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In Re: American Express Merchants' Litigation v. American Express Travel Related Services Company

February 1, 2012

IN RE: AMERICAN EXPRESS MERCHANTS' LITIGATION, ITALIAN COLORS RESTAURANT, ON OR BEHALF OF ITSELF AND ALL SIMILARLY SITUATED PERSONS, NATIONAL SUPERMARKETS ASSOCIATION, 492 SUPERMARKET CORP., BUNDA STARR CORP., PHOUNG CORP., PLAINTIFFS-APPELLANTS,
v.
AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, AMERICAN EXPRESS COMPANY, DEFENDANTS-APPELLEES.*FN1



The opinion of the court was delivered by: Pooler, Circuit Judge

Argued: December 10, 2007

POOLER and SACK, Circuit Judges.*fn2

This case returned to us from the Supreme Court, with our judgment vacated and the case remanded for reconsideration in light of Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010). Shortly after we issued our decision in In re American Express Merchants' Litigation, 634 F.3d 187 (2d Cir. 2011), the Supreme Court addressed the issue of class-action waivers in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). As we find neither Stolt- Nielsen nor Concepcion counsels us to alter our original analysis, we again conclude that (1) the question of the enforceability of the class action waiver provision is properly decided by the court and (2) the class action waiver provision is unenforceable under the Federal Arbitration Act. See In re Am. Express Merchs. Litig., 554 F.3d 300 (2d Cir. 2009). REVERSED AND REMANDED.

We turn to this case for the third time, as the Supreme Court released its latest views on class arbitration waivers in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), just weeks after we issued our decision in In re American Express Merchants' Litigation, 634 F.3d 187 (2d Cir. 2011) ("Amex II"). Amex II returned to us from the Supreme Court, after defendants American Express Company and American Express Travel Related Services Co. (together, "Amex") sought review from the Supreme Court following our decision in In re American Express Merchants Litigation, 554 F.3d 300 (2d Cir. 2009) ("Amex I"). In Amex I, we considered the enforcement of a mandatory arbitration clause in a commercial contract also containing a "class action waiver," that is, a provision which forbids the parties to the contract from pursuing anything other than individual claims in the arbitral forum. We found the class action waiver unenforceable, "because enforcement of the clause would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs." Amex I, 554 F.3d at 304. The Supreme Court granted Amex's petition for a writ for certiorari, then vacated and remanded for reconsideration in light of its decision in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010). Finding our original analysis unaffected by Stolt-Nielsen, we again reversed the district court's decision and remanded for further proceedings. Amex II, 634 F.3d at 199-200. On April 11, 2001, we placed a hold on the mandate in Amex II in order for Amex to file a petition seeking a writ of certiorari. While the mandate was on hold, the Supreme Court issued its decision in Concepcion, 131 S. Ct. 1740 (2011). The Concepcion Court held that the Federal Arbitration Act preempted a California law barring the enforcement of class action waivers in consumer contracts. Id. at 1750-51. The parties submitted supplemental briefing discussing the impact, if any, of Concepcion on our previous decisions, and we find oral argument unnecessary. As discussed below, Concepcion does not alter our analysis, and we again reverse the district court's decision and remand for further proceedings.

BACKGROUND

Because the only issue before us is the narrow question of whether the class action waiver provision contained in the contract between the parties should be enforced, we provide but a brief recitation of the facts.

A. Procedural Posture.

The plaintiffs appealed from the March 20, 2006 judgment of the United States District Court for the Southern District of New York, which granted Amex's motion to compel arbitration pursuant to the Federal Arbitration Act ("FAA") and Federal Rule of Civil Procedure 12(b). See In re Am. Express Merchs. Litig., No. 03 CV 9592, 2006 WL 662341 (S.D.N.Y. Mar. 16, 2006) (Daniels, J.).

B. The Parties.

The amended complaint alleges that Amex "is the leading issuer of general purpose and corporate charge cards to consumers and businesses in the United States and throughout the world. It is also the leading provider of charge card services to merchants." The named plaintiffs are: (1) California and New York corporations which operate businesses which have contracted with Amex and (2) the National Supermarkets Association, Inc. ("NSA"), "a voluntary membership-based trade association that represents the interests of independently owned supermarkets."

The named plaintiffs seek to represent the following class: all merchants that have accepted American Express charge cards (including the American Express corporate card), and have thus been forced to agree to accept American Express credit and debit cards, during the longest period of time permitted by the applicable statute of limitations . . . throughout the United States. . .

C. The Plaintiffs' Substantive Claims.

The plaintiffs' dispute with Amex rests upon the distinction between "charge cards" and "credit cards."*fn3 The district court explained the distinction:

A charge card requires its holder to pay the full outstanding balance at the end of a standard billing cycle. A credit card, by contrast, allows the cardholder to pay a portion of the amount owing at the close of a billing cycle, subject to interest charges. In plain terms, the credit card is a means of financing purchases, the charge card is a method of payment.

In re Am. Express Merchs., 2006 WL 662341, at * 1, n. 6.

According to the plaintiffs, Amex had until recent years centered its business on the issuance of corporate and personal charge cards to corporate clients and affluent consumers. The plaintiffs further assert that "[h]olders of charge cards are more affluent than credit cardholders, and a vastly higher percentage of charge cards than credit cards are held by businesses and used for business travel and other corporate purposes." In fact, the plaintiffs allege that Amex itself contends that "the average purchase on an American Express card is 17% higher than the average purchase made on a credit card." Thus, the holder of a charge card is likely to be "a higher class of customer" and, as such, is particularly attractive to merchants such as the plaintiffs.

As a result of this distinction, Amex has traditionally been able to charge high "merchant discount fees," which are the fees a card issuer withholds as a percentage of each purchase made with its card at the merchant's establishment. These fees, the plaintiffs aver, "are at least 35% higher than competitive rates" applicable to mass-market credit cards such as Visa, MasterCard, and Discover. Over the last decade, the plaintiffs allege, Amex's "business in the markets for credit card issuance and credit card services has grown dramatically." By leveraging its market power in corporate and personal charge cards, however, plaintiffs allege that American Express was able to compel merchants to accept "its new revolving credit card product[s] at the same elevated discount rate, which vastly exceeded the rate for comparable Visa, MasterCard or Discover products."

According to the plaintiffs, the vehicle of this compulsion is the "Honor All Cards" provision contained in the Card Acceptance Agreement. Under the Agreement, a merchant does not contract to accept any one Amex product as a form of payment. Rather, the Agreement applies: to your acceptance of American Express© Cards . . . . American Express Card(s) ... shall mean any card or other account access device issued by American Express Travel Related Services Company, Inc., or its subsidiaries or affiliates or its or their licensees bearing the American Express name or an American Express trademark, service mark or logo.

The plaintiffs assert that, by means of the "Honor All Cards" provision, merchants are faced with the choice of paying supracompetitive merchant discount fees (i.e., fees above competitive levels) on Amex's new mass-market products or "inevitably los[ing] a significant portion of the sales they receive from businesses, travelers, affluent consumers, and others" who are the traditional users of Amex charge cards. This, the plaintiffs claim, amounts to an illegal "tying arrangement," in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.*fn4

D. The Card Acceptance Agreement.

The basic contractual relationship between Amex and the plaintiffs was set forth in an affidavit of an Amex executive:

American Express issues card products to its cardmembers, which cardmembers then use in making purchases from participating merchants. Participating merchants with annual charge volume expected to be less than $10 million agree that, by submitting charges for payment by American Express, their relationship will be governed by the "Terms and Conditions for American Express© Card Acceptance" ("the Card Acceptance Agreement").

The Card Acceptance Agreement is a standard form contract issued by Amex. It may be terminated by either party "at any time by sending written notice to the other party." Further, Amex reserves the right: to change this Agreement at any time. We will notify you of any change in writing at least ten (10) calendar days in advance. If the changes are unacceptable to you, you may terminate this Agreement as described in the section entitled "TERMINATING THIS

AGREEMENT."

According to Amex, the Card Acceptance Agreement has "expressly permitted amendments upon notice" for more than twenty-five years. The Card Acceptance Agreement also contains a choice of law provision designating New York law as governing and, as Amex states, there is ...


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