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Federal Arbitration Act vs. Antitrust Laws in AmEx Case

Thursday, May, 31, 2012

In the 2nd US Circuit Court of Appeals, a panel of two judges shot down American Express' enforcement of arbitration clauses in light of an antitrust lawsuit. This has stirred up a hornet's nest of controversy about the authority of the Federal Arbitration Act. The ruling in this case is the third time the 2nd Circuit Court has refused to hear the appeal.

The Arbitration Act Determined to be Invalid in Antitrust Cases


The FAA has been a hot topic in the legal world since the AT&T vs. Concepcion case, where it was decided that businesses can use mandatory arbitration and class action waivers to prevent customers from filing class action litigation. According to this case, complaints should be handled in arbitration individually and privately. Since then, a number of cases have invoked AT&T vs. Concepcion in contract disputes. Most of the time, if AT&T vs. Concepcion was not accepted as representative of the Federal Arbitration Act, it was in employment contract disputes rather than commercial contract disputes.


This case, titled “In Re: American Express Merchants' Litigation, U.S. Court of Appeals for the 2nd Circuit, No. 06-1871,” adds a huge degree of complexity to where the FAA stands in relation to existing law. In particular, the FAA does not apply to antitrust cases. In the words of Judge Rosemary Pooler, the opinion is "preserving plaintiffs' ability to vindicate federal statutory rights, rather than eviscerating more than 120 years of antitrust law by closing the courthouse door to all but the most well-funded plaintiffs."

Details Explaining why Contract Arbitration is Invalid for AmEx


Several merchants in New York and California, which includes the National Supermarket Association and several restaurants and retailers, sued American Express for violation of antitrust laws in 2003. They claim that AmEx used several tactics to make them pay inflated fees for charge card transactions with AmEx.


American Express disputed this move, saying that under contract, these merchants were supposed to enter contract arbitration to resolve their disputes. The district court upheld the arbitration clause, and the plaintiffs appealed this decision.


The recent decision by the 2nd Circuit was met with a huge split among 2nd Circuit judges. According to Judge Cabranes, this means that this case could very well be ready to be heard by the Supreme Court.