« Gentry: Cert denied

Antitrust and arbitration
April 26, 2008 by Ross Runkel at LawMemo

Have banks conspired to force credit card holders to accept mandatory arbitration clauses, coupled with no-class-action provisions, in their cardholder agreements?

That's the claim made by some cardholders against a bunch of banks in a lawsuit in federal court in New York. The case is Ross v. Bank of America (2nd Cir 04/25/2008).

Here's how the court described the plaintiffs' claims:

• Assuming the facts asserted in the Complaint to be true, “[b]eginning before late 1998 or early 1999, Defendants began communicating with each other and their co-conspirators concerning the imposition and use of mandatory arbitration clauses.” After preliminary meetings and communications, the banks formed an “Arbitration Coalition” to recruit other credit card issuers into using mandatory arbitration clauses. Over the next four years, the Arbitration Coalition held more meetings, shared plans for the adoption of arbitration clauses, and spun off additional working groups. Ultimately, “Defendants jointly forced unwilling and unaware cardholders to accept arbitration clauses and class action prohibitions on a ‘take-it-or-leave-it basis’ through the joint exercise of immense market power.”
• The cardholders argue that the banks’ collusion violated the antitrust laws. According to Plaintiffs-Appellants, the banks conspired in order “to immunize themselves from economic responsibility for antitrust and consumer protection violations, and to reap supra-competitive profits from their cardholders.” The cardholders also contend that the alleged collusion produced several market effects, including the creation of a “non-price trade advantage over cardholders” and the removal of any economic incentive for the banks to comply with antitrust and other laws, thereby shifting the risk and cost of their non-compliance to cardholders. The collusion is also alleged to have resulted in an increase in dispute-related costs to individual cardholders (including monitoring the banks’ conduct and seeking relief through costly individual arbitrations), the removal of all non-arbitration credit cards from the market, thereby depriving the cardholders of meaningful choice in the area of credit card services, and a diminution in the overall quality of credit services offered to consumers.

There are tons of legal issues in a case like this. The sole issue that was before the 2nd Circuit in yesterday's decision was whether the plaintiffs-cardholders had Article III standing to bring this suit. As the banks put it, the plaintiffs' alleged injuries "are entirely speculative."

The 2nd Circuit held that the plaintiffs do have standing, so the case can proceed ahead. The court said that the plaintiffs alleged a present injury, which is an injury to the market as opposed to injuries to individual cardholders. Specifically, those alleged injuries are:

1. Added time and expense in monitoring banks' conduct because of the anti-class-action provision. (If they could bring class actions, then they would "have the option of relying on motivated class action attorneys.")
2. "The alleged conspiracy to limit the cardholders to cards that require arbitration of disputes also diminishes the present value of the cards offered to the cardholders."

My view:

• An extremely narrow holding, addressing only standing under Article III of the constitution, and then addressing only the "injury in fact" element of standing. On remand, the trial court now has to take up two other Article III standing issues: causation and redressability.
• There is an additional standing question that the court did not address: standing under the antitrust laws.
• Oh, yes, let's not forget the merits. Was there an antitrust violation?
• A fascinating legal theory for attacking arbitration agreements and anti-class-action provisions. Obviously arbitration agreements are perfectly lawful, but what if major banks actually did get together and agree that they all would include arbitration clauses in their contracts? A violation of the federal antitrust laws? We'll have to wait and see.

« Gentry: Cert denied

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