Second Circuit (Again) Rules that Arbitration Clauses that Diminish Vindication of Federal Claims are Not Enforceable


This article by Victoria Holstein-Childress discusses mandatory pre-dispute arbitration clauses in consumer financial services contracts and the Second Circuit Court of Appeals' February 2012 decision in In re American Express Merchants' Litigation, in which the Second Circuit reaffirmed its decision that the class action waiver provision contained in the contracts between American Express and merchants is unenforceable under the Federal Arbitration Act (FAA). The Second Circuit reasoned that enforcement of the clause would as a practical matter preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.

The Second Circuit's decision ostensibly is at odds with the recent pro-arbitration decisions by the U.S. Supreme Court Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., AT&T Mobility LLC v. Concepcion, and Compucredit Corp. et al. v. Greenwood et al.

In light of this tension and the fact that the Supreme Court already granted certiorari once in the Amex I litigation, it appears likely that the latest chapter in this case may be the subject of Supreme Court review.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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