American Express Co. (“AMEX”) filed a petition for certiorari on July 30, 2012 after a Second Circuit panel ruled for the third time that the company could not enforce an arbitration agreement containing a class action waiver against a putative class of merchants who pursued antitrust claims.  American Express Co. v. Italian Colors Restaurant, No. 12-133.  The Second Circuit had held that the class action waiver contained in AMEX’s Card Acceptance Agreement—which tied the acceptance of its credit card to its higher-rate charge card—was unenforceable because it “would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs,” whose antitrust claims would not be economically rational to pursue individually. The Second Circuit had based its holding on an affidavit from plaintiffs’ expert showing that the several hundred thousand dollars of costs would far exceed the $5,000 anticipated recovery for each plaintiff.  The Circuit, though divided, declined to hear the case en banc.  (See our blog posts from April 4 and June 5, 2012.)

In its petition, AMEX—citing several judges who issued dissents to the en banc decision—asserted that the panel’s ruling undermined the Federal Arbitration Act’s (“FAA”) strong federal policy favoring the enforcement of arbitration agreements according to their terms.  AMEX implored the Supreme Court to review theSecond Circuit’s ruling, which the company maintained would create a “sweeping, unwritten loophole in the FAA” and would become “a de facto nationwide rule” making the Second Circuit “the new magnet for class action plaintiffs.”

In AMEX I, the panel initially overturned the district court’s decision upholding AMEX’s class arbitration waiver.  The Supreme Court, however, vacated the panel’s ruling and remanded the case in light of the high court’s holding in Stolt-Nielsen S.A. v. AnimalFeeds International Corp that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”  The panel subsequently held in AMEX II that Stolt-Nielsen did not alter its initial ruling, but sua sponte reconsidered its decision after the Supreme Court decided AT&T Mobility v. Concepcion just weeks later.

In Concepcion, the Supreme Court ruled that the FAA preempted a California state contract law that barred the enforcement of a class action waiver because it “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”  Again, however, the panel held that its decision was unaffected by the Supreme Court’s ruling.

In its third decision on the matter, the Second Circuit held that its holding rested on “a vindication of statutory rights analysis, which is part of the federal substantive law of arbitrability,” unlike the state contract law at issue in Concepcion.  The Second Circuit further ruled that taken together, Concepcion and Stolt-Nielson “stand squarely for the principle that parties cannot be forced to arbitrate disputes in a class-action arbitration unless the parties agree to class arbitration.”  The Second Circuit held that its holding did not impose class arbitration and that the cases provided no guidance on the question at issue 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 statutory claims.”

AMEX asserted in its petition that the Second Circuit’s efforts to distinguish the two cases was “labored” and “nonsensical,” and in particular, “evade[d] the ‘broad language and clear import of Concepcion.’”  AMEX stated that the Concepcion Court, “explicitly held that conditioning the enforceability of arbitration agreements on the availability of class arbitration frustrates the FAA’s core purposes no less than actually imposing class arbitration.”  Thus, according to AMEX, authorizing lower federal courts to create a rule for federal claims that is materially indistinguishable from the state-law rule, which the Concepcion Court held was preempted by the FAA, “flouts the[] basic tenets” of the statute.

AMEX further encouraged Supreme Court review to correct the Second Circuit’s “unfounded expansion” of Supreme Court dicta in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. and Green Tree Financial Corp. – Alabama v. Randolph. Particularly in Randolph, AMEX argued that the Court’s dicta that “the existence of large arbitration costs could preclude a litigant. . . from effectively vindicating her federal statutory rights in the arbitral forum” referred solely to the costs unique to arbitration such as filing, arbitration and administrative fees that might preclude access to the arbitral forum not fees related to litigation generally.  AMEX further argued that the Concepcion Court foreclosed the “prohibitive costs” reading of Randolph when, in response to the dissent’s arguments “that class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system,” it held that a court “cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”

AMEX also argued that the Second Circuit’s decision creates a split in the circuits, particularly with the recent Ninth Circuit decision in Coneff v. AT&T, which enforced an arbitration agreement containing a class-arbitration waiver in a case raising federal claims.  The Ninth Circuit held that “to the extent that the Second Circuit’s opinion is not distinguishable, we disagree with it.”  AMEX urged the high court to grant certiorari to resolve the Circuit split and further maintained that Supreme Court review was necessary to:  a) prevent the threshold arbitrability question from becoming a detailed inquiry into the merits to determine the “economic feasibility” of an individual claim: b) discourage forum shopping considering the number of major and global companies that do business in the Second Circuit; and c) address an issue of national importance, which is the safeguarding of the FAA’s fundamental commitment to the enforceability of commercial arbitration agreements.

Judge Carbanes, in his dissent to the en banc decision, stated that “this is one of those unusual cases where one 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.”  Whether the Supreme Court got the signal is yet to be determined, but it is clear that certiorari review is necessary to resolve a number of unanswered questions and uncertainty among the Circuits resulting from the Second Circuit panel decision.