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Class Action Waiver, Arbitration Agreements, And The American Express Litigation

By Sheppard Mullin Richter & Hampton LLP


On February 1, 2012, the Second Circuit Court of Appeals decided In re American Express Merchants' Litigation, No. 06-1871-cv, (2d Cir. Feb. 1, 2012) ("AMEX III") [an enhanced version of this opinion is available to subscribers], holding, for the third time, that a class action waiver in an arbitration agreement between American Express and plaintiff merchants was unenforceable because it would effectively preclude plaintiffs from vindicating their federal statutory rights under the Sherman and Clayton Acts. The Second Circuit's decision likely sets the stage for Supreme Court review, and a final decision on whether and under what circumstances class action waivers are enforceable in at least federal antitrust cases, and perhaps other types of federal statutory claims as well.

Plaintiffs are merchants alleging that American Express unlawfully forced merchants to accept American Express credit cards and debit cards as a condition of accepting American Express charge cards, at the same high rates associated with charge cards. American Express moved to compel arbitration based on arbitration agreements with the merchants. Those arbitration agreements included class action waivers. In 2006, the Southern District of New York granted American Express's motion to compel arbitration. Plaintiffs appealed.

In 2009, the Second Circuit reversed, holding that the class action waiver was unenforceable. Its decision was guided by Green Tree Financial Corp.-Alabama v. Randolph [enhanced version], which held that a party seeking to "invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive . . . bears the burden of showing the likelihood of incurring such costs." The Second Circuit in AMEX I held that plaintiffs satisfied this burden through expert economic opinion indicating that plaintiffs could not reasonably pursue individual antitrust claims against American Express, largely because of the cost of procuring expert economic testimony.

In 2011, after the Supreme Court decided Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp. [enhanced version], the Second Circuit reaffirmed its decision. It held that Stolt-Nielsen was inapposite and did not require a different result: "Stolt-Nielsen states that parties cannot be forced to engage in a class arbitration absent a contractual agreement to do so. It does not follow, as Amex urges, that a contractual clause barring class arbitration is per se unenforceable." [footnotes omitted]

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