On September 19, the U.S. District Court for the District of Massachusetts denied a motion to compel arbitration in a putative class action brought by small merchants challenging anti-steering rules and swipe fees imposed by a major credit card network. The merchants, participating in a third-party program offered by the network, alleged that the network’s anti-steering rules violated antitrust laws by barring them from directing customers to less expensive payment options and from assessing surcharges or offering discounts for using other cards.
The court adopted a magistrate judge’s report and recommendation to deny the credit card network’s request to compel arbitration, finding the arbitration agreement in the merchant’s guide to be “illusory and unenforceable.” The court reasoned that the agreement allowed the network to unilaterally change its terms “effective immediately,” without fair notice to merchants, and that merchants had no meaningful opportunity to reject changes before they took effect. The court also found the agreement permitted retroactive changes after a claim was initiated, rendering the contract void in its entirety.
The court rejected the credit card network’s argument that the arbitration agreement could be salvaged by severing the “unilateral modification provision,” noting that severance cannot cure an agreement that was never validly formed. The court further addressed, and overruled, the parties’ objections regarding arbitration fees, attorney’s fees, injunctive relief and unconscionability — concluding the “effective vindication doctrine” and unconscionability defenses did not bar enforcement, but that the agreement’s illusory nature was dispositive.
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