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Even More Concessions by Amex

March 1, 2013 11:50 AM

By Myriam Gilles

Ted Frank's posting starts off on an agreeable enough note: it turns out we concur that the vindication-of-rights doctrine does, in fact, exist, and that Amex's lead argument rejecting the doctrine is "extreme." Sad times that we celebrate agreement on such a basic concept. Assuming Frank acknowledges that the earth is round, there are now at least two things that we agree upon.

But these are sad times at the Supreme Court. Having sat through the rough and nasty argument in the Voting Rights Act case - where the conservative Justices seemed flummoxed by the suggestion that egregious acts of discrimination in voting were still an especial problem in the South, and where Justice Scalia characterized legislative protection of the franchise "a racial entitlement in perpetuity" - I was prepared for just about anything. So I rejoiced that the Justices appeared to agree that the vindication-of-rights doctrine is alive and well - Justice Breyer described the doctrine as "well-established," and no other Justice seemed to question is basic premises. Whew! The earth is round.

Beyond that basic agreement, however, the argument was a mess. Justices Kennedy and Breyer wondered why it would be prohibitively expensive for small merchants to engage economic experts to opine on issues such as relevant market definition or anticompetitive effects - despite the fact that this Court's own antitrust jurisprudence has exponentially increased the costs of lodging antitrust claims. When the merchants' lawyer, Paul Clement, observed that antitrust guru Herbert Hovenkamp submitted an amicus brief arguing that expensive expert testimony is indispensable, Justice Breyer countered that if Professor Hovenkamp or Justice Breyer were the arbitrator, then no experts at all would be required. (I wonder what Justice Breyer's day rate would be).

But the biggest source of confusion - and the issue that might ultimately cause the Court to dismiss certiorari as improvidently granted or possibly remand for further elucidation - involved Amex's late-in-the-game assertion that its air-tight confidentiality clause did not actually bar Respondents from freely sharing information across arbitral proceedings, such that merchants could "share an expert between multiple plaintiffs." Justice Kagan specifically and repeatedly asked Mr. Kellogg, Amex's lawyer, whether Respondents would "violate the confidentiality agreement of this clause" if they all decided to "get together and produce one report." And each time, Kellogg answered that Amex's confidentiality clause did not bar Respondents from doing so.

This is new, and possibly changes things. It's new because when the confidentiality clause came up at the Second Circuit, Amex did not make this concession. Rather, the company stood by its clause, which broadly provides that "all testimony, filings, documents and any information relating to or presented during the arbitration proceedings shall be deemed to be confidential information not to be disclosed to any other party." Based on this, the panel below correctly ruled that Amex's "confidentiality provision effectively block[ed]" claimants from sharing information such that they could develop (and informally pass the hat to pay for) one, single expert report that could be used in multiple arbitrations.

And this late-breaking concession that the confidentiality clause doesn't mean what it says possibly changes things because perhaps Respondents can now seek to vindicate their rights via individual arbitrations of their antitrust claims - hundreds and hundreds of individual arbitrations, using the same expert report, that over time, create a momentum that might match or surpass traditional notions of collateral estoppel in the arbitral fora.

It may be a while before we get to witness any such activity, though, because my guess is the Court will remand the case, as it seems awfully late in the day for Amex to suddenly make this important concession. As Malcolm Stewart of the Solicitor General's office argued on Respondents' behalf, Amex seems to have engaged in certiorari bait-and-switch, seeking Supreme Court review "on the important legal question whether the inefficacy of arbitration procedures is a basis for invalidating the agreement," but then once before the Court, arguing that "it would, in fact, have been feasible to pursue these claims through individualized arbitration." These facts about the violability of the confidentiality provision were simply not in the record, and for that reason alone, the case may prove difficult to decide.

[And, to be clear, Frank and I agree on little else. I think it begs reality to assert Amex's arbitration clause doesn't completely preclude the vindication of federal antitrust claims. If Respondents cannot share information, shift the extremely high costs of an expert report, or do both via a class action in court, they simply cannot bring their Sherman Act claims. Even less rooted in reality is Frank's floodgates argument - i.e., that droves of displaced class claimants will scale the arbitration barricades and overwhelm the citadel proclaiming their inability to vindicate statutory rights. If the only question is whether non-recoupable costs exceed the recovery sought, it should be clear that few camels will make it through the eye of this needle.
And I won't take the time to address the uninformed views on the underlying antitrust claim. After all, the Amex case hasn't even gotten to the merits stage because of 8 years of litigation over the arbitration clause. But it should suffice to note that the Justice Department has filed suit against Amex on similar grounds, and that Visa/Mastercard recently settled a related antitrust case for $7.25 billion dollars (a settlement in which Frank and his cohort have not lodged their typical objections).]

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.