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Amex, The Threequel: Second Circuit Keeps Alive Notion That Prohibitive Expense Is Basis To Invalidate Arbitration Agreements

In the latest serve in a four-year ping-pong match between it and the Supreme Court, the Second Circuit has re-re-affirmed its holding that American Express may not compel arbitration of antitrust claims by a class of national merchants.  In Re Am. Express Merchants’ Litig., ___ F.3d ___, 2012 WL 284518 (2d Cir. Feb. 1, 2012).  The Second Circuit was persuaded by the expert affidavit of an economist who concluded that it “would not be worthwhile for an individual plaintiff” to pursue individual claims for the antitrust violations at issue (because the maximum damages was around $40,000, while the expert costs alone could exceed $1 million).  Therefore, the Second Circuit found the arbitration agreement unenforceable.

The plaintiffs alleged violations of the Sherman and Clayton Acts, arguing that the Card Acceptance Agreement that American Express (Amex) forced on merchants was an illegal “tying arrangement.”  Amex moved to compel individual arbitration of the claims, based on the Agreement’s arbitration clause, which says all claims shall be resolved by binding arbitration and states that “there shall be no right or authority for any Claims to be arbitrated on a class action basis.” 

In Amex I, the Second Circuit held “the class action waiver in the Card Acceptance Agreement cannot be enforced in this case because to do so would grant Amex de facto immunity from antitrust liability by removing the plaintiffs’ only reasonably feasible means of recovery.”  The plaintiffs, with the help of a good expert, had convinced the court that the costs of individual arbitration would be prohibitive and would preclude any rational merchant from pursuing the antitrust claims.  Amex, on the other hand, had “brought no serious challenge” to the figures cited by the expert.  The Supreme Court vacated Amex I, and remanded for consideration of its 2010 Stolt-Nielsen decision, a decision which held that class arbitrations may not be compelled unless the arbitration agreement explicitly allows it.

In Amex II, the Second Circuit stuck to its guns, finding Stolt-Nielsen did not mandate any change in the case outcome.  Shortly after Amex II was decided, the AT&T Mobility v. Concepcion case was decided, and the parties were allowed to brief the impact of Concepcion on the Amex II decision.  In the latest opinion, Amex III, the Second Circuit again affirmed its original holding.

Amex III portrayed the issue in Stolt-Nielsen as entirely distinct from the relevant issue in Amex.  It said Stolt-Nielsen only decided whether arbitrators (or courts) could force a class arbitration in the absence of an explicit contractual agreement.  However, no party in Amex was suggesting the Second Circuit should order class arbitration.  Instead, the issue in Amex was whether the preclusion of classwide arbitration, and its practical effect in the antitrust context, made the arbitration agreement unenforceable under either federal law or New York contract law. 

Amex III rested its holding on “the federal substantive law of arbitrability” and in particular two Supreme Court cases: Green Tree Financial Corp., 531 U.S. 79 (2000), and Mitsubishi Motors, 473 U.S. 614 (1985).  Those cases suggest that if a party proves an arbitration would be prohibitively expensive, it can invalidate an arbitration agreement.  Amex III states: “Since there is no indication in Stolt-Nielsen or Concepcion that the Supreme Court intended to overturn either Green Tree or Mitsubishi, both cases retain their binding authority.” 

Unless the Supreme Court decides to review this case (again), it gives renewed hope to litigants whose arbitration agreements preclude class arbitration (especially those trying to enforce federal statutes).  If those litigants present solid research and statistics showing that no rational actor would pursue the claims on an individual basis, Amex III stands for the proposition that their arbitration agreements are unenforceable and they should be able to proceed in court.

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