Ross v. American Express

Issue Discussed: Arbitrability/Scope of Arbitration

Submitted by Michele L. Jacobson, Esq., Andrew S. Lewner, Esq.

Date Promulgated: February 13, 2007

Issue Decided: Whether the Federal Arbitration (“FAA”)’s Requirement of a Written Arbitration Agreement is Satisfied Where a Signatory To An Arbitration Agreement Has Been Compelled To Arbitration Against A Non-Signatory On Equitable Estoppel Grounds

In Ross v. American Express, the Second Circuit Court of Appeals held that a district court’s finding that signatories to a written arbitration agreement were equitably estopped from avoiding arbitration against non-signatories to that agreement satisfied the “writing requirement” of the FAA, and thus provided the Court of Appeals with subject matter jurisdiction to hear an appeal of the district court’s decision refusing to stay the pending litigation or compel arbitration pursuant to 9 U.S.C. § 16. The underlying dispute related to more than twenty class action complaints that were filed against VISA and MasterCard, as well as their member banks (collectively, the “MDL Defendants”), alleging violations of the Sherman Act arising from an alleged conspiracy to fix fees for conversion of foreign currencies. The cases were referred to the Judicial Panel on Multidistrict Litigation and consolidated in the Southern District of New York as In re Currency Conversion Fee Antitrust Litig., MDL No. 1409.

VISA and Mastercard had entered into cardholder agreements with their cardholders (which were the subject of the Multidistrict Litigation), which contained an agreement to arbitrate. While VISA and Mastercard were both signatories to the cardholder agreements, the member bank defendants were not. Subsequent to consolidation, the MDL Defendants collectively moved, pursuant to the arbitration agreements contained in the cardholder agreements, to compel arbitration of all claims asserted in the Multidistrict Litigation. The district court held that: (i) cardholders whose cardholder agreements contained arbitration clauses as of the date on which they became putative class members were subject to arbitration; (ii) those cardholders were also required to arbitrate their claims against non-signatory banks under the doctrine of equitable estoppel; and (iii) that the cardholders’ claimed defense against arbitration – that the arbitration agreements were unenforceable – could not defeat a motion to compel arbitration. The district court, accordingly, compelled the cardholders to arbitrate their claims against the MDL Defendants. See Ross v. American Express, 478 F.3d at 97.

In July 2004, the cardholders filed a class action Complaint against American Express (“AMEX”), asserting the same claims as they had asserted against the MDL Defendants (i.e., that AMEX had conspired with the Defendants to fix fees for foreign currency transactions). The cardholders also alleged that AMEX conspired with the MDL Defendants to “impose compulsory arbitration clauses in [their] cardholder agreements” and that the arbitration clauses were, thus, unenforceable for antitrust reasons. Id. at 98.

In April 2005, AMEX moved, pursuant to 9 U.S.C. §§ 3 and 4 to dismiss the class action complaint and compel arbitration, or, in the alternative, for an order staying the proceedings pending arbitration. In relevant part, 9 U.S.C. § 3 provides that “if any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had.” Similarly, 9 U.S.C. § 4 provides that “[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing such arbitration proceed . . . ”

AMEX argued that, although it was not a signatory to any express, written arbitration agreement with the cardholders, under the principles of equitable estoppel, the cardholders were bound to arbitrate their claims against AMEX under the arbitration clauses contained in their cardholder agreements with the MDL Defendants. In support of this claim, AMEX argued that the claims that the cardholders had asserted against it were “inextricably intertwined” with those that the cardholders had asserted against the MDL Defendants. Id.

The district court accepted AMEX’s argument and held that “’because [the cardholders’] antitrust claims against [AMEX] derive from the very same agreements [AMEX] endeavor[s] to enforce . . . [AMEX] may avail [itself] of the arbitration clauses based on estoppel.’” Despite so holding, however, the district court refused to compel arbitration or stay the proceedings because a jury trial was first necessary in order to determine the validity of the arbitration clauses based upon the cardholders’ assertion of an antitrust claim to defeat the cardholder agreements. Id. (quoting and citing Ross v. American Express Co., 2005 WL 2364969 at *6 (S.D.N.Y. Sept. 27, 2005)).

AMEX appealed the district court’s refusal to compel arbitration, pursuant to 9 U.S.C. § 16, which grants jurisdiction to courts of appeals over interlocutory appeals from refusals to either stay an action or compel arbitration under 9 U.S.C. §§ 3 and 4. The cardholders moved to dismiss AMEX’s appeal, arguing that the Second Circuit had no jurisdiction under 9 U.S.C. § 16, because, they asserted, Sections 3 and 4 of the FAA only apply to failures to arbitrate under “written” agreements. Since AMEX sought to compel the cardholders to arbitrate based upon principles of equitable estoppel, and not pursuant to a written agreement, the cardholders argued that Section 16 of the FAA did not provide the Court of Appeals with jurisdiction to hear the appeal, and that the appeal should be dismissed for lack of jurisdiction.*

The Court of Appeals rejected the cardholders’ argument. Specifically, the Court held that “’arbitration is strictly a matter of contract’ . . . [a]s such, ordinary principles of contract law apply, and we have recognized a number of common law principles of contract law that may allow non-signatories to enforce an arbitration agreement, including equitable estoppel.” Ross v. American Express, 478 F.3d at 99 (citations omitted). The Court noted that the district court had held that because the claims that the cardholders had asserted against AMEX were inextricably intertwined with those that it had asserted against the MDL Defendants, the cardholders were equitably estopped from seeking to avoid arbitration against AMEX on the grounds that AMEX was not a signatory to the cardholder agreements. The Second Circuit held that the district court’s findings in this regard met “the writing requirement of the FAA and, thus, [the Court of Appeals has] jurisdiction under Section 16.” Id.

The Second Circuit supported its reasoning by noting that “the language and policies of the FAA” would be thwarted by permitting a non-signatory to an arbitration agreement to avoid that agreement where a district court has already held that the non-signatories were equitably estopped from so doing. Indeed, the Court noted that under a contrary ruling “parties seeking to delay arbitration or to introduce mischievous complexities that would be grounds for judicial appeal would have ample opportunity to do so, including the assertion of claims for the partial or full bifurcation of cases involving a single writing.” Id. at 99-100.

The Second Circuit further supported its ruling by reference to prior Second Circuit precedent in which courts have stayed proceedings and compelled arbitration under the FAA on equitable estoppel grounds. Specifically, the Court cited to JLM Industries, Inc. v. Stolt-Nielson SA, 387 F.3d 163, 177 ( 2d Cir. 2004), Astra Oil Inc. v. Rover Navigation, Ltd., 344 F.3d 276 (2d Cir. 2003), Smith/Enron Cogeneration Ltd. P’ship, Inc. v. Smith Cogeneration International, Inc., 198 F.3d 88 (2d Cir. 1999) and Thompson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 779 (2d Cir. 1995).

*Absent the jurisdictional grant of Section 16 of the FAA, a federal Court of Appeals is without jurisdiction to hear an interlocutory appeal under 28 U.S.C. § 1291.

** Michele L. Jacobson is a partner in the litigation department of Stroock & Stroock & Lavan L.L.P., concentrating her practice on insurance and reinsurance litigation and arbitration. Ms. Jacobson has represented ceding companies, reinsurers, retrocessionaires, liquidators and intermediaries in a vast array of matters in state and federal courts, as well as before arbitration Panels throughout the country.
***Andrew S. Lewner is an associate in the litigation department of Stroock & Stroock & Lavan L.L.P., concentrating on insurance and reinsurance litigation and arbitration. Mr. Lewner has represented ceding companies, reinsurers, retrocessionaires and liquidators in a wide range of matters in state and federal courts, as well as before arbitration Panels throughout the country.