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

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The ping-pong match between the Second Circuit and the U.S. Supreme Court regarding the enforceability of arbitration provisions continues.  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), because enforcement of the clause would as a practical matter preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.  In re American Express Litigation, Slip Op. No. 06-1871, — F.3d — (2d Cir. Feb. 1, 2012).  This decision creates a potential conflict with the Supreme Court’s recent decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (U.S. 2011), discussed here.

The Second Circuit has now issued three opinions on this question.  The dispute is rooted in an arbitration agreement between AmEx and merchants who accept AmEx charge cards.  In Amex I, 554 F.3d 300 (2d Cir. 2009), the court determined that the enforcement of a mandatory arbitration clause in a commercial contract that also contained a class action waiver was unenforceable.  The Supreme Court granted Amex’s petition for certiorari and vacated and remanded in light of its decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), which held that parties could not be compelled to submit to class arbitration unless they agreed to it.  In Amex II, the Second Circuit found that Stolt-Nielsen did not affect its original analysis because the court was not ordering the parties to participate in class arbitration.  After Amex II, the court placed a hold on its mandate to allow Amex to file a petition for certiorari.  While the mandate was on hold, the Supreme Court issued Concepcion, which upheld AT&T’s right to compel consumers to submit to arbitration even though, under California common law, consumer class-action waivers were considered unconscionable. The ruling was widely viewed as an endorsement of mandatory arbitration clauses.

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