In In re American Express Merchants' Litigation, (2d Cir. Feb. 1, 2012), a group of merchants brought a class action suit in the Southern District of New York against American Express (Amex). The claim alleged that Amex violated federal anti-trust statutes with an illegal "tying arrangement" where Amex used its market power to require merchants to accept all types of Amex cards. Amex responded with a motion to compel arbitration, citing a mandatory arbitration clause in its merchant agreement. The arbitration clause included a waiver precluding merchants from pursuing anything other than individual claims in an arbitral forum. The district court concluded that the claims should be arbitrated and dismissed the case.

On the initial appeal, the Second Circuit disagreed and held that the arbitration agreement was unenforceable because a collective action problem would effectively preclude vindication of statutory rights. In re American Express Merchants Litigation, 554 F.3d 300, 304 (2d Cir. 2009) (Amex I), the Supreme Court granted Amex's petition for writ of certiorari, then vacated and remanded for reconsideration in light of its decision in Stolt-Nielsen S.A. v AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010).

Stolt-Nielsen held that when an arbitration agreement is silent on class arbitration, the parties cannot be compelled to submit to class arbitration (see Legal update, Supreme Court rules class arbitration is unavailable when agreement is silent). On remand, the Second Circuit found its original analysis unaffected by Stolt-Nielsen and once again held that the class action waiver was unenforceable. The case was remanded for further proceedings (In re American Express Merchants Litigation, 634 F.3d 187 (2d Cir. 2011) (Amex II)).

Shortly after the Amex II decision, the Supreme Court decided AT&T Mobility LLC v Concepcion, 131 S. Ct. 1740 (2011). In Concepcion, the Supreme Court held that the FAA preempted California common law deeming most class-action arbitration waivers in consumer contracts unconscionable (see Legal update, Supreme Court holds that Federal Arbitration Act preempts California rule on unconscionability).

The Second Circuit declined to interpret Concepcion and Stolt-Nielsen to require all class action arbitration waivers to be per se enforceable. Instead, it found that each class action waiver must be considered based on the facts of the case. In this case, the court relied on expert testimony showing that the significant costs of bringing individual anti-trust claims and the small compensatory damages available made it impractical to pursue individual claims.

The Second Circuit concluded that, in light of the significant costs associated with vindication of individual claims, the class action waiver could not be enforced because it would grant Amex de facto immunity from anti-trust liability by preventing aggregate claims, the only feasible means of recovery. The case was remanded to the district court with instruction to deny the motion to compel arbitration because the arbitration clause was unenforceable.

This case shows that an explicit class arbitration waiver may make an arbitration clause unenforceable when the prohibitive costs of bringing individual suits effectively deprive plaintiffs of statutory protections.