Co-authored by Alex S. Drummond and Brandon L. Spurlock

While the U.S. Supreme Court’s ruling last year in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), constituted a “game-changer” in the field of class arbitration, the scope and breadth of this ruling continues to be a hotly debated topic in class action litigation. 

In 2009, the Second Circuit considered the enforceability of a mandatory class action waiver clause in American Express’ Card Acceptance Agreements. See In Re American Express Merchants’ Litigation, 554 F.3d 300 (2d Cir. 2009) (“Amex I”). In Amex I, the Second Circuit 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.” Id. at 304. The U.S. Supreme Court granted certiorari and vacated the opinion, remanding it to the Second Circuit for reconsideration in light of Stolt-Nielsen.

In a ruling on March 8 in In Re AMEX Merchants’ Litigation, No. 06-1871 (2d Cir. Mar. 8, 2011), the Second Circuit held that Stolt-Nielsen did not mandate a change in its original ruling [link to ruling] (“Amex II”). In reaching this conclusion, the Second Circuit expressly rejected American Express’ argument that Stolt-Nielsen and the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (the “FAA”), required federal courts to enforce the parties’ arbitration agreement, even if it contained a class action waiver. Rather, the Second Circuit held:

Stolt-Nielsen states that parties cannot be forced to engage in a class arbitration absent a contractual agreement to do so. It does not follow, as Amex urges, that a contractual clause barring class arbitration is per se enforceable. Indeed, our prior holding focused not on whether the plaintiffs’ contract provides for class arbitration, but one whether the class action waiver is enforceable when it would effectively strip plaintiffs of their ability to prosecute alleged antitrust violations.

Amex II, at 11. The Second Circuit also found that the construction of Stolt-Nielsen advocated by American Express would have limited prior Supreme Court decisions concerning whether a party could effectively vindicate its federal rights through arbitration. Id. at 21. Ultimately, the Second Circuit focused on the same factors as Amex I and held that the class action waiver was unenforceable as against public policy.

Notwithstanding its holding, Amex II may be helpful to employers seeking to stave off class arbitration when their underlying arbitration agreements do not provide for this type of arbitration. In Amex II, the Second Circuit recognized Stolt-Nielsen stood for the principle that “parties cannot be forced to engage in class arbitration absence a contractual agreement to do so.” Id. at 11. Moreover, the Second Circuit found “Stolt-Nielsen plainly rejects using public policy as a means of divining the parties’ intent,” a practice that had been widely used by arbitration before Stolt-Nielsen. Id. at 21. Further, the Second Circuit noted “Stolt-Nielsen plainly precludes [the court] from ordering class-wide arbitration.” Id. at 22.

Likewise, in discussing the availability of class relief as a mean to vindicate federal statutory rights, the Second Circuit engaged in an extensive review and analysis of the Supreme Courts’ decision in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). Gilmer held, among other things, that an arbitration agreement was not unconscionable because it denied an ADEA plaintiff the right to pursue claims on a class basis. Id. at 32. The references to Gilmer strongly suggest that Amex II should be construed narrowly and may not invalidate class waivers in employment disputes. 

In summary, Amex II illustrates the complexity of issues that have followed since Stolt-Nielsen. While Amex II is likely to be seen as a pro-plaintiff decision, its negative impact on employment cases may be limited. Indeed, Amex II contains some helpful language concerning the application of Stolt-Nielsen to arbitration agreements that are silent on the issue of class arbitration.

It remains to be seen if this decision remains viable when the Supreme Court rules later this year in AT&T Mobility LLC v. Concepcion, which concerns the issue of whether class action waivers in a consumer contract of adhesion are enforceable. AT&T Mobility was argued before the Supreme Court on November 9, 2010, and a ruling is expected at any time.