In Re: American Express Merchants`` Litigation ( 2009 )

06-1871-cv
In re: American Express Merchants`` Litigation
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
__________
August Term, 2007
Argued: December 10, 2007 Decided: January 30, 2009
Docket No. 06-1871-cv,
__________
___________________________________________________________
IN RE: AMERICAN EXPRESS MERCHANTS’ LITIGATION,
ITALIAN COLORS RESTAURANT, on or behalf of itself and all
similarly situated persons, National Supermarkets Association, 492
Supermarket Corp., Bunda Starr Corp., Phoung Corp.,
Plaintiffs-Appellants,
v.
American Express Travel Related Services Company, American
Express Company,
Defendants-Appellees.
___________________________________________________________
POOLER, SACK, and SOTOMAYOR, Circuit Judges.
The plaintiffs seek review of the March 16, 2006 decision of the United States District
Court for the Southern District of New York (Daniels, J.) which, inter alia, held that the
enforceability of a class action waiver provision contained in the contract between the parties is a
question for the arbitrator. We hold: (1) that the question of the enforceability of the class action
waiver provision is properly decided by the Court and (2) that the class action waiver provision is
unenforceable under the Federal Arbitration Act. REVERSED AND REMANDED.
__________
Appearing for Plaintiffs-Appellants:
GARY B. FRIEDMAN , Friedman Law Group LLP (Tracey
Kitzman, Aaron Patton, Warren Parrino, on the brief), New
York, NY.
Read K. McCaffey, Christopher W. Hellmich, Patton
Boggs LLP, Washington, DC.
Mark Reinhardt, Mark Wendorf. Reinhardt Wendorf &
Blanchfield, St. Paul. MN.
Blaine H. Bortnick, Christine Palmieri, Liddle & Robinson,
L.L.P., New York, NY.
Noah Shube, Law Offices of Noah Shube, New York, NY.
Bernard Persky, Eric Belfi, Labaton Sucharow & Rudoff
LLP, New York, NY.
Robert W. Cohen, Law Offices of Robert W. Cohen, Los
Angeles, CA.
David Markun, Edward Zusman, Kevin Eng, Markun
Zusman & Compton LLP, San Francisco, CA.
Karl Cambronne, Jefrey D. Bores, Chestnut & Cambronne
P.A., Minneapolis, MN.
Brian Brooks, Murray, Frank & Sailer LLP, New York,
NY.
Michael Goldberg, Glancy Binkow & Goldberg LLP, Los
Angeles, CA.
Curtis V. Trinko, Law Offices of Curtis V. Tinko LLP,
New York, NY.
Robert C. Schubert, Willem F. Jonckheer, Schubert & Reed
LLP, San Francisco, CA.
Susan G. Kupfer, Glancy Binkow & Goldberg LLP, San
Francisco, CA.
2
Roy A. Katriel, The Katriel Law Firm, PLLC, Washington,
DC.
Paul C. Whalen, Whalen & Tusa, PC, New York, NY.
Appearing for Defendants -Appellees:
Bruce H. Schneider,Stroock & Stroock & Lavan, LLP
(Heidi Balk, on the brief), New York, NY.
JULIA B. STRICKLAND , Stephen J. Newman, Stroock &
Stroock & Lavan LLP, Los Angeles, CA.
Jonathan M. Jacobson, Wilson Sonsini Goodrich & Rosati,
New York, NY.
Evan R. Chesler, Cravath, Swaine & Moore LLP, New York,
NY.
Stuart A. Alderoty, American Express Travel Related
Services, Inc., New York, NY.
Appearing for Amici:
Janet L. McDavid, Catherine E. Stetson, Jake M. Shields,
Hogan & Hartson L.L.P. (Maria Ghazal, Business
Roundtable, of counsel), Washington, DC, for Business
Roundtable.
Briscoe R. Smith, Martin S. Kaufman, New York, NY, for
Atlantic Legal Foundation.
Daniel E. Gustafson, Karla M. Gluek, Gustafson Gluek
PLLC, Minnesota, MN, for American Antitrust Institute.
Edith M. Kallas, Ilze C. Thielmann, Joy A. Nesbitt, Whatley
Drake & Kallas LLC; Steven E. Fineman, Jennifer Gross,
Lieff Cabraser Heimann & Bernstein, LLP, New York, NY;
F. Paul Bland, Jr., Trial Lawyers for Public Justice,
Washington DC, for Trial Lawyers for Public Justice.
3
POOLER, Circuit Judge:
This Court frequently enforces mandatory arbitration clauses contained in commercial
contracts. We do so on the principle that “it is difficult to overstate the strong federal policy in favor
of arbitration, and it is a policy we have often and emphatically applied.” Arciniaga v. General
Motors Corp., 460 F.3d 231, 234 (2d Cir. 2006) (quotation marks omitted). On this appeal, however,
we are asked to consider the enforcement of a mandatory arbitration clause in a commercial contract
that also contains a “class action waiver,” also referred to as a “collective action waiver,” that is, a
provision which forbids the parties to the contract from pursuing anything other than individual
claims in the arbitral forum. This is a matter of first impression in our Court.1
1
We note that two district courts in our Circuit have found class action waivers in
mandatory arbitration clauses to be enforceable. In Sherr v. Dell, Inc, No. 05cv10097, 2006 WL
2109436 (S.D.N.Y. July 27, 2006), a consumer brought a putative class action suit against Dell
alleging that certain of the latter’s products had a dangerous tendency to overheat. The plaintiff
asserted claims under the statutory and common law of New York. Id. at *1. Dell moved to
compel arbitration and for the enforcement of a class action waiver contained in its sales
contract, the terms of which were not even available to the consumer before purchase short of his
calling a special telephone number or visiting a Dell internet site. Id. The district court granted
the motion to compel, holding that the “plaintiff is not entitled to a class action suit or class-wide
arbitration to vindicate the rights of everyone else with a similar problem. The [Federal
Arbitration Act’s] primary purpose is not to create a right to sue as a class. Its main purpose is to
ensure that private agreements to arbitrate are enforced according to their terms.” Id. at *7
(quotation marks omitted). The case was decided according to the law of Texas, which, the
district court found, had incorporated the Federal Arbitration Act as part of its substantive law.
Id.
Dumanis v. Citibank (South Dakota), N.A., No. 07cv6070, 2007 WL 3253975(W.D.N.Y. Nov. 2, 2007), was an action involving credit card interest rates brought under the
federal Truth in Lending Act, 15 U.S.C. § 1601 et seq., and the New York General Business
Law. The contract at issue had a South Dakota choice of law clause, and the decision was based
upon the law of that state, not the federal law of arbitration. Id. at *2-*3. The district court
enforced the class action waiver contained in the contract’s mandatory arbitration clause, both
because the plaintiff could have “opt[ed] out” of the arbitration clause by not renewing his credit
4
One commentator has recently contended that “[t]he outright banning of class action in
mandatory arbitration clauses has become a standard policy for many corporations that transact with
consumers.” Bryan Allen Rice, “Comment: Enforceable or Not?: Class Action Waivers in
Mandatory Arbitration Clauses and the Need for a Judicial Standard,” 45 Hous. L. Rev. 215, 224
(2008).2 We acknowledge at the outset, as have other courts that have considered questions arising
from the enforcement of class action waivers, in both consumer and commercial contracts, that the
wisdom and utility of these provisions have become the subject of intense debate. See Skirchak v.
Dynamics Research Corp., 508 F.3d 49, 63 (1st Cir. 2007) (“We recognize that there is a policy
debate about whether class action waivers essentially act as exculpatory clauses, allowing for
violations of laws where individual cases involve low dollar amounts and so will not adequately
address or prevent illegality.”). The opposing positions in this frequently impassioned debate have
been dispassionately described as follows:
Companies’ use of class action waivers is motivated by the
view that plaintiffs exploit the class action procedure in order to wrest
large and unfair settlements from defendants. . . . Class action
waivers are viewed by these companies as a way to defend
card and because the plaintiff had not been stripped of any substantive remedies; he merely could
not pursue them “in the arguably more-favorable context of a class action.” Id.We note that in neither Sherr nor Dumanis does it appear that the plaintiff made a
substantial demonstration – which we hold that the plaintiffs have made here – to the effect that
an inability to pursue arbitration on a class basis would be tantamount to an inability to assert
their claims at all.
2
Two commentators have suggested that this is particularly so in the credit card industry:
“Credit card companies have shown themselves to be even less enthusiastic about classwide
arbitration than about class action litigation. The ‘devil you know’ phenomenon is compounded
by the uncertainty of judicial review of class certification in arbitration and the concomitant fear
of a ‘renegade arbitrator’ certifying a class and exposing a company to massive liability.”
Samuel Issacharoff & Erin F. Delaney, “Credit Card Accountability,” 73 U. Chi. L. Rev. 157,
179 (2006).
5
themselves from consumers who are ganging up on companies
through the leverage inherent in the aggregation of large numbers of
claims. In further support of these waivers, corporations argue that
the many (perceived) advantages of arbitration to a plaintiff make up
for any disadvantages or inconveniences that the plaintiff may incur
by sacrificing the ability to be part of a class action.
. . . Opponents of class action waivers contend that the ability
to aggregate claims is crucial to protect the rights of those individuals
. . . who do not have the resources to litigate individual claims.
Further, many individual claims are only viable if brought on a class-
wide basis. Indeed, by prohibiting class actions in . . . lawsuits[]
where the expected recovery is dwarfed by the cost of litigating or
arbitrating the claim, individuals are effectively prevented from
pursuing their claims. As a result, businesses are able to engage in
unchecked market misbehavior . . . .
J. Maria Glover, “Beyond Unconscionability: Class Action Waivers and Mandatory Arbitration
Agreements,” 59 Vand. L. Rev. 1735, 1746-47 (2006) (footnotes and internal quotation marks
omitted).
Both of these positions have been proffered to the Court by amici. Compare Brief of Atlantic
Legal Foundation at 4 (“For several decades, providers of products and services in the United States
have been beset with a litigious environment that has evoked criticism of many observers and
applauded only by those professionals who have harvested the substantial financial rewards the civil
justice system has produced by way of attorneys’ fees. . . . Recognizing the risks of defending
against class action litigation, many businesses have elected to have disputes resolved by individual
arbitrations and to adopt collective action waivers as part of their arbitration clauses with their
business customers to insure that result.”) with Brief of Trial Lawyers for Public Justice at 27 (“It
is . . . crucial to understand that any ban on class arbitration is essentially a ban on class treatment
altogether, as arbitration clauses in standardized corporate contracts are made broader and broader,
to encompass all conceivable types of disputes . . . . Under a regime where such prohibitions are
6
enforced, such clauses are tantamount to a clause banning all claims against a corporation, unless
they are so large that they justify the outlay of the extraordinary expense involved.”).3
We note that two standard treatises on the conduct of class action litigation appear to take
opposing positions as well. Compare 1 Joseph M. McLaughlin, McLaughlin on Class Actions: Law
and Practice, § 2:14 (3d ed. 2006) (“As the potential availability of class-wide arbitration threatens
to multiply exponentially the exposure on what is facially a single-consumer issue, companies should
strongly consider including in their standard arbitration agreements an express provision barring
class action litigation or arbitration.”) with 3 Alba Conte & Herbert B. Newberg, Newberg on Class
Actions, § 9:67 n.2 (4th ed. 2008) (“The bar on class arbitration threatens the premise that arbitration
can be a fair and adequate mechanism for enforcing statutory rights.”).
While we are conscious of this debate, we are thankful that we need not resolve it on this
appeal. That is, we do not decide whether class action waiver provisions are either void or
enforceable per se. Rather, we are concerned solely with the class action waiver contained in the
contract between the parties before us on this appeal. We conclude that, on the record before us, the
plaintiffs have adequately demonstrated that the class action waiver provision at issue should not be
enforced because enforcement of the clause would effectively preclude any action seeking to
vindicate the statutory rights asserted by the plaintiffs.
3
Interestingly, when it enacted the Class Action Fairness Act of 2005, Congress itself
found both utility and danger in the use of the class action device. Compare Pub. L. No. 109-2,
§ 2(a)(1), 119 Stat. 4 (2005) (“Class action lawsuits are an important and valuable part of the
legal system when they permit the fair and efficient resolution of legitimate claims of numerous
parties by allowing the claims to be aggregated . . . .”) with id. at § 2(a)(2) (“Over the past
decade, there have been abuses of the class action device that have – (A) harmed class members
with legitimate claims and defendants that have acted responsibly; (B) adversely affected
interstate commerce; and (C) undermined public respect for our judicial system.”).
7
FACTS
A. Procedural Posture. The plaintiffs appeal from the judgment, dated March 20, 2006,
memorializing the memorandum opinion and order, dated March 15, 2006, of the United States
District Court of the Southern District of New York, which granted defendants American Express
Company and American Express Travel Related Services Company, Inc.’s (collectively “Amex”)
motion to compel arbitration. See In re American Express Merchants Litig., No. 03cv9592, 2006
WL 662341 (S.D.N.Y. March 16, 2006) (Daniels, J.). The earliest iteration of the plaintiffs’ claims
was made in August 2003, with the filing of a class action complaint in the United States District
Court for the Northern District of California (“the Italian Colors action”). This action, and another
subsequently filed class action, were transferred, on Amex’s motion, brought pursuant to 28 U.S.C.
§ 1404(a), to the United States District Court for the Southern District of New York. (JA 14, 85)
By an order, dated December 10, 2004, that court consolidated these two actions, pursuant to Rule
42(a) of the Federal Rules of Civil Procedure, with several class actions that had been filed in the
Southern District of New York. Any subsequently filed related actions were also made subject to
this consolidation order.
Because we consider here only the narrow question of whether the class action waiver
provision contained in the contract between the parties should be enforced, a prolix description of
the plaintiffs’ claims is unnecessary. (And, needless to say, we take no position on the merits of
these claims.) In their briefs on this appeal, the parties describe the plaintiffs’ claims largely by
reference to the amended complaint, filed December 24, 2003, in the Italian Colors action. We will
do so as well.
B. The Parties. The plaintiffs allege that Amex “is the leading issuer of general purpose
8
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.” The named 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.” The named
plaintiffs seek to represent the following class, pursuant to Rule 23 of the Federal Rules of Civil
Procedure:
The class is comprised of all merchants that have accepted
American Express charge cards (including the American Express
corporate card), and have thus been forced to agree to accept
American Express credit and debit cards, during the longest period of
time permitted by the applicable statute of limitations . . . throughout
the United States . . . .
C. The Card Acceptance Agreement. The basic contractual relationship between Amex
and the plaintiffs is set forth in an affidavit of an Amex executive:
American Express issues card products to its cardmembers,
which cardmembers then use in making purchases from participating
merchants. Participating merchants with annual charge volume
expected to be less than $10 million agree that, by submitting charges
for payment by American Express, their relationship will be governed
by the “Terms and Conditions for American Express© Card
Acceptance” (“the Card Acceptance Agreement”).4
The Card Acceptance Agreement is a standard form contract issued by Amex. It may be
terminated by either party “at any time by sending written notice to the other party.” Further, Amex
reserves the right
to change this Agreement at any time. We will notify you of any
4
Amex confirmed at oral argument that this $10 million figure relates to purchases made
with Amex products, not to purchases made by credit cards generally.
9
change in writing at least ten (10) calendar days in advance. If the
changes are unacceptable to you, you may terminate this Agreement
as described in the section entitled “TERMINATING THIS
AGREEMENT.”
According to Amex, the Card Acceptance Agreement has “expressly permitted amendments upon
notice” for more than twenty-five years. The Card Acceptance Agreement also contains a choice of
law provision designating New York law as governing and, as Amex states, there is no dispute that
the agreement “has always” contained this provision.
By contrast, it is only since 1999 that the Card Acceptance Agreement has contained a
mandatory arbitration clause. That clause is nothing if not capaciously worded:
For the purpose of this Agreement, Claim means any assertion of a
right, dispute or controversy between you and us arising from or
relating to this Agreement and/or the relationship resulting from this
Agreement. Claim includes claims of every kind and nature
including, but not limited to, initial claims, counterclaims, cross-
claims and third-party claims and claims based upon contract, tort,
intentional tort, statutes, regulations, common law and equity. We
shall not elect to use arbitration under this arbitration provision for
any individual Claim that you properly file and pursue in a small
claims court of your state or municipality so long as the Claim is
pending only in that court.
* * *
Any Claim shall be resolved upon the election by you or us, by
arbitration pursuant to this arbitration provision and the code of
procedure of the national arbitration organization to which the Claim
is referred in effect at the time the Claim is filed. Claims shall be
referred to the National Arbitration Forum (NAF), JAMS/Endispute
(JAMS), or the American Arbitration Association (AAA), as selected
by the party electing to use arbitration. If a selection by us of one of
these organizations is unacceptable to you, you shall have the right
within thirty (30) days after you receive notice of our election to
select one of the other organizations listed to serve as arbitrator
administrator.
At the heart of the instant appeal is the fact that the Agreement also contains the following
10
provision:
IF ARBITRATION IS CHOSEN BY ANY PARTY WITH
RESPECT TO A CLAIM, NEITHER YOU NOR WE WILL HAVE
THE RIGHT TO LITIGATE THAT CLAIM IN COURT OR HAVE
A JURY TRIAL ON THAT CLAIM . . . . FURTHER, YOU WILL
NOT HAVE THE RIGHT TO PARTICIPATE IN A
REPRESENTATIVE CAPACITY OR AS A MEMBER OF ANY
CLASS OF CLAIMANTS PERTAINING TO ANY CLAIM
SUBJECT TO ARBITRATION. THE ARBITRATOR’S DECISION
WILL BE FINAL AND BINDING. NOTE THAT OTHER RIGHTS
THAT YOU WOULD HAVE IF YOU WENT TO COURT MAY
ALSO NOT BE AVAILABLE IN ARBITRATION.
There shall be no right or authority for any Claims to be arbitrated on
a class action basis or on any basis involving Claims brought in a
purported representative capacity on behalf of the general public,
other establishments which accept the Card (Service Establishments),
or other persons or entities similarly situated. Furthermore, Claims
brought by or against a Service Establishment may not be joined or
consolidated in the arbitration with Claims brought by or against any
other Service Establishment(s), unless otherwise agreed to in writing
by all parties.
Thus, the Card Acceptance Agreement not only precludes a merchant from bringing a class
action lawsuit, it also precludes the signatory from having any claim arbitrated on anything other
than an individual basis. The Card Acceptance Agreement further provides as follows:
This arbitration provision is made pursuant to a transaction involving
interstate commerce, and shall be governed by the Federal Arbitration
Act, 9 U.S.C. Sections 1-16, as it may be amended (the FAA). The
arbitrator shall apply applicable substantive law consistent with the
FAA . . . . In conducting the arbitration proceeding, the arbitrator
shall not apply the Federal or any state rules of civil procedure or
rules of evidence. The arbitrator shall apply the applicable provisions
of the Code of Procedure of the NAF, JAMS or AAA, as applicable
to matters relating to evidence and discovery.5
5
The plaintiffs make no challenge to this preemption of the Federal Rules of Civil
Procedure by the rules of the various arbitration firms listed in the Card Acceptance Agreement.
We note, however, that some commentators have argued that plaintiffs are placed at a distinct
11
D. The Plaintiffs’ Substantive Claims. The plaintiffs’ dispute with Amex rests upon the
distinction between “charge cards” and “credit cards.” The district court explained the distinction
as follows:
A charge card requires its holder to pay the full outstanding balance
at the end of a standard billing cycle. A credit card, by contrast,
allows the cardholder to pay a portion of the amount owing at the
close of a billing cycle, subject to interest charges. In plain terms, the
credit card is a means of financing purchases, the charge card is a
method of payment.
In re American Express Merchants Litig., 2006 WL 662341, at *1 n.6.
According to the plaintiffs, Amex had until recent years centered its business on the issuance
of corporate and personal charge cards to corporate clients and affluent consumers. Amex is alleged
to be the undisputed leader in this market, to the extent that it “issues Corporate Cards to at least
70% of the companies included in the Fortune 500, and is likewise the leading issuer of Corporate
Cards to middle-market companies . . . and small businesses.” The plaintiffs further assert that
“[h]olders of charge cards are more affluent than credit cardholders, and a vastly higher percentage
of charge cards than credit cards are held by businesses and used for business travel and other
corporate purposes.” In fact, the plaintiffs allege that Amex itself contends that “the average
purchase on an American Express card is 17% higher than the average purchase made on a credit
card.”
Thus, the holder of a charge card is likely to be “a higher class of customer” and, as such, is
disadvantage by class arbitration rules of these firms. See Daniel R. Higginbotham, “Buyer
Beware: Why the Class Arbitration Waiver Clause Presents a Gloomy Future for Consumers,” 58
Duke L.J. 103, 123 (2008) (“Regarding many important issues . . . the rules [of arbitration firms]
are either silent or diverge significantly from the Federal Rules of Civil Procedure, raising
serious questions as to the ability of class arbitration to adequately resolve disputes.”).
12
particularly attractive to merchants such as the plaintiffs. Amex is certainly not unaware of this
attraction, and as a result of it, Amex has traditionally been able to charge high “merchant discount
fees,” which are the fees a card issuer withholds as a percentage of each purchase made with its card
at the merchant’s establishment. These fees, the plaintiffs aver, “are at least 35% higher than
competitive rates” applicable to mass-market credit cards such as Visa, Mastercard, and Discover.
Over the last decade, however, the plaintiffs contend that Amex’s “business in the markets
for credit card issuance and credit card services has grown dramatically.” Specifically, Amex has
in recent years created new credit card products “marketed to college students, young adults and
others who would certainly not produce the high per-transaction spending that Amex uses to justify
[the] high [merchant] discount fees. By leveraging its market power in corporate and personal
charge cards, however, American Express was able to compel merchants to accept its new revolving
credit card product[s] at the same elevated discount rate, which vastly exceeded the rate for
comparable Visa, MasterCard or Discover products.”
According to the plaintiffs, the vehicle of this compulsion is the “Honor All Cards” provision
contained in the Card Acceptance Agreement. Under the Agreement, a merchant does not contract
to accept any one Amex product as a form of payment. Rather, the Agreement applies
to your acceptance of American Express© Cards. . . . American
Express Card(s) . . . shall mean any card or other account access
device issued by American Express Travel Related Services
Company, Inc., or its subsidiaries or affiliates or its or their licensees
bearing the American Express name or an American Express
trademark, service mark or logo.
The plaintiffs assert that, by means of the “Honor All Cards” provision, merchants are faced
with the choice of paying supracompetitive merchant discount fees (i.e., fees above competitive
levels) on Amex’s new mass-market products or “inevitably los[ing] a significant portion of the sales
13
they receive from businesses, travelers, affluent consumers, and others” who are the traditional users
of Amex charge cards. This, the plaintiffs claim, amounts to an illegal “tying arrangement,” in
violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.6E. The District Court’s Decision. Amex moved to compel arbitration pursuant to the terms
of the Card Acceptance Agreement. In its March 15, 2006 opinion, the district court granted Amex’s
motion, first holding that the arbitration clause in the Agreement was “a paradigmatically broad
clause” which was certainly applicable to the dispute between the parties. In re American Express
Merchants Litig., 2006 WL 662341, at *4. The district court proceeded to consider the plaintiffs’
contention that enforcement of the class action waiver would effectively strip them of the ability to
assert their claims because “each individual plaintiff would have to incur discovery costs amounting
to hundreds of thousands of dollars, despite seeking average damages of only $5000.” Id. The
district court expressed skepticism that this argument amounted to much:
Plaintiffs’ contention . . . that the costs of individual arbitration would
eclipse the value of any potential recovery, ignores the statutory
protections provided by the Clayton Act. Section 4 of the Clayton
Act provides that “any person who shall be injured in his business or
property by reason of anything forbidden in the anti-trust laws . . .
shall recover threefold the damages by him sustained, and the cost of
suit, including a reasonable attorney’s fee.” 15 U.S.C. 15(a) . . . .
Id. at *5 (footnote omitted).
6
In a definition that has become classic, the Supreme Court has defined a tying
arrangement as “an agreement by a party to sell one product but only on the condition that the
buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that
product from any other supplier.” Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5-6
(1958). A tying arrangement will violate Section 1 of the Sherman Act if “the seller has
appreciable economic power in the tying product market and if the arrangement affects a
substantial volume of commerce in the tied market.” Eastman Kodak Co. v. Image Technical
Servs., 504 U.S. 451, 462 (1992) (internal quotation marks omitted).
14
This observation was quickly reduced to dicta, however. This is because the district court
proceeded to hold that “[t]he enforceability of the collective action waivers is a claim for the
arbitrator to resolve. Issues relating to the enforceability of the contract and its specific provisions
are for the arbitrator, once arbitrability is established.” Id. at *6. Thus, the district court concluded
that all of the plaintiffs’ substantive antitrust claims, as well the question of whether or not the class
action waivers were enforceable, were subject to arbitration.
The plaintiffs also made two additional arguments before the district court. First, they
contended that the class action waiver could not be enforced against those named plaintiffs who had
contracted with Amex before the 1999 inclusion of the mandatory arbitration clause in the Card
Acceptance Agreement. Amex purportedly informed these plaintiffs of the inclusion of the clause
by means of an amendment to the Agreement. The plaintiffs contended, however, that (1) Amex had
not produced sufficient evidence of the fact that the “pre-1999 plaintiffs” had ever received this
amendment and (2) even if the plaintiffs had received the amendment, their original merchant
contract with Amex did not allow the subsequent introduction of an arbitration clause. The district
court rejected these arguments, concluding that the plaintiffs had not successfully rebutted the
presumption of mailing to which Amex is entitled and that the arbitration amendment constituted
a reasonable addition to the original merchant contract. Id. at *7-*9.
Second, the plaintiffs contended that the class action waiver was not enforceable against
named plaintiffs and class members who were citizens of California because the waivers were
unconscionable under that State’s law. The district court concluded that this was “a substantive
matter[] to be raised before the arbitrator.” Id. at *9.
The district court concluded as follows: “[Amex’s] motion to compel arbitration of all claims
15
against it is granted. Since this Court finds that all of plaintiffs’ claims against [Amex] are subject
to arbitration, it further orders that plaintiffs’ cases against [Amex] be dismissed.” Id. at *10. The
plaintiffs filed a timely appeal.
ANALYSIS
Before we proceed to the weighing of the parties’ arguments, we think it would be helpful
to set forth some of the issues which are not raised on this appeal. Specifically, these are issues
which are commonly raised in the general run of arbitration cases with which this Court is faced.
First, the plaintiffs are not contending that the mandatory arbitration clause contained in the
Card Acceptance Agreement is not broad enough to cover their antitrust claims. See JLM Indus.,
Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 175 (2d Cir. 2004) (holding that antitrust claims were
arbitrable under a broad arbitration clause even though the claims concerned “matters beyond the
making of a particular contract between the parties and the performance of its terms”). Further,
while they certainly do not deny that this case is one of considerable legal and evidentiary
complexity, the plaintiffs do not argue that their claims are too complex to be properly handled in
arbitration. See id. at 181 (rejecting argument that claims involving a “horizontal price-fixing
conspiracy” were beyond the capabilities of an arbitral panel). Nor do the plaintiffs take issue with
the dicta in JLM to the effect that this Court would view “skeptically” any argument positing that
the “assertion of class claims should serve as a bar or deterrent to sending” a case to arbitration. Id.at 180 n.9. On the contrary, the plaintiffs expressly aver that they “are not averse to proceeding in
16
a class-wide arbitration.”7 (Blue 29) The plaintiffs are therefore not seeking to revive “the ancient
judicial hostility to arbitration” as a form of dispute resolution. Halligan v. Piper Jaffray, Inc., 148
F.3d 197, 200 (2d Cir. 1998). In asking us to hold that the class action waiver in the Card
Acceptance Agreement is unenforceable, however, the plaintiffs are implicitly asking us to limit the
principle that “many features of arbitration by contract, including . . . procedure and choice of
substantive law,” Hall Street Assocs., LLC v. Mattel, Inc., __ U.S. __, 128 S. Ct. 1396, 1404 (2008),
are to be left to the discretion of the contracting parties, unsupervised by judicial review.8 Although
we believe that it is a close question, we believe that the plaintiffs are correct.
A. Jurisdiction. Section 16(a)(3) of the FAA, 9 U.S.C. § 16(a)(3), provides that an appeal
may be taken from “a final decision with respect to an arbitration that is subject to this title.”
Because “an order compelling arbitration and dismissing a party’s underlying claims is a ‘final
decision with respect to an arbitration,’” Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79,
7
It is apparent that “[c]lass arbitration is a swiftly growing phenomenon. In late 2003,
the American Arbitration Association (“AAA”) introduced procedures for class arbitrations . . . .
As of September 27, 2007, the AAA was administering more than 190 class arbitrations, and
from July 10, 2006 until September 27, 2007 alone, the number of AAA-administered class
arbitrations increased by more than 50%.” David S. Clancy & Matthew M.K. Stein, “An
Uninvited Guest: Class Arbitration and the Federal Arbitration Act’s Legislative History,” 63
Bus. Law. 55, 56 (2007). Clancy and Stein go on to argue that when Congress passed the Federal
Arbitration Act, in 1925, it specifically envisioned arbitration as “something inherently prompt,
inexpensive, and streamlined,” and “did not expect that arbitrators would adjudicate anything
like the modern class action . . . .” Id. at 61, 67. Although the argument that class proceedings in
arbitration are incompatible with the Federal Arbitration Act is an intriguing one, we are
presented with no such argument on this appeal.
8
The principle was limited by the Court itself in Hall Street which held that parties are
not free to compose arbitration agreements which provide for a greater scope of federal court
review of arbitral awards than that set forth in the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1et seq, because this would be at odds with the FAA’s “substantiat[ion of] a national policy
favoring arbitration with just the limited review needed to maintain arbitration’s essential virtue
of resolving disputes straightaway.” 128 S. Ct. at 1405.
17
82 (2000), there is no dispute that this Court has jurisdiction to hear the instant appeal.
B. Who Should Decide Whether the Class Action Waiver is Enforceable? The
plaintiffs argue – and we do not see that Amex posits any argument to the contrary – that the
district court erred in holding that the question of the class action waiver’s enforceability is a
matter for the arbitrator, not the court. This is plainly correct.
In Buckeye Check Cashing, Inc. v. Cardegna, the Supreme Court stated that
[c]hallenges to the validity of arbitration agreements . . . can be
divided into two types. One type challenges specifically the validity
of the agreement to arbitrate. The other challenges the contract as a
whole, either on a ground that directly affects the entire agreement
(e.g. the agreement was fraudulently induced), or on the ground that
the illegality of one of the contract’s provisions renders the whole
contract invalid.
546 U.S. 440, 444 (2006) (citation omitted). The Court then held that if there is a challenge to “‘the
arbitration clause itself – an issue which goes to the making of the agreement to arbitrate – the
federal court may proceed to adjudicate it. But [the FAA] does not permit the federal court to
consider claims [which challenge] the contract generally.’” Id. at 445 (quoting Prima Paint Corp. v.
Flood & Conklin Mfg. Co., 388 U.S. 395, 403-404 (1967)).
The plaintiffs are plainly challenging the Card Acceptance Agreement’s arbitration clause
insofar as they dispute the enforceability of its class action waiver and, by extension, the validity of
the parties’ agreement to arbitrate. Their “challenge is to the arbitration clause itself,” id., rather than
to the entirety of the Card Acceptance Agreement.9 This appeal therefore involves “a gateway
dispute about whether the parties are bound by a given arbitration clause,” a dispute which “raises
9
The plaintiffs’ challenge to the enforceability of the class action waiver is distinct from
any contention to the effect that Amex’s alleged tying arrangement renders the entire Card
Acceptance Agreement invalid. See Amex Brief at 49. The latter issue is not before us.
18
a question of arbritrability for a court to decide.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
79, 84 (2002) (internal quotation marks omitted); accord Kristian v. Comcast Corp., 446 F.3d 25,
55 (1st Cir. 2006); Jenkins v. First Am. Cash Advance of Georgia, LLC, 400 F.3d 868, 877 (11th Cir.
2005).10 We will therefore proceed to consider whether the class action waiver contained in the Card
Acceptance Agreement is enforceable.
C. The Enforceability of Class Action Waiver Provisions: General Considerations. The
FAA was “enacted . . . to replace judicial indisposition to arbitration,” Hall Street,128 S. Ct. at 1402,
and is, as we acknowledged at the outset of this opinion, an expression of “a strong federal policy
favoring arbitration as an alternative means of dispute resolution.” Hartford Accident & Indem. Co.
v. Swiss Reinsurance Am. Corp., 246 F.3d 219, 226 (2d Cir. 2001). The favoring of arbitration is,
however, somewhat tempered by the fact that “[a]rbitration is strictly a matter of contract.”
Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 779 (2d Cir. 1995). Enhancing the
federal policy favoring arbitration is therefore largely a matter of “mak[ing] arbitration agreements
as enforceable as other contracts, but not more so.” Opals on Ice Lingerie v. Body Lines, Inc., 320
F.3d 362, 369 (2d Cir. 2003) (internal quotation marks omitted).
This principle is set forth in Section 2 of the FAA, 9 U.S.C. § 2, which provides that an
agreement to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract.” Section 2 is “the primary substantive
10
In Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), the Supreme Court was
faced with an arbitration agreement which was ambiguous as to whether it permitted arbitration
proceedings to be conducted on a class basis. The Court concluded that this was a matter of
contract interpretation which “should be for the arbitrator, not the courts, to decide.” Id. at 453.
Here, we do not face an issue of contract interpretation; the Card Acceptance Agreement is
unambiguous in forbidding arbitration to proceed on a class basis.
19
provision” of the FAA which “create[s] a body of federal substantive law of arbitrability, applicable
to any arbitration agreement within the coverage of the” FAA. Moses H. Cone Memorial Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24 (1983). We join other Circuits that have evaluated arbitration
clauses containing class action waivers under the federal substantive law of arbitrability. See Gay
v. CreditInform, 511 F.3d 369, 394-95 (3d Cir. 2007) (holding class action waiver to be enforceable
under Section 2 of the FAA notwithstanding claim that waiver was unconscionable under state law);
Kristian, 446 F.3d at 63 (“Although Plaintiffs’ challenges to the enforceability of the arbitration
agreements could be evaluated through the prism of state unconscionability law, we have chosen to
apply a vindication of statutory rights analysis, which is also part of the body of federal substantive
law of arbitration . . . .”). We conclude that the plaintiffs here have demonstrated that enforcement
of the class action waiver in the Card Acceptance Agreement to cover their claims against Amex
under federal antitrust statutes would be incompatible with the federal substantive law of arbitration.
We begin by recognizing that insofar as a plaintiff may be said to possess a “right” to litigate
an action in federal court as a class action under Rule 23 of the Federal Rules of Civil Procedure, the
right “is a procedural right only, ancillary to the litigation of substantive claims.” Deposit Guar.
Nat’l Bank v. Roper, 445 U.S. 326, 332 (1980). Nevertheless, the Supreme Court has repeatedly
recognized the utility of the class action as a vehicle for vindicating statutory rights. This is
especially true with respect to the Court’s recognition that the class action device is the only
economically rational alternative when a large group of individuals or entities has suffered an alleged
wrong, but the damages due to any single individual or entity are too small to justify bringing an
individual action. The Court made the point forcefully more than thirty years ago in the context of
an antitrust action:
20
A critical fact in this litigation is that petitioner’s individual stake in
the damages award he seeks is only $70. No competent attorney
would undertake this complex antitrust action to recover so
inconsequential an amount. Economic reality dictates that
petitioner’s suit proceed as a class action or not at all.
Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 161 (1974). Thus, as the Court later opined, “‘[t]he
policy at the very core of the class action mechanism is to overcome the problem that small
recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or
her rights.’” Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997) (quoting Mace v. Van Ru
Credit Corp., 109 F.3d 338, 344 (7th Cir. 1997)); see also Roper, 445 U.S. at 338 (“[A class action]
may motivate [plaintiffs] to bring cases that for economic reasons might not be brought otherwise[,
thereby] vindicating the rights of individuals who otherwise might not consider it worth the candle
to embark on litigation in which the optimum result might be more than consumed by the cost.”);
Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 549 F.3d 137, 144 (2d Cir. 2008)
(“[C]lass actions are designed in large part to incentivize plaintiffs to sue when the economic benefit
would otherwise be too small, particularly when taking into account the court costs and attorneys’
fees typically incurred.”); Carnegie v. Household Int’l, Inc., 376 F.3d 656, 661 (7th Cir. 2004) (“[T]he
realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as
only a lunatic or a fanatic sues for $30.00.”).
The Supreme Court has at least implicitly held that a provision in an arbitration agreement
barring class procedures is not per se unenforceable because, as noted above, it held in Bazzle that
the question of whether or not an ambiguous arbitration clause contained a class action ban was a
matter for the arbitrator, not the court, to decide. 539 U.S. at 453. Beyond this oblique ruling,
however, the Supreme Court has yet to squarely face the question of whether or not there are
21
conditions under which a class action ban would be incompatible with the FAA. But, as both parties
here acknowledge, the Court has decided cases which involved matters which, if ancillary, are
certainly pertinent to this question.
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), involved a claim under the Age
Discrimination in Employment Act (“ADEA”), 29 U.S.C. § 621 et seq. Specifically, the plaintiff,
a manager at a brokerage firm, asserted that he had been terminated by the firm in violation of the
ADEA. Id. at 23. After the plaintiff had filed suit in federal district court, the defendant firm moved
to compel arbitration pursuant to a mandatory arbitration provision contained in the rules of the New
York Stock Excahnge (“NYSE”), to which the plaintiff had agreed to be bound when he became a
registered securities representative. Id. at 23-24.
The Court held that because “[i]t is by now clear that statutory claims may be the subject of
an arbitration agreement,” the arbitration clause was enforceable “‘unless Congress itself has evinced
an intention to preclude a waiver of judicial remedies for the statutory rights at issue.’” Id. at 26
(quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)).
Even though the Court acknowledged that “the ADEA is designed not only to address individual
grievances, but also to further important social policies,” id. at 27, the Court could discern no
Congressional intent to preclude ADEA claims from being subject to arbitration. The Court also
considered the plaintiff’s argument to the effect “that arbitration procedures cannot adequately
further the purposes of the ADEA because they do not provide for broad equitable relief and class
actions.” Id. at 32. The Court rejected this contention:
As the court below noted, however, arbitrators do have the power to
fashion equitable relief. Indeed, the NYSE rules applicable here do
not restrict the types of relief an arbitrator may award, but merely
refer to “damages and/or other relief.” The NYSE rules also provide
22
for collective proceedings. But even if the arbitration could not go
forward as a class action or class relief could not be granted by the
arbitrator, the fact that the ADEA provides for the possibility of
bringing a collective action does not mean that individual attempts at
conciliation were intended to be barred.
Id. (citations, internal quotation marks, and brackets omitted).
Amex directs our attention to the final sentence of this passage, and other courts have relied
upon it in upholding mandatory arbitration clauses. Amex Brief at 19. In particular, the Third
Circuit, in Johnson v. West Suburban Bank, 225 F.3d 366 (3d Cir. 2000), dealt with a claim under
the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et seq. The plaintiffs argued that their class
action claim in federal court was not subject to mandatory arbitration because TILA
effectively create[s] an unwaivable right to bring a class action. . . .
[In TILA,] Congress enacted a scheme in which the court hearing a
class action could set a damage figure up to a certain amount for
certain patterns of conduct. This judicial flexibility in imposing
damages up to $500,000 only exists if a class action is allowed, as
individual plaintiff claims are generally capped at $1,000. Therefore,
a right of classes to a judicially crafted punitive remedy is lost if this
court orders arbitration of Johnson’s claims.
Id. at 377.
The Third Circuit held that “[t]his argument is unavailing in light of” Gilmer. Id. The court
noted that Gilmer involved a claim under the ADEA, a statute which explicitly provides in its text
for the bringing of class actions. Id. (citing 29 U.S.C. § 626(b)). In spite of this, the court
concluded, “the Supreme Court still ruled that the ADEA did not preclude arbitration
notwithstanding the unavailability of the class action remedy there.” Id.; see also Carter v.
Countrywide Credit Indus., Inc., 362 F.3d 294, 298 (5th Cir. 2004) (“[W]e reject the [plaintiffs’]
claim that their inability to proceed collectively [in arbitration] deprives them of substantive rights
available under the [Fair Labor Standards Act.] The Supreme Court rejected similar arguments
23
concerning the ADEA in Gilmer . . . .”).
We cannot agree with this view of Gilmer because a collective, and perhaps a class action
remedy, in fact was available in that case. As set forth above, the Supreme Court explicitly noted
that the arbitration rules of the NYSE provided for the conduct of collective arbitration. 500 U.S.
at 32. At the time Gilmer was decided, the NYSE’s rules may also have permitted arbitration claims
submitted as class actions. Compare NYSE Rule 600(d) (2008) (“A claim submitted as a class
action shall not be eligible for arbitration under the Rules of the Exchange.”) with NYSE Rule 600
(1991) (containing no prohibition on class actions). The statement in Gilmer that the arbitration
clause would be enforceable “even if” class remedies were available evidences that the Court itself
was uncertain, but acknowledged the probability, that class action were feasible under the NYSE’s
rules. Moreover, it is dicta that does not apply here. The plaintiffs do not proffer the argument
rejected in Gilmer, namely that the class action waiver is unenforceable merely because the relevant
statute allows class actions. Rather, the conundrum presented by the instant appeal is more nuanced:
whether the mandatory class action waiver in the Card Acceptance Agreement is enforceable even
if the plaintiffs are able to demonstrate that the practical effect of enforcement of the waiver would
be to preclude their bringing Sherman Act claims against Amex in either an individual or collective
capacity.
After the Third Circuit’s decision in Johnson, the Supreme Court came somewhat closer
to this issue in Green Tree Financial Corp.-Alabama v. Randolph. That case also involved a
claim under TILA and a consideration of the enforcement of a mandatory arbitration clause. The
specific issue to be decided was “whether an arbitration agreement that does not mention
arbitration costs and fees is unenforceable because it fails to affirmatively protect a party from
24
potentially steep arbitration costs.” Green Tree, 531 U.S. at 82. Specifically, the plaintiff argued
“that the arbitration agreement’s silence with respect to costs and fees creates a ‘risk’ that she
will be required to bear prohibitive arbitration costs if she pursues her claims in an arbitral
forum, and thereby forces her to forgo any claims she may have had against [the defendants].”
Id. at 90. The Court rejected this argument because the plaintiff had proved no more than that
the asserted “risk” was hypothetical:
It may well be that the existence of large arbitration costs could
preclude a litigant such as Randolph from effectively vindicating her
federal statutory rights in the arbitral forum. But the record does not
show that Randolph will bear such costs if she goes to arbitration.
Indeed, it contains hardly any information on the matter. . . . The
record reveals only the arbitration agreement’s silence on the subject,
and that fact alone is plainly insufficient to render it unenforceable.
The “risk” that Randolph will be saddled with prohibitive costs is too
speculative to justify the invalidation of an arbitration agreement.
Id. at 90-91 (footnote omitted); see also In re Cotton Yarn Antitrust Litigation, 505 F.3d 274, 285
(4th Cir. 2007) (“[I]f a party could demonstrate that the prohibition on class actions likely would
make arbitration prohibitively expensive, such a showing could invalidate an agreement.”).
Although the Court in Randolph declined to consider whether the arbitration agreement was
unenforceable because it may have precluded the plaintiff from bringing her claims under TILA as
a class action, 531 F.3d at 92 n.7, courts have relied upon its holding to uphold such bans. See In
re Cotton Yarn Antitrust Litigation, 505 F.3d at 285 (“This kind of uninformed speculation about
cost falls far short of satisfying the plaintiffs’ burden of proving that the costs of proceeding
individually against the defendants would be prohibitive and thus would prevent them from
effectively vindicating their statutory rights.”); Livingston v. Assocs. Fin., Inc., 339 F.3d 553, 557
(7th Cir. 2003) (“In the present case, the Livingstons have not offered any specific evidence of
25
arbitration costs that they may face in this litigation, prohibitive or otherwise, and have failed to
provide any evidence of their inability to pay such costs . . . .”); Adkins v. Labor Ready, Inc., 303
F.3d 496, 503 (4th Cir. 2002) (“Adkins makes no showing of the specific financial status of any of
the plaintiffs at the time this action was brought. He provides no basis for a serious estimation of
how much money is at stake for each individual plaintiff.”).
D. Is the Class Action Waiver in the Card Acceptance Agreement Enforceable?
Randolph is controlling here to the extent that it holds that when “a party seeks to invalidate an
arbitration agreement on the ground that arbitration would be prohibitively expensive, that party
bears the burden of showing the likelihood of incurring such costs.” 531 U.S. at 92. We find that
the district court erred in ruling that the plaintiffs had failed to bear this burden because they had
“ignore[d] the statutory protections provided by the Clayton Act.” In re American Express
Merchants Litigation, 2006 WL, at *5. On the contrary, the record abundantly supports the
plaintiffs’ argument that they would incur prohibitive costs if compelled to arbitrate under the class
action waiver.11 The Card Acceptance Agreement therefore entails more than a speculative risk that
enforcement of the ban will deprive them of substantive rights under the federal antitrust statutes.
This argument is compellingly set forth in an affidavit filed in the district court by Gary L.
French, Ph.D., an economist associated with Nathan Associates Inc., a financial consulting firm
11
“We review . . . mixed questions of law and fact either de novo or under the clearly
erroneous standard depending on whether the question is predominantly legal or factual.” United
States v. Selioutsky, 409 F.3d 114, 119 (2d Cir. 2005) (internal citations omitted). The plaintiffs’
estimated expert witness fees were essentially undisputed. We review de novo the district court’s
application of the Clayton Act to undisputed facts. See Village of Grand View v. Skinner, 947
F.2d 651, 656 (2d Cir. 1991) (“Because the issues presented on this appeal involve the
application of a statutory standard to undisputed facts, the appropriate standard of review is de
novo.”). We note, however, that our ruling would not be different under a clearly erroneous
standard.
26
retained by the plaintiffs. Dr. French states that the purpose of his affidavit is “to provide an expert
opinion concerning the likely costs and complexity of an expert economic study concerning the
liability and damages” relating to this action, and to compare this with “the potential recovery of
damages by an American Express Card merchant with annual sales volume of $10 million or less,
such as most if not all of the named plaintiffs in this litigation, and to provide my opinion as to
whether it would be economically rational for such a merchant to pursue recovery of damages given
the likely out-of-pocket costs of the arbitration or litigation proceeding.” Dr. French continues:
Due to the complexity and analytical intensity of an antitrust
study, total expert fees and expenses usually are substantial, even in
a non-class action involving an individual plaintiff. In my
experience, even a relatively small economic antitrust study will cost
at least several hundred thousand dollars, while a larger study can
easily exceed $1 million. . . . In summary, the cost of [Nathan
Associates’] expert assistance in individual plaintiff antitrust cases
has 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 the range of [Nathan Associates’]
experience.
An economic antitrust study . . . is necessarily complex and
costly because it involves investigating several antitrust liability and
damages issues and, potentially involves numerous tasks and services.
The antitrust liability and damages issues that an expert economist
will study in this matter will likely include:
• defining the relevant tying and tied product markets and
determining whether they are distinct;
• determining whether the defendant has market (monopoly)
power in the tying product market, . . .;
• determining whether the defendant has exercised its market
(monopoly) power to enforce the tying arrangement;
• determining whether the tying arrangement has an
anticompetitive effect in the tied product market;
27
• determining what the merchant fees would have been but for
the alleged anticompetitive tying; and
• quantifying the dollar amount of damages to the plaintiffs as
a consequence of the tying arrangement.
Dr. French then proceeds to consider the economic rationality of bringing an individual
action against Amex in light of these substantial expert witness costs:
Based upon publicly available information . . . I have estimated that
a small merchant with $10 million of annual sales, on average, might
calculate and expect $754 of economic damages for the year 2001,
which is roughly the midpoint of the damage period covered by this
litigation. . . . Multiplying the $754 damage figure by four, gives a
rough estimate of $3,015 total damages for the whole four-year
damage period, or $9,046 when trebled, assuming that the merchant’s
sales remain constant at $10 million for the four-year period.
. . . The median volume merchant, with half of the named plaintiffs
having more and half having less American Express charge volume,
and having reported $230,343 American Express Card volume in
2003, might expect four-year damages of $1,751, or $5,252 when
trebled. . . . The largest volume named plaintiff merchant, with
reported American Express Card volume of $1,690,749 in 2003,
might expect four-year damages of $12,850, or $38,549 when trebled.
In my opinion as a professional economist . . . it would not be
worthwhile for an individual plaintiff . . . to pursue individual
arbitration or litigation where the out-of-pocket costs, just for the
expert economic study and services, would be at least several hundred
thousand dollars, and might exceed $1 million.
In Kristian, the First Circuit found that expert affidavits similar to Dr. French’s
“demonstrat[ed] that without some form of class mechanism – be it class action or class arbitration
– a consumer antitrust plaintiff will not sue at all.” 446 F.3d at 58. We hold that the plaintiffs here
have also demonstrated that their antitrust claims against Amex can, for all intents and purposes,
only be pursued through the aggregation of individual claims, either in class action litigation or in
class arbitration.
28
The district court, which held that the enforceability of the class action waiver in the Card
Acceptance Agreement was a matter to be determined in arbitration, did not deal head on with Dr.
French’s affidavit. Dr. French’s conclusion that “in a non-class action involving an individual
plaintiff . . . even a relatively small economic antitrust study will cost at least several hundred
thousand dollars” was essentially uncontested. Instead of addressing this figure, the district court
misinterpreted and misapplied the statutory protections available to the plaintiffs. Citing Section 4
of the Clayton Act, 15 U.S.C. § 15(a), the district court noted that a plaintiff who had established a
Sherman Act claim against a defendant “shall recover threefold the damages by him sustained, and
the cost of suit, including a reasonable attorney’s fee.” In re American Express Merchants Litig.,
2006 WL 662341, at *5; see also Dambrosio v. Comcast Corp., No. Civ.A.03-6604, 2005 WL
3543794, at *16 (E.D. Pa. Dec. 27, 2005) (asserting that Section 4 of the Clayton Act “expressly
provides for the recovery of attorneys’ fees and expenses, [thereby] making the arbitral forum
accessible to individual plaintiffs and allowing them to vindicate the full range of substantive rights
granted to them” under the federal antitrust laws), vacated on other grounds, 2006 WL 2058643(E.D. Pa. Apr. 12, 2006).
This is true, but, as the plaintiffs correctly point out, the Clayton Act simply does not solve
their problem. Besides the fact that the trebling of a small individual damages award is not going
to pay for the expert fees Dr. French has estimated will be necessary to make an individual plaintiff’s
case here, there is an even more important legal consideration that the district court did not consider.
In Crawford Fitting Co. v. J.T. Gibbons, Inc., the Supreme Court addressed fee-shifting for expert
witnesses under Rule 54(d) of the Federal Rules of Civil Procedure in an antitrust case, holding that
“when a prevailing party seeks reimbursement for fees paid to its own expert witnesses, a federal
29
court is bound by the limit of [28 U.S.C.] § 1821(b) . . . .” 482 U.S. 437, 439 (1987).12 We note that
that figure is now set at a $40 per diem. Further, as the plaintiffs assert, there are no provisions “in
the rules of any of the arbitral bodies designated [in the Card Acceptance Agreement] that would
allow such costs to be awarded where they are not authorized by the applicable fee shifting statute.”
Even with respect to reasonable attorney’s fees, which are shifted under Section 4 of the Clayton Act,
the plaintiffs must include the risk of losing, and thereby not recovering any fees, in their evaluation
of their suit’s potential costs.13 Thus, Amex’s reply to the effect that “[a]n arbitrator can award the
same reasonable costs that are recoverable by statute,” plainly does not solve the problem.
Amex also informs us that a putative antitrust class action challenging the “Honor All Cards”
provision in the Card Acceptance Agreement has been brought in the U.S. District Court for the
Southern District of New York by a merchant plaintiff who is apparently not subject to the class
action waiver provision in the Agreement. See The Marcus Corp. v. American Express Co., No.
04cv5432, 2005 WL 1560484 (S.D.N.Y. July 5, 2005). Further pointing out that the plaintiffs in that
action are represented by the same counsel who represent the plaintiffs here, Amex speculates that
“[p]resumably” the plaintiffs here, “the Marcus plaintiff, and their common attorneys and experts
12
Quoting Paschall v. Kansas City Star Co., 695 F.2d 322, 338-39 (8th Cir. 1982), Amex
suggests that if an expert’s findings prove “to be so ‘crucial’ and ‘indispensable’ that an
arbitrator determines that the case absolutely could not have been pursued without them, the
arbitrator might award such costs.” Amex Brief at 28 We are skeptical, however, that an
arbitrator might follow Paschall because it appears unlikely that its holding survives Crawford
Fitting Co. See Gilbert v. City of Little Rock, Ark., 709 F. Supp. 856, 862 (E.D. Ark. 1987)
(holding that Paschall is inconsistent with the holding of Crawford Fitting to the effect that
expert witness fees are to be determined solely in accordance with 28 U.S.C. § 1821(b)).
13
The plaintiffs’ counsel has submitted a detailed affidavit which estimates that the cost
of depositions and document management would exceed $300,000.
30
could reach an agreement as to how the experts’ cost of preparation could be shared.” This is an
intriguing proposition, but we do not believe it can survive the application of the following provision
of the arbitration clause in the Card Acceptance Agreement: “The arbitration proceeding and all
testimony, filings, documents and any information relating to or presented during the arbitration
proceedings shall be deemed to be confidential information not to be disclosed to any other party.”
Thus, any proposal that the plaintiffs share the services of expert witnesses employed in the Marcus
action runs aground on the fact that the individual plaintiffs have contracted with Amex not to share
such information with anyone.14
Concluding that Amex has brought no serious challenge to the plaintiffs’ demonstration that
their claims cannot reasonably be pursued as individual actions, whether in federal court or in
arbitration, we find ourselves in agreement with the plaintiffs’ contention that enforcement of the
class action waiver in the Card Acceptance Agreement “flatly ensures that no small merchant may
challenge American Express’s tying arrangements under the federal antitrust laws.” The effective
negation of a private suit under the antitrust laws is troubling because such “private suits provide a
significant supplement to the limited resources available to the Department of Justice for enforcing
the antitrust laws and deterring violations.” Reiter v. Sonotone Corp., 442 U.S. 330, 344 (1979).
This may be especially true with respect to private antitrust suits brought as class actions. See Dando
14
One of the amici makes the following suggestion: “Whatever costs the Merchant
Plaintiffs might ultimately bear in procuring expert testimony in this case, those costs may be
offset by the cost savings of conducting an arbitration proceeding, rather than an all-out federal
trial.” Brief of Business Roundtable at 16. But this misses the point. While it may be true that
an individual arbitration brought by a plaintiff will likely cost less than a trial in federal district
court, the fact remains that the plaintiffs have demonstrated to our satisfaction that neither an
individual arbitration, nor an individual litigation would make any economic sense in light of the
likelihood that expert fees far in excess of any likely individual recovery would need to be
expended in either action.
31
B. Cellini, “An Overview of Antitrust Class Actions,” 49 Antitrust L.J. 1501, 1506 (1980) (“I think
it is obvious from the experience over the last fifteen years since the 1966 amendments to Rule 23
were adopted that linking an antitrust claim with a class action allegation can be devastatingly
effective.”).
In Mitsubishi, the Supreme Court held that there is by no means any necessary reason to
prevent sending a Sherman Act claim to arbitration because “so long as the prospective litigant
effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue
to serve both its remedial and deterrent function.” 473 U.S. at 637. The Mitsubishi Court
recognized, however, that there might be instances in which an arbitration agreement contained
provisions that would be unenforceable because they would prevent a prospective litigant from
vindicating its rights under the Sherman Act in an arbitral forum. Specifically, the plaintiff in
Mitsubishi speculated that the choice-of-forum and choice-of-law clauses in the arbitration
agreement at issue would effectively preclude the arbitrator from determining the plaintiff’s
substantive claims in accordance with the terms of the Sherman Act. The Court responded that it
would not prevent the case from going to arbitration based upon mere conjecture as to what body
of law the arbitrator would apply, but also continued as follows:
We merely note that in the event the choice-of-forum and choice-of-
law clauses operated in tandem as a prospective waiver of a party’s
right to pursue statutory remedies for antitrust violations, we would
have little hesitation in condemning the agreement as against public
policy.
Id. at 637 n.19.
We readily acknowledge that this statement is dicta, but it is nevertheless dicta grounded
upon a firm principle of antitrust law to the effect that an agreement which in practice acts as a
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waiver of future liability under the federal antitrust statutes is void as a matter of public policy. More
than a half-century ago, the Supreme Court stated that “in view of the public interest in vigilant
enforcement of the antitrust laws through the instrumentality of the private treble-damage action,”
an agreement which confers even “a partial immunity from civil liability for future violations” of the
antitrust laws is inconsistent with the public interest. Lawlor v. Nat’l Screen Serv. Corp., 349 U.S.
322, 329 (1955); see also Minnesota Mining and Mfg. Co. v. Graham-Field, Inc., No. 96cv3839,
1997 WL 166497, at *3 (S.D.N.Y. Apr. 9, 1997) (“GFI could not have waived [its antitrust] claim
in the releases because a prospective waiver of an antitrust claim violates public policy.”).
We believe that one of the amici has correctly applied the principle just set forth to the facts
of the instant case:
Plaintiff[s]-appellants’ antitrust claims are complex and plaintiffs
established for the record below that if they are precluded from
participating in a collective action, the cost to each individual
consumer to prosecute his or her claim is prohibitive relative to the
consumer’s potential recovery. If the collective action waiver is
enforced, American Express will be shielded from liability, even
where it may have violated the antitrust laws. Eradicating the private
enforcement component from our antitrust law scheme cannot be
what Congress intended when it included strong private enforcement
mechanisms and incentives in the antitrust statutes. Because the class
action waiver precluded the plaintiff[s]-appellants from enforcing
their statutory rights, the arbitration provision is unenforceable.
Brief of American Antitrust Institute at 15; see also Dale v. Comcast Corp., 498 F.3d 1216, 1224
(11th Cir. 2007) (“Corporations should not be permitted to use class action waivers as a means to
exculpate themselves from liability for small value claims.”).
We therefore hold that the class action waiver in the Card Acceptance Agreement cannot be
enforced in this case because to do so would grant Amex de facto immunity from antitrust liability
by removing the plaintiffs’ only reasonably feasible means of recovery. As already set forth, Section
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2 of the FAA, 9 U.S.C. § 2, provides that an agreement to arbitrate “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
Given that we believe that a valid ground exists for the revocation of the class action waiver, it
cannot be enforced under the FAA.
E. Two Caveats. We emphasize two important limitations upon our holding. First, our
decision in no way rests upon the status of the plaintiffs as “small” merchants. The plaintiffs
repeatedly refer to themselves as “small merchants” and as “small businesses.” But Amex is correct
when it counters that the plaintiffs “undoubtedly hope that, by labeling themselves as ‘small,’ they
can benefit from one line of case law where individual consumers have alleged that arbitration
agreements were imposed as a result of unequal bargaining power.” See, e.g., Lowden v. T-Mobile
USA, Inc., 512 F.3d 1213, 1219 (9th Cir. 2008) (holding class action waiver contained in cellular
telephone unconscionable under Washington law); Skirchak, 508 F.3d at 60 (holding class action
waiver in employment agreement unconscionable under Massachusetts law); Shroyer v. New
Cingular Wireless Servs., Inc., 498 F.3d 976, 984 (9th Cir. 2007) (holding class action waiver in
cellular phone contract unconscionable under California law). We do not follow these cases because
they all rely on findings of unconscionability under state law, while we have relied here on a
vindication of statutory rights analysis, which is part of the federal substantive law of arbitrability.
Applying the latter, we have found that plaintiffs have demonstrated the necessity of some class
mechanism in order to bring their claims against Amex. This demonstration is in no way dependant
on the “size” of any or all of the merchant plaintiffs; it depends upon a showing that the size of the
recovery received by any individual plaintiff will be too small to justify the expenditure of bringing
an individual action.
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Second, we stress that we do not hold here that class action waivers in arbitration agreements
are per se unenforceable. We also do not hold that they are per se unenforceable in the context of
antitrust actions.15 Rather, we hold that each case which presents a question of the enforceability of
a class action waiver in an arbitration agreement must be considered on its own merits, governed
with a healthy regard for the fact that the FAA “is a congressional declaration of a liberal federal
policy favoring arbitration agreements.” Moses H. Cone Memorial Hosp., 460 U.S. at 24. We
believe that the Eleventh Circuit has posited something like the correct approach:
[T]he enforceability of a particular class action waiver in an
arbitration agreement must be determined on a case-by-case basis,
considering the totality of the facts and circumstances. Relevant
circumstances may include, but are not limited to, the fairness of the
provisions, the cost to an individual plaintiff of vindicating the claim
when compared to the plaintiff’s potential recovery, the ability to
recover attorneys’ fees and other costs and thus obtain legal
representation to prosecute the underlying claim, the practical affect
the waiver will have on a company’s ability to engage in unchecked
market behavior, and related public policy concerns.
Dale, 498 F.3d at 1224.
E. The Plaintiffs’ Other Claims. Because we hold that the class action waiver in the Card
Acceptance Agreement is unenforceable as to all plaintiffs under the federal substantive law of
arbitration, the plaintiffs’ contention that the waiver is not enforceable against named plaintiffs and
15
We note that the Fourth Circuit, in In re Cotton Yarn Antitrust Litigation, has upheld
the enforcement in an antitrust action of a collective action ban contained in a contract between
commercial parties. The case presented a claim of antitrust conspiracy, and the court pointed out
that a bar upon joining the two defendants, who were jointly and severally liable, did not
preclude the arbitrability of the claim because “co-conspirators are not necessary parties; a
plaintiff can prove the existence of a conspiracy in an action against just one of the members of
the conspiracy.” 505 F.3d at 284. The court also noted “[t]he absence of an evidentiary record on
. . . the actual cost of individual proceedings and . . . about the ability of the corporate plaintiffs
to bear those speculative costs.” Id. at 285. Again, such a record exists in the instant case.
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class members who were citizens of California because the waivers are unconscionable under that
State’s law is moot. Similarly, the plaintiffs’ appeal of the district court’s holding that the class
action waiver could be enforced against those named plaintiffs who had contracted with Amex
before the 1999 inclusion of the mandatory arbitration clause in the Card Acceptance Agreement is
also moot.
F. Relief. Because the plaintiffs have declared themselves amenable to proceeding to
arbitration, we need not consider whether the class action waiver in the Card Acceptance Agreement
is severable from the remainder of the arbitration provision contained therein. Further, in light of
the fact that Amex declared at oral argument that it would reconsider its intention to proceed to
arbitration should this Court not enforce the class action waiver, we remand to the district court to
allow Amex the opportunity to withdraw its motion to compel arbitration.
CONCLUSION
The decision of the district court is REVERSED. We REMAND to the district court for
further proceedings consistent with this opinion.
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