that the decision and judgment of the Court of Appeals for the Second Circuit should be reversed because the that court’s decision and reasoning are inconsistent with the Federal Arbitration Act, 9 U.S.C. §§ 1, et seq. and this Court’s precedents on enforceability of arbitration agreements. The Amex decisions are based on a concern that without the class-action vehicle claimants will not be able to “vindicate” their rights because of the “costs” of arbitration vis-a-vis the small size of potential individual recovery. This Court in Concepcion rejected this policy rationale and held that the argument that plaintiffs do not have sufficient incentive to pursue individual claims cannot undermine the FAA.
On June 20, 2013, the Supreme Court issued a favorable opinion holding that The FAA does not permit courts to invalidate a contractual waiv- er of class arbitration on the ground that the plaintiff’s cost of indi- vidually arbitrating a federal statutory claim exceeds the potential recovery.