(CN) - American Express cannot force merchants accepting its cards to waive their right to join a class action against the company, the 2nd Circuit ruled, coming to the same decision it reached in 2009 though the Supreme Court had vacated that finding a year later.
In the ruling, reaffirmed Tuesday, the court voided a provision of American Express' Card Acceptance Agreement that makes it mandatory for retailers to resolve any contractual claims through individual arbitration.
The Manhattan-based appellate court found that the provision effectively denies certain retailers of their right to redress as costly arbitration may not be practical for a party seeking small individual recovery.
American Express had appealed the court's earlier ruling to the Supreme Court, which remanded the case for reconsideration in light of its decision on an earlier 2nd Circuit ruling, Stolt-Nielsen SA v. AnimalFeeds International Corp. In that case the high court held that parties cannot be forced to engage in class arbitration absent a contractual agreement to do so.
Returning to the 2nd Circuit, American Express argued that Supreme Court's finding meant that it is entiteld to enforce a contract provision prohibiting class actions.
Justice Sonia Sotomayor had been on the original 2nd Circuit panel that ruled on the case in 2009. With her elevation to the Supreme Court, the remaining two judges reconvened and remained unpersuaded by American Express' arguments.
"It does not follow, as Amex urges, that a contractual clause barring class arbitration is per se enforceable," Judge Rosemary Pooler wrote for the court. "Indeed, our prior holding focused not on whether the plaintiffs' contract provides for class arbitration, but on whether the class action waiver is enforceable when it would effectively strip plaintiffs of their ability to prosecute alleged antitrust violations."
In the underlying case, the class challenged an "honor all cards" policy that they said illegally requires them to accept all cards issued by American Express and the transaction fees that the company charges for their use.
Historically merchants had been willing to pay higher fees to attract the "higher class customer[s]" who tended to carry the more prestigious cards - which require holders to pay off monthly balances - issued by American Express.
More recently American Express has issued revolving credit cards - which the merchants claim are issued to less desirable customers - while charging the same rate for their use as its signature card.
The merchants decided to band together because the cost to litigate the "honor all cards" policy as individuals was prohibitive.
This claim was the key to the court's decision:
"As we did earlier, we find 'Amex has brought no serious challenge to the plaintiffs' demonstration that their claims cannot reasonably be pursued as individual actions, whether in federal court or in arbitration,'" Pooler wrote. "We again conclude 'that enforcement of the class action waiver in the Card Acceptance Agreement 'flatly ensures that no small merchant may challenge American Express's tying arrangements under the federal antitrust laws.'"
The case, which was remanded to the District Court for further action, was argued for the merchants by Gary Friedman of Friedman Law Group. Bruce Schneider of Stroock & Stroock & Lavan represented American Express.
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