Merchants Unexpectedly Win Antitrust Class Action Skirmish Against American Express

In a surprising and important decision, a two-judge panel of the Second Circuit has refused to enforce a mandatory class action waiver found in the standard small-merchant American Express contract.

The decision in the In re American Express Merchants’ Litigation clears the way for a class action (as well as a related action which was partially stayed) challenging American Express’s Honor All Cards rule as an illegal tying arrangement.  The provision obliges merchants who accept American Express charge cards to also accept American Express credit and debit cards – along with the hefty discount fees those cards impose.

The case was surprising first because the Supreme Court had issued a GVR Order – summarily granting certiorari, vacating and remanding the case.  This generally means the Court believed that “intervening developments . . . reveal a reasonable probability that the decision below rests upon a premise that the lower court would reject if given the opportunity for further consideration.”  Lawrence v. Chater, 516 U.S. 163, 167 (1996).

Here that development was the Court’s Stolt-Nielsen decision.  Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1775 (2010).  That case held that when an arbitration agreement is “silent” as to class actions, parties cannot be forced into class-wide arbitration.  The Stolt-Nielsen plaintiffs were limited to arbitrating their price fixing claims individually.

The Second Circuit – finding oral argument unnecessary – declined to alter its ruling.  In what may be prove to be a minority position, the Second Circuit held that it did not follow from Stolt-Nielsen that all class action waivers were automatically enforceable – rather, enforceability must be determined on a case by case basis.

On the facts, the Second Circuit reiterated its conclusion before remand that plaintiffs demonstrated they would incur prohibitive costs if compelled to arbitrate their antitrust claims – the class action device was the “only economically rational alternative.”  The court cited undisputed evidence that even the very largest merchant claims might only amount to some $40,000 after trebling, whereas the cost of an expert economist alone would be several hundred thousand dollars or more.

As it did before remand, the court agreed with plaintiffs that the class action waiver “flatly ensures that no small merchant may challenge American Express’s tying arrangements under the federal antitrust laws” in violation of the “firm principle” that “a waiver of future liability under the federal antitrust statutes is void as a matter of public policy.”

Although the court did not say so expressly, plaintiffs may now proceed with their class action claims in court.  The court declined to reform the provision and order class-wide arbitration, as Stolt-Nielsen plainly held that “a party may not be compelled . . . to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”  Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1775 (2010) (emphasis in original).  As the Second Circuit noted in a prior case, clearly the “conclusion that a given agreement is invalid and unenforceable does not mean that the parties in fact reached the opposite agreement.”  Fensterstock v. Educ. Fin. Partners, 611 F.3d 124, 141 (2d Cir. 2010).

Most courts – outside of the antitrust context – have upheld class action waivers, and it remains to be seen whether others will now strike down such waivers when faced with antitrust claims.  There is more to come on this recurring issue – rehearing en banc and further Supreme Court review are likely.