Feb 1 (Reuters) - American Express cannot use an arbitration clause to prevent its merchant customers from banding together in an antitrust lawsuit against the company, a federal court of appeals ruled on Wednesday.

Since 1999, American Express has included a mandatory arbitration clause requiring merchants to waive the right to sue the company in a class action. The clause, however, is unenforcable because it encroaches on merchants' rights under federal antitrust laws, ruled the U.S. Court of Appeals for the 2nd Circuit.

"Here plaintiffs have demonstrated that their statutory rights cannot be vindicated through individual arbitration," Judge Rosemary Pooler wrote for the two-judge panel.

A group of California and New York merchants, including restaurants and retailers, and the National Supermarkets Association sued American Express in 2003. They accused the company of using numerous tactics to force merchants to pay inflated fees for Amex charge card transactions in violation of federal antitrust laws.

American Express argued that, under their contracts, the merchants were required to resolve their disputes individually in private arbitration. The district court agreed in 2006, upholding the arbitration clause.

But the 2nd Circuit, reviewing the case for a third time in light of successive Supreme Court rulings, refused to send the parties to arbitration.

The enforceability of arbitration clause became a hot-button issue after the Supreme Court's 2011 decision in AT&T Mobility v. Concepcion, which allowed companies to enforce class action waivers in consumer contracts. The decision appeared to be a windfall for companies, allowing them to thwart consumer class actions by adding arbitration clauses to their contracts.

But the 2nd Circuit concluded that the Concepcion ruling did not apply to the merchants' antitrust claims. Relying on testimony from the plaintiffs' economics expert, the court found that the merchants would have no economic incentive to pursue an individual arbitration. The cost of hiring an antitrust expert to prove the case would dramatically outweigh the individual damages, the court noted.

Christine Elliott, a spokeswoman for American Express, said the company intends to appeal the decision.

Gary Friedman, a lawyer for the merchants, said the 2nd Circuit decision is "a solid and unremarkable application of clear law, and it comes as no surprise." He said three other circuit courts reached the same conclusion, refusing to enforce arbitration clauses in antitrust cases.

The case is In Re: American Express Merchants' Litigation, U.S. Court of Appeals for the 2nd Circuit, No. 06-1871.

For the merchants: Gary Friedman of the Friedman Law Group.

For American Express: Bruce Schneider, Julia Strickland and Stephen Newman of Stroock & Stroock & Lavan; Michael Kellogg of Kellogg, Huber, Hansen, Todd, Evans & Figel.

(Reporting By Terry Baynes)

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