Second Circuit Ruling Could Provide Clues to Supreme Court Ruling in AT&T v. Concepcion

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As we wait for the United States Supreme Court’s upcoming decision in AT&T v. Concepcion, which is expected to define the ability of arbitration clauses to foreclose class actions, the influential Second Circuit Court of Appeals has recently issued a decision holding a class action waiver embedded in an arbitration agreement unenforceable, which might indicate how the Supreme Court will rule on key aspects of AT&T v. Concepcion. See In re American Express Merchants’ Litigation, 634 F.3d 187 (2d Cir. 2011); the decision is available here.

Though the decision is in no sense binding on the Supreme Court, it is notable that the Second Circuit panel (which has a reputation for intellectual rigor) previously included Justice Sonya Sotomayor; thus, this decision could be an indication of the direction that the Supreme Court might take in Concepcion. Moreover, although there is relatively little suspense as to which way Justice Sotomayor will vote in Concepcion, Court observers have noted that her prior experience with arbitration and class action waiver issues carries weight with her colleagues, even those on the Court’s conservative bloc.

The In re American Express decision arises from a Supreme Court remand, and thus cannot be taken solely as an expression of the Second Circuit’s inclinations as to arbitration agreements and class action waivers. With this most recent decision, the Second Circuit has now twice invalidated the at-issue class action waiver, this time presumably infusing that invalidation with reasoning and doctrine acceptable to the Supreme Court. Specifically, the Supreme Court remanded In re American Express with directions that the Second Circuit take account of its decision in Stolt-Nielsen, S. A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758 (2010), which held that parties cannot be compelled to participate in class arbitration without having expressly agreed to do so. The Supreme Court instructed the Second Circuit to reassess its invalidation of the at-issue clause barring class arbitration, and in particular to decide whether there was merit to American Express’s argument that a class action waiver within a mandatory arbitration clause is per se enforceable.

In a strong statement that evokes the Ninth Circuit’s invalidation of a similar class waiver provision in Concepcion, the two-judge Second Circuit panel (now minus Justice Sotomayor) excerpted from the plaintiffs’ brief: “We agree with plaintiffs that ‘[t]o infer from Stolt-Nielsen’s narrow ruling on contractual construction that the Supreme Court meant to imply that an arbitration is valid and enforceable where, as a demonstrated factual matter, it prevents the effective vindication of federal rights would be to presume that the Stolt-Nielsen court meant to overrule or drastically limit its prior precedent.’” In re American Express at *33.

Apart from this ruling’s substantive importance and potentially presaging the reasoning, outcome, or both in AT&T v. Concepcion, In re American Express is also a reminder that persuasive and well-constructed passages from appellate briefs can end up, verbatim, as statements of binding law.