A federal district court has denied a motion to compel arbitration, holding that arbitration would strip the plaintiffs of substantive statutory rights and that multiple individual actions would be inefficient and costly, with expert fees alone amounting to hundreds of thousands to millions of dollars. See In re Elec. Books Antitrust Litig., No. 11-02293 (S.D.N.Y. June 27, 2012) (Opinion & Order) (available here). The plaintiffs allege that they paid higher prices for electronic books because a group of major publishing companies conspired to artificially inflate e-book prices, in violation of the federal Sherman Antitrust Act. See Order at 3.
One of the publisher defendants, Penguin, moved to stay the proceedings and to compel those plaintiffs who bought e-books through Amazon.com or Barnes & Noble to individually arbitrate their claims. See id. at 3-4. The standard agreements between these vendors and their customers provide that customers must arbitrate all disputes. Id. at 4-5. Additionally, the at-issue arbitration clauses require that any litigation be pursued through an individual action, rather than as a class. Id. After reciting the broad federal preference for arbitration embodied in the Federal Arbitration Act (FAA), the court noted that a plaintiff “may successfully invalidate an arbitration agreement that contains a class action waiver on the grounds that the agreement would prevent them from ‘effectively vindicating’ their federal statutory rights.” Id. at 5, citing In re American Exp. Merchants’ Litig., 667 F.3d 204, 216 (2d Cir. 2012).
Southern District Judge Denise Cote concluded that enforcing the arbitration agreements would, as a practical matter, prevent the plaintiffs from vindicating their substantive rights, since the cost of litigation would be prohibitively high in relation to plaintiffs’ expected recovery. Order at 8-9. At this point, plaintiffs have already spent about $45,000 on experts, and stand to recoup “at most a median recovery of $540 in treble damages,” thus rendering individual arbitration completely illogical. Id. Judge Cote noted that the defendants “presented no serious argument to the contrary.” Id. at 9. As to defendants’ suggestion that plaintiffs in individual actions simply “pool resources and share the cost of expert fees,” Judge Cote responded, “[t]his argument blinkers reality.” Id.