In In re: American Express Merchants' Litigation, 2009 WL 214525 (2nd Cir. 2009), the Second Circuit recently held that American Express cannot enforce a class action waiver provision in its contracts with merchants that accept AmEx cards. The so-called collective action waiver purports to compel merchants to individually arbitrate any claim arising from their contracts with American Express. A group of small merchant plaintiffs had filed an antitrust action alleging that American Express unlawfully tied acceptance of its corporate and charge cards to acceptance of credit cards issued by AmEx and its bank partners. The merchants argued that American Express's relatively higher merchant fees were originally secured because its corporate and charge card holders were particularly valuable to merchants. AmEx's credit card holders, and particularly those of AmEx's bank partners, by contrast, are indistinguishable from Visa and MasterCard cardholders. Forcing merchants to accept the credit cards to get access to the corporate and charge cards, the merchants allege, violated the antitrust laws. American Express responded by invoking the arbitration provision. Although willing to arbitrate, the merchants objected to the prohibition on class adjudication, arguing that it would effectively eliminate their statutory rights. No individual merchant, they contended, could justify the cost of complex antitrust litigation given the relatively small individual damages suffered by each merchant. The district court held that the validity of the class action waiver was a matter for the arbitrator, and that eliminating class adjudication did not effectively prohibit the merchants from advancing their claims, because the Clayton Act permited the recovery of costs and attorneys fees. The Second Circuit reversed, holding that the validity of the class action waiver raised a question as to the validity of the arbitration clause itself and was thus subject to the federal substantive law of arbitration. That law, the court held, barred arbitration provisions that as a practical matter would prevent the enforcement of statutory rights. The court concluded that the class action waiver in AmEx's merchant contracts had this effect. It explained that the District Court erred in its interpretation of the Clayton Act's remedial provisions, because that Act would not permit individual plaintiffs to recover the extensive expert witness costs that would be required to litigate a complex antitrust case. Because of those costs, individual merchants would effectively be barred from enforcing their rights if class adjudication were not permitted. The Second Circuit cautioned that it was not holding that class action waivers were either "void or unenforceable per se," even in antitrust cases. Rather, a court must decide on a case-by-case basis whether a class action waiver effectively bars the enforcement of statutory rights. Because the merchants had expressed a willingness to litigate the claim, and AmEx had indicated that it might not invoke the arbitration clause if class treatment were permitted, the Second Circuit remanded the case to determine the forum. Plaintiffs' counsel issued a statement following the ruling that suggested the case could have broad applicability. “The policy of putting anti-class action rules in consumer and merchant agreements," the statement claimed, "has been growing enormously in recent years. . . .The decision will no doubt be used by plaintiffs in dozens of other cases where defendants have attempted to ban class actions.”
