Second Circuit Finds Class Action Waiver Deprived Plaintiffs of Antitrust Protections

Since 2010, the U.S. Supreme Court has handed down three pro-arbitration decisions—Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) and CompuCredit Corp. v. Greenwood, No. 10-948 (Jan. 10, 2012). Notwithstanding this trend, the Second Circuit Court of Appeals, on February 1, 2012, for the third time declined to enforce an arbitration clause with a class action waiver on the grounds that individual arbitration would effectively deprive plaintiffs of federal statutory antitrust protections under the Sherman and Clayton Acts. For the time being, the decision leaves the door open for plaintiffs to pursue antitrust claims as a class action in federal court in circumstances where the plaintiff can demonstrate that enforcement of a class action waiver would result in de facto antitrust immunity.

The Underlying Action and District Court’s Decision

The named plaintiffs in Italian Colors Rest. v. Am. Express Travel Related Serv. Co. (aka In re: American Express Merchants’ Litigation) are California and New York corporations that operate businesses which have contracted with the defendant, as well as the National Supermarkets Association, Inc., a trade association that represented the interests of independently owned supermarkets. The contractual relationship between the parties is a card acceptance agreement that includes a mandatory arbitration clause. The arbitration clause precluded a merchant from having any claim arbitrated on anything other than an individual basis. After litigation commenced, the district court granted the defendant’s motion to compel arbitration, holding that the arbitration clause applied to the parties’ disputes and that the enforceability of the class action waiver was for the arbitrator to resolve. The plaintiffs appealed.

The Second Circuit’s Original Decision

The Second Circuit first decided that the class action waiver’s enforceability was a matter for the court, not the arbitrator. Turning to the question of whether the class action waiver was enforceable, it found that Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), controlled its analysis. Pursuant to Green Tree, a plaintiff can challenge a class action waiver clause on the grounds that it would be a cost-prohibitive method of enforcing a statutory right, provided that the plaintiff set forth sufficient proof to support such a finding. Plaintiffs had submitted evidence that an antitrust study and expert fees would approach $1 million, and the defendant had “brought no serious challenge” to that evidence. In an affidavit, the plaintiffs’ expert stated that out-of-pocket expert costs for “individual plaintiff antitrust cases ha[ve] ranged from about $300 thousand to more than $2 million. However, after reviewing the complaint and doing some preliminary research in this case, it is my opinion that . . . the cost for this case will fall in the middle of th[is] range…” The Second Circuit considered that “while the Clayton Act does provide for treble awards along with the recovery of attorneys’ fees and expenses, that was unlikely to assist plaintiffs where, as here, ‘the trebling of a small individual damages award is not going to pay for the expert fees [plaintiffs’ expert] has estimated will be necessary to make an individual plaintiff’s case.’” The Second Circuit agreed that the clause “flatly ensures that no small merchant may challenge [the defendant’s] tying arrangements under the federal antitrust laws.” It then held that the class action waiver cannot be enforced because to do so would grant the defendant de facto immunity from federal antitrust liability.

The defendant filed a petition for writ of certiorari, which the U.S. Supreme Court granted. It vacated the Second Circuit’s decision, and remanded for further consideration in light of its holding in Stolt-Nielsen that class arbitration could not be ordered unless there is a contractual basis for finding the parties agreed to class arbitration.

Click here to read the In re: American Express Merchants’ Litigation opinion (2d Cir. Feb. 1, 2012)

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