Editors’ Note: This post is a joint submission to Baker’s Class Action Lawsuit Defense and Employment Class Action blogs.
On February 1, 2012, a two-judge panel of the Second Circuit reaffirmed its holding in an antitrust action brought against American Express (“AMEX”) that class action waivers involving federal statutory rights were unenforceable. Largely based on an expert’s affidavit, the panel concluded that “the only economically feasible means for Plaintiffs enforcing their statutory rights is via a class action.” See In re American Express Merchants’ Litig., 667 F.2d 204 (2d Cir. 2012) (“AMEX III”). (See our previous blog post from February 2, 2012.)
The Second Circuit has now declined AMEX’s petition for rehearing en banc with five judges dissenting – some vigorously.
I. Judge Pooler Concurring.
Judge Rosemary Pooler, the author of AMEX III, concurred in the denial of rehearing en banc, emphasizing the “limited holding” in AMEX III and that its “analysis . . . rests squarely on a vindication of statutory rights analysis – an issue untouched in [AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011)].” (The Concepcion decision — covered in this blog on January 2, 2012 and in our interview with Professor Mary Kay Kane on May 8, 2012 — held that the Federal Arbitration Act (“FAA”) preempted California law barring the enforcement of class action waivers in the consumer context.)
Judge Pooler argued that “[w]hile Concepcion addresses state contract rights, AMEX III deals with federal statutory rights – a significant distinction.” And, she also distinguished Coneff v. AT&T Corp., 673 F.3d 1155 (9th Cir. 2012), because it “like Concepcion – examines when the FAA preempts state contract law. Unlike AMEX III, the Coneff court was not focused on individual plaintiffs lacking an effective means of enforcing their rights.”
Judge Pooler’s concurrence ended with a bold shot at those who disagreed: “AMEX III gives full effect to a long line of Supreme Court precedent preserving plaintiffs’ ability to vindicate federal statutory rights, rather than eviscerating more than 120 years of antitrust law by closing the courthouse door to all but the most well-funded plaintiffs.”
II. The Donnybrook Begins!
Chief Judge Dennis Jacobs, joined by Judges José Cabranes and Debra Ann Livingston, delivered a forceful rejoinder, detailing the need for en banc review. “The panel opinion . . . impairs the [FAA’s] strong federal policy favoring the enforcement of arbitration agreements, and frustrates the goal of arbitration by multiplying claims, lawsuits and attorneys’ fees.”
Chief Judge Jacobs identified three areas supporting the need for en banc review: (1) AMEX III “is unbounded and can be employed to defeat class-action waivers altogether;” (2) “it makes the district court the initial theater of arbitral conflict on the merits . . .; ” and (3) “it is already working mischief in the district courts.”
In support of his first reason, Chief Judge Jacobs argued that AMEX III is “a broad ruling that . . . can be used to challenge virtually every consumer arbitration agreement that contains a class-action waiver — and other arbitration agreements with such a clause.” Indeed, “every class counsel and every class representative who suffers small damages can avoid arbitration by hiring a consultant . . . to opine that expert costs would outweigh a plaintiff’s individual loss.”
As to the second basis for en banc review, Chief Judge Jacobs found that AMEX III required district judges, rather than arbitrators, to consider the merits of the case for a variety of reasons. The threshold consideration of expert testimony and discovery issues “[e]ffectively displaces arbitration with a trial court proceeding whenever lawyers assert a class claim . . . . Even if arbitration is given a green light at the end of the judicial proceeding, the party seeking to arbitrate may have already spent many times the cost of an arbitral proceeding just enforcing the arbitration clause. * * * The predictable upshot is that AMEX III will render arbitration too expensive and too slow to serve any of its purposes.”
A third basis for en banc review is the unwarranted expansion of the decision. Three district courts within the Second Circuit already have applied the AMEX decision to federal employment claims. The panel opinion, according to Chief Judge Jacobs, also created a split with the Ninth Circuit’s holding in Coneff v. AT&T Corp. In Coneff, a group of AT&T wireless customers brought a class action raising a number of claims including a violation of the Federal Communications Act. The Ninth Circuit enforced the class action waiver in the arbitration agreement finding that the FAA was not concerned with whether customers “have sufficient incentive to vindicate their rights.”
Chief Judge Jacobs further condemned the panels’ legal analysis as proceeding “by selective quotation from Supreme Court dicta, and by aggressive measures to distinguish away the Supreme Court’s recent holding in Concepcion.”
Judge Cabranes filed a separate dissenting opinion “to underscore that the issue at hand is indisputably important, creates a circuit split, and surely deserves further appellate review.” Tellingly, he added, “[t]his is one of those unusual cases where we can infer that the denial of in banc review can only be explained as a signal that the matter can and should be resolved by the Supreme Court.” So, the analytical Donnybrook now may move to a broader venue.
The final dissent was authored by Judge Reena Raggi and joined by Judge Richard Wesley. Judge Raggi maintained that the panel decision holding a class action waiver unenforceable was “at odds” with Coneff v. AT&T Corp., and based on applicable Supreme Court precedent, created an unnecessary circuit split, as “forcefully advanced by Judge Chief Judge Jacobs.”
III. The Next Battle?
As the dissents suggest, this dispute likely will find its way to the U.S. Supreme Court. AMEX III’s “vindication of statutory rights analysis” is not confined to anti-trust cases. As Chief Judge Jacobs noted, the decision’s elastic principles have been applied to federal employment claims and could be used with respect to any federal claim. Indeed, three employment-related class action waiver cases are currently before the Second Circuit, two involve alleged violations of the Fair Labor Standards Act, and the third is premised on Title VII gender discrimination. They involve Citigroup, Inc., Ernst & Young LLP and Goldman Sachs & Co.
The Bottom Line: The AMEX III decision warrants U.S. Supreme Court review. Until then, it remains a potential impediment to enforcing class action waivers involving federal claims, at least in the Second Circuit. Its “vindication of federal statutory rights analysis,” provides plaintiff’s lawyers with a weapon to attack class action waivers.