Collective Adoption of Non-Arbitration Clauses Challenged as Unlawful Conspiracy

A class action lawsuit recently filed in the Southern District of New York alleges that eight credit card companies, along with co-conspirators American Express and Wells Fargo, violated the Sherman Act by colluding to impose mandatory arbitration clauses that prohibit class action suits in the terms of their credit card agreements. The complaint claims that the arbitration clauses harm competition by allowing the defendants to obtain a non-price "trade advantage" and injure consumers by depriving them of rights and procedural protections available in the judicial system. The plaintiffs in the case are seven individual credit card holders who claim to represent a class composed of all U.S. holders of general purpose cards issued by the defendants.

According to the complaint, the defendants (which include Bank of America, Capital One Bank, Citibank, and J.P Morgan Chase) hold a significant market share in the "general purpose card market." The plaintiffs allege that general purpose cards are a relevant product market because they differ from other forms of payment, such as cash, checks, and debit cards and other forms of payment often are not a close substitute for a general purpose card. These cards, according to the complaint, are a practical necessity for most consumers, who view the cards as an "indispensable part of everyday life."

The plaintiffs allege that in late 1998 or early 1999, the defendants began communicating with each other and other co-conspirators regarding the use of mandatory arbitration clauses in their card agreements. At the time of these initial communications, only three of the defendants had adopted arbitration clauses. In May 1999, a number of the defendants met and formed the "Arbitration Coalition," the purpose of which was to "defend and foster arbitration and promote the imposition of mandatory clauses." The complaint alleges that the Arbitration Coalition met several times over the next four years to discuss "sharing best practices" and "drafting enforceable arbitration clauses." The result of these meetings, according to the plaintiffs, was the adoption of materially identical mandatory arbitration clauses by the defendants.

The defendants also allegedly formed two additional groups to impose arbitration clauses to eliminate class actions: the "Consumer Class Action Working Group" and the "In-House Counsel Working Group". The Consumer Class Action Working Group allegedly first met in January 2001 to discuss ways of combating consumer class action litigation, including filing countersuits against class action lawyers and suits for abuse of process. The In-House Counsel Working Group provided an opportunity for the defendants to share information concerning their business practices and strategies with respect to compulsory arbitration clauses.

The complaint alleges that the defendants violated Section 1 of the Sherman Act by agreeing to impose and maintain the arbitration clauses, rendering the clauses voidable and unenforceable. The conspiracy allegedly harmed competition among card issuers and resulted in supra-compettiive profits by shielding the defendants from legal liability. The complaint also alleges that the defendants violated Section 1 by collectively refusing to deal with any cardholder who refuses to accept arbitration clauses as a term and condition of their cardholder agreement.

For additional information about this Antitrust Development, please contact Toby G. Singer, leader of the Health Care Antitrust Practice.

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