Second Circuit Again Holds Class Action Waiver Unenforceable

Alerts / February 7, 2012

While recent Supreme Court holdings appeared to have established that class action waivers in arbitration clauses were enforceable, the Second Circuit, finding that recent jurisprudence inapplicable, held otherwise. On February 1, 2012, the Second Circuit yet again reaffirmed its decision that American Express could not compel a putative class of merchants to arbitrate their antitrust claims. In re Am. Express Merchants' Litig., 212 WL 284518 (2d Cir. Feb. 1, 2012) ("Amex III"). The Second Circuit again held the class action waiver at issue was unenforceable because it would effectively leave the plaintiffs without a remedy for their federal statutory claim, insulating American Express from any liability. Significantly, Amex III reinforces the Second Circuit's view that whether class action waiver provisions are enforceable may entail a case-by-case inquiry and an analysis of the impact of enforcing those waivers in a particular case.

Plaintiffs alleged that American Express used its superior market power to require that merchants pay the same high fees for purchases made with both credit cards and its more profitable charge cards or risk losing a significant portion of sales from American Express customers. Plaintiffs alleged that such a requirement constituted an illegal "tying arrangement" under the Sherman Act. American Express moved to compel arbitration under an express contractual provision calling for binding arbitration, but which also precluded arbitration as a class.

While the district court had sided with American Express, the Second Circuit, in Amex I in 2008, reversed the district court and concluded, based on expert testimony put forth by the plaintiffs, that the costs of individual arbitration would be prohibitive, effectively precluding recovery. American Express did not seriously challenge the plaintiffs' expert. Relying on Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) and Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), the Second Circuit held that the class action waiver provision was unforceable as it would leave plaintiffs with no ability to vindicate their federal statutory rights, ultimately immunizing American Express from liability.

The Supreme Court vacated Amex I and remanded for reconsideration after its decision in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010). The Supreme Court held in Stolt-Nielsen that the Federal Arbitration Act ("FAA") could not compel parties to submit to class arbitration absent a contractual provision for such compulsion. In Amex II, the Second Circuit found Stolt-Nielsen inapplicable. Shortly after Amex II was decided, the Supreme Court decided AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). The Supreme Court held in Concepcion that the FAA preempted a California state law that rendered most class action waiver provisions unenforceable. In Amex III, the Second Circuit held that neither Stolt-Nielsen nor Concepcion affected the Supreme Court's analysis in Green Tree.

On its face, the Second Circuit's analysis is limited to situations in which plaintiffs would be left without the ability to enforce their federal statutory rights. However, the decision also represents a potential loophole in the strong policy favoring arbitration provisions that prevent class actions as articulated in the Supreme Court's Concepcion and Stolt-Nielsen decisions. It may open the door for plaintiffs to argue more broadly that class action waiver provisions are unenforceable when they leave plaintiffs without a remedy, notwithstanding the particular claim. Unless and until the Supreme Court decides to address the enforceability of arbitration agreements in cases involving federal statutory rights, corporations who wish to employ arbitration agreements to prevent having to defend potential costly and inefficient class action litigation will need to consider the holding of Amex III.

If you have any questions about this decision or how it may impact your business, please contact Deborah H. Renner ( or 212.589.4654), Jennifer A. Vessells ( or 614.462.4768) or your regular Baker Hostetler contact.

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