WASHINGTON, D.C. - (Mealey's) American Express Co. (AmEx)
told the U.S. Supreme Court on Feb. 27 in oral arguments that the Second
Circuit U.S. Court of Appeals erred in ruling that a mandatory class action
waiver clause in AmEx's standardized service contract violated the Federal
Arbitration Act (FAA) and erred in denying AmEx's motion to compel arbitration
of merchants' antitrust claims under the Sherman Act (American Express
Company, et al. v. Italian Colors Restaurant, et al., No. 12-133, U.S.
Sup.; See January 2013) (lexis.com subscribers may access Supreme Court briefs for this case).
Michael K. Kellogg of Kellogg, Huber, Hansen, Todd, Evans
& Figel in Washington,
arguing for AmEx, argued that the court below erred in ruling that class
procedures were necessary to vindicate the merchants' Sherman Act claims.
In response to Justice Ruth Bader Ginsburg's concern that
the expense to win an antitrust case such as this one is "enormous" and not
worth a single person's while, Kellogg said that "it is up to the arbitrator in
the first instance to devise procedures to deal with claims in an efficient and
cost-effective manner" and that multiple plaintiffs "could share costs of [an
expert] just as they could share the costs of a lawyer."
Kellogg said the Supreme Court in AT&T Mobility
LLC v. Concepcion (131 S.Ct. 1740 ) [an enhanced version of this opinion is available to lexis.com subscribers],
which held that the FAA preempted a California
law barring the enforcement of class action waivers in consumer contracts,
ruled that "you cannot condition the enforcement of an arbitration agreement on
the availability of class procedures." Kellogg noted that "[o]nly 20
percent of putative classes are certified."
Justice Elena Kagan commented that an arbitration clause
that "works to prevent us from sharing costs in such a way that we can produce
[economic] evidence" prevents effective vindication of the rights to bring an
antitrust suit and "frustrat[es] the effect of the Sherman Act."
Kellogg countered that "the only provision at issue here
was the class action waiver" and that, at the time the Sherman Act was passed,
Congress considered adding class procedures but declined to do so.
Chief Justice John G. Roberts Jr. and Justice Kagan asked
Kellogg whether the plaintiffs could pool their money for an antitrust expert
report and use them in the arbitrations and whether there would be collateral
estoppel effect. Kellogg commented that the confidentiality clause did
not prevent the plaintiffs from sharing the report from arbitration to
Paul D. Clement of Bancroft in Washington, representing the merchants, said
the Supreme Court has "used the effective vindication doctrine as an assurance
that Federal statutory claims would not go unvindicated just because of the
Clement said that the "combination of no class arbitration,
no way to shift costs and no way to share costs because of the confidentiality"
in this arbitration agreement precludes the claim from going forward.
Clement explained that the confidentiality agreement precludes sharing of
information about the sales volumes of the individual merchants and that such
information is necessary for a damage calculation in this case because the
merchants alleged that AmEx distorted the market "so we can't rely on the
Amicus curiae United States
sided with the merchants. Deputy Solicitor General Malcolm L. Stewart of
the U.S. Department of Justice in Washington argued that "if it is the case
that given the amount of money at stake, the arbitration procedure specified in
the contract and the modes of proof that would be necessary in arbitration, if
it can be shown persuasively by the plaintiff who bears the burden that no
reasonable plaintiff would find it economically feasible to proceed, then the
arbitration agreement can't be enforced."
Italian Colors Restaurant and other merchants sued AmEx,
alleging that AmEx's service contract contained an "honor all cards agreement"
whereby merchants were forced to pay supracompetitive fees on AmEx's
mass-marketed products or lose a significant portion of sales from businesses,
travelers and affluent customers who are traditional users of AmEx cards.
The agreement precluded merchants from accepting some AmEx cards and denying
others in violation of the Sherman Act, the merchants said.
The merchants further alleged that as a condition of
accepting AmEx's cards, they were required to sign a "card acceptance
agreement" that contained a mandatory arbitration clause and prohibited the
merchants from bringing a class action lawsuit in court and from having any
claim arbitrated on anything other than an individual basis. The
merchants contended that the agreement violated the FAA.
The U.S. District Court for the Southern District of New
York granted AmEx's motion to compel arbitration of the merchants' antitrust
claims and the question of whether the class action waivers were enforceable,
and the District Court dismissed their cases.
On Jan. 30, 2009, the Second Circuit reversed, finding
that the merchants had adequately demonstrated that the class action waiver
provision was not enforceable because enforcement of the waiver would
effectively preclude any action seeking to vindicate the statutory rights
asserted by the plaintiffs and "would grant AMEX de facto immunity from
antitrust liability." According to the appeals panel, the merchants
demonstrated that "the size of the recovery received by any individual
plaintiff will be too small to justify the expenditure of bringing an
The panel found that Section 2 of the FAA provides that an
agreement to arbitrate "shall be valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the revocation of any
contract." The panel held that because a valid ground exists for the
revocation of the class action waiver, it cannot be enforced under the FAA.
On May 3, 2010, the Supreme Court granted AmEx's petition
for a writ of certiorari, vacated the Second Circuit's decision and
remanded in light of Stolt-Nielsen S.A., et al. v. AnimalFeeds Int'l Corp
(130 S.Ct. 1758 ) [enhanced version]; See May 2010), in which the
Supreme Court, in a 5-3 decision on April 27, 2010, held that an arbitration
panel exceeded its authority under the FAA by construing an arbitration clause
to permit class arbitration of antitrust claims when the clause was silent on
The Supreme Court subsequently issued its decision in Concepcion.
On Feb. 1, the Second Circuit panel said that its
original analysis was unaffected by Concepcion.
The Second Circuit remanded to the District Court with the instruction to deny
AmEx's motion to compel arbitration, commenting that "each waiver must be
considered on its own merits, based on its own record, and governed with a
healthy regard for the fact that the FAA 'is a congressional declaration of a
liberal federal policy favoring arbitration agreements.'"
AmEx is also represented by Derek T. Ho of Kellogg Huber;
Louise M. Parent, Mark G. Califano and Bernadette Miragliotta of American
Express Travel Related Services Inc. in New York and Julia B. Strickland of
Stroock & Stroock & Lavan in Los Angeles.
The merchants are also represented by Michael H. McGinley
of Bancroft and Deepak Gupta, Brian Wolfman, Gregory A. Beck and Jonathan E.
Taylor of Gupta Beck. All are in Washington.
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