Credit card arbitration antitrust lawsuit revived

So you get yourself a credit card. Credit card companies being what they are, you soon encounter billing problems that can’t be worked out amicably. Feisty bastard that you are, you write them a letter saying they have one last chance to resolve the problem or you’ll file suit in your local small claims court.

Oops. No can do. Buried deep within the mountain of small-printed boilerplate that is your agreement with the issuing bank — an agreement you never saw until after you signed up for the card, by the way — is a provision requiring that all disputes be resolved via binding arbitration. In New York. On your dime. So yeah, you can pursue your $200 claim against CapitalOne, but you’ll have to get your ass to New York and present your case to the company’s hand-picked arbitrator. In the best case scenario, you recover spend a grand or so on travel, food, lodging and lost wages to get $200.

No big deal, though, right? The competition generated by the Holy Free Market means that you can walk right down the street and get a card from a different bank that doesn’t require binding arbitration!

Not so, at least according to the plaintiffs in Ross v. Bank of America, N.A. (USA) (pdf, 15 pages). There, seven named plaintiffs filed a putative class antitrust action in the U.S. District Court for the Southern District of New York in 2005 against nineteen credit card issuing banks. The plaintiffs alleged that the banks violated the Sherman Act by colluding to make mandatory binding arbitration an industry-wide practice, thus wrecking consumer choice and reducing the overall quality of credit card services.

The banks moved to dismiss the case for lack of jurisdiction, contending that the plaintiffs lacked both Article III standing, previously discussed here, and statutory standing as set forth in cases interpreting the Sherman Act.

In what must have been a delicious exercise in legal drafting for some malevolent defense attorney, the banks also moved to stay the lawsuit and compel arbitration.

The trial judge dismissed the case on subject matter jurisdiction grounds, holding that the plaintiffs lacked Article III standing. Today the U.S. Court of Appeals for the Second Circuit reversed that ruling and reinstated the case. (See pdf linked above.) The court of appeals found that “[t]he Complaint alleges that reduced choice and diminished quality in credit services result directly from the banks’ illegal collusion to constrict the options available to cardholders. These harms are sufficiently ‘actual or imminent,’ as well as ‘distinct and palpable,’ to constitute Article III injury in fact.”

This one has a long, long way to go. The banks will no doubt renew their statutory standing arguments in the trial court. If the plaintiffs jump that hurdle, the banks will once again demand that the trial court stay the lawsuit and compel arbitration. If that fails, the banks will claim that the case should be dismissed for failure to state a viable claim under the new Bell Atlantic pleading standard, previously discussed here and here. If the case is still breathing after all that, then the REAL fun begins: fighting over whether the court should certify the case as a class action.

So then, there’s no cause for a dancing-naked-round-the-fire type of celebration just yet, but the Second Circuit’s ruling was a necessary step in the right direction.

H/T – TortDeform

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  • illusory tenant  On April 25, 2008 at 7:26 pm

    a delicious exercise in legal drafting for some malevolent defense attorney

    “It’s what we do.”™

  • PeteSmith  On May 14, 2008 at 8:45 pm

    Nice write-up. Let’s not forget that, assuming the suit is for injunctive or declaratory relief (I didn’t read the complaint), if defendants succeed in staying the litigation to compel arbitration, the mootness doctrine may soon thereafter attach, unless plaintiffs persuasively argue that the injury-in-fact is capable of repetition yet evades review. Assuming, also, they’ve not yet engaged in discovery, what claims have they made under the new Twombly standard or what evidence could they hope to discover that there was collusion between all these banks? Seems like a worthy but difficult endeavor.

  • genghishitler  On May 15, 2008 at 6:36 am

    Excellent points one and all, Pete. One of the more attractive features of arbitration for MBNA, Chase, etc. is the fact that you don’t get anything resembling real discovery. You’re right: this is an expensive, time-consuming and all-around gargantuan undertaking for Plaintiffs’ counsel.

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