Second Circuit Strikes Down Class Action Waiver

Earlier this month, in In re American Express Merchants’ Litigation, the Second Circuit struck down — for the third time — an arbitration provision containing a class action waiver in an American Express credit card agreement. By ruling the class action waiver unenforceable, the decision sets up a potential conflict with the Supreme Court’s ruling in Concepcion, and may well lead to a second Supreme Court review of the enforceability of class action waivers. In the meantime, the Second Circuit has created an additional obstacle for companies that seek to avoid class actions through arbitration.

For your reference, here’s a roundup of legal commentary on the Second Circuit decision and its implications for businesses that use class action waivers:

Judicial Scrutiny of Arbitration Clauses Under Concepcion (Venable LLP)

“In In re American Express Merchants’ Litigation, merchants who accept American Express cards brought suit in the Southern District of New York pursuing class action antitrust claims. AmEx moved to compel arbitration pursuant to the terms of its agreements with the merchants, which contained a provision allowing either party to elect arbitration and, if arbitration was chosen, precluding class action litigation and the arbitration of on any claims on an aggregated basis. In an earlier opinion, the Second Circuit concluded that it would be prohibitively expensive for the class action merchant plaintiffs to bring individual claims since it would be necessary for them to develop expert testimony at a cost exponentially more than potential individual recoveries.” Read more»

Second Circuit Holds Class Action Waiver Unenforceable Where Individual Arbitration Would be Prohibitively Expensive (Sutherland Asbill & Brennan LLP)

“This is the third time the Second Circuit has decided this issue in the American Express antitrust litigation, each time holding that the class action waiver is unenforceable. In each decision, the court has rested its holding on ‘a vindication of statutory rights’ analysis, and defined the issue as ‘whether a mandatory class action waiver clause is enforceable even if the plaintiffs are able to demonstrate that the practical effect of enforcement would be to preclude their ability to bring federal antitrust claims.’ In this recent decision, the Second Circuit considered the Supreme Court’s Concepcion decision, but opined that ‘what Concepcion [does] not do is require that all class-action waivers be deemed per se enforceable.’” Read more»

In re American Express Merchants’ Litigation – Plaintiffs Survive Three Rounds In The Second Circuit, But Can They Survive The Supreme Court? (Sheppard Mullin Richter & Hampton LLP)

“The Second Circuit was careful not make any sweeping pronouncements about class action waivers. Instead, it narrowly limited its holding to the specific class action waiver before it, and held that class action waivers must be considered on a case-by-case basis under the framework of Green Tree: ‘We do not hold today that class action waivers in arbitration agreements are per se unenforceable, or even that they are per se unenforceable in the context of antitrust actions. Rather … we hold that each waiver must be considered on its own merits.’” Read more»

Important Limits On Class Action Arbitration Waivers (Bryan Cave)

“Companies that face class action claims should take note of two recent federal court decisions that could make it harder to avoid class actions through the use of mandatory arbitration clauses in contracts with customers… With the Second Circuit’s most recent opinion, expect attacks on arbitration provisions to increase. For defendant companies, it will become more important to challenge the validity of an expert’s assertion as to the costs of proceeding with individual arbitration—perhaps to the point of seeking Daubert hearings challenging plaintiffs’ experts as part of this process.” Read more»

Plaintiffs Are Once Again Invalidating Class Action Waivers (TroyGould PC)

“The court found that Concepcion did not apply where, as was the case here, the plaintiff merchants had shown that the class action bar effectively precluded them from seeking vindication of their statutory rights under antitrust laws because individual arbitrations would be prohibitively expensive. The court limited its findings to the facts of this case, but then threw the door to future challenges wide open by suggesting that the validity of these provisions should be decided on a case by case basis.” Read more»


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