As Matter of First Impression, District Court Erred in Antitrust Class Action in Compelling Arbitration Pursuant to Mandatory Arbitration Clause in Commercial Contract and Enforcing Class Action Waiver because Absent Class Action Relief it was Unlikely Merchants would seek Redress for Alleged Wrong Second Circuit Holds
Several class action lawsuits were filed by various merchants against American Express alleging violations of federal antitrust laws in the form of a “tying arrangement” between its charge cards and credit cards; the first of these class actions was filed in August 2003 in the Northern District of California, but in December 2004 the district court granted a motion filed by defense attorneys to transfer the class actions, pursuant to 28 U.S.C. § 1404(a), to the Southern District of New York, where it was consolidated with several class actions against Amex pending in that district. In re American Express Merchants’ Litig., ___ F.3d ___, 2009 WL 214525, *2, *5-*6 (2d Cir. January 30, 2009). According to the allegations underlying the class action, Amex “is the leading issuer of general purpose and corporate charge cards to consumers and businesses in the United States and throughout the world. It is also the leading provider of charge card services to merchants.” Id., at *3. The class action plaintiffs are “(1) California and New York corporations which operate businesses which have contracted with Amex and (2) the National Supermarkets Association, Inc. (‘NSA’), ‘a voluntary membership-based trade association that represents the interests of independently owned supermarkets.’” Id. The Card Acceptance Agreement entered into by the merchants-plaintiffs provided, in pertinent part, that any dispute was subject to a broad and mandatory arbitration clause, which was governed by the Federal Arbitration Act (FAA) and which contained a class action waiver provision. See id., at *3-*5. Defense attorneys moved to compel arbitration and to enforce the class action waiver provision, id., at *6. The district court granted the motion, finding that the arbitration clause was broad enough to govern the dispute. Id. With respect to whether the matter could proceed as a class action, the district court suggested that enforcement of the class action waiver would not preclude individual merchants from enforcing their rights because the Section 4 of the Clayton Act allows for recovery of treble damages, costs of suit and attorney fees, but deferred the issue of enforceability of the class action waiver to the arbitrator. Id. The Second Circuit reversed.
The Circuit Court explained that it was “consider[ing] here only the narrow question of whether the class action waiver provision contained in the contract between the parties should be enforced,” In re American Express, at *3. The Court began by noting that it “frequently enforces mandatory arbitration clauses contained in commercial contracts,” but that this case presented a case of first impression in the Ninth Circuit as it dealt with the enforceability of a class action waiver in the context of a commercial contract with a mandatory arbitration clause. Id., at *1. And the court summarized the countervailing arguments surrounding the enforceability of class action waivers, see id., at *1-*2. Ultimately, the Ninth Circuit concluded that the class action waiver was unenforceable under the facts of this case “because enforcement of the clause would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.” Id., at *2.