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I n r e: Amer i ca n Expr es s M er ch an t s ` Li t i g at i on U N IT E D S T A T E S C O U R T O F A P P E A LS F O R T H E S E C O N D C IR C U IT

__________ Aug ust Term, 2007 Argued: Dec ember

10, 2007 Dec ided: J anuar y 30, 2009

Docke t No. 06-1871-c v,

__________

___________________________________________________________ I N RE: AMERI CAN EXPRESS MERCHANTS’ L I TI GATI ON, I TA L I AN CO L OR S RE STA UR AN T, on or be ha lf of its e lf and a ll simil arly situated persons, National Supermarke ts Association, 492 Supermarke t Corp., Bunda Starr Corp., Phoung Corp.,

Pla int if fs -A pp e lla nts , v. Americ an Express Trave l Related Service s Company , Americ an E x p r e s s C o mp an y, De fe nd ants -A pp e lle e s.

___________________________________________________________ POO L ER, SAC K, and

SOT OM AY OR , Ci rc uit

Judg e s. The plaintiffs se ek re view of the Marc h 16, 2006 decision of the United States District Court for the Southern D istrict of NewYork (D aniels, J.) which, inter alia, he ld that the e nf or c e a bil ity of a c la ss a c tio n w a ive r p ro vis ion c on ta ine d in

the c on tr a c t be tw e e n th e pa rt ie s is a question for the a

rbitrator. We hold: (1) that the question of the enf orce ability

of the c lass action wa ive r p ro vis ion

is p ro pe rl y

de c ide d b y

the Court

and (2 ) t hat th e c la ss a c tio n w a ive r p ro vis ion is unenfor cea

ble under the Fe dera l Arbitration Act. REVERSED AND REMANDED.

__________2 Ap pe ari ngfo r P la int if

fs -A pp e lla nts : G AR Y B. F R I ED MAN , Fr iedman L aw Gr oup L L P (Trac ey Kitzm an, Aa

ron Patton, Warren Par

rino, on the brief

), Ne w York, NY

. Read K. Mc Caffe y , Christopher W. Hellmich, Patton B og g s L L P, Wa sh ing ton , D C.

Mark Reinha

rdt, Mark Wendorf

. Reinhardt Wendorf & Bla nchfie ld, St. P aul. MN. Bla ine H. B ortnick, Christine Palmieri, L iddle & Robinson, L .L .P., New Yor

k, NY. Noah Shube, L aw Of

fice s of Noah Shube, N ew Yor k, NY. Be rnar d Persky , Eric B elfi, L abaton Sucha row & Rudoff L L P, New Yor

k, NY. Robert W. Cohen, L aw Of fice s of Robert W. Cohen, L os Ang eles, CA. David Mar

kun, Edwar d Z usman, Kevin Eng , Markun Z usman & Compton L L P, San Fra ncisco, CA. Kar l Cambronne, Jefrey

D. B ores, Chestnut & Cambronne P.A., Minneapolis, MN. Br ian B rooks, Murra

y , Fr ank & Sailer L L P, New Yor k, NY. Michae l Goldberg , Glancy Binkow & GoldbergL L P, L os Ang eles, CA. Cur tis V. Tr ink o, L aw O ff

ic e s o f C ur

tis V. Ti nk o L L P, New Y ork, NY. Robert C. Schubert, Willem F. J onckhee r, Schuber t & Ree d L L P, San Fra

ncisco, CA. Susan G. Kupfe r, Glanc y

Binkow & GoldbergL L P, San Fr ancisc o, CA.3 Roy A. Katr iel, The Katriel L aw F irm, PL L C, W ashing ton, DC

. Paul C. W halen, Whalen & Tusa, PC, New Yor k, NY.

Ap pe ari ngfo r D e fe nd ants -A pp e lle e s: B r u c e H

. S c h n e i d e r , S t r o o c k & S t r o o c k

& La v an , LLP (He idi Balk, on the br ief), N ew Yor k, NY. J UL I A B. S TR I C K L AND , Stephen J . Newma n, Stroock & Stroock & L avan L L P, L os Ang eles, CA. Jo nath an M . Jac ob so n, Wils on Son sin i G oo dr ic h & Ros a ti, New Y ork, NY. Evan R. Chesler, Cra

vath, Swaine & Moore L L P, New Yor k, NY. Stuart A. Al d er oty , Americ an Express Trave l Related Service s, I nc., Ne w York, N Y.

Ap pe ari ngfo r A mic i: Jane t L . M c Da

vid , Cathe rine E. Ste tso n, Jake M. Shi e lds , Ho g an & Ha

rt so n L .L .P. (M ari a

Gh a zal , B us ine ss Roundta ble , o f c ouns e l) , Wa sh ing ton , D C, f or B us ine ss Roundtable. Br iscoe R. Smith, M art i n S

. Kauf man, New

York, NY , for Atlantic L eg al Founda

tion. Daniel E. G ustafson, Ka rla M. Gluek, G ustafson Gluek PL L C, Minnesota, MN, for Ame rica n Antitrust I nstitut e. Edith M. Kallas, I lze C. Thielmann, J oy A. Nesbitt, Whatley Dr a ke & Ka lla s L L C; St e ven E. F ine man, Jenn if e r G ro ss, L ieff Ca brase r He imann & B ernstein, L L P, New Yor k, NY; F. Paul B land, J r., Tria l L aw y ers f or Public J ustice, Washington DC, for T rial L awy ers f or Public J ustice.We n ote that tw o d istri c t c ourt s in our C ir c uit

have fo un d c la ss a c tio n w a ive rs in 1 ma n d a to r y a r b it r a ti o nc la u s e s to b e e n f

o r c e a b le

. I nSh e r

r v . D e ll , I n c , N o . 0 5 c v 1 0 0 9 7 , 2 0 0 6 WL 21 09 43 6 ( S.D .N .Y . July

27 , 2 00 6) , a

c on su me r b ro ug ht a

pu ta tiv e c la ss a c tio n s uit a g a ins t D e ll alleg ing that cer

tain of the latter ’s produc ts had a da ng erous tende ncy

to overhe at. The pla intiff a sse rt e d c la ims un de r t

he statut or

y and c omm on law o f N e w Y or

k. I d. a t *1 . D e ll m ov e d to compel ar bitration and for

the enf orce ment of a c lass action wa iver c ontained in its sales c on tr a c t, t he te rm s o f w hic h w e re no t e ve n ava ila ble to t he c on su me r b e fo re purc ha se sh or t of his calling a spec ial telephone numbe r or visiting a Dell interne t site. I d. The district cour t gr anted the motion to compel, holding that the “ plaintiff is not entitled to a class ac tion suit or cla ss-wide arbitration to vindi cate the rig hts of ever y one else with a similar problem. The [Fe dera l Ar bit ratio n A c t’ s] pr ima

ry purp os e is n ot t o c re a te a ri g ht t o s ue a s a

c la ss. I ts m a in p ur

po se is t o ensure that private a g ree ments to arbitrate are enfor ced a ccor ding to their terms.” I d. at *7 (quotation marks omitted). The case was de cided a ccor ding to the la w of Te x as, which, the district court found, ha d incorpora ted the F eder al Arbitration Act as par t of its substantive law. I d. Dumanis v. Citibank (South Dakota), N.A., N o. 07cv6070, 2007 WL3253975 (W.D.N.Y. Nov. 2, 2007), w as an a ction involving cr edit car d interest rates broug ht under the fe de ra l T ruth i n L e nd ingAc t, 1 5 U .S. C. § 16 01 e t se q. , a nd the Ne w Y or

k G e ne ra l B us ine ss L aw. The contra ct at issue had a South Dakota choice of law c lause, a nd the dec ision was based upon the law of

that state, not the fe dera l law of a rbitration. I d. at *2-*3. The district court e nf or c e d th e c la ss a c tio n w a ive r c on ta ine d in the c on tr a c t’ s ma

nd a tor y arb itr a tio n c la

us e , b oth be c a us e the pla int if

f c ou ld h a ve “ op t[e d] out” of the arb itr a tio n c la

us e by no t r e ne wi nghis c re dit 4 POOL ER, Circuit J udg e:

This Court freque ntly en fo rc es m an d at o ry ar b i t ra tion clause s contained in commerc ial contra cts. We do so on the principle that “it is diff icult to overstate the strong fede ral policy in favor of ar b it r a ti o n , an d it is a p o li c y w e h a v e o f te n an d e mp h a ti c a ll y a

p p li e d

. ” A r c in ia g a v . Gene ral Motors Corp., 460 F.3d 231, 234 (2d Cir. 2006) (quotation marks omitted). On this appea l, however , we a re a sked to consider

the enf orce ment of a ma

ndatory arbitration clause in a c ommercia l contrac t that also contains a “ class ac tion waiver,” also ref err ed to as a

“collec tive action wa iver,” that is, a provision which forbids the pa rties to the contra ct from pur suing a ny thin g o t h er t h an individual

c la ims in t

he arb itr a l f

or um. Th is i s a

ma tte r o f f

ir st i mpr e ssi on

in o ur Court
. 1c ard

and be c a us e the pla int if

f h a d n ot b e e n s tr ipp e d o f a ny su bs tanti ve re me die s; h e me re ly c ou ld not pursue them “in the a rg uably more-f avora ble context of a cla ss action.” I d. We note that in neither Sherr nor Dumanis does it appe ar that the plaintiff made a substantial demonstration – which we hold that the plaintiffs have made he re – to the e ffe ct that an inability

to pursue ar

bitration on a cla ss basis would be tantamount to an inability to assert the ir c la ims a t a ll. Tw o c omm e ntator s h a ve su g g e ste d th a t th is i s p art ic ula rl y so in t he c re dit c ard ind us tr y : 2 “Credit ca

rd compa nies have shown themselves to be e ven less enthusiastic a bout classwide arbitration than about class ac tion lit igation. The ‘devil y ou know’ phe nomenon is compounded by the unce rtainty

of judicial re view of c lass cer tification in arbitration and the conc omitant fear of a ‘ rene g ade a

rbitrator’ cer

tify ing a class and e x posing a

company to massive liability .” Samuel I ssacha

roff & E rin F. D elane y , “Credit Card A ccounta bility ,” 73 U. Chi. L . Rev. 157, 179 (2006). 5 On e c omm e ntator

ha s r e c e ntl y

c on te nd e d th a t “ [t]he outr ight bann ingof c la ss a c tio n in

mand a tor y arb itr a tio n c la

us e s h a s bec ome a sta

nd ard po lic y fo r many c or po ratio ns that tr ans a c t w ith

c on su me rs .” B ry an A lle n Ri c e, “ Com me nt: En fo rc e a ble or No t?: Cla ss A c tio n Wa ive rs in Mandatory

Arbitration Clauses a

nd the Nee d for a

J udicial Standard,” 45 Hous. L . Rev. 215, 224 (2008). We acknowle dg e at the outse t, as have other courts that have c onsidered que stions arising

2 from the enfor ceme nt of class action waiver s, in both c onsumer and c ommercia l contrac ts, that the wisdom a nd utilit y of these provisions ha ve become the subject of intense debate

. See Skirchak v. Dy namics R e s e ar c h Co r

p . , 5 0 8 F

. 3 d

4 9 , 6 3 ( 1 Ci r . 2 0 0 7 ) ( “ We r e c o g n iz e th a t t h e r e is a policy st debate about whethe r cla ss action waive rs es s enti ally act a s exculpatory

clause s, allowing for vio la tio ns of

laws wh e re ind ivi du a l c a se s in vo lve low doll ar a mou

nts and so wi ll n ot a de qu a te ly addre ss or preve nt illeg ality .”). The opposing positions in this freque ntly impassioned debate have be e n d isp a ssi on a te ly

de sc ri be d a s f

oll ow s: Companies’ use of

class ac tion waivers is motivat ed b y the vie w that pl a int if

fs e xploi t th e c la ss a c tio n p ro c e dure in o rd e r t o w re st larg e and unfair settlements from defe ndants.

. . . C l as s action waiv ers are vie wed by these c ompanies as a way to defe nd6 themselves fr om consumers who a re ganging up on companies throug h the lever ag e inher ent in the ag g reg ation of larg e number s of claims. I n further

support of these w aiver s, corpor ations argue that the many (per ceive d) advanta g es of arbitration to a plaintiff make up for a ny disadvantag es or inconve nience s that the plaintiff may incur by sacr ificing the ability

to be par t of a c lass action.

. . . Op po ne nts of c la ss a c tio n w a ive rs c on te nd tha t th e a bil ity to a g g re g a te c la ims is c ru c ia l to pr ote c t the ri g hts of tho se ind ivi du a ls

. . . w ho do no t ha

ve the re so ur c e s to lit ig a te ind ivi du a l c la ims

. F ur the r, many ind ivi du a l c la ims a re on ly via

ble if br ou g ht o n a

c la ssw id e b a s is

. I n d e e d , b y

p r o h ib it in g c la s s a c ti o n s in

. . . la w s u it s [] wher e the e x pecte d rec overy is dwarf ed by the cost of lit i gat i ng or arbitrating t h e cla im, indivi duals are eff ectively preve nted from pur s u i n g t h e i r c l a i m s . A s a r e s u l t , b u s i n e s s e s ar e a b l e t o e ng a g e in unchec ked mar

ket misbehavior . . . . J . Maria G lover, “ Be y on d Unconsc ionability : Class Action W aiver s and Mandatory Arbitration Ag ree ments,” 59 Vand. L

. Rev. 1735, 1746-47 (2006) (footnotes and internal quot at i o n marks omitted). B oth of the se po sit ion s have be e n pr of fe re d to the Court by a mic i. C omp are B ri e f o f A tla nti c L eg al Foundation at 4 (“F or seve ral de cade s, providers of products and se rvice s in the United States have be en bese t with a liti gi o u s en v i ronment that has e voked cr iticism of many observe rs and

a pp la ud e d o nly by tho se pr of

e ssi on a ls w ho have ha

rv e ste d th e su

bs tanti a l fin anc ia l re wa

rd s th e c ivi l justice sy stem has p ro duced by way of attorne y s’ fe es. . . . Recog nizi ng the risks of def ending ag ainst class action lit igation, many businesses have elec ted to have disputes r esolved by individual

arb itr a tio ns and

to a do pt c oll e c tiv e a c tio n w a ive rs a s p art of the ir arb itr a tio n c la

us e s w iththe ir b u s i n e s s c u s t o m e r s t o i n s u r e t h a t r e s u l t
. ” ) w i t h B r i e f o f T r i a l Law y e r s f

o r P u b l i c J u s t i c e a t2 7 ( “ It is . . . crucia l to understand that any ban on class arbitration is essentially a ban on c lass treatment altog ether , as ar

bitration clauses in standa rdized corpor ate contrac ts are made broader and broa der, to encompass a ll conceiva ble ty pes of disputes . . . . Unde r a reg ime wher e such pr ohibitions areI nte re sti ng ly , w he n it e na c te d th e Cla ss A c tio n F a ir ne ss A c t of

20 05 , Co ng re ss i tse lf 3 found both utilit y

and dang er in the use of the c lass action devic e. Compare Pub. L . No. 109-2, § 2(a) (1), 119 Stat. 4 (2005) ( “Class ac tion lawsuits are a n important and valua

ble par t of the leg al sy stem when they

permit the fa ir and e fficie nt resolution of leg itimate claims of numerous pa rt ie s b y a llo wi ngthe c la ims to b e a g g re g a te d .

. . .” ) w ithid. a t § 2 (a )( 2) (“ Ov e r t he pa st deca de, ther e have been a buses of the c lass action devic e that have – (A) ha rmed c lass members with leg itimate claims and def endants that have ac ted re sponsibly ; (B) adver sely aff ecte d interstate c ommerce ; and (C) unde rmined public re spect for our judicial sy stem.”). 7 e nf or c e d, su c h c la

us e s are tanta

mou nt t o a c la us e ba nn inga ll c la ims a g a ins t a c orp orat ion , unle ss they are so larg e that they

justify the outlay

of the e x traordina

ry expense involved.”). 3 We note that two standard tr eatises on the c onduct of c lass action litigat i o n appea r to take opposing positions as well. Compare 1 Joseph M. McL aug hlin, McL aug hlin on Cl ass Actions: L aw and P rac tice, § 2:14 (3d ed. 2006) (“ As the potential ava ilability of cla ss-wide a

rbitration threatens to m ult ipl y e xpon e nti a lly

the e xpos ur e o n

wh a t i s f a c i a lly a sin g le -c on su me r i ssu e , c omp anie s sh ou ld strong ly consider inc luding in their standa rd ar bitrat i o n ag ree ments an express provision barr ing

c la ss a c tio n litig a tio n or ar bit ratio n. ” ) wit

h 3 Al ba Con te & He rb e rt B . Ne wb e rg , Ne wb e rgon Cla ss Actions, § 9:67 n.2 (4 ed. 2008) (“The bar on c lass arbitration threatens the pr emise that ar bitration th can be a fa ir and a dequate mecha nism for enfor cing statutory rig hts.”). Whil e we are c on sci ou s of this d e bate , w e are tha nk fu l th a t w e ne e d n ot r e so lve it o n th is appea l. That is, we do not dec ide whethe r cla ss action waive r provisions are eit h er v o i d or enfor cea ble per se. Rather , we a

re c oncer ned solely

with the class ac t i o n wa i v er co n tained in the contra ct between the parties before us on this appeal. We conc lude that, on the re cord be fore us, the plaintiffs have adequa

tely demonstrated that the class ac tion waiver pr ovision at issue should not be

e nf or c e d b e c a

us e e nf or c e me nt o f t

he c la us e wo uld

e ff e c tiv e ly pr e clu de any a c tio n s e e kin g to vin dic a te the statut or

y ri g hts a sse rt e d b y

the pla int if

fs

.8 F AC TS A. P roce dural Posture . The plaintiffs appea l f rom the judgme nt, dated Mar ch 20, 2006, memorializing the memora n d u m o p i n i on and orde r, date d Marc h 15, 2006, of the United States Di str ic t Cour

t of the Sou the rn Di str ic t of Ne w Yo rk , whi c h g ra nte d d e fe nd ants Am e ri c an E xpre ss Company and Amer ican Express Tra vel Related Ser

vi ces Company , I nc.’s ( collectively “Amex”) motion to compel arbitration. See In re Americ an Express Merc hants L itig., No. 03c v9592, 2006 WL66 23 41 (S .D .N .Y . M arc h 1 6, 20 06 ) ( Da nie ls, J.). Th e e arl ie st i te ratio n o f t he pla int if

fs ’ c la ims was made in Aug ust 2003, with the filing of a class ac tion complaint in the Un ited States District Court for the Northern District of California (“ the I talian Colors action”) . This action, and a nother

su bs e qu e ntl y

fi le d c la ss a c tio n, we re tr ans fe rr e d, on Am e x’s m oti on , br ou g ht purs ua nt t o 2 8 U .S. C. § 140 4 ( a ) , to th e U n it e d

St a te s D is tr ic t C o u rt f

o r th e So u th e r

nD is tr ic t o f

N e w Y o r k

. ( JA 1 4 , 8 5) B y an ord e r, date d De c e mbe r 10, 20 04 , th a t c ourt c on so lid a te d th e se tw o a c tio ns , p ur su ant t o Ru le 42(a) of the Fe dera l Rules of Civil Procedur e, with se vera l c lass actions that had been filed in t he Sou the rn Di str ic t of

Ne w Y or k. Any su

bs e qu e ntl y fi le d re la te d a c tio ns we re a lso ma de su bje c t to this consolidation order. Be cause we c onsid er h er e o nly the nar row que stion of whether the class a ction waiver provision c ontained in the contra ct betwe en the pa rties should be enf

orce d, a prolix description of the plaintiffs’ c laims is unne ce s s ar y . (And, ne edless to say , we take no position on t he mer its of these cl ai m s .) In their brief s on this appeal, the pa

rties desc ribe the pla intiffs’ claims larg ely by

re fe re nc e to t

he a me nd e d c omp la int , f

ile d D e c e mbe r 2 4, 20 03 , in the I ta lia n Co lor s a c tio n. We w ill do so a s w e ll. B. Th e P artie s. Th e pla int if fs a ll ege that A me x “is the le a din g iss ue r o f g e ne ra l pu rp os eAmex confirmed at or al ar g ument that this $10 mi llion figure relates to purcha ses made 4 w i t h A m e x p r o d

u c t s , n o tt o p u r c h a s e s m a d e b y c r e d i tc ar d s g e n e r a l l y. 9 and cor porate char g e ca

rds to consumers a

nd businesses in the United States and throug hout the world. I t is also the leading provider of char g e ca

rd ser vices to merc hants.” The named plaintiffs

are : ( 1) Ca lif

or nia and Ne w Y or k c or po ratio ns wh ic h o pe rate bu sin e sse s w hic h ha ve c on tr a c te d w ith Amex and (2 ) t h e N at i o n al S u

p er m ar k et s As s o ci at i o n , I n c. (“ NS A” ), “a voluntary membership-ba sed trade association that re prese nts the interests of indepe ndently owned supe rmarke ts.” The named pla int if fs se e k to re pr e se nt t

he fo llo wi ngc la ss, purs ua nt t o Ru le 23 of

the F e de ra l Ru le s o f C ivi l Procedur e: The c lass is comprised of a ll merc hants that have acc epted

Am e ri c an E xpre ss c ha

rg e c ards ( inc lud ingthe Am e ri c an E xpre ss corpor ate c ard) , and have thus been for ced to a g ree to acc ept Americ an Express cre dit a nd debit car ds, during the long est period of time permitted by

the applica

ble statute of limit ations

. . . throug hout the United States . . . . C. The Card Acceptance Agre em ent. The basic contra ctual relationship betwe en Amex and the plaintiffs is set for th in an aff

idavit of an Ame x executive: Am e ri c an E xpre ss i ssu e s card pr od uc ts t o it s c ard

me mbe rs , which car dmembers then use in making purcha ses from pa rticipating me rc ha nts . Pa rt ic ipatin g me rc ha

nts wi th a

nnual c ha

rg e vo lum e expected to be less than $10 milli on ag ree that, by submitt ing c harg es for pa y ment by Americ an Express, their re lationship will be g overne d by the “Te rm s an d Conditi ons for Ame rica n Ex press© Car d Acc eptanc e” ( “the Car d Acc eptanc e Ag ree ment”). 4 The Car d Acc eptanc e Ag ree ment i s a s t andar d form contr act issued by Amex. I t may

be terminated by either pa

rty “at a ny time by sending written notice to the othe r par ty .” F urther, A mex

re se rv e s th e ri g ht

to chan g e th is A g r e e me n t at a n y ti me . We w il l n o ti f

y y o uo f any10 chang e in writing at least ten ( 10) ca lendar day s in advanc e. I f the chang es ar e unacce ptable to y ou, y ou may terminate this Ag ree ment a s d e s c r i b e d

i nt h e s e c t i o ne n t i t l e d “ T E R M IN A T IN G T H IS AGREEMENT.” Acc ording to Amex, t he C ard Acce ptance Ag ree ment has “ex pressly permitted ame ndments upon notice” f or more tha

n twenty -five y ear s. The Card Acc eptanc e Agr eeme nt also contains a c hoice of law provision desig nating New York l aw as g overning and, as Amex states, t here is no dispute that the ag ree ment “has a lway s” conta ined this provision. By contra st, it i s only

since 1999 that the Car d Acc eptanc e Ag ree ment h as contained a mandatory

arbitration clause. That clause is nothing if not capa ciously worde d: For the purpose of

this Agr ee m en t , C laim means any asser tion of a rig ht, disput e o r controversy betwee n y ou and us ar ising fr om or re la tin g to t

his Ag re e me nt and

/or the re la tio ns hip re su lti ngfr om t his Ag ree ment. Claim includes claims of eve ry kind and nature inc lud ing , b ut n ot l imi te d to , in iti a l c la ims , c ounte rc la ims , c ro ssc la ims and

thi rd -p art

y c la ims and cla ims ba se d u po n c on tr a c t, t or

t, in te n ti o n a l t o rt, statute s , r e g u lati o n s , c o mm o nla w an d e qu it y . We shal l n o t elect to use a

rbitration under

this arbitration provision for a ny ind i v i d

u a l C l a i m t h a ty o up r o p e r l y f i l e an d p u r s u e i na

s ma ll c la ims c ourt

of y our s ta te or

mun ic ipa lity so lo ng a s th e Cla im i s pe nd ingon ly

in t hat c ourt
. * * * Any C l ai m s hall be re solved upon the ele ction by y ou or us, by arbitration pursuant to this arbitrat i o n p ro vision and the code of pr oc e dure of

the natio na l arb itr a tio n o rg anizatio n to wh ic h th e Cla im is refe rre d in effe ct at the time the Claim is filed. Claims shall be re fe rr e d to the Natio na l Ar bit ratio n F or um (N AF ), JAMS/ En dis pu te (JAMS ), or the Americ an Ar bitration Association (AAA ), as se lected by the par ty elec ting to use a

rbitration. I f a selec tion by us of one of these org anizations is unaccepta ble t o y ou, y ou shall have the rig ht wi thi n th ir

ty (3 0) da y s a ft e r you

re c e ive no ti ce of

our e le c tio n to selec t one of the othe r organizations listed to serve a s arbitrator administrator. At the hea

rt of the instant a

ppeal is the fac t that the Ag ree ment also contains the f ollowingTh e pla int if fs make no c ha lle ng e to t

his pr e e mpt ion

of the F e de ra l Ru le s o f C ivi l 5 Procedur e by

the rules of

the var ious arbitration firms listed in the Card Ac cepta nce A g ree ment. We note, howeve r, that some commentators have a rg ued that plaintiffs a

re pla ced at a distinct 11 provision: I F ARB I TRATI ON I S CHOSEN BY AN Y PAR T Y W I TH

RESP ECT TO A CL AI M, NEI THER YOU NO R W E WI L LHAVE THE RI GHT TO L I TI GATE TH AT CL AI M I N COURT OR HAVE A J U RY T R IA L O N T H A T C LA IM

. . . . F U R T H E R , Y O U W ILL NOT HA VE THE RI GHT T O PARTI CI PATE I N A REPR ESENTATI VE CAPACI TY OR AS A M EMBER OF ANY C LA S S O F C LA IM A

N T S P E R T A IN IN G T O A N Y C LA IM SUBJECT TO ARBI TRAT I O N

. T H E A RB I T RA T O R’ S D E CI SI ON WI L LBE F I

NAL AND BI NDI NG. NOTE TH AT OTHE R RI GHTS THAT YO U WOUL D HAVE I F YO U WENT T O COURT MAY AL SO NOT B E AVAI L AB L E I N ARBI TRATI ON. There shall be no rig ht or authority for a ny Claims to be ar

bitrated on a cla ss a c ti o n b a s is o r o n an y b a s is inv o lv in g Cl a im s b r o u g h t in a purported r epre sentative c apac ity on behalf

of th e gen eral public, other e stablishments which acc ept the Card ( Service Esta b li s hme nts), or oth e r p e rs on s o r e nti tie s si mil arl y sit uate d. Furth e rm or e , Cl a ims broug ht b y o r ag ainst a Service Establishment may not be joined or consolidated in the arbitration with Claims broug ht by or ag ainst any other Servic e Establishment(s), unless other wise ag ree d to in writing by all parties. Thus , th e Card

Ac c e pta nc e Ag re e me nt n ot o nly pr e c lud e s a me rc ha nt f ro m br ing inga

c la ss action lawsuit, it also prec ludes the sig natory from havingany

claim ar bitrated on a

ny thing other tha n a n in div idu a l ba sis . T he Card Ac c e pta nc e Ag re e me nt f

ur the r p ro vid e s a s f

oll ow s: This arbitration provision is made pursuant to a transa ction involving interstate c ommerce , and shall be g overne d by the Fe dera l Arbitration Act, 9 U.S.C. Sec tions 1-16, as it may be ame nded (the FAA ). The arbitrator shall apply

appli cable substantive law consistent with the FAA

. . . . I n conductingthe ar bitration proce eding , the ar bitrator shal l n ot apply

the Fe dera l or any

state rules of

civil proce dure or rules of e vidence

. The a

rbitrator sha ll apply

the applica

ble provisions of the Cod e of Pr oc e dure of the NA F , JAM S or AA A, a s a

pp lic a ble t o m a t t e r s r e l a t i n g t o e v i d e n c e an d d i s c o v e r y. 5disadvantag e by class ar bitration rules of these firms. See Da niel R. Higg inbotham, “B uy er Be war e: Why

the Class Arbitration Waiver Clause Pre sents a Gloomy Future for Consumers,” 58 Duke L .J. 1 03 , 1 23 (2 00 8) (“ Re g ard ingmany imp or tant i ssu e s . . . the ru le s [of arb itr a tio n f

ir ms] are either silent or dive rg e sig nificantly from the F eder al Rules of Civil P roce dure, r aising serious questions as to the ability of cla ss arbitration to ade quately resolve disputes.” ). 12 D. The P laintif

fs’ S ubs tantive Claim s. The plaintiffs’ dispute with Amex rests upon the distinction between “cha

rg e car ds” and “cr edit car ds.” The district court explained the distinction

a s f oll ow s: A cha

rg e ca rd re quires its holder to pa y the full outstanding ba lance a t th e e nd

of a sta nd ard bil lin g c y cle. Ac re dit

c ard , b y c on tr a st, allows the ca rd h older to pay a portion of the a

mount owing at the close of a billing cy cle, subject to interest charg es. I n plain terms, the c re dit c ard is a me ans of fi nan cingpurc ha se s, the c ha rg e c ard is a me tho d o f p ay

me nt. I n re A merica

n Ex press Mer chants L itig., 2006 WL662341, at *1 n.6. Acc ording to the plaintiffs, Amex had unti l rec ent y ear s cente red its business on the issuance of cor porate and personal charg e cards to corpor ate clients and affluent consumers. Amex is allege d to b e the un dis pu te d le a de r i n th is m ark e t, t o th e e xten t th a t it “ iss ues Co rpo rat e Card s to a t le a st 70 % o f t he c omp anie s in c lud e d in the F or tun e 50 0, and

is lik e wi se the le a din g iss ue r o f C or po rate Ca r d s to mi d d le

- ma

r k e t c o mp an ie s . . . an d

s ma ll b u s in e s s e s . ” T h e p la in ti f f s f u rth e r a s s e rt t hat “[ h ] o l d er s o f ch ar ge ca rd s ar e m o re af fl u en t t h an cr ed i t ca rd h o l d er s , an d a v as t l y h i gh er p er ce n t age of cha rg e ca rds than cr edit car ds are held by businesses and use d for business t rave l and other

co rp o ra t e p u rp o s es . ” In f ac t , t h e p l ai n t i ff

s al l ege t h at Am ex i t s el f c o n t e n d s t h at “t h e a v er age purc ha se on an Am e ri c an Expr e ss c ard is 17 % hig he r tha n the a ve ra g e purc ha se ma de on a credit

car d.” Thus , th e ho lde r o f a c ha rg e c ard is l ike ly to b e “ a hig he r c la ss of c us tom e r” and , a s su c h, is13

pa rt ic ula rl y a ttr a c tiv e to m e rc ha

nts su c h a s th e pla int if

fs . A me x is cert ain ly

no t un awa

re of thi s attrac tion, and as a r esult of it, Amex has traditionally been a ble to char g e hig h “mer chant discount fee s,” which are the fee s a car d issuer withholds a s a perc entag e of eac h purcha se made with its car d at the mer chant’ s establishment. These f ees, the plaintiffs ave r, “a re at least 35% hig her tha n competitive rates” a

pplicable to mass-ma

rket cre dit c ards such as Visa , Masterc ard, a nd Discover

. Ov e r t he la st d e c a de , h ow e ve r, the pla int if fs c on te nd that Am e x’s “ bu sin e ss in t he mark e ts for c redit ca

rd issuance and cre dit c ard service s has g rown dramatically .” Specifica lly , Amex has in rec ent y ear s cre ated ne w cr ed i t ca rd produc ts “marke ted to colleg e students, y oung adults and others who would c erta inly not produce the hi g h per- transac tion spending that Amex us es to justify [t h e ] h ig h [m e r c h an t] d is c o u n t f e e s . B y le v e r a g in g it s ma

r k e t p o w e r

in c o r p o r a te an d

p e r s onal char g e ca rds, howeve r, Amer ican Express was able to c ompel merc hants to a cce pt its new revolving

cre dit card pr oduct[s] at the same elevat ed d iscount rate, w hich vastly exceede d the rate for compar able Visa , MasterCar d or Discove r produc ts.” Acc ording to the plaintiffs, the vehicle of t his compulsion is the “Honor All Cards” provision contained in the Card Acceptanc e Agr eeme nt. Under the Agre ement, a mercha nt does not contrac t to a c c e pt a

ny on e Am e x pro du c t a s a

fo rm of pa y me nt. Ra the r, the Ag re e me nt a pp lie s to y our ac cepta

nce of Americ an Express© Cards. . . . Amer ican Expr e ss C ard (s ) .

. . sh a ll m e an any car d o r o the r a c c ount a c c e ss dev ic e is s u e d

b y A me r ic anE xp r e s s T r a v e l R e late d Se r v ic es Company , I nc., or its subsidiaries or af filiates or its or their lice nsees bearin g the Am e ri c an E xpre ss n a me or an A me ri c an E xpre ss trade mark, ser

vice mar k or log o. The plainti ffs assert t hat, by means of the “Honor All Cards” provision, merc hants are fac ed with the choice o f p ay i ng suprac ompetitive mercha nt discount fees ( i.e., fe es above competitive levels) on Ame x ’s new ma ss-marke t products or “ inevitably los[ ing] a s ig nificant portion of the salesI n a def inition t hat has be come c lassic, the Supreme Court has define d a tying 6 arr ang ement as “ an ag ree ment by a par ty to sell one product but only on the condition that the buy er a lso purchase s a diffe rent (or tied) produc t, or at lea st ag ree s that he will not purchase that product fr om any

other supplier.” Norther n Pacific Ry . Co. v. United States, 356 U.S. 1, 5-6 (1958). A ty

ing a rra ng ement will violate Section 1 of the Sher man Act if “ the seller ha s a pp re c ia ble e c on omi c po we r i n th e tyingpr od uc t ma rk e t and if the arr ang e me nt a ff

e c ts a substantial volume of commerc e in the tied mar ket.” Ea stman Kodak Co. v. I mag e Te chnica l Servs., 504 U.S. 451, 462 (1992) ( internal quotation marks omitted). 14 they rec eive f rom businesses, trave lers, af fluent consumer s, and others” who ar e the tra ditional users of Am e x ch arg e c ard s. Th is, the pla int if fs c la im, a mo un ts to an il le g a l “ tyingarr ang e me nt, ” in violation of Section 1 of the Sherma n Act, 15 U.S.C. § 1. 6 E. The District Court’s Dec ision . Am e x move d to c omp e l arb itr a tio n p ur su ant t o th e te rm s of the Car d Acc eptanc e Ag ree ment. I n its March 15, 2006 opini on, the district court g rante d Amex’s motion, first holdi ng that the ar bitratio n cl ause in the Ag ree ment was “ a par adig matically broad

c la us e ” wh ic h wa s ce rt a inl y a pp lic a ble to the dis pu te be tw e e n th e pa rt ie s. I n r e Am e ri c an E xpre ss Me rc ha nts L iti g ., 20 06 WL 66 23 41 , at *4. Th e dis tr ic t c ourt pr oc e e de d to c on sid e r t

he pla int if

fs ’

c on te nti on

that e nf or c e me nt o f t

he c la ss a c tio n w a ive r w ou ld e ff e c tiv e ly str ip t he m of the a bil ity to

asser t their claims bec ause “ eac h individual plaintiff would have to inc ur discovery costs amounting to hundreds of thousands of dollars, despite see king a vera g e dama g es of only

$5000.” I d. The district court expressed ske pticism that thi s argument amounted to much:

Pla int if fs ’ c on te nti on

. . . th a t th e c os ts o f i nd ivi du a l arb itr a tio n w ou ld eclipse the value of

any potential rec overy , ignor es the statutory protec tions provided by

the Clay ton Act. Section 4 of the Clay ton Act provide s that “any person who shall be injured in his business or proper ty by rea son of any

thing f orbidden in the a

nti-trust laws . . . shall rec over thre efold the damag es by him sustained, and the cost of suit, including a r easona

ble attorne y ’s fe e.” 15 U .S.C. 15(a) . . . . I d. at *5 (footnote omitted).15

This observation wa s quickly reduc ed to dicta, howeve r. This is be cause the district court proce eded to hold that “[t]he enforc eability of the co l l ec t i v e action waivers is a c laim for the arbitrator to resolve. I ssues relating to the enfor cea bility of the contra ct and its spec ific provisions

are for the arbitrator, once arbitrability is established.” I d. at *6. Thus, the district cour t concluded that a ll o f t

he pla int if

fs ’ s ub sta nti ve anti tr

us t c la ims , a s w e ll the qu e sti on of wh e the r o r n ot t

he c la ss action wa ivers we re e nforc eable , wer e subjec t to arbitration. The plaintiffs a lso made two additional ar g uments befor e the district cour t. First, they contende d that the class action waiver could not be enforce d ag ainst those named plaintiffs who had contra cted with Amex before the 1999 inclus i o n o f t h e mandatory arbitration clause in the Car d Ac c e pta nc e Ag re e me nt. Am e x p ur po rt e dly inf

or me d the se pla int if

fs of the inc lus ion

of the c la us e by means of an amendment to the Ag ree ment. The plaintiffs c ontended, howe ver, that (1) Amex had

no t pr od uc e d s uf fi c ie nt e vid e nce o f t

he fa c t th a t th e “ pr e -1 99 9 p la int if fs ” ha d e ve r r e c e ive d th is amendment a

nd (2) e ven if the pla intiffs h ad rece ived the ame ndment, their orig inal merc hant contra ct with Amex did not allow the subsequent introduction of an arbitration clause. The district court re jected the se ar g uments, concluding that t h e p l ai n tiffs had not succ essfully rebutted the presumption of mailing to which Amex is entit led and that the a rbitration amendme nt constituted

a re asonable addition to the orig inal merc hant contra ct. I d. at *7-*9. Se c on d, the pla intiff

s c on te nd e d th a t th e c la ss a c tio n w a ive r w a s n ot e nf or c e a ble a g a ins t named plaintiffs a

nd class member s who wer e ci tiz ens of Califor nia bec ause the waiver s were unconsciona

ble unde r t hat State’s law. T he district cour t concluded that this was “a substantive matter[] to be ra ised befor e the a rbitrator.” I d. at *9. Th e dis tr ic t c ourt

c on c lud e d a s f

oll ow s: “ [Ame x’s] mo tio n to c omp e l arb itr a tio n of a ll c la ims16

ag ainst it is gra

nted. Since this Court finds that all of plaintiffs’ cla ims ag ainst [Amex ] ar e subjec t to arbitration, it further

order s that plaintiffs’ ca ses ag ainst [Amex ] be dismi ssed.” I d. at *10. The pla int if fs fi le d a tim e ly a pp e a l.

AN AL YSI S Be fore we pr ocee d to the weig hing of the parties’ arguments, we think i t would be helpful to set forth some of the issues which ar e not ra ised on this appeal. Spec i fi ca l l y , t h ese are issues which ar e commonly raised in the gene ral run of arbitration case s with which this Court is face d. First, the plaintiffs are not contending that the mandatory arbitration clause contained in the Card Ac cepta

nce A g ree ment is not broad e noug h to cover their antitrust claims. See JL M I ndus., I nc. v. Stolt-Nielsen SA, 387 F.3d 163, 175 (2 d C i r. 2 004) (holding that antitrust claims were arbitra ble und er a b road arbitration cla use eve n though the claims conc erne d “matter s bey ond the making of a pa

rt i cu l ar co n trac t betwee n the par ties and the pe rfor

mance of its terms”). F urther, wh i l e t hey

cer tainly do not deny

that this case is one of considera

ble leg al and e videntiary

c omp le xity , the pla int if

fs do no t ar g ue that the ir

c la ims are too c omp le x to be pr op e rl y ha nd le d in arbitration. See id. at 181 (re jecting argu m en t that claims involving a “horizontal price- fix ing

c on sp ir a c y ” we re be y on d th e c a pa bil iti e s o f a

n a rb itr a l pa ne l)

. No r do the pla int if

fs take iss ue wi th the dicta in JL M to the eff ect that this Court would view “ske ptically ” any argument positing that the “a ssertion of cla ss claims should serve a s a bar or dete rre nt to sending ” a c ase to a rbitration. I d.

a t 18 0 n .9 . O n th e c on tr ary , th e pla int if fs e xpre ssl y

a ve r t hat the y “ are no t ave rs e to p ro c e e din g inI t is appare nt that “[c]l ass ar bitration is a swiftly

g rowing phenomenon. In late 2003, 7 the Amer ican Ar

bitration Association (“A AA”) introduced pr ocedur es for class ar bitrations . . . . As of September

27, 2007, the AAA w as administering more than 190 c lass arbitrations, and fr om Jul y 10 , 2 00 6 unti l Se pte mbe r 2 7, 20 07 a lon e , th e numbe r o f A AA -a dmi nis te re d c la ss arbitrations increase d by

more than 50% .” David S. C lancy & Matthew M.K. Stein, “An Uninvited Guest: Class Arbitration and the F eder al Arbitration Act’s L eg islative History ,” 63 Bus. L aw. 55, 56 ( 2007). Clancy and Stein g o on to argue that whe n Congr ess passed the Fe dera l Ar bit ratio n A c t, i n 1 92 5, it s pe c if ic a lly e nv isi on e d a

rb itr a tio n a s “ so me thi nginh e re ntl y pr omp t, inexpensive, and streamlined,” and “ did not ex pect that a rbitrators would a djudicate a ny thing lik e the mod e rn

c la ss a c tio n . . . .” I d. a t 61 , 6 7. Al tho ug h th e arg ume nt t hat c la ss p ro c e e din g s in arbitration are inc ompatible with the Fe dera l Arbitration Act is an intrig uing one , we a re pr e se nte d w ithno su c h a

rgume nt o n th is a

pp e a l. The princ iple was limited by the Court itself in Hall Street which he ld that parties ar e 8 not free to compose ar

bitration ag ree ments which provide f or a g reater scope of fe dera l court revie w of a

rbitral aw ards than that set forth in the F eder al Arbitration Act (“F AA”) , 9 U.S.C. § 1 et seq, be cause this would be at odds with the FAA ’s “substantiat[ion of] a national policy favor ing a

rbitration with just the lim ited revie w nee ded to maintain ar bitration’s essential virtue of re solving disputes straig htaway .” 128 S. Ct. at 1405. 17 a cla ss-wide a

rbitration.” (B lue 29) The plainti ffs a re the ref ore not see king to r evive “ the anc ient 7 judicial hostili ty

to arbitration” a s a form of dispute re solution. Halligan v. Piper Jaffr ay , I nc., 148 F.3d 197, 200 ( 2d Cir. 1998). I n asking us to hold that the class ac tion wa i v er i n the Card Acc eptanc e Ag ree ment is une nforc eable , howeve r, the plaintiffs are implicitl y asking us to lim it the principle that “ many

features of a

rbitration b y co n t ract, including . . . pr ocedur e and c hoice of substantive law,” H all Street Assocs., L L C v. Mattel, I nc., __ U.S. __, 128 S. Ct. 1396, 1404 (2008),

ar e to b e le ft t o t h e di s cr et i o n o f th e co n t ra ct i n g p ar t i es , u n s u p er v i s edb y

j u d i ci al re v i ew . Al t h o u gh 8

we be lie ve that it

is a c los e qu e sti on , w e be lie ve that th e pla int if fs are c or re c t. A. Jurisdiction. Section 16(a) (3) of the FAA, 9 U.S.C. § 16(a)(3) , provides that an a ppeal may be take n from “a

final dec ision with respect to an ar b i t ra t i o n that is subject to this t itle.” Be cause “an o rd er compelling arbitration and dismiss ing a party ’s under ly ing c laims is a ‘final decision with respe ct to an ar bitration,’” Gr een Tree Fin. Corp.-Alaba ma v. Randolph, 531 U.S. 79,The plaintiffs’ challeng e to the enf orce ability

of the c lass action wa iver is distinct from 9 any contention to the ef

fec t that Amex’s allege d ty ing a rra ng ement re nders the e ntire Card Ac c e pta nc e Ag re e me nt i nv a lid . Se e Am e x Br ie f a t 49 . T he la tte r i ssu e is n ot b e fo re us . 18 82 (2 00 0) , th e re is n o d isp ute that th is C ourt ha s juri sd ic tio n to he a

r t he ins tant a

pp e a l. B. Who S houl d Decide Whetherthe Class Act ion Waiver is En forceable? The plaintiffs argue – and w e do not see that Amex posi ts any argument to the contra

ry – that the dis tr ic t c ourt

e rr e d in ho ldi ngthat th e qu e sti on of the c la ss a c tio n w a ive r’ s e nf or c e a bil ity is a matter for the ar bitrator, not the cour

t. This is pl ainly

corr ect. I n B uc ke y e Che c k Ca sh ing , Inc . v . Ca rd e g na , th e Sup re me Court state d th a t [c] ha ll e n g e s to th e v a li d it y o f ar b it r a ti o n a g r e e me n ts
. . . can be div ide d into tw o ty

pe s. On e ty

pe c ha lle ng e s sp e c if

ic a lly the va lid ity of the a g re e me nt to ar

bit ra te
. Th e oth e r ch a lle ng e s th e c on tr a c t a s a whole, either

on a g round t h at d i rectly aff ects the e ntire ag ree ment (e.g . the agr eeme nt was fraudulently induced) , or on the g round that the ill e g a lity of on e of the c on tr a c t’ s pr ov isi on s re nd e rs th e wh ole contra ct invalid. 546 U.S. 440, 444 (2006) (c itation omit ted). The Court then held that if there is a cha lleng e to “‘ the arbitration clause itself – a n issue which g oes to the making of the a g reem en t to arbitrate – the fe de ra l cour

t ma y pr oc e e d to a dju dic a te it. B ut [the F AA ] doe s n ot p e rm it the fe de ra l c ourt to consider c laims [ which challeng e] the contra ct g ener ally .’” I d. at 445 (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-404 (1967) ). T h e p l a i n t i f

f s ar e p l a i n l y

c h a l l e n g i n g t h e C ar d

A c c e p t an c e A g r e e m e n t ’ s ar b i t r a t i o nc la us e insofar a s they

dispute the enfor cea

bility of its class ac tion waiver and, by extension, t he validity

of the par ties’ ag ree ment to arbitrate . Their “ challeng e is to the arbitra tion clause itself,” id., rather than to the entirety

of the C ar d Ac ceptance A g ree ment. This appea l theref ore involves “ a g atewa

y 9 dispute about whethe r the pa rties ar e bound by

a g iven arbitration clause ,” a dispute which “r aisesI n Gre en Tre e F inancial Corp. v. B azzl e, 539 U.S. 444 (2003), the Supreme Court wa s 10 fac ed with an a

rbitration ag ree ment which wa s ambig uous as to whether it permitted arbitration proce eding s to be conduc ted on a c lass basis. The Court conc luded that this was a matter of contra ct interpre tation which “should be f or the a rbitrator, not the c ourts, to decide.” I d. at 453. He re , w e do no t f

a c e an is su e of

c on tr a c t in te rp re ta tio n; t

he Card Ac c e pta nc e Ag re e me nt i s unambig uous in forbidding arbitration to procee d on a cla ss basis. 19 a qu e sti on of arb ri tr a bil ity fo r a c ourt to d e c ide .” Ho ws a m v. De an Witte r Re y no lds , I nc ., 53 7 U .S. 79, 84 (2002) ( internal quotation marks omitted); ac cord Kristian v. Comcast Corp., 446 F.3d 25, 55 (1 Cir. 2006) ; Jenkins v. First Am. Cash Advanc e of Geor g ia, L L C, 400 F.3d 868, 877 (11 Cir. st th 2005). We will therefor e proc eed to consider whether the class action waiver c ontained in the Card

10 Acc eptanc e Ag ree ment is enforc eable

. C. The Enf

orce abili ty of Class A c t io n W a iv e r P rovisions: Ge neral Considerations. The FAAwas “ enac ted . . . to repla ce judicial indisposit ion to arbitration,” Hall Street,128 S. Ct . at 1402, and is, as we acknow ledg ed at the outset of t his opinion, an ex pression of “a strongfede ral policy favor ing a rbitration as a

n alternative means of dispute r esolution.” Har tford Ac cident & I ndem. Co.

v. Swi ss R e ins ur anc e Am . Co rp ., 24 6 F .3 d 2 19 , 2 26 (2 d Ci r. 20 01 ). Th e fa vo ri ngof arb itr a tio n is , howeve r , s o me w h a t t e mp e r e d b y th e f a c t t h a t “ [a ]r b it r a ti o nis s tr ic tl y

a matt e r o f c o n trac t.” Thomson-CSF, S.A. v. Am. Arbitration As s ’n , 64 F.3d 773, 779 ( 2d Cir. 1995). Enhanc ing the fe de ra l po lic y

fa vo ri ngarb itr a tio n is the re fo re larg e ly a ma tte r o f “ mak[in g ] ar

bit ra tio n a g re e me nts as enf orce able a s other contr acts, but not more so.” Opals on I ce L inge rie v. B ody L ines, I nc., 320 F.3d 362, 369 ( 2d Cir. 2003) (interna l quotation marks omitted). This principle is set forth in Section 2 of the F AA, 9 U.S.C. § 2, which provides tha t an

a g re e me nt t o a

rb itr a te “ sh a ll b e va lid , ir

re vo c a ble , a nd e nf or c e a ble , s a ve up on su c h g ro un ds a s e xist at law or in equity

for the r evoca

tion of any

con t ra ct
. ” Section 2 is “the primar y substantive20

pr ov isi on ” of the F AA wh ic h “c re a te [s] a bo dy of fe de ra l subs tanti ve law o f a rb itr a bil ity , a pp lic a ble to any arbitration ag ree ment within the cover ag e of the ” F AA. Moses H. Cone Me morial Hosp. v. Merc ury Constr. Corp., 460 U.S. 1, 24 (1983). We join other Circuits that have e valuated a rbitration clause s containing class action waiver s under the f eder al substantive law of

arbitra bility . See Ga

y

v. Cr e dit I nf

or m, 5 11 F .3 d 3 69 , 3 94 -9 5 ( 3d Cir . 2 00 7) (h old ingc la ss a c tio n w a ive r t o b e e nf or c e a ble under Section 2 of the FAA notwithstanding claim that waiver was unconsciona ble under state law) ; Krist ian, 446 F.3d a

t 63 (“Althoug h Plaintiffs’ challeng es to the enf orce ability

of the a rbitration

a g re e me nts c ou ld b e e va luate d thr ou g h the pr ism of state un c on sc ion a bil ity law, we have c ho se n to apply a vindication of statutory rig hts analy sis, which is a lso pa rt of the body

of fe dera l substantive law of a rbitration . . . .”) . We conclude that the pl aintiffs here have demonstrate d that enfor ceme nt of the c lass action wa iver in the Car d Acc epta n ce Agr ee ment to cover their cla ims ag ainst Amex under f eder al antitrust statutes would be incompatible with the f eder al substantive law of

arbitration. We b e g in b y

re c og nizi ngthat in so fa

r a s a pla int if f may be sa id t o p os se ss a

“ ri g ht” to l iti g a te

an ac tion in federa l court as a class ac tion under Rule 23 of the Fe dera l Rules of Civil P roce dure, the rig ht “is a proced ural rig ht only , ancillar y to the litigation of substantive c laims.” Deposit Guar

. Nat’ l B ank

v. Rop e r, 44 5 U .S. 32 6, 33 2 ( 19 80 ). Ne ve rt he le ss, the Sup re me Court ha s r e pe a te dly

re c og nize d th e uti lity

of the c la ss act io n as a ve hic le fo r v ind ic a tin g statut or y ri g hts . T his is

e sp e c ia lly tr ue wi th r e sp e c t to the Court ’s re c og nit ion that th e c la ss a c tio n d e vic e is the on ly economica lly

rational a lternative w hen a la rg e g roup of individuals or entities has suff ere d an alleg ed wrong , but the damag es due to a ny single individual or ent i t y are too small to j ustify

bring ing a

n individual action. The Court made the point force fully more than thirty

y ear s ag o in the context of an antitrust ac tion:21 A c ri tic a l f

a c t in thi s litig a tio n is tha t pet iti on e r’ s in div idu a l st a ke in the damag es awa

rd he seeks is only $70. No competent attorney wo uld un de rt a ke thi s c omp le x anti tr us t a c tio n to re c ov e r s o inconseq u ential an a

mount. Economic rea lity dictates that pe tit ion e r’ s su it p ro c e e d a s a c la ss a c tio n o r n ot at a ll. Eisen v . C ar l i sle & J acque lin, 417 U.S. 156, 161 (1974). Thus, as the Court later opined, “‘ [t ]he po lic y a t th e ve ry

c or e of the c la ss a c tio n me c ha

nis m is to o ve rc ome the pr ob le m th a t sm a ll

rec overie s do not provide the incentive f or any individual to bring a

solo action prosec uting his or he r ri g hts .’ ” Am c he m Pr od s. , I nc . v. Wind so r, 52 1 U. S. 59 1, 61 7 (1 99 7) (q uo tin g Ma c e v. Va

n Ru Credit Corp., 109 F.3d 338, 344 (7 Cir. 1997)); see also Roper, 445 U.S. at 338 (“ [A class action] th

ma y mo ti v a te [p la in ti f

f s ] t o b r in g c a s e s th a t f

o r e c o n o mi c r e a s o n s mi g h t n o t b e b r o u g h t o th e r w is e [, the re by ] vin dic a tin g the ri g hts of ind ivi du a ls wh o o the rw ise mig ht n ot c on sid e r i t w or th t he c a nd le to embar k on litigation i n which the optimum result m ight be more than consumed by the cost.”) ; Shady Grove Orthopedic Assocs., P.A. v. Allstate I ns. Co., 549 F.3d 137, 144 (2d Cir. 2008) (“ [C]la ss a c tio ns a re de sig ne d in larg e pa rt to inc e nti vize pla int if

fs to s ue wh e n th e e c on omi c be ne fi t

wo uld oth e rw ise be too sma ll, pa rt ic ula rl y wh e n tak ing int o ac c ount the c ourt c os ts a nd a tto rn e y s’ fee s ty pically incurre d.”); Carneg ie v. Household I nt’l, I nc., 376 F.3d 656, 661 (7 Cir. 2004) (“[T]he th

rea listi c alter

native to a class action is not 17 milli on individual suits, but zero individual suit s, as only a lunatic or

a fa natic sues f

or $30.00.”)

. The Supreme Court has at least implicitl y held that a provision in an arbitration ag ree ment barr ing class proce dures is not per se unenfor cea ble bec ause, a s noted above , it held in Bazzle that the qu e sti on

of wh e the r o r n ot a

n ambi g uo us arb itr a tio n c la us e c on ta ine d a c la ss a c tio n b an w a s a

m at t er fo r t h e a rb i t ra t o r, n o tt h e c o u rt , t o d ec i d e. 5 3 9 U. S

. at 4 5 3

. Be y o n d t h i s o b l i qu e r

u l i n g, howeve r, the Supreme Court has y et to square ly fac e t h e q uestion of whethe r or not ther e ar e22

conditions under which a

class action ban would be incompatible with the FAA. But, as both parties here ac k n o wl ed ge, the Court has de cided c ases whic h involved matters which, if ancillar y , are

cer tainly pertinent to this question. Gi l m er v . I n t er s t at e/ J o h n s o nL an e C o rp . , 5 0 0 U. S

. 2 0 (1 9 9 1 ), i n v o l v eda c l ai m u n d er t h e A ge Discrimination in Employ ment Act (“A DEA” ), 29 U.S.C. § 621 et seq. Specifica lly , the plaintiff,

a mana g er at a broke rag e firm, a sserted that he had be en ter minated by

the firm in violation of the ADEA. I d. at 23. Afte r t he plainti ff had filed sui t in fede ral district cour t, the defe ndant firm moved to compel arbitration pursuant to a mandatory arbitration provision contained in the rules of the Ne w York Stock Excahng e (“ NYSE”), to whic h the plaintiff had ag ree d to be bound when he beca me a reg istered se curities re prese ntative. I d. at 23-24. The Court held that be cause “[i] t is by now clea r that statutory

claims may

be the subjec t of

an ar b i t ra t i o nagr ee m en t , ” t h e a rb i t ra t i o ncl au s e w as en fo rc eab l e “ ‘u n l es s C o n gress itself ha s evince d an intenti o n to prec lude a wa iver of judicia l remedie s for the statutory rig hts at issue.’” I d. at 26 (quoting Mitsubis hi Motors Corp. v. Sol er Chry s l er -P l y m o u th, I nc., 473 U.S. 614, 628 (1985))

. Even thoug h the Court acknow ledg ed that “the ADEA is designe d not only to addre ss individual g rieva nces, but a lso to further important soc i al p o l i cies,” id. at 27, the Court could discer n no Co n g r e s s i o n a l i n t e n tt o p r e c l u d e A D E A c l a i m s f r o m b e i n g s u

b j e c tt o ar b i t r a t i o n . T h e C o u rta lso

c on sid e re d th e pla int if

f’ s argume nt t o th e e ff

e c t “ that arb itr a tio n p ro c e dure s c ann ot ad e qu a te ly fu rt he r the purp os e s of the AD EAbe c a us e the y do no t pr ov ide fo r b ro a d e qu ita ble re lie f a

nd c la ss actions.” I d. at 32. The Court re jected this conte ntion: As the c ourt

be low no te d, ho we ve r, arb itr a tor s do hav e the po we r t o fashion equitable relief

. I ndeed, the NYSE rules applica ble her e do no t r e str ic t t he ty

pe s o f r e lie f a

n a rb itr a tor may awa rd , b ut m e re ly ref er to “ damag es and/or other relief .” The NYSE rules a lso provide23 fo r c o l l ec t i v e p ro ce ed i n gs . Bu tev en i f t h e a rb i t ra t i o nco u l d n o tgo forwa rd as a class ac tion or class re lief co u l d n o t be g rante d by the arbitrator, the fa ct that the ADE A provides f or t h e possibility

of bring ing a collective action does not me an that individual attempts at conciliation wer e intended to be barr ed. I d. (citations, interna l quotation marks, and bra ckets omitted). Amex direc ts our attention to the final sentenc e of this passag e, and othe r cour ts have re lied upon it in upholdi ng mandatory arbitra tion clauses. Amex Brie f at 19. In particula r, the Third Circuit, in J ohnson v. West Suburban Ba nk, 225 F.3d 366 ( 3 Cir. 2000), dea lt with a claim under d the Tr uth in L e nd ing Ac t (“ TI L A” ), 15 U. S.C. § 160 1 et s e q. Th e pla int if fs argue d th a t th e ir

c la ss

a c t i o nc l a i m i nf

e d e r a l c o u rtw a s n o ts u

b j e c tt o m an d a t o r

y ar b i t r a t i o nb e c a

u s e T ILA eff ectively cre ate[s] an u n wa ivable rig ht to bring a class ac tion. . . . [ I n T ILA , ] C o n gre s s en ac t eda s ch em e i nwh i ch t h e c o u rt h ea ri n g a cla s s a c ti o n c o u ld s e t a d a ma g e f igu r e u p to a c e rta in a mount for cer tain patterns of

conduct. This judicial flex i b i l i t y in imposi ng damag es up to $500,000 only exi sts if a class a ction is allowed, as individual plaintiff claims are g ener ally cappe d at $1,000. There fore , a ri g ht of c la sse s to a jud ic ia lly c ra ft e d pun iti ve re me dy is l os t if thi s c ourt or de rs arb itr a tio n o f Joh ns on ’s c la ims

. I d. at 377. The Third Circ uit held that “[t] his arg ument is unavailing in light of” Gilmer. I d. The c ourt

n o te d th a t G il me r

inv o lv e d a c la im u n d e r th e A D E A , a

s tatute w h ic h e xp li c it ly

p r o v id e s in

it s te xt for the bring ing of

class ac tions. I d. (citing 29 U.S.C. § 626(b)). In spite of this, the court conclude d, “t h e Supreme Court stil l ruled that the AD EA did not prec lude ar bitration notwithstanding the una vailability

of the c lass action re medy there .” I d.; s ee also Carter v. Country wide Credit Indus., I nc., 362 F .3d 294, 298 (5 Cir. 2004) (“[W] e re j ec t t he [plaintiffs’] th

c la im that th e ir

ina bil ity to p ro c e e d c oll e c tiv e ly

[in a rb itr a tio n] de pr ive s th e m of su bs tanti ve ri g hts

a va ila bl e un de r t

he [F a ir L a bo r S tand ard s A c t.] T he Sup re me Court re je c te d s imi lar a

rgume nts24

conce rning the ADEAin Gilmer . . . .”). We cannot ag ree with this vi ew of Gilmer bec ause a

collective, a

nd perha ps a cla ss action

reme dy , in f

act was available in that c ase. As set forth above , the Supreme Court e x plicitly noted that th e arb itr a tio n r

ule s o f t he NY SE p ro vid e d f

or the c on du c t of

c oll e c tiv e arb itr a tio n. 50 0 U .S.

a t 32 . A t th e tim e Gi lme r w a s de c ide d, the NY SE’ s r ule s ma y a lso have pe rm itt e d a

rb itr a tio n c la ims

su bmi tte d a s c la ss a c tio ns . Co mpa re NY SE R

ule 60 0( d) (2 00 8) (“ A c la im s ub mitte d a s a c la ss action shall not be elig ible for arbitration unde r the Rules of the Exchang e.”) with NYSE Rule 600 (1991) ( containing no prohibition on class actions). The statement i n Gi lmer that the a rbitration

c la us e wo uld

be e nf or c e a ble “ e ve n if

” c la ss r e me die s w e re a va ila ble e vid e nc e s th a t th e Court its e lf

was uncer tain, but a cknowledg ed the probability , that class action wer e fe asible under the NYSE’s rules. More over, it is dicta that does not a pply here

. T h e p l aint iffs do not proff er the argument reje cted in Gilmer, namely that the class a ction waiver is unenforc eable mere ly

beca use the re levant statute allows class actions. Rather, the conundrum presented by the instant appea l is more nuance d: whether the mandator

y class action waiver in the C ard A cce ptance Ag ree ment is enforc eable even if the pla int if

fs are a ble to de mon str a te that the pr a c tic a l e ff e c t of e nf or c e me nt of

the wa ive r w ou ld be to pre clude their

bring ing Sher

man Act c laims ag ainst Amex in either a n individual or collective

c a p a c i t y. After the Third Circuit’s dec ision in J ohnson, the Supreme Court ca me somewhat closer to this i ssue in Gre en Tre e F inancial Corp.- Alabama v. Randolph. That ca se also involved a claim under

TI L A and a

considera

tion of the enfor ceme nt of a mandatory arbitration clause. The specific issue to be dec ided was “ whether an ar bitration ag ree ment that does not mention arbitration costs and fee s is unenforc eable beca use it fails to aff

irmatively

protec t a par

ty from25

potentially

steep a rbitration costs.” Gr een T ree , 531 U.S. at 82. Specifica lly , the plaintiff ar g ued “that the a

rbitration ag ree ment’s silence with respec t to costs and fee s cre ates a ‘risk’ that she will be require d to bear

prohibitive arbitration costs if she pursues he r cla ims in an arbitral forum, and the reby

forc es her

to forg o any

claims she may

have ha d ag ainst [t he def endants].” I d. at 90. The Court re

jected this ar g ument beca use the plaintiff ha d proved no more than that the a sse rt e d “ ri sk ” wa s h y po the tic a l: I t ma y we ll b e that th e e xiste nc e of large arb itr a tio n c os ts c ou ld prec lude a litiga

nt such as R andolph from effe ctively vindicating her fede ral statutory

rig hts in the a

rbitral forum. B ut the rec ord does not show that R andolph wil l bear such costs if she g oes to arbitration. I ndeed , it contains hardly any information on the matter . . . . The re c or d r e ve a ls on ly the arb itr a tio n a g re e me nt’ s si le nc e on the su bje c t, and th at fa ct alone is plainly insufficient to re nder it unenf orce able. The “ risk” that Randolph wil l be saddled with prohibitive costs is t oo sp e c ulativ e to j us tif

y the inv a lid atio n o f a

n a rb itr a tio n a g re e me nt. I d. at 90-91 (f

ootnote omitted); see also I n re Cotton Ya rn Antitrust L itigation, 505 F .3d 274, 285 (4 Cir . 2 00 7) (“ [I ]f a

pa rt y c ou ld d e mon str a te tha

t th e pr oh ibi tio n o n c la ss a c tio ns lik e ly wo uld th make a rbitration prohibitively

expensive, such a showingcould invalidate a n ag ree ment.”). Although the Court in Randolph declined to c onsider whe ther the a rbitration ag ree ment was unenfor cea

ble bec ause it may

have pr eclude d the plaintiff fr om br inging her claims under T I L A as

a c l a s s a c t i o n , 5 3 1 F

. 3 d a t 9 2 n . 7 , c o u rt s h a v e r e l i e d u p o n i t s h o l d i n g t o u

p h o l d s u c h b an s . S e e In re Cotton Yar

n Antitrust L itigation, 505 F .3d at 285 (“ This kind of uninformed spec ul at ion about cost falls fa

r short of satisfy ing the plaintiffs’ burde n of provingthat t h e costs of proc eeding individually

ag ainst the defe ndants would be p ro h i bitive and thus would preve nt them from eff ectively vindicating their statutory rig hts.”); L ivingston v. Assocs. Fin., I nc., 339 F.3d 553, 557 (7 Cir. 2003) (“I

n the pre sent ca se, the L ivingstons have not offered an y s p ec ific evide nce of th“ We r e vie w . . . mixe d q ue sti on s o f l aw a

nd fa c t e ith e r d e no vo or

un de r t he c le arl y 11 err oneous standar d dependingon whether the question is predominantly leg al or fa ctual.” U nited State s v . Se lio uts ky , 4 09 F .3 d 1 14 , 1 19 (2 d Ci r. 20 05 ) ( int e rn a l c itatio ns omi tte d) . T he pla int if fs ’ estimated expert witness fe es we re e ssentially undisputed. We review de novo the district court’s application of the Clay

ton Act to undisputed fac ts. See Villag e of G rand V iew v. Skinner, 947 F.2d 651, 656 ( 2d Cir. 1991) (“B eca use the issues pre sented on this appea l involve the application of a

statutory standard to undisputed fa cts, the appr opriate standa rd of r eview is de novo.”). We note, how ever , that our ruling would not be diffe rent unde r a c lear ly err oneous standard. 26 arb itr a tio n c os ts that th e y may fa c e in t his lit ig a tio n, pr oh ibi tiv e or oth e rw ise , a

nd have fa ile d to provide a ny evidenc e of the ir inability to pay such costs . . . .”) ; Adkins v. L abor Rea dy , I nc., 303 F.3d 496, 503 ( 4 Cir. 2002) (“A dkins makes no showing of the specific financ ial status of any of th the plaintiffs at the time this action was broug ht. He provides no basis for a serious estimation of how much money

is at stake for

eac h individual plaintiff.”). D. Is th e Cl a s s Act ion Waiver in the Card Acc eptance A gree m ent Enf orce able? Randolph is controlling he re to the extent that it holds that when “a party seeks to invalidate a

n

a rb itr a t i o na g r e e m e n to nt h e g r o u n d t h a tar b i t r a t i o nw o u l d

b e p r o h i b i t i v e l y

e xp e n s i v e , t h a tp a rty bear s the burden of

showing the likelihood of incurr ing suc h costs.” 531 U.S. a t 92. We find that the district cou rt er re d i n ruling that the plaintiffs had f ailed to bea

r this burden be cause they had

“ ig no re [d] th e stat utor

y pr ote c tio ns pr ov ide d b y the Cla y ton Ac t.” I n r e Am e ri c an E xpre ss Merc hants L itigation, 2006 WL , at *5. On the c ontrary , the re cord a bundan t l y s u pports the pla int if fs ’ argume nt that the y wo uld inc ur pr oh ibi tiv e c os ts i f c omp e lle d to arb itr a te un de r t he c la ss action wa iver. The Car d Acc eptanc e Ag ree ment there fore entails more than a speculative risk that

11

e nf or c e me nt o f t

he ba n w ill de pr ive the m of su bs tanti ve ri g hts un de r t

he fe de ra l anti tr

us t st a tut e s. T h i s ar g u m e n ti s c o m

p e l l i n g l y s e tf o rt h i nana f

f i d a v i tf i l e d i nt h e d i s t r i c t c o u rt b y G a r y L. Fr ench, Ph

. D

. , ane c o n o mi s t a s s o c iate d w it h N a th anA s s o c iate s I n c . , a f in an c ia l c o n s u lt in g f

irm27

reta ined by

the plaintiffs. Dr. F renc h states that the purpose of hi s aff idavit is “to provide an e x pert opini o n conce rning the likely costs and complexity

of an e x pert e conomic study conce rning the liability and dama g es” r elating to this action , an d to compare this with “the potential rec overy of dama g e s b y

an A me ri c an E xpre ss C ard me rc ha nt w ith annua l sal e s volume of $1 0 milli on or le ss,

su c h a s mo st i f n ot a ll of the name d p la int if

fs in t his lit ig a tio n, and

to p ro vid e my

op ini on a s to whether it would be economica lly rational for such a me rcha nt to pursue re cover

y of dama g es g iven the lik e ly ou t- of -p oc ke t c os ts o f t

he arb itr a tio n o r l iti g a tio n p ro c e e din g .” Dr . F re nc h c on tin ue s: Du e to t he c omp le xity

and ana ly

tic a l inte ns ity of

an a nti tr us t stu dy , to ta l e xpe rt

fe e s and e xpe ns e s usua lly are su bs tanti a l, e ve n in a no n- c la ss a c tio n in vo lvi ng an in div idu a l pl a int if f. I n my e xpe ri e nc e , e ve n a re la tiv e ly sma ll e c on omi c anti tr us t stu dy wi ll c os t at least seve ral hundre d tho u s an d d o llars, while a la rg er study

can easi l y ex cee d $1 milli on. . . . I n summary , the cost of [Nathan Associates’ ] ex per t assistance in individual plainti ff a ntitrust cases has ra ng ed fr om about $300 thousand to more than $2 million. Howeve r, af

ter reviewing the complaint and doing some pre liminary re se arc h in

thi s c a se , it

is m y op ini on that .
. . the c os t f

or thi s c a se will fall i n t h e middle of the ra ng e of [Nathan A ssociates’] experience

. An e co n o m ic antitrust study . . . is nece ssarily

complex and costly beca use it involves investigating se vera l antitrust liabili ty and dama g e s is su e s and , p ote nti a lly inv o l v e s n

u m e r o u s t a s k s a

n d s e rv ic e s. Th e a nti tr us t li a bil ity and dama g e s is su e s th a t an e xpe rt e c on omi st will study in this m atter w ill li kely

include: • defining t h e re levant tying a nd tied product mar

kets and de te rm ini ngwh e the r t

he y are dis tin c t;

• d e t e r m i n i n g w h e t h e r

t h e d e f e n d an th a s m ar

k e t( m o n o p o l y) po we r i n th e tyingpr od

uc t ma rk e t, .
. . ; • deter mining whe ther the defe ndant has exercise d its market (m on op oly

) p ow e r t o e nf

or c e the tyingarr ang e me nt; • deter mining whether the tying a rra ng ement has a

n anti c omp e tit ive e ff

e c t in the tie d p ro du c t ma

rk e t;28 • deter mining what the m erc hant fees would have been but f or the alleg ed anticompe titive ty ing; a nd

• quantifying the dollar amount of damag es to the plaintiffs as a conse quence of the tying a rra ng ement. Dr. F renc h then proc eeds to c onsider the e conomic ra t i o n ality of bring ing a

n individual

a c tio n a g a ins t A me x in li g ht o f t he se su bs tanti a l e xpe rt

wi tne ss c os ts: Ba sed upon publicly

available information . . . I have e stimated that a small merc hant wit h $10 milli on of annual sales, on ave rag e, mig ht calc ulate and expect $754 of ec onomic damag es for the y ear 2001, wh ic h is ro ug hly the mid

po int of the da ma g e pe ri od

c ov e re d b y

thi s lit ig a tio n. . . . M ult ipl y ingthe $7 54 dama g e fi g ur e by fo ur, give s a roug h estimate of $3,015 total d am ages for the whole four- y ear damag e period, or $9,046 w hen tre bled, assuming that the merc hant’s sales re main constant at $10 million for the four -y ear period. . . . The med i an volume mer chant, with half of the named plaintiffs having more a

nd half having less Americ an Express char g e volume, and havin g re po rt e d $ 23 0, 34 3 A me ri c an E xpre ss C ard vo lum e in 2003, might expect four -y ear damag es of $1,751, or $ 5 ,252 when tr e ble d.

. . . T he lar g e st v olume name d p la int if f m e rc ha nt, wi th repor ted Amer ican Express Card volume of $1,690,749 in 2003, might expect four -y ear

damag es of $12,850, or

$38, 5 4 9 when tre bled. I n my opinion as a prof

essional ec onomist . . . i t would not be worthwhile for

an individu al pl aintiff . . . to pursue individual arbitration or liti g ation wher e the out-of -pocke t costs, just for the expert economic study

and ser vices, would be at least seve ral hundre d thousand dollars, and mig ht exceed $1 million. I n Krist ian, the F irst Circuit found that expert affidavits sim ilar to Dr. F renc h’s “demonstrat[ ed] that w ithout some form of cla ss mechanism – be it cla ss action or c lass arbitration

– a consume r antitrust plaintiff will not sue at all.” 446 F .3d at 58. We hold that the plaintiffs here have a lso de mon str a te d th a t th e ir anti tr us t c la ims a g a ins t A me x can, fo r a ll i nte nts and purp os e s,

on ly be purs ue d thro ug h th e a g g re g a tio n o f i nd ivi du a l c la ims , e ith e r i n c la ss a c tio n li tig a tio n o r i n class ar bitration.29

The district cour

t, which held that the e nforc eability of the c lass action wa iver in the Car d Acc eptanc e Ag ree ment was a matter to be deter

mined in arbitration, did not deal he ad on with Dr. Fr ench’s aff

idavit. Dr. F renc h’s conc lusion that “in a non-cla ss action involving a n individual plaintiff

. . . even a relatively small e conomic antitrust study will c ost at le ast s ev er al hundred thousand dollars” w as esse ntially uncontested. I

nstead of a ddressing this figure, t he district cour t misint erpr eted a

nd misapplied the statutory protec tions available to the plaintiffs. Citi ng Section 4 of the Clay

ton Act, 15 U.S.C. § 15(a), the district c ourt noted that a plaintiff who ha d established a Sherman Ac t claim ag ainst a def endant “ shall rec over thre efold the da mag es by him sustained, a nd the cost of suit, including a re asonable attorney ’s fe e.” I n re A merica

n Ex p re s s M er chants L itig., 2 0 0 6 WL 6 6 2 3 4 1 , a t * 5 ; s e e also Dambros io v . Co mc a s t C o r p . , N o . Ci v . A

. 0 3

- 6 6 0 4 , 2 0 0 5 WL 35 43 79 4, a t *1 6 ( E. D. Pa . D e c . 2 7, 20 05 ) ( a sse rt ingthat Se c tio n 4 of the Cla y ton Ac t “ e xpre ssl y provid e s f

o r th e r e c o v e r

y o f a tt o r n e y s ’ f e e s an d e xp e n s e s , [th e r e b y ] m a k in g th e ar b it r a l f o r um

a c c e ssi ble to ind ivi du a l pla int if fs and a llo wi ng the m to v ind ic a te the fu ll r ang e of su bs tanti ve ri g hts g rante d to them” under

the fe dera l antitrust la ws ), v acated on other g rounds, 2006 WL 2058643 (E.D. Pa. Apr . 12, 2006). This is true, but, as the plaintiffs correc tly point out, the C lay ton Act simply

does not solve their problem. Be sides the fact that the t rebling of a small individual damag es aw ard is not g oing to pay for the e x pert fe es Dr. F renc h has estimated will be ne cessa ry to make an individual plaintiff’ s

case here , there is an eve n more important leg al consider ation that the district court did not consider

. I n Crawf ord Fitting Co. v. J .T. Gibbons, I nc., the Supreme Court addr essed f ee- shifting f

or expert witnesses under

Rule 54(d) of the Fe dera l Rules of Civil Procedur e in a n antitrust case , holding that “whe n a p re v ai l i n g party

seeks r eimbursement f

or fe es paid to its own expert witnesses, a f eder alQuoting Pasc hall v. Kansa s City Star Co., 695 F.2d 322, 338-39 ( 8 Cir. 1982), Amex 12 th sug g ests that if an e x pert’s f indings prove “to be so ‘c rucia l’ and ‘indispensa ble’ that a n arbitrator deter

mines that the ca se absolutely could not have be en pursue d without them, the arbitrator might a

war d such costs.” A mex Brief at 28 We are ske ptical, howeve r, that an arbitrator might follow Pasc hall beca use it appea

rs unlikely

that its holdi ng survives Craw ford Fitting Co. See Gilbert v. City of L ittle Rock, Ark., 709 F. Supp. 856, 862 (E.D . Ark. 1987) (holding that Paschall is inconsistent with the holding of Cra wford F itting to the ef

fec t that expert witness fee s are to be deter mined solely

in acc ordanc e with 28 U.S.C. § 1821(b)). Th e pla int if

fs ’ c ouns e l ha s su

bmi tte d a de ta ile d a ff

ida vit wh ic h e sti ma te s th a t th e c os t 13 of depositions and docume nt manag ement would excee d $300,000. 30 court is bound by

the limit of [ 28 U.S.C.] § 1821(b)

. . . .” 482 U.S. 437, 439 (1987). We note that 12 that f ig ur e is now se t at a $40 pe r die m. F ur the r, a s th e pla int if

fs a sse rt , th e re are no pr ov isi on s “ in th e rul e s o f a

ny of the arb itr a l bo die s d e sig nate d [in the Card Ac c e pta nc e Ag re e me nt] that w ou ld allow such c osts to be awar ded whe re the y are not authorized by

the applicable fee shifting statute.” Ev e n with re sp e c t to re a so na ble a tto rn e y ’s fe e s, wh ic h ar e sh if te d u nd e r S e c tio n 4 of

the Cla y ton Ac t, the pl aintiffs m ust include the risk of losing, and the reby not rec overingany

fee s, in their evaluation of their suit’s potential costs. Thus, Amex’s r eply to the eff ect that “[a]n arbitrator c an aw ard the 13

same re asonable costs that are rec overa ble by statute,” plainly

does not solve the proble m.

Am e x als o in fo rm s u s th a t a pu ta tiv e anti tr

us t c la ss a c tio n c ha lle ng ingthe “ Ho no r A ll Ca rd s” provision in the Card Acc eptanc e Ag ree ment has b ee n b ro u g ht in the U.S. District Court for the Sou the rn Di stri c t of

Ne w Y or

k b y a me rc ha nt p la int if f w ho is a pp are ntl y no t su bje c t to the c la ss action wa iver provision in the Ag ree ment. S ee T h e M arcus Corp. v. Americ an Express Co., No. 04cv5432, 2005 W L 1560484 (S.D.N.Y. July 5, 2005). F urther pointing out that the plaintiffs in that action ar e re prese nted by

the same c ounsel who represe nt the pl aintiffs her e, Amex speculate s that

“ [p]r e su ma

bly” the pla int if

fs he re , “ the Ma

rcus pla int if

f, and the ir c omm on a tto rn e y s a

nd e xpe rt sOne of the amici make s the following sug g estion: “Whatever c osts the Mercha nt 14 Plaintiffs might ultimately bear in procuringexpert testimony in this case, those c osts may be offse t by the cost saving s of conduc ting a n arbitration procee ding, r ather than an a ll-out feder al trial.” B rief of

Business Roundtable at 16. But this misses the point. W hile it may be true that an individual arbitration broug ht by a plaintiff will likely

cost less than a tria l in feder al district court, the f

act r emains that the plaintiffs have demonstrated to our satisfac tion that neither an individual arbitration, nor a n individual lit iga

tion would make any

economic se nse in light of the likelihood that ex pert fe es fa r in excess of any

likely individual recove ry

would need to be expended in either a ction. 31 could r e a c h an a g r e e me n t a s to h o w th e e xp e rts ’ c o s t o f p r e p ar a ti o n c o u ld b e s h ar e d

. ” T h is is an intriguingproposition, but we do not believe it can survive the a pplication of the followingprovision of the arb itr a tio n cl aus e in the Card Ac c e pta nc e Ag re e me nt: “ Th e arb itr a tio n p ro c e e din g a nd a ll testimony , filings, doc um en t s an d any information re lating to or prese nted during the ar

bitration proce eding s shall be deemed t o be confidential information not to be disclosed to any other pa rty .” Thus, any proposal that the plaintiffs sha re the service s of expert witnesses employ ed in the Mar cus action runs ag round on the fac t that the individual plaintiffs have contra cted with A mex not to share such information with any one. 14 Concluding that Amex has brought no se rious challeng e to the plaintiffs’ de monstration that the ir c la ims c ann ot r e a so na

bly be purs ue d a s in div idu a l ac ti on s, wh e the r i n f e de ra l c ourt

or in arbitration, we find ourse lves in ag ree ment with the plaintiffs’ contention that enfor ceme nt of the class ac tion waiver in the Card Ac cepta nce A g ree ment “flatly

ensure s that no small mercha nt may challeng e Amer ican Express’s tying a rra ng ements under the federa l antitrust laws.” The eff ective neg ation of a pr ivate suit under the antitrust la ws is troubling bec ause suc h “private suits provide a signific ant supplement to the limited resourc es ava ilable to the Depa rtment of Jus tice for

enfor cing the antitrust laws and de terringviolations.” Reiter v. Sonotone Corp., 442 U.S. 330, 344 (19 7 9 ). This ma y be espec ially true with r espec t to private antitrust suits broug ht a s class ac tions. S ee D ando32

B. Cellini, “An Ove rview of Antitrust Class Actions,” 49 Antitrust L .J

. 1501, 1506 (1980) ( “I think it is obvi ous from the e x perie nce ove r the last fifte en y ear s since the 1966 amendments to Rule 23

were ado pt e d th a t li nk ingan a nti tr us t c la im w itha

c la ss a c tio n a lle g a tio n c an b e de va statin g ly eff ective.” ). I n M its ub ish i, t

he Sup re me C ou rt he ld t hat th e re is b y

no me ans any

ne c e ssa ry re a so n to preve nt sending a Sherma n Act cla im to arbitration beca use “so l o n g as t he prospe ctive litiga nt eff ectively may vindicate its statutory cause of ac tion in the arbitral for um, the statute will continue to serve both i ts r e me d ia l a n d d e te r r e n t f u n c ti o n . ” 4 7 3 U

. S. a t 6 3 7

. T h e M it s u b is h i C ourt

rec og nized, however , that there might be ins t an ce s i n which an a rbitration ag ree ment contained provisions that would be unenfor ce able because they would preve nt a prospec tive litigant fr om vin dic a tin g its ri g hts un de r t he She rm an A c t in

an a rb itr a l f or um. Spe c if

ic a lly , th e plaint if

f i n Mitsubis hi speculate d that the c h o ice- of-f orum and c hoice- of-law clause s in the arbitration ag ree me n t a

t i s s u e w o u ld

e f f e c ti v e ly p r e c lu d e th e ar

b it r a to r f r o m d e te r

mi n in g th e p la in ti ff’ s

su bs tanti ve c la ims in a c c or da nc e wi th t he te rm s o f t

he She rm an A c t. T he Court re sp on de d th a t it

wo u l d n ot preve nt the case from g oing to a rbitration base d upon mere conjec ture a s to what body of law the a rb itr ator

wo uld a pp ly , b ut a lso c on tin

ue d a s f oll ow s: We merely note that in the eve nt the choice -of- forum and c hoice- oflaw clause s operated in ta ndem as a prospec tive waiver o f a p ar ty ’s ri g ht to pur su e statut or

y re me die s for anti tr

us t vi olatio ns , w e wo uld have lit tle he sit a tio n in

c on de mni ngthe a g re e me nt a s a g a ins t pu bli c p o l i c y. I d. at 637 n.19. We rea dily

acknow ledg e that this stat em en t is dicta, but it is nevertheless dicta g rounded up on a fi rm pr inc ipl e of

anti tr us t la w t o th e effect that an a g re e me nt w hic h in pr a c tic e a c ts a s a33

waiver of future liability

under the fede ral antitrust statutes is void as a matter of public policy . More than a ha lf-ce ntury

ag o, the Supreme Court stated that “in view of the public interest in vig ilant enfor ceme nt of

the antitrust laws throug h the instrumentality of the private treble -dama g e ac tion,” an ag ree ment which conf

ers e ven “a

partial immunity

from civil liability

for future viol ations” of the

anti tr us t la ws is i nc on sis te nt w iththe pu bli c int e re st. L awl or

v. Nat’ l Sc re e n Se rv . Co rp ., 34 9 U .S. 322, 329 (1955); see also Minnesota Mining a n d Mfg . Co. v. Graham-Fie ld, I nc., No. 96c v3839, 19 97 WL 16 64 97 , at *3 (S .D .N .Y . Apr . 9 , 1 99 7) (“ GF Ic ou ld n ot h a ve wa ive d [it s anti tr us t] c la im in the rele ases be cause a prospe ctive wa iver of a n antitrust claim violates public policy .”). We b e lie ve that on e of

the a mic i ha s c or

re c tly a pp lie d th e pr inc ipl e jus t se t f or th to the fa c ts of the instant ca se:

Plaintiff[ s]-appellants’ antitrust claims ar e complex and plaintiffs established for

the re cord be low that if they ar e pre cluded f

rom participating in a c ollective ac tion, the cost to eac h individual consumer to pr osecute his or her c laim is prohibiti ve re lative to the c onsu mer ’s po te nti a l r e c ov e ry . I f t he c oll e c tiv e a c tio n w a ive r i s enfor ced , Am eric an Express will be shielded fr om liabilit y , even wh e re it m a

y have vio la te d th e anti tr

us t la ws . Er a dic a tin g the pr ivate enfor ceme nt component from our antitrust l aw scheme cannot be what Congr ess intended whe n it included strong private e nforc ement me c ha nis ms a nd inc e nti ve s in the anti tr

us t sta tut e s. B e c a

us e the c la ss action wa iver pre cluded the pla intiff[s] -appe llants from enfor cing their statutory

rig hts, the arbitration provision is unenfor cea ble. Br ief of A merica

n Antitrust I nstitut e at 15; see also Dale v. Comcast Corp., 498 F.3d 1216, 1224 (1 1 Cir . 2 00 7) (“ Cor

po ratio ns sh ou ld n ot b e pe rm itt ed to us e c la ss a c tio n w a ive rs a s a me a ns to th exculpate themselves f

rom liability

for small value claims.”). We theref ore hold that the class action waiver in the Card Ac cepta

nce A g ree ment cannot be

e nf or c e d in this ca se be c a

us e to do so wo uld g ra

nt Ame x de fa c to immunit y fr om a nti tr us t li a bil ity by removing the plaintiffs’ only rea sonably

fea sible means of r ecove ry . As alre ady set forth, Sec tion34

2 of the F AA, 9 U.S.C. § 2, provides that an a g ree ment to arbitrate “shall be valid, irre vocable , and enfor cea ble, save upon such g rounds as e x ist at law or in equity for the revoc ation of any contra ct.” Gi ve n th a t w e be lie ve that a va lid g ro un d e xists fo r t

he re vo c ati on of th e cla ss a c tio n w a ive r, it cannot be enfor ced unde r the F AA. E. Tw o Caveat s. We emphasize two important limi tati o ns upon our holding. F irst, our decision in no way

rests upon the status o f t h e p l ai ntiffs as “sma ll” merc hants. The plaintiffs repe atedly

ref er to themselve s as “small merc hants” a nd as “small businesses.” But Ame x is corre ct when it c ounters that the plaintiffs “undoubtedly hope that, by labeling themselves as ‘ small,’ they can be nefit fr om one line of c ase la w wher e indi v i d u al consumer s have a lleg ed that ar bitration

a g re e me nts we re imp os e d a s a re su lt of un e qu a l bar g a ini ng po we r. ” Se e , e .g ., L ow de n v . T -M ob ile USA, I nc., 512 F .3d 1213, 1219 (9 C i r. 2 0 08) (holding class ac tion waiver c ontained in ce llular th tel ep h o n e unconsc ionable under Washington law) ; Skirchak, 508 F .3d at 60 (holding class ac tion waiver in employ

ment ag ree ment unconsciona ble under M assachusetts law); Shroy er v. N ew Cin g ula r Wi re le ss S e rv s. , Inc ., 49 8 F .3 d 9 76 , 9 84 (9 Cir . 200 7) (holdi ngc la ss a c tio n w a ive r i n th

c e llu lar ph on e c on tr a c t un c on sc ion a ble un de r C a lif

or nia law) . We do no t f

oll owthe se c a se s b e c a

us e they all re l y on finding s of unconsc ionability under state law, while we have r elied her e on a

v i n d i c a t i o no f s t a tu t o r

y r i g h t s an a l ys i s , w h i c h i s p a rt o f t h e f e d e r a l s u b s t an t i v e l aw o f

ar b i t r a b i l i t y. A p p l y i n g t h e l a t t e r , w e h a v e f o u n d t h a t p l a i n t i f

f s h a v e d e m o n s t r a t e d t h e n e c e s s i t y o f s o me c la ss mecha nism in order to bring their cla ims ag ainst Amex. This demonstration is in no way dependa nt

on the “siz e” of any

or all of the me rcha

nt plaintiffs; it depends upon a showing that the size of the

rec overy rec eived by

any individual plaintiff will be too small t o justify the expenditure of bring ing an individual action.We n ote that th e F ourt h Ci rc uit , in

I n r e Cotton

Ya rn An titru st L iti g a tio n, ha s u ph e ld 15 the enf orce ment in an antitrust action of a collective a ction ban conta ined in a contr act be tween commerc ial parties. The case prese nted a c laim of antitrust conspirac y , and the c ourt pointed out that a bar upon joining the two de fenda nts, who were jointly

and seve rally

liable, did not pr e c lud e the arb itr a

bil ity of the c la im b e c a

us e “ c o- c on sp ir a tor s a

re no t ne c e ssa

ry pa rt ie s; a plaintiff ca

n prove the exis tence of a c onspiracy in an ac tion ag ainst just one of the member s of the conspira cy .” 505 F .3d at 284. The c ourt also noted “[t]he absence of an e videntiary rec ord on . . . the ac tual cost of individual proce eding s and . . . about the a bility of the c orporate plaintiffs to bear those speculative costs.” I d. at 285. Ag ain, such a rec ord exists in the instant case. 35 Se c on d, we str e ss t

hat w e do no t ho ld h e re that c la ss a c tio n w a ive rs in a rb itr a tio n a g re e me nts

are per se unenfor cea

ble. We also do not hold that they are per se unenfor cea ble i n the context of antitrust a ctions. Rather, we hold that e ach case which prese nts a question of the e nforc eability of 15 a cla ss action waive r in an a rbitration ag reem en t m ust be consider ed on its own merits, g overne d wi t h a h ea l t h y

reg ard f or the fa ct that the F AA “is a cong ressional de clar ation of a liber al fe dera l p o li c y f a v o r in g ar

b it r a ti o na g r e e me n ts
. ” M o s e s H

. Co n e M e mo r ia l H o s p . , 460 U.S. a t 2 4

. We believe that the Eleventh Circuit has posited something like the cor rec t approa ch: [T] he enf

orce ability

of a pa rticular cl as s action wa iver in an arb itr a tio n a g re e me nt m

us t be de te rm ine d o n a

c a se -by -c a se ba sis , consideringthe totality

of the fa cts and c ircumst an ce s . Relevant circ umstances may include, but a re not limited to, the fairne ss of the pr ov isi on s, the c os t to an in div idu a l pl a int if f o f v ind ic a tin g the c la im wh e n c omp are d to the pla int if f’ s p ote nti a l r e c ov e ry , th e a bil ity to rec over a t torney s’ fe es and othe r costs and thus obtain leg al repr esentation to prosecute the unde rlying claim, the pra ctical a ffe ct the waive r will have on a company ’s abili ty to eng ag e in unche cked mark e t be havio r, and

re la te d p ub lic po lic y

c on c e rn s. Dale, 498 F .3d at 1224. E. Th e P laintif

fs’ Other Claim s. Be cause we hold that the c lass action wa iver in the Car d Acc eptanc e Ag ree ment is unen fo rc ea b l e as to all plainti ffs unde r the fe dera l substantive law of arbitration, the plaintiffs’ contention that the waiver is not enfor cea ble ag ainst named plaintiffs a nd36

class member s who wer e citizens of C alifornia beca use t he wa ivers ar e unconsc ionable under that State ’s law i s mo ot. Simi larl y , th e pla int if fs ’ a pp e a l of the dist ric t c ourt ’s ho ldi ngthat th e c la ss

ac t i on waiver

could be e nforc ed ag ainst those named plaintiffs w ho had contr acte d with Amex be fo re the 19 99 inc lus ion of the mand a tor

y arb itr a tio n c la

us e in t he Card Ac c e pta nc e Ag re e me nt i s

a lso moo t. F . Relief. B e c a

us e the pla intiff

s hav e de c lare d th e mse lve s ame na ble to p ro c e e din g to arbitration, we nee d not consider whe ther the c lass action wa iver in the Car d Acc eptanc e Ag ree ment is severa ble from the rema inder of the arbitration provision contained therein. Fur ther, in l ight of the fa c t th a t A me x de c lare d at or a l argume nt t hat it w ou ld r e c on sid e r i ts i nte nti on to p ro c e e d to

arb itr a tio n s ho uld

thi s Co ur t no t e nf or c e the c la ss ac tio n w a ive r, we re mand to t he dis tr ic t c ourt

to allow Amex the opportunity to withdraw its motion to compel arbitration.

CO NC LU SION The de cision of the district cour t is REVERS ED. We REMAND to the district cour t for further proce eding s consistent with this opi nion.