In American Express Company v. Italian Colors Restaurant, the Second Circuit held that a requirement for individual arbitration contained in an arbitration agreement entered into by merchants who accept American Express cards could not be enforced in the context of an antitrust challenge to American Express' "Honor all Cards" rule. In the court's view, the waiver would effectively preclude a merchant from asserting an antitrust claim against American Express because it would be necessary for the merchant to hire an expert, who would charge more than the merchant's potential recovery. The Second Circuit observed that, under governing Supreme Court precedent, these expert fees could not be recovered, even if the merchant prevailed in an individual arbitration.

American Express filed a petition for Supreme Court review of the Second Circuit decision. On behalf of the American Bankers Association, the American Financial Services Association, the Consumer Bankers Association, and the California Bankers Association, we filed an amicus brief in support of American Express. Our brief points out the existence of serious problems with class actions (particularly in arbitration) and also describes the strong governmental mechanisms for enforcing the antitrust laws. It argues that the Second Circuit did not employ generally prevailing contract interpretation principles when it concluded that a confidentiality provision in the American Express arbitration provision would preclude individual merchants from sharing a single expert (and the expert's costs). In particular, the court failed to apply the confidentiality clause as written and failed to adopt an interpretation that would preserve the entire arbitration agreement, including the critically important individual arbitration requirement. In these respects, the Second Circuit decision —like recent decisions of other courts invalidating class action waivers in consumer cases— applied a specialized and hostile mode of analysis to an arbitration clause. This conflicts with the Federal Arbitration Act’s requirement to enforce arbitration agreements as written, except where there exists a sufficient basis for the invalidation of any contract.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documentation of new consumer financial services products, its significant experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). For more information, please contact Alan S. Kaplinsky, 215.864.8544 or; Jeremy T. Rosenblum, 215.864.8505 or; John L. Culhane, Jr., 215.864.8535 or; Barbara S. Mishkin, 215.864.8528 or; or Mark J. Furletti, 215.864.8138 or

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