Third time’s the charm, right?  The Second Circuit has struck down, for the third time, a class action waiver in an arbitration agreement between American Express and  merchants.  In re American Express Merchants’ Litigation.  This long-running case–which has already gone up to the Supremes before–is rooted in an arbitration agreement between AmEx and merchants who accept AmEx cards.

The merchants allege that AmEx violated federal antitrust laws by using its market power to force merchants to pay higher fees for acceptance of its cards.  AmEx moved to compel arbitration based on the arbitration provisions in its contracts.  The district court granted AmEx’s motion to compel arbitration, and the merchants appealed.

The issue this time was whether a mandatory class action waiver is enforceable even if the practical effect of enforcement would be to preclude plaintiffs’ ability to bring federal antitrust claims.  But wait:  Didn’t the Supreme Court already resolve this in AT&T Mobility LLC v. Concepcion?  The Second Circuit didn’t think so, finding Concepcion inapposite because it did not address whether a class action waiver could be enforced if the practical effect of the enforcement would be to preclude plaintiff’s ability to vindicate their federal statutory rights.  OK, what about Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,which held that parties could not be compelled to submit to class arbitration unless they agreed to it?  Sorry.  No dice.

Instead, the Second Circuit looked to older Supreme Court precedent for support, namely Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., which held that arbitration can be an effective vehicle for vindicating statutory rights, but only so long as the prospective litigant may effectively vindicate its statutory cause of action; and Green Tree Financial Corp.-Alabama v. Randolph, which held that a party seeking to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive bears the burden of showing the likelihood of incurring such costs.

Because Mitsubishi and Green Tree were not impacted by Stolt-Nielson or Concepcion, the court held that the waiver was unenforceable because the merchants would have no economic incentive to pursue individual arbitration.  In particular, the court found that the cost of hiring an antitrust expert would outweigh the expected individual damages.

The court cautioned that it did not hold that class action waivers were per se unenforceable.  Instead, it narrowly limited its holding to the specific class action before it, and held that class action waivers must be considered on a case-by-case basis under the framework of Green Tree:

We do not hold today 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.  Rather…we hold that each waiver must be considered on its own merits.

AmEx indicated that it intends to appeal, so the Supremes will likely get another shot at this one.  We’ll keep you posted.

I've got to admit, it is hard to argue against green trees...