The Chicken Littles of the plaintiffs bar were pretty sure the
sky was falling last year when the U.S. Supreme Court issued its
ruling in AT&T Mobility v. Concepcion. In Concepcion, you'll
recall, the Court upheld AT&T's right to compel consumers to
submit to arbitration even though, under California common law,
consumer class-action waivers were considered unconscionable.
The ruling was seen as a broad endorsement of mandatory
arbitration clauses and a simultaneous threat to class actions,
for consumers and everyone else. If it weren't for Concepcion,
for instance, would the Carlyle Group have included in its IPO
registration statement a provision mandating that investors surrender their right to sue and instead submit to individual
arbitration? I don't think so.
But plaintiffs' lawyers, regulators, and courts are
beginning to poke some holes in Concepcion. In D.R. Horton, Inc.
and Michael Cuda, the National Labor Relations Board weighed
Horton's rights under the Federal Arbitration Act against its
employees' rights under federal labor laws, and concluded Horton
could not block collective employee actions through an arbitration clause.
The Financial Industry Regulatory Authority just sued Charles Schwab for adding a provision to customer account
agreements that would preclude them from bringing class actions
against the brokerage.
And perhaps most significantly, the U.S. Court of Appeals
for the Second Circuit has concluded that Concepcion does not
always bar class actions.
Wednesday's Second Circuit opinion in In re: American
Express Merchants' Litigation finds tension between Concepcion
and a Supreme Court decision from 2000, Green Tree Financial v. Randolph. In Green Tree, the Court conceded that the cost of an
individual proceeding could stand in the way of a litigant
exercising federal statutory rights through arbitration.
Though the Justices ended up concluding that the Green Tree
plaintiffs hadn't shown that to be the case, the Second Circuit
relied heavily on the opinion's consideration of individualized
costs when it first decided the AmEx case back in 2009. Small
merchants, the Second Circuit panel found, couldn't afford to
challenge AmEx for alleged antitrust violations in individual
arbitrations. (The finding was based on evidence from the
plaintiffs' expert economist.) So according to the Second
Circuit, AmEx's class-action waiver was an unenforceable bar on
the plaintiffs' statutory right to bring federal antitrust
AmEx came back to the Second Circuit for reconsideration
after Concepcion. In Wednesday's ruling, Second Circuit Judges
Robert Sack and Rosemary Pooler said that decision does not
change their analysis, just as they previously found the Supreme
Court's 2010 ruling in Stolt-Nielsen v. AnimalFeeds International didn't. (Justice Sonia Sotomayor was on the Second
Circuit AmEx panel before her elevation to the Supreme Court.)
"It is tempting to give both Concepcion and Stolt-Nielsen such a
facile reading, and find that the cases render class action
arbitration waivers per se enforceable," Pooler wrote. "But a
careful reading of the cases demonstrates that neither one
addresses the issue presented here: whether a class-action
arbitration 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 vindicate their federal
To be sure, the Second Circuit panel said that its ruling
doesn't mean "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." But the
opinion's conclusion that "each class action waiver must be
considered on its merits" is powerful ammunition for class
AmEx plaintiffs' counsel Gary Friedman of the Friedman Law
Group said the Second Circuit's opinion offers a "limited
exception" to the rule that arbitration may pre-empt class
actions. "This decision does flow out of well-established
Supreme Court precedent and circuit court law interpreting [that
precedent]," Friedman said. "It's on solid footing."
AmEx counsel Bruce Schneider of Stroock & Stroock & Lavan
referred me to a company spokesperson who didn't get back to me.
AmEx was also represented at the Second Circuit by Kellogg,
Huber, Hansen, Todd, Evans & Figel.
(Reporting by Alison Frankel)
Follow Alison on Twitter: @AlisonFrankel
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