Marc J. Goldstein Arbitrator & Mediator NYC
March 15, 2011

Amex Class Action Waiver Remains Unenforceable After Stolt-Nielsen, Second Circuit Rules

How much did the Supreme Court in Stolt-Nielsen really resolve about arbitral class actions?  No single case can answer that question, but much is to be learned from the US Second Circuit Court of Appeals’ new decision, reaffirming its prior decision issued before Stolt-Nielsen, in In re American Express Merchants’ Litigation, 2011 U.S. App. LEXIS 4507 (2d Cir. Mar. 8, 2011).  Here the Court holds that Stolt-Nielsen does not require any change in the Court’s prior ruling that the class action waiver contained in the arbitration agreement between Amex and it merchants is unenforceable under the FAA, violating public policy because its practical effect was to prevent any subscribing merchant from bringing an antitrust claim against Amex.

The plaintiff merchants proved that the costs for economics consultants were so high, relative to the individual merchant’s alleged damages, and the prospects for recoupment of such expert costs were so uncertain, that no individual merchant could be expected to bear them given the small amount of damages a single merchant might claim. On the basis of this evidence, the Court had concluded prior to Stolt-Nielsen that the Amex class action waiver operated as a prospective waiver of antitrust claims against Amex. The class action waiver was therefore unenforceable, under the contract law doctrine that contracts made in violation of public policy will not be enforced. Said the Court here: “Eradicating the private enforcement component from our antitrust law scheme cannot be what Congress intended when it included strong private enforcement mechanisms and incentives in the antitrust statutes.”

Amex’s arguments that this outcome was barred the rationale of Stolt-Nielsen were rejected. First, said the Court, Stolt-Nielsen concerned interpretation by arbitrators of an arbitration clause that was silent concerning class actions.  Its holding that arbitrators may not rely merely on their own conceptions of public policy to interpret such a “silent” clause, the Court reasoned, is not controlling in a case involving an explicit class action waiver.  Such a clause, the Court held, must face scrutiny under Section 2 of the FAA, i.e., it may be denied enforcement “upon such ground[s] as exist at law or in equity for the revocation of any contract.” Further, Stolt-Nielsen does not hold that public policy is an inappropriate basis for deciding the enforceability of an arbitration clause, but only that public policy may not be used by arbitrators as a means to determine the intent of the parties.  That holding, the Second Circuit states, has no bearing of the powers of courts under FAA Section 2 to find that enforcement of a particular arbitration clause would violate an expressly stated and important public policy like private civil enforcement of the antitrust laws.



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