There’s at least one class arbitration waiver that will not stand.
The Second U.S. Circuit Court of Appeals on Tuesday denied a request to rehear en banc In re: American Express Merchants Ass’n
, 634 F.3d 187 (2d Cir. Feb. 12, 2012)(available here
), where the court held a class-action arbitration waiver provision in a contract between American Express and merchants accepting the company’s credit card to be unenforceable as against public policy.
Analysts believe that the case, or at least the issue, ultimately will be decided by the U.S. Supreme Court, which has declined to hear Amex in its earlier stages.
Circuit Judge Rosemary S. Pooler filed an opinion concurring with the result, while five judges dissented in three separate opinions. In re: American Express Merchants’ Litig.
, Docket No. 06-1871-cv (May 29, 2012)(available here
In her concurrence, Pooler--who authored the previous Amex
opinion in February--distinguishes the current case from the Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion
, 131 S.Ct. 1740 (2011)(available here
), noting that the February opinion deals with federal statutory rights, while AT&T Mobility
addresses state contract rights.
Specifically, Pooler writes in her concurrence that the February panel decision—the third Second Circuit Amex
opinion in the antitrust case--answers the question “whether the FAA always trumps rights created by a competing federal statute, as opposed to rights existing under a common law of unconscionability.”
If the contractual agreement functions “as a prospective waiver of a party’s right to pursue statutory remedies,” according to the concurrence, then the provision may not be enforced. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc.
, 473 U.S. 614, 637, n. 19 (1985).
Therefore, the issue of the case is “not the right to proceed as a class, but the ability to effectively vindicate a federal statutory right that predates the FAA,” according to the Pooler concurrence.
Pooler writes that she believes that the particular Amex
facts do not pass this vindication-of-statutory-rights analysis, because the potential damages awards for individual plaintiffs are too small relative to the cost--even if the Clayton Act’s treble-damages and fee-shifting provisions had been taken into account.
That is, the award wouldn’t justify the actions against American Express by the individual restaurants accepting the credit cards because of the high costs of addressing antitrust claims.
Thus, class action is “the only economically feasible means
for plaintiffs [to] enforc[e] their statutory rights,”writes Circuit Judge Pooler in her concurrence, contrasting Coneff v. AT&T Corp.
, 673 F.3d 1155 (9th Cir. 2012)(emphasis is Pooler's). In Coneff
, the consumers did not bother to file claims simply because the amounts were too small to be worth the trouble, not because of the prohibitive cost. Accordingly, in Amex
, the plaintiffs have no effective means to vindicate their rights, while the Coneff
customers only lacked sufficient incentive to do so.
Finally, Pooler addresses a concern that the February Amex
decision permits plaintiffs to evade enforcement of class-action arbitration waivers simply by manufacturing an affidavit or choosing pricey attorneys. Instead of imposing a categorical rule, Pooler argues, the court proposed a case-by-case review, noting that “each case will need to stand on its own merits.”
Therefore, Pooler believes that the request for rehearing en banc is correctly denied.
Chief Circuit Judge Dennis Jacobs, joined by Circuit Judges Jose A. Cabranes and Debra Ann Livingston, filed a lengthy dissent. Jacobs criticizes the panel’s holding that “arbitration agreements containing class-action waivers are unenforceable when applied to federal statutory claims if
(as is always so easy to assert) a claim would not be ‘economically rational’ to pursue individually,” because it impairs the FAA’s “strong federal policy favoring the enforcement of arbitration agreements” and frustrates the fast and efficient settlement of disputes. (Emphasis is in the dissent.)
First, Jacobs argues that the February Pooler Amex
opinion cannot be squared with the FAA because it could effectively bar all class-action waivers, even though “as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” (Citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.
, 460 U.S. 1, 24-25 & n.32 (1983).)
Specifically, Jacobs notes, the decision “can be used to challenge virtually every consumer arbitration agreement that contains a class-action waiver--and other arbitration agreements with such a clause.”
The panel, the chief circuit judge notes, “uncritically adopts the affidavit of a paid consultant” to find that expert costs for individual arbitration to be too high relative to potential damages so as to make the plaintiffs’ vindication of statutory rights unfeasible without a class action. That result could encourage class action lawyers to use such tactics to bypass the waiver provision.
By implication, Jacobs contends, arbitration must now begin in federal court to estimate the cost of litigation and discuss the merits of the waiver provision, which may involve lengthy discovery and testimonies. By requiring the district court to consider matters of economic rationality at the threshold, the decision effectively replaces arbitration with a trial court proceeding whenever a lawyer asserts a class-action claim.
Second, Jacobs believes that the distinction from AT&T Mobility
is misconceived by the February panel decision. He notes that the U.S. Supreme Court already has held that federal statutory claims can be subject to valid arbitration agreements, citing Gilmer v. Interstate/Johnson Lane Corp.
, 500 U.S. 20, 25 (1991).
By differentiating state contract law and federal antitrust claims, the panel “treats the reasoning of [AT&T Mobility
] as an obstacle to be surmounted or evaded.”
Contrary to the position advanced by the panel, the Supreme Court has explicitly affirmed that “rules inconsistent with the FAA cannot be imposed ‘even if desirable for unrelated reasons,’” while recognizing that often “class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system.”
The panel might have considered Clayton Act’s treble-damages and fee-shifting provisions inadequate, but that is a matter for the Congress, not the court, to decide, the dissent states.
Third, Jacobs contends that the panel opinion “leans on the distortion of dicta from Green Tree Financial Corp. v. Randolph
, 531 U.S. 79 (2000)” and a “misleading … quotation of Mitsubishi
.” He suggests that under existing case law, an arbitration agreement would be invalidated only if it had “foreclosed a remedy to which one of the parties was otherwise entitled to seek at law,” and that there have been few if any cases that “invalidated an arbitration agreement on the ground that the claims were costly to litigate individually.”
Moreover, Jacobs notes, “[t]he only right to an antitrust class action is ‘merely a procedural one, arising under Fed. R. Civ. P. 23, that may be waived by agreeing to an arbitration clause.’” Johnson v. W. Suburban Bank
, 225 F.3d 366, 369 (3d Cir. 2000).
For these reasons, Jacobs believes that the February Amex
panel opinion is a problematic decision that has been a source of confusion in the lower courts, and should be reheard en banc.
Circuit Judge Cabranes joined in the Jacobs dissent, and also wrote a one-paragraph dissent to emphasize the issue’s importance, and the circuit split the February decision created. He writes that the denial of an en banc review “can only be explained as a signal that the matter can and should be resolved by the Supreme Court.”
Circuit Judge Reena Raggi, joined by Circuit Judge Richard C. Wesley, also issued a dissent. She considers the circuit split to be unwarranted in light of controlling Supreme Court precedent, and agrees in principle with the reasons advanced by Chief Judge Jacobs.
Yet Raggi also believes “it would be useful to have the issue explored further by the full court in the adversarial context of an en banc argument.” She dissents from the majority’s decision to “maintai[n] this circuit split without further consideration.”
--Congsi Wu, CPR Intern