Second Circuit Holds Class Action Waiver Unenforceable Where Individual Arbitration Would be Prohibitively Expensive

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In a shot across the bow of recent Supreme Court precedent in favor of arbitration, the Second Circuit has held that a mandatory class action waiver in an arbitration provision is unenforceable where the plaintiffs established that the practical effect of enforcement of the waiver would be to preclude claims under federal antitrust statutes. In re American Express Litigation, Slip Op. 06-1871-cv (February 1, 2012) (For a copy of the Second Circuit’s opinion, click here). This ruling sets up a potential conflict with the Supreme Court’s recent decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (U.S. 2011), a decision strongly in favor of the enforceability of class action waivers within arbitration provisions.

This is the third time the Second Circuit has decided this issue in the American Express antitrust litigation, each time holding that the class action waiver is unenforceable. In each decision, the court has rested its holding on “a vindication of statutory rights” analysis, and defined the issue as “whether a mandatory class action 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 bring federal antitrust claims.” Slip Op. at 14-15. In this recent decision, the Second Circuit considered the Supreme Court’s Concepcion decision, but opined that “what Concepcion [does] not do is require that all class-action waivers be deemed per se enforceable.” Id.

Distinguishing Concepcion, the Second Circuit relied instead on Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000) for the proposition that where “a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs.” Slip Op. at 20. The court found that “[t]he evidence presented by plaintiffs here establishes, as a matter of law, that the cost of plaintiffs' individually arbitrating their dispute with Amex would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws.” Slip Op. 21-22. Accordingly, the Second Circuit found the agreement unenforceable, because otherwise “[t]he defendant will thus have immunized itself against all such antitrust liability by the expedient of including in its contracts of adhesion an arbitration clause that does not permit class arbitration.”

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