The Supreme Court will hear an appeal that challenges the ability of merchants who accept American Express (AMEX) cards to join together to challenge the issuer’s transaction terms.
American Express has asked the court to toss out a decision by the U.S. Court of Appeals for the 2nd Circuit that permits a group of merchants to pursue a class action against the company on antitrust grounds.
The Supreme Court on Friday granted the appeal in an action first reported by Reuters.
The case arose from a lawsuit against American Express in 2003 by a group of restaurants and retailers that alleges that American Express requires them to accept its mass-market cards as a condition of accepting its corporate and premium charge cards. The ordinary cards carry transaction fees that run 30% higher than fees Visa and MasterCard charge for comparable cards, according to the merchants.
Both the merchants and American Express agree the merchants would need an economic study that could cost several hundred thousand dollars to prove their case, an amount that exceeds by many times the recovery any single merchant might expect to obtain.
American Express contends that its card-acceptance agreement prohibits merchants from bringing a class action and precludes them from having claims against American Express arbitrated on anything other than individual basis.
In a series of rulings that culminated in February, the 2nd Circuit disagreed and decided the only economically feasible means for plaintiffs enforcing their statutory rights is via a class action. "Thus, as the class action waiver in this case precludes plaintiffs from enforcing their statutory rights, we find the arbitration provision unenforceable," Judge Rosemary Pooler wrote for the 2nd Circuit in its Feb. 1 opinion.
In its appeal to the Supreme Court, American Express warned that the 2nd Circuit’s decision threatens to upend arbitration agreements and lead to a wave of class actions against American companies.
"This court's intervention is necessary to provide clarity and uniformity to the law, and safeguard the [Federal Arbitration Act’s] fundamental commitment to the enforceability of commercial arbitration agreements," lawyers for American Express wrote in the company’s July 30 appeal. "The importance of this court's review is bolstered by the number of corporations that plaintiffs can sue in the courts of the 2nd Circuit."
American Express also contended the 2nd Circuit's ruling created a split among several federal appeals courts regarding the enforceability of arbitration terms.
Merchants told the Supreme Court the 2nd Circuit's decision needed no further review.
"This court has repeatedly recognized that a litigant's ability to effectively vindicate its rights is a precondition to the arbitration of federal statutory claims,' lawyers for the merchants wrote in their Oct. 12 brief. The 2nd Circuit’s decision "is an application of that well-established principle.'
"It is based on respondents' specific, unrebutted submissions demonstrating the impossibility of prosecuting their antitrust claims in arbitration,' the merchants added.
The Supreme Court is expected to hear arguments in the case this spring, with a ruling expected by June.