Unless you’ve been living under a rock, you’ve probably already heard about the Second Circuit Court of Appeals’ opinion on class arbitration waivers in In re: American Express Merchants’ Litigation. But in case you’re as out of the loop as I have been over the past week, the court has posted a copy of the slip opinion on its website, here. (3/9/11 – The official link is no longer good. However, you can still download a copy here courtesy of Michael J. Hassan’s Class Action Defense Blog.)
The court’s holding is summarized in this quote:
[W]e do not decide whether class action waiver provisions are either void or enforceable per se. Rather, we are concerned solely with the class action waiver contained in the contract between the parties before us on this appeal. We conclude that, on the record before us, the plaintiffs have adequately demonstrated that the class action waiver provision at issue should not be enforced because enforcement of the clause would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.
Slip op. at 7.
In reaching this conclusion, the court addressed several threshold questions of note. First, the court concluded that the issue of whether the class arbitration waiver was enforceable was a matter that could be decided by the courts rather than the arbitrator, since the issue was the enforceability of that provision, not whether the provision unambiguously required individual arbitration. Id. at 18.
The court went on to address the standard for proving that a class arbitration waiver would deprive a plaintiff of a substantive right conveyed under the federal antitrust statutes, recognizing that the plaintiff bears the burden of proving that the cost of pursuing individual relief would be prohibitively expensive. Id. at 24-26. In rejecting the trial court’s reasoning that the Clayton Act’s fee shifting provisions might allow an individual plaintiff to pursue vindication of his or her rights in an individual arbitration, the Second Circuit noted that expert witness fees and other litigation expenses would not be recoverable as costs to the prevailing party. Id. at 29. Finding that expert testimony would be essential to a successful claim in the complex antitrust case before it, the court found that the claims could not reasonably be pursued as individual actions given the cost involved.
The end of the opinion offers to “caveats”: 1) that the decision was not at all dependent on the characterization of the plaintiffs as “small merchants” or “small businesses” and that the only important consideration was whether a class action mechanism was the only way for the plaintiffs to vindicate their statutory rights; and 2) that the court was not holding class arbitration waivers per se unenforceable. Id. at 34-35.
The opinion does not decide whether the arbitration provision itself is enforceable and whether the case would proceed as a class action in court or as a class arbitration proceeding. The court noted that the plaintiffs had said that they would be amenable to proceeding in an arbirtration forum on a class action basis but that the defendant had said that it would reconsider its motion to compel arbirtration if the class arbitration waiver was struck down. Id. at 36.