On January 30, I published a blog post about a Southern District of New York decision holding that an arbitration clause barring class actions was unenforceable because the costs of an individual arbitration effectively would preclude the plaintiff from pursuing her statutory rights under the Fair Labor Standards Act.  The Second Circuit has now reached a similar result in In re American Express Merchants’ Litigation, No. 06-1871-cv, 2012 U.S. App. LEXIS 1871 (2d Cir. Feb. 1, 2012).  I’m not sure this result or the court’s rationale has much, if any, application to insurance, for reasons I’ll explain below.  But it’s nevertheless important to take this decision into account as insurers consider expanding the use of arbitration after Concepcion.

The American Express Opinion

American Express is a long-running antitrust case brought by merchants who allege that AmEx has used an illegal “tying arrangement,” in violation of the Sherman Act, under which merchants must accept AmEx revolving credit cards and pay higher fees to AmEx for those transactions than are charged by Visa or MasterCard.  AmEx’s ability to charge these higher fees is allegedly tied to its charge card business (i.e., cards requiring payment in full every month), which has more corporate cardholders and affluent individual cardholders.  AmEx’s contract with merchants requires them to accept all AmEx cards, and it has an arbitration clause with a class action waiver in it.  The plaintiffs argued that the class action waiver was unenforceable because it effectively deprives merchants of the ability to bring any antitrust claims, on the theory that the cost of bringing an individual antitrust suit far outweighs the potential individual recovery.  The plaintiffs presented, and the Second Circuit relied on, testimony from an antitrust expert that the cost of an expert report in this case would be roughly in the middle of a range between $300,000 and $2 million, which far exceeded what any named plaintiff could recover in an individual proceeding.

The Second Circuit concluded that the issue presented by the American Express case was not decided or even addressed by the Supreme Court in AT&T v. Concepcion or Compucredit Corp. v. Greenwood.  The Second Circuit noted that “Supreme Court precedent recognizes that the class action device is the only economically rational alternative when a large group of individuals or entities has suffered an alleged wrong, but the damages due to any single individual or entity are too small to justify bringing an individual action.”  Id. at *25.  The court also found guidance from the Supreme Court in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) and Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000).  The court interpreted these three opinions, particularly Green Tree, as recognizing that class action waivers in arbitration clauses are unenforceable if the plaintiff can establish, with convincing proof, that “class-action waivers barred them from vindicating their statutory rights.”  Id. at *34.  The Second Circuit found AmEx’s class action waiver unenforceable because the cost of expert testimony to prosecute an individual antitrust arbitration would make it impossible for an individual plaintiff to pursue an antitrust claim and AmEx would have essentially immunized itself against any and all such claims.  The result, given that parties cannot be forced to arbitrate in a class proceeding (under the Supreme Court’s decision in Stolt-Nielsen) was that a class action can proceed in court.

Applicability to Insurance

I’d expect plaintiff’s lawyers to attempt to develop factual support similar to that used in American Express and then rely on this case in opposition to defendants’ efforts to invoke AT&T v. Concepcion.  However, I’m not sure this decision will apply in the insurance context for several reasons:

  • Insurance class actions hardly ever involve federal statutory rights because the states control insurance regulation.  Even if Congressional intent behind other federal statutes may control vis-à-vis the Federal Arbitration Act (FAA) in this circumstance, I’m not sure the same would be true of state common law or statutory rights that may conflict with the FAA.
  • Insurance class actions on claims or underwriting issues rarely involve circumstances where it would be impossible for an individual plaintiff to arbitrate an individual claim because the cost of arbitration would exceed the potential recovery.  The kind of expensive expert testimony that is required for an antitrust case is rarely necessary in an insurance class action.  State law also frequently provides mechanisms whereby statutory penalties or attorneys’ fees potentially become available that make individual disputes practical to arbitrate or litigate.  AmEx’s arbitration clause exempts small claims lawsuits from the arbitration requirement, which is something insurers may wish to consider as well.
  • Even where individual claims are small and dispute resolution costs large, it may not be impossible to vindicate individual claimants’ rights outside of the class action mechanism, if a large number of claimants wish to pursue claims and they do so in a coordinated fashion (but not through a formal class action mechanism).  Individual claimants and their attorneys generally are free to join resources and jointly retain and pay for experts or other collective costs.  An arbitration clause with a class action waiver cannot bar numerous claimants from signing up with the same lawyer and filing thousands of individual arbitrations.  They can also take advantage of collateral estoppel against the defendant where it is available under applicable law in the arbitration context.  Even in the American Express case that would seem to me to be a potential option not considered by the Second Circuit (although I’m not an authority on antitrust law or how those cases proceed).  What this means, as a practical matter, is that plaintiffs’ lawyers need to sign up a large number of clients who want to pursue claims rather than just finding one client and bringing a class proceeding.  Requiring this to happen in order for a large proceeding to go forward effectively limits mass proceedings to those driven somewhat more by the plaintiffs than by their lawyers.  If the mass proceeding is not viable unless thousands of people who feel they have been harmed sign up to pursue their claims, plaintiffs’ lawyers are more limited in their ability to pursue claims that have less merit because they will not be able to find enough clients to make it worthwhile.  But defendants who have engaged in an improper practice that harms many consumers who have meritorious grievances will not escape unscathed if plaintiffs’ lawyers can aggregate claims in this fashion.     
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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.