Class Action

New Second Circuit opinion on "no-class-action" arbitration clauses: In re American Express Merchants' Litig.

By Kimberly A. Kralowec

On January 30, 2009, the Second Circuit refused to enforce a "no-class-action" arbitration clause in a contract between American Express and merchants who accept AmEx cards.  In re American Express Merchants' Litig., __ F.3d ___ (2d Cir. Jan. 30, 2009).  The opinion is noteworthy because the court found the provision unenforceable under federal common law, not state law:

Section 2 of the FAA, 9 U.S.C. § 2, ... 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.? Section 2 is ?the primary substantive provision? of the FAA which ?create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the? FAA. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). We join other Circuits that have evaluated arbitration clauses containing class action waivers under the federal substantive law of arbitrability.  [Citations.]

....

We therefore hold that 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.  As already set forth, Section 2 of the FAA, 9 U.S.C. § 2, 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.? Given that we believe that a valid ground exists for the revocation of the class action waiver, it cannot be enforced under the FAA.

Slip op. at 19-20, 33-34.  The "federal substantive law of arbitrability" includes significant federal common law interpreting the FAA, and that is what the Second Circuit principally relied on in its very thoughtful opinion. 

Full post as published by The UCL Practitioner on February 09, 2009 (boomark / &linkurl=http://www.uslaw.com/library/Class_Action/New_Second_Circuit_opinion_noclassaction_arbitration_clauses_re_Americ.php?item=376959' rel=nofollow title='The UCL Practitioner'>email).