Class Action Defense Cases–Ross v. Bank of America: Second Circuit Reinstates Antitrust Class Action Holding Cardholders Possessed Article III Standing To Pursue Class Action Claims Against Credit Card Issuers

Apr 30, 2008 | By: Michael J. Hassen

District Court Erred in Dismissing Cardholder Class Action Against Credit Card Issuers, Alleging Conspiracy to Including Mandatory Arbitration Clauses in Credit Card Agreements in Violation of Federal Antitrust Laws, because Class Action Complaint Adequately Alleged Injury in Fact for Article III Standing Second Circuit Holds

Plaintiffs filed a putative class action against various credit card issuing banks for antitrust violations alleging that defendants “illegally colluded to force cardholders to accept mandatory arbitration clauses in their cardholder agreements.” Ross v. Bank of America N.A., ___ F.3d ___ (2d Cir. April 25, 2008) [Slip Opn at 4]. The class action complaint contained two antitrust claims based on violations of Section 1 of the Sherman Act: (1) that defendants “conspired to impose mandatory arbitration clauses,” and (2) that defendants “participated in a group boycott by refusing to issue cards to individuals who did not agree to arbitration.” Id., at 5-6. The class action prayed for an injunction and sought “to invalidate existing mandatory arbitration clauses, and to force the banks to withdraw all pending motions to compel arbitration.” Id., at 6. Defense attorneys moved to dismiss the class action under Rule 12(b)(1) and (b)(6) on the grounds that plaintiffs lacked standing to prosecute the antitrust class action claims, id. The district court granted the motions on the sole ground of lack of standing, and dismissed the class action complaint. See In re Currency Conversion Fee Antitrust Litig., No. 05 Civ. 7116 (WHP), 2006 U.S. Dist. LEXIS 66986 (S.D.N.Y. September 20, 2006). (A copy of the district court order dismissing the class action may be found here

.) Plaintiffs appealed; the Second Circuit reversed and reinstated the class action.

The district court dismissed the class action complaint based on its belief that the injuries alleged by plaintiffs were “entirely speculative and, therefore, insufficient to establish Article III standing.” Ross, at 6 (quoting In re Currency Conversion, at *9, *12-13). As the Second Circuit explained at page 6, “Specifically, according to the district court, the cardholders’ injuries are ‘contingent on their speculation that someday (1) Defendants may engage in misconduct; (2) the parties will be unable to resolve their differences; (3) Plaintiffs may commence a lawsuit; (4) the dispute will remain unresolved; and (5) Defendants will seek to invoke arbitration provisions.’” Id., at 6-7 (quoting In re Currency Conversion, at *14-15). The district court also characterized any “alleged anticompetitive effects” as “inchoate.” Id., at 7 (quoting In re Currency Conversion, at *16). The Circuit Court disagreed.

The Second Circuit noted that the threshold for establishing “injury in fact” is “low,” explaining that “we have held [it] need not be capable of sustaining a valid cause of action,’ but ‘may simply be the fear or anxiety of future harm.” Ross, at 7 (citation omitted). The burden of establishing federal court jurisdiction, and thus injury in fact, lies with plaintiffs in this case (as the party asserting federal jurisdiction), but the Circuit Court held that the class action “adequately alleged antitrust injuries in fact.” Id., at 8. Specifically, among the injuries alleged in the class action and recognized by the district court were that the alleged conspiracy “reduced choice and diminished quality of credit card services,” id., at 9. The district court concluded that this was insufficient because it agreed with defense attorneys that Article III standing does not exist until defendants actually invoke the arbitration clause against a particular customer, id., at 10. In the district court’s view, “until the arbitration clauses are invoked against Plaintiffs, they are dormant contract provisions incapable of creating the requisite Article III injury-in-fact.” In re Currency Conversion, at *13. The Second Circuit held this was error, explaining at page 10:

The harms claimed by the cardholders, which lie at the heart of their Complaint, are injuries to the market from the banks’ alleged collusion to impose a mandatory term in cardholder agreements, not injuries to any individual cardholder from the possible invocation of an arbitration clause. The antitrust harms set forth in the Complaint – for example, the reduction in choice for consumers, many of whom might well prefer a credit card that allowed for more methods of dispute resolution – constitute present market effects that stem directly from the alleged collusion and are distinct from the issue of whether any cardholder’s mandatory arbitration clause is ever invoked. The reduction in choice and diminished quality of credit services to which the cardholders claim they have been subjected are present anti-competitive effects that constitute Article III injury in fact.

The Circuit Court rejected defense arguments that “this absence of choice is merely a harm to a ‘subjective preference.’” Ross, at 10. The Second Circuit concluded that in at least two respects “the cardholders have alleged an illegal conspiracy that resulted in a present injury by requiring them to accept less valuable cards than would otherwise have been available, but for the illegal collusion.” Id., at 12. The Court also rejected defense arguments that plaintiffs’ claims were not ripe because they were not “faced with a sufficiently imminent threat of injury.” Id., at 14. Because the Circuit Court believed that plaintiffs’ injuries were not speculative or hypothetical, it held that they were ripe for judicial review. Id. Accordingly, it reversed the district court order dismissing the class action complaint for lack of Article III standing, id., at 15.

NOTE: The Second Circuit did not resolve whether plaintiffs have antitrust standing, only whether they have Article III standing. See Ross, at 12-14.

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