In re American Express Merchants' Litigation

554 F.3d 300

In re AMERICAN EXPRESS MERCHANTS' LITIGATION.

Italian Colors Restaurant, on or behalf of itself and all similarly situated persons, National Supermarkets Association, 492 Supermarket Corp., Bunda Starr Corp., Phoung Corp., Plaintiffs-Appellants, v. American Express Travel Related Services Company, American Express Company, Defendants-Appellees.

Docket No. 06-1871-cv.

United States Court of Appeals, Second Circuit.

Argued: December 10, 2007.

Decided: January 30, 2009.

Gary B. Friedman, Friedman Law Group LLP (Tracey Kitzman, Aaron Patton, Warren Parrino, on the brief), Blaine H. Bortnick, Christine Palmieri, Liddle & Robinson, L.L.P., Noah Shube, Law Offices of Noah Shube, Bernard Persky, Eric Belfi, Labaton Sucharow & Rudoff LLP, Brian Brooks, Murray, Frank & Sailer LLP, Curtis V. Trinko, Law Offices of Curtis V. Trinko LLP, Paul C. Whalen, Whalen & Tusa, PC, New York, NY, Read K. McCaffey, Christopher W. Hellmich, Patton Boggs LLP, Roy A. Katriel, The Katriel Law Firm, PLLC, Washington, DC, Mark Reinhardt, Mark Wendorf. Reinhardt Wendorf & Blanchfield, St. Paul. MN, Robert W. Cohen, Law Offices of Robert W. Cohen, Los Angeles, CA, David Markun, Edward Zusman, Kevin Eng, Markun Zusman & Compton LLP, Robert C. Schubert, Willem F. Jonckheer, Schubert

& Reed LLP, Susan G. Kupfer, Glancy Binkow & Goldberg LLP, San Francisco, CA, Karl Cambronne, Jefrey D. Bores, Chestnut & Cambronne P.A., Minneapolis, MN, Michael Goldberg, Glancy Binkow & Goldberg LLP, Los Angeles, CA, for Plaintiffs-Appellants.

Bruce H. Schneider, Stroock & Stroock & Lavan, LLP (Heidi Balk, on the brief), Jonathan M. Jacobson, Wilson Sonsini Goodrich & Rosati, Evan R. Chesler, Cravath, Swaine & Moore LLP, Stuart A. Alderoty, American Express Travel Related Services, Inc., New York, NY, Julia B. Strickland, Stephen J. Newman, Stroock & Stroock & Lavan LLP, Los Angeles, CA, for Defendants-Appellees.

Janet L. McDavid, Catherine E. Stetson, Jake M. Shields, Hogan & Hartson L.L.P. (Maria Ghazal, Business Roundtable, of counsel), Washington, DC, for Business Roundtable, Amici.

Briscoe R. Smith, Martin S. Kaufman, New York, NY, for Atlantic Legal Foundation, Amici.

Daniel E. Gustafson, Karla M. Gluek, Gustafson Gluek PLLC, Minnesota, MN, for American Antitrust Institute, Amici.

Edith M. Kallas, Ilze C. Thielmann, Joy A. Nesbitt, Whatley Drake & Kallas LLC; Steven E. Fineman, Jennifer Gross, Lieff Cabraser Heimann & Bernstein, LLP, New York, NY; F. Paul Bland, Jr., Trial Lawyers for Public Justice, Washington DC, for Trial Lawyers for Public Justice, Amici.

POOLER, SACK, and SOTOMAYOR, Circuit Judges.

POOLER, Circuit Judge:

This Court frequently enforces mandatory arbitration clauses contained in commercial contracts. We do so on the principle that "it is difficult to overstate the strong federal policy in favor of arbitration, and it is a policy we have often and emphatically applied." Arciniaga v. General Motors Corp., 460 F.3d 231, 234 (2d Cir.2006) (quotation marks omitted). On this appeal, however, we are asked to consider the enforcement of a mandatory arbitration clause in a commercial contract that also contains a "class action waiver," also referred to as a "collective action waiver," that is, a provision which forbids the parties to the contract from pursuing anything other than individual claims in the arbitral forum. This is a matter of first impression in our Court.¹

One commentator has recently contended that "[t]he outright banning of class action in mandatory arbitration clauses has become a standard policy for many corporations that transact with consumers." Bryan Allen Rice, "Comment: Enforceable or Not?: Class Action Waivers in Mandatory Arbitration Clauses and the Need for a Judicial Standard," 45 Hous. L.Rev. 215, 224 (2008).² We acknowledge at the outset, as have other courts that have considered questions arising from the enforcement of class action waivers, in both consumer and commercial contracts, that the wisdom and utility of these provisions have become the subject of intense debate. See Skirchak v. Dynamics Research Corp., 508 F.3d 49, 63 (1st Cir.2007) ("We recognize that there is a policy debate about whether class action waivers essentially act as exculpatory clauses, allowing for violations of laws where individual cases involve low dollar amounts and so will not adequately address or prevent illegality."). The opposing positions in this frequently impassioned debate have been dispassionately described as follows:

Companies' use of class action waivers is motivated by the view that plaintiffs exploit the class action procedure in order to wrest large and unfair settlements from defendants.... Class action waivers are viewed by these companies as a way to defend themselves from consumers who are ganging up on companies through the leverage inherent in the aggregation of large numbers of claims. In further support of these waivers, corporations argue that the many (perceived) advantages of arbitration to a plaintiff make up for any disadvantages or inconveniences that the plaintiff may incur by sacrificing the ability to be part of a class action.

... Opponents of class action waivers contend that the ability to aggregate claims is crucial to protect the rights of those individuals ... who do not have the resources to litigate individual claims. Further, many individual claims are only viable if brought on a class-wide basis. Indeed, by prohibiting class actions in ... lawsuits[ ] where the expected recovery is dwarfed by the cost of litigating or arbitrating the claim, individuals are effectively prevented from pursuing their claims. As a result, businesses are able to engage in unchecked market misbehavior....

J. Maria Glover, "Beyond Unconscionability: Class Action Waivers and Mandatory Arbitration Agreements," 59 Vand. L.Rev. 1735, 1746-47 (2006) (footnotes and internal quotation marks omitted).

Both of these positions have been proffered to the Court by amici. Compare Brief of Atlantic Legal Foundation at 4 ("For several decades, providers of products and services in the United States have been beset with a litigious environment that has evoked criticism of many observers and applauded only by those professionals who have harvested the substantial financial rewards the civil justice system has produced by way of attorneys' fees.... Recognizing the risks of defending against class action litigation, many businesses have elected to have disputes resolved by individual arbitrations and to adopt collective action waivers as part of their arbitration clauses with their business customers to insure that result.") with Brief of Trial Lawyers for Public Justice at 27 ("It is ... crucial to understand that any ban on class arbitration is essentially a ban on class treatment altogether, as arbitration clauses in standardized corporate contracts are made broader and broader, to encompass all conceivable types of disputes.... Under a regime where such prohibitions are enforced, such clauses are tantamount to a clause banning all claims against a corporation, unless they are so large that they justify the outlay of the extraordinary expense involved.").³

We note that two standard treatises on the conduct of class action litigation appear to take opposing positions as well. Compare 1 Joseph M. McLaughlin, McLaughlin on Class Actions: Law and Practice, § 2:14 (3d ed. 2006) ("As the potential availability of class-wide arbitration threatens to multiply exponentially the exposure on what is facially a single-consumer issue, companies should strongly consider including in their standard arbitration agreements an express provision barring class action litigation or arbitration.") with 3 Alba Conte & Herbert B. Newberg, Newberg on Class Actions, § 9:67 n. 2 (4th ed. 2008) ("The bar on class arbitration threatens the premise that arbitration can be a fair and adequate mechanism for enforcing statutory rights.").

While we are conscious of this debate, we are thankful that we need not resolve it on this appeal. That is, we do not decide whether class action waiver provisions are either void or enforceable per se. Rather, we are concerned solely with the class action waiver contained in the contract between the parties before us on this appeal. We conclude that, on the record before us, the plaintiffs have adequately demonstrated that the class action waiver provision at issue should not be enforced because enforcement of the clause would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.

FACTS

A. Procedural Posture. The plaintiffs appeal from the judgment, dated March 20, 2006, memorializing the memorandum opinion and order, dated March 15, 2006, of the United States District Court of the Southern District of New York, which granted defendants American Express Company and American Express Travel Related Services Company, Inc.'s (collectively "Amex") motion to compel arbitration. See In re American Express Merchants Litig., No. 03cv9592, 2006 WL 662341 (S.D.N.Y. March 16, 2006) (Daniels, J.). The earliest iteration of the plaintiffs' claims was made in August 2003, with the filing of a class action complaint in the United States District Court for the Northern District of California ("the Italian Colors action"). This action, and another subsequently filed class action, were transferred, on Amex's motion, brought pursuant to 28 U.S.C. § 1404(a), to the United States District Court for the Southern District of New York. (JA 14, 85) By an order, dated December 10, 2004, that court consolidated these two actions, pursuant to Rule 42(a) of the Federal Rules of Civil Procedure, with several class actions that had been filed in the Southern District of New York. Any subsequently filed related actions were also made subject to this consolidation order.

Because we consider here only the narrow question of whether the class action waiver provision contained in...