June 11, 2012
2d Circuit Denies Rehearing En Banc in an Arbitration Case
On May 29th, a fractured Second Circuit denied rehearing en banc in In re: America Express Merchants' Litigiation, a case decided by a Second Circuit panel on February 1st after its earlier decisions were succesively vacated by the US Supreme Court in light of its decisions in Stolt-Nielsen & Concepction. After each of these decisions, the case was remanded to the Second Circuit. Each time, the Second Circuit found that the recent Supreme Court decisions do not necessitate a different outcome. Its most recent en banc decision leaves its prior rulings undisturbed.
The underlying facts are complicated and relate to the difference betweeen credit cards and charge cards. Under the latter, American Express (Amex) traditionally charged fees at least 35% higher than it did under ordinary credit cards. Plaintiffs allege that Amex is now using its market power to force merchants that accept Amex to pay higher fees on both credit cards and charge cards.
Unfortunately for the merchant plaintiffs, their card acceptance agreement with Amex included an arbitration clause and a class-action wavier. Back in 2006, based on these provisions, the District Court granted Amex's motion to compel arbitration. The Second Circuit found as an initial matter that the compulsory arbitration combined with the class action waiver effectively deprived plaintiffs of any mechanism for pursuing their anti-trust claims. As a result, the Second Circuit declared the arbitration clause unenforceable and reversed the Distirct Court's order compelling arbitration.
Judge Pooler was part of the panel that decided the case. As she explained in her concurring opinion to the denial of rehearing en banc, the Supreme Court's recent decisions holding that the Federal Arbitration Act (FAA) trumps state laws that might otherwise defeat compulsory arbitration or class-action waivers do not apply to challenges to arbitration based on federal statutes:
Because its analysis focused wholly on the issue of preemption of state law by federal law, Concepcion is silent on the holdings of the Court's earlier cases which enforce arbitration clauses only when those clauses permit parties to effectively vindicate their federal statutory rights.
Chief Judge Jacobs, along with Judges Cabranes and Livingston, dissented from the denial of rehearing based on previous holdings permitting compulsory arbitration of anti-trust claims. According to the dissenters, the panel opnion (Amex III) turns on the court's determination that anti-trust claims are not economically feasible because of the class-action waiver, but the dissenters do not regard it as the proper role for courts to determine the economic feasibility of a category of potential claims. Amex III thus subverts the policy goals informing the FAA by requiring a trial on the merits (more or less) in federal court to determine whether or not the claim is suitable for arbitration. The FAA requires that such deterinations be made by the arbiter.
The case has been relied on by several District Courts. Given its influence, it ought to be reviewed en banc, say the dissenters especially since Amex III is inconsistent with a 9th Circuit case, Coneff v. AT&T. which upheld an abitration clause and class action waiver despite the fact that plaintiffs brought claims under the Federal Communications Act.
The dissenters express some incredulity at the majority's reasoning. State laws that expressly make class-action waivers unenforceable are swept aside by Concepcion's logic but somehow federal claims that make no reference ot class actions surivive it. They also expressed some skepticism about whether or not arbitration really would be economically infeasible in this case.
Judge Cabranes wrote separately to flag the case for Supreme Court review. Judges Raggi and Wesley dissented from the denial of rehearing mainly on the ground that they view the case as inconsistent with Coneff. Before creating a Circuit split, one really ought to hear reargument, reason these dissening judges.
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