Penguin’s Motion To Compel Arbitration Doesn’t Fly In eBooks Case

A federal judge in the Southern District of New York has shot down a motion to compel arbitration filed by Penguin Group (USA), Inc. in the widely-followed case of In re: Electronic Books Antitrust Litigation.

Plaintiffs allege that Penguin and other book publishers violated the antitrust laws by conspiring to fix and raise prices for eBooks.  Penguin moved the court to stay the proceedings and compel arbitration for those plaintiffs who purchased their eBooks through Amazon and Barnes & Noble.  Penguin claimed that these plaintiffs were bound by arbitration agreements and the class action waivers contained in those agreements.  Judge Denise Cote denied Penguin’s motion, following the reasoning of the Second Circuit in In re American Express Merchants’ Litigation (“In re Amex”), 667 F.3d 204 (2d Cir. 2012).

The decision is not unexpected.  As reported in a prior Antitrust Today post, class action waivers in arbitration agreements are vulnerable under the reasoning of In re Amex.  In that case, the Second Circuit found an arbitration clause that contained a class action waiver unenforceable because the high cost of individual actions effectively precluded the plaintiffs from enforcing their statutory rights under the antitrust laws.  The Second Circuit has since denied a request for a rehearing en banc.  Given the widespread use of mandatory arbitration provisions with class action waivers, particularly in consumer contracts, many commentators believe this decision could have profound implications.

Judge Cote cited In re Amex numerous times, including the Second Circuit’s statement that “plaintiffs may successfully invalidate an arbitration agreement that contains a class action waiver on the grounds that the agreement would prevent them from ‘effectively vindicating’ their federal statutory rights.”

The district court found that the plaintiffs’ affidavits successfully established that “it would be economically irrational for any plaintiff to pursue his or her claims through an individual arbitration.”  The court also stated that “given the complexities of proving this particular antitrust violation, plaintiffs can expect at most a median recovery of $540 in treble damages, and face several hundred thousand dollars to millions of dollars in expert expenses alone.”