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 U.S. District Judge William Pauley in Manhattan said cardholders
failed to show that American Express Co, Citigroup Inc and Discover
Financial Services conspired to violate the Sherman antitrust law.
The plaintiffs had argued that the conspiracy ran from May 1999 to
October 2003, when 10 card-issuing banks and their lawyers held 28
meetings to discuss how to impose mandatory arbitration clauses in
cardholder agreements.
Pauley said his decision in the decade-old case was a close call,
given the "conscious parallel action" among the biggest card issuers
to include the clauses.
"It was only by a slender reed that plaintiffs failed to demonstrate
that the lawyers who organized these meetings had spawned a Sherman
Act conspiracy among their clients," Pauley wrote in a 92-page
decision, following a 2013 non-jury trial.
Class action litigation can allow consumers to pool resources and
obtain greater recoveries at lower cost than individual
arbitrations.
"This is a big dent for consumer rights," said Curtis Arnold, a
consumer advocate and founder of CardRatings.com in Little Rock,
Arkansas. "Class action lawsuits have over the years kept this
industry in check. Individuals don't have much recourse taking on
card giants by themselves."
Cardholders had sought to force American Express, Citigroup and
Discover to remove arbitration clauses from their cardholder
agreements for eight years.
Merrill Davidoff, a partner at Berger & Montague representing the
plaintiffs, said his clients were "obviously disappointed" and
strongly disagreed with Pauley's decision. He said it is premature
to address whether there will be an appeal.
Robert Sperling, a partner at Winston & Strawn representing
Discover, said the cardholders "never came close to proving
collusion." Citigroup spokeswoman Emily Collins said that the bank
is pleased with the decision. Spokeswomen for American Express did
not respond to requests for comment.
American Express, Citigroup and Discover collectively held about
31.1 percent of U.S. outstanding credit card balances in 2013,
according to the Nilson Report.
AVOIDING A BACKLASH
In April 2010, Bank of America Corp, Capital One Financial Corp,
HSBC Holdings Plc and JPMorgan Chase & Co settled with the plaintiff
cardholders by agreeing to remove their arbitration clauses for
3-1/2 years.
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The U.S. Consumer Financial Protection Bureau estimated in December
that just over 50 percent of outstanding credit card loans remain
subject to the clauses. It said the percentage would have been 94
percent absent the earlier settlements.
Other industries also use arbitration clauses. The U.S. Supreme
Court in 2011 upheld contracts used by AT&T Inc requiring consumers
to arbitrate disputes individually.
In his decision, Pauley noted that of the 10 banks that had been
part of the litigation, just two had mandatory arbitration clauses
at the start of the alleged collusion.
He found "compelling evidence" that cardholders would have little
economic incentive to fight alleged abuses absent class actions, and
said that the banks' "need to parry consumer backlash and temper any
'rogue' players" established a motive to conspire.
"A motive to conspire, however, does not mean that a conspiracy
existed," he said. "This court is convinced that the evidence is
just as consistent with legitimate activity in furtherance of the
issuing banks' independent self interests."
Pauley said the case also offered a "cautionary lesson" to lawyers,
given that the banks' cost to defend against the lawsuits offset
potential savings from the arbitration clauses.
"In retrospect, the issuing banks' short-term goal of lowering
litigation costs eluded them," he wrote.
The cases are in the U.S. District Court, Southern District of New
York. They are Ross et al v. American Express Co et al, No.
04-05723; and Ross et al v. Bank of America NA et al, No. 05-07116.
(Reporting by Jonathan Stempel in New York;
editing by Lisa Von Ahn,
Jonathan Oatis and Bernard Orr)
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