Second Circuit Thrice Holds that Class Action Waivers Are Unenforceable

Third time’s the charm, right?  The Second Circuit has struck down, for the third time, a class action waiver in an arbitration agreement between American Express and  merchants.  In re American Express Merchants’ Litigation.  This long-running case–which has already gone up to the Supremes before–is rooted in an arbitration agreement between AmEx and merchants who accept AmEx cards.

The merchants allege that AmEx violated federal antitrust laws by using its market power to force merchants to pay higher fees for acceptance of its cards.  AmEx moved to compel arbitration based on the arbitration provisions in its contracts.  The district court granted AmEx’s motion to compel arbitration, and the merchants appealed.

The issue this time was whether a mandatory class action waiver is enforceable even if the practical effect of enforcement would be to preclude plaintiffs’ ability to bring federal antitrust claims.  But wait:  Didn’t the Supreme Court already resolve this in AT&T Mobility LLC v. Concepcion?  The Second Circuit didn’t think so, finding Concepcion inapposite because it did not address whether a class action waiver could be enforced if the practical effect of the enforcement would be to preclude plaintiff’s ability to vindicate their federal statutory rights.  OK, what about Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., which held that parties could not be compelled to submit to class arbitration unless they agreed to it?  Sorry.  No dice.

Instead, the Second Circuit looked to older Supreme Court precedent for support, namely Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., which held that arbitration can be an effective vehicle for vindicating statutory rights, but only so long as the prospective litigant may effectively vindicate its statutory cause of action; and Green Tree Financial Corp.-Alabama v. Randolph, 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.

Because Mitsubishi and Green Tree were not impacted by Stolt-Nielson or Concepcion, the court held that the waiver was unenforceable because the merchants would have no economic incentive to pursue individual arbitration.  In particular, the court found that the cost of hiring an antitrust expert would outweigh the expected individual damages.

The court cautioned that it did not hold that class action waivers were per se unenforceable.  Instead, it narrowly limited its holding to the specific class action before it, and held that class action waivers must be considered on a case-by-case basis under the framework of Green Tree:

We do not hold today that class action waivers in arbitration agreements are per se unenforceable, or even that they are per se unenforceable in the context of antitrust actions.  Rather…we hold that each waiver must be considered on its own merits.

AmEx indicated that it intends to appeal, so the Supremes will likely get another shot at this one.  We’ll keep you posted.

I've got to admit, it is hard to argue against green trees...

About Brian Jones

I represent clients in all aspects of business litigation, but focus my practice on complex litigation and arbitration matters concerning insurance and reinsurance, antitrust, class actions, securities, real estate disputes, and contract matters. I am the co-chair of the Bose McKinney & Evans Insurance Group. I was listed in the 2017 and 2016 "Best Lawyers in America" for Insurance Coverage and named a "Rising Star" in Insurance Coverage by Super Lawyers in Indiana in 2014. I was also named a "Rising Star" in Business Litigation by Super Lawyers in Indiana in 2013 and 2012, and a 2010 “Rising Star” in Business Litigation in Texas. I am a member of the State Bars of Indiana and Texas, the Defense Research Institute, a former member of the Pro Bono College of the State Bar of Texas, and I am licensed to practice before all state courts in Indiana and Texas, as well as all federal courts in Indiana, the Northern, Western, and Southern Districts of Texas, the Northern District of Illinois, and the United States Courts of Appeals for the Fifth, Seventh, and Eleventh Circuits. I received my bachelor’s degree, cum laude, in political science and my master’s degree in teaching from Trinity University, where I was elected to Phi Beta Kappa. I received my doctor of jurisprudence degree from the University of Texas School of Law, where I was the Director of Communications for the Legal Research Board and a member of the Phi Delta Phi Honor Society. Before attending law school, I taught high school geography, government and economics in San Antonio, Texas.
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