Credit Card Issuers Defeat Claims They Conspired To Use Arbitration to Block Class Actions

By Owen Glist

American Express, Chase, and Discover have prevailed in a bench trial of a class action charging that the nation’s largest credit card issuers illegally agreed to prevent cardholders from using class actions to sue them. 

While Judge William H. Pauley III of the U.S. District Court for the Southern District of New York ruled in favor of the defendants on Thursday, he also indicated the plaintiffs’ case was a near miss that just barely foundered on the crucial issue of whether the defendants had actually entered into a collusive agreement.

 The defendants – credit card issuers representing more than 80% of the credit card issuing market – had formed an industry “Arbitration Coalition” to promote the use of arbitration clauses to bar class actions.  Pursuant to a bench trial that was conducted last year – this being an exceedingly rare class action to go to trial – the district court concluded last week that plaintiffs failed “by a slender reed” to meet their burden of showing an antitrust conspiracy.

The court concluded that the plaintiffs had shown many of the elements they needed to prove their claims – including a “highly concentrated and oligopolistic” credit card market, and 28 meetings over a four-year period (1998 to 2002) dedicated to finding ways to stop class actions by forcing the arbitration of cardholder disputes.  The meetings were followed by all of the participating banks adopting a class-action-barring arbitration clause, and once the last bank to adopt the clause did so, the meetings stopped.  Nonetheless, the court found the evidence as a whole – all of which was dated and much of it sparse, concerning meetings over a decade ago – to be consistent with independent decision making, rather than an illegal agreement among the banks to combat class actions. 

The case was a long-running class action within an even bigger class action.  The arbitration clause allegations arose as a result of discovery into claims that the banks agreed to fix foreign transaction fees and colluded to find ways not to disclose the fees to consumers.  Not only did that class action settle for hundreds of millions of dollars, but many of the defendants also agreed to rescind their arbitration clauses.  Only American Express, Chase, and Discover refused to yield on their class-action barring arbitration clauses, and took that issue to trial. 

Evidence in the bench trial shed some light on the successful strategy of advocates of arbitration that have sought to displace class actions.  A string of victories in the Supreme Court was capped last year with American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304, 2311 (2013), in which the Court enforced a mandatory class action waiver despite evidence that the costs of individually arbitrating the claim would exceed any recovery.

These results are no accident – evidence at trial showed that the advocates of arbitration carefully sought to avoid bad legal precedents, and actively fought the public perception that the clauses were anti-consumer.  Despite all the strategizing, however, the district court found that the victory of arbitration over class actions was not the product of an illegal conspiracy.

– Edited by Gary J. Malone