International Law

AmEx Ban on Class Actions in Arbitration Clause Held Unenforceable

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

California and New York merchants that accepted American Express (AmEx) charge cards were not barred from proceeding as a class to assert an antitrust action against the charge card issuer by a class action waiver contained in the mandatory arbitration clause of their commercial contracts, the U.S. Court of Appeals in New York City has ruled.

The class action waiver ?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 court explained.

The appellate court reversed a lower court's decision (2006-1 Trade Cases ¶75,198), which held that the enforceability of the class action waiver provision was a question for the arbitrator. The matter was remanded to the district court. The plaintiffs expressed a willingness to proceed to arbitration; however, AmEx would be given an opportunity to withdraw its motion to compel arbitration in light of the appellate court's decision.

Initially, the appellate court decided that the district court erred in holding that the question of the class action waivers? enforceability was a matter for the arbitrator. It then went on to conclude that enforcement of the ban on class claims would deprive the merchants of substantive rights under the federal antitrust statutes. The merchants demonstrated that their antitrust claims against Amex could be pursued only through the aggregation of individual claims, either in class action litigation or in class arbitration.

The appellate court was troubled by the effective negation of a private suit under the antitrust laws. The appellate court noted the U.S. Supreme Court's 1985 decision in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985-2 Trade Cases ¶66,669), allowing arbitration of a Sherman Act claim so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum . . . ?

Class Action Waivers in the Antitrust Context

The appellate court noted that it did not rule that class action waivers in arbitration agreements were per se unenforceable. Nor did it hold that they were per se unenforceable in the context of the antitrust action. Rather, the court held that the question of the enforceability of a class action waiver in an arbitration agreement must be considered ?on its own merits.?

Underlying Antitrust Claims

The merchants asserted tying claims against AmEx. They contended that an ?Honor All Cards? provision in their card acceptance agreements forced them to accept new revolving credit cards offered by AmEx at rates that exceeded those for comparable Visa, MasterCard, or Discover products.

The January 30, 2009, decision, In re American Express Merchants' Litigation, will appear in CCH Trade Regulation Reporter.

Full post as published by Trade Regulation Talk on February 02, 2009 (boomark / email).