Antitrust Law Daily Wrap Up, TOP STORY—S.D. N.Y.: Collusion suit against three credit card issuers dismissed, (Apr 11, 2014)

By Linda O’Brien, J.D., LL.M.

Following a bench trial, the federal district court in New York City has dismissed antitrust claims by a group of payment card cardholders, alleging that three payment card-issuing banks collusively adopted class action-barring arbitration clauses in their cardholder agreements (Ross v. American Express Company, April 10, 2014, Pauley, W.).

Robert Ross, and other individuals, were cardholders of payment cards issued by American Express, Discover, and Citibank, among others. In 1998, American Express adopted a mandatory class action-barring arbitration provision in its card member agreements. From 1999 to 2003, counsel for American Express and counsel for various other credit card firms conducted numerous formal and informal meetings to discuss the adoption of arbitration clauses in card member agreements in the financial services industry. By 2003, seven issuing banks had adopted class action-barring arbitration clauses in their cardholder agreements.

The cardholders filed a class action suit, claiming that the issuing banks, in violation of federal antitrust laws, conspired to require their cardholders to take all legal disputes to arbitration and give up their rights to participate in class actions against the banks. The cardholders sought injunctive relief invalidating the arbitration clauses in the card member agreements. Settlement was reached with four of the defendant banks, and the cardholders’ claims against American Express, Discover, and Citibank proceeded to trial.

Standing. The court found that the plaintiffs had Article III standing to sue the issuing defendant banks. To have Article III standing, a plaintiff must show that the harm suffered was concrete and actual or imminent, not conjectural or hypothetical. The plaintiffs identified four injuries in fact: (1) an increase in the full price that they paid for credit card services; (2) a diminution in the quality of the credit cards; (3) reduced consumer choice in credit card terms; and (4) a reduction in the quantity of credit cards with class action-barring arbitration clauses. The court noted that the injuries alleged by the plaintiffs were sufficiently actual or imminent. The injuries alleged by the cardholders were injuries to the market and not to any individual cardholder from the possible invocation of an arbitration clause, even though the banks never invoked the mandatory arbitration clause against a particular cardholder. Moreover, the mere existence of the clauses diminished the credit card’s value by foreclosing the opportunity for cardholders to go to court or participate in class actions.

Concerted action. The plaintiffs failed to prove an antitrust injury by demonstrating by a preponderance of the evidence that the defendant banks colluded in adopting and maintaining of the class action-barring arbitration clauses, according to the court. To succeed on a Sherman Act Section 1 claim, the plaintiffs must prove by a preponderance of the evidence some form of concerted action between at least two legally distinct economic entities to unreasonably restrain trade. In this case, there was no direct evidence of a conspiracy among the issuing banks and insufficient evidence of parallel conduct to infer a conspiracy, according to the court. Although the banks had independent interests in adopting arbitration clauses to preclude costly class actions and were motivated to work to establish arbitration as the acceptable form for resolving consumer debates, the evidence was insufficient to show a “rational economic motive” to collusively adopt the clauses. While the collusive adoption of arbitration clauses would have entrenched arbitration as the industry standard, the evidence was also consistent with the legitimate activity of furthering the banks’ independent self-interests, the court noted.

The court acknowledged that the issuing banks engaged in an unusually high number of inter-firm communications regarding arbitration. However, a mere showing of frequent meetings between alleged conspirators was insufficient absent evidence that the close ties led to an illegal agreement. Notes and agendas from the formal and informal meetings with counsel of the issuing banks indicate that the bulk of the discussions centered on publicly available information. Further, the meetings were not conducive to the formation of the cartel because they were open to counsel and others outside the credit card industry.

Finally, although it was clear that the banks had an agreement to explore collective advocacy efforts to establish class action-barring arbitration clauses as an industry norm, the court concluded that it would not infer an illicit agreement from the record in which many of the banks’ communications resembled those of trade associations or lobbying groups.

The case is No. 05 Civ. 7116.

Attorneys: Merrill G. Davidoff (Berger & Montague, P.C.) and Christopher M. Burke (Scott & Scott LLP) for Robert Ross and Randal Wachsmuth. Evan Chesler (Cravath Swaine & Moore LLP) for American Express Company. Robert Y. Sperling (Winston & Strawn LLP) for Discover Financial Services. David Graham (Sidley Austin LLP) for Citigroup Inc.

Companies: American Express Company; Discover Financial Services; Citigroup Inc.

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