Animal Law, Inc. v. Am. Express Co. (In re Am. Express Anti-Steering Rules Antitrust Litig.)

• Decision Date: 14 January 2020
• Docket Number: 11-MD-2221 (NGG) (RER)
• Citation: 433 F.Supp.3d 395
• Parties: IN RE AMERICAN EXPRESS ANTI-STEERING RULES ANTITRUST LITIGATION This Document Relates to: the Consolidated Class Action Animal Law, Inc., Il Forno, Inc., Italian Colors Restaurant, Jasa Inc., Lopez-Dejonge, Inc., Plymouth Oil Corp. d/b/a Liberty Gas Station, Clam Lake Partners, LLC, Qwik Lube, LLC, and Lajolla Auto Tech, Inc., on behalf of themselves and all others similarly situated, Plaintiffs, v. American Express Company and American Express Travel Related Services Company, Inc., Defendants.
• Court: U.S. District Court — Eastern District of New York

433 F.Supp.3d 395

IN RE AMERICAN EXPRESS ANTI-STEERING RULES ANTITRUST LITIGATIONThis Document Relates to: the Consolidated Class ActionAnimal Law, Inc., Il Forno, Inc., Italian Colors Restaurant, Jasa Inc., Lopez-Dejonge, Inc., Plymouth Oil Corp. d/b/a Liberty Gas Station, Clam Lake Partners, LLC, Qwik Lube, LLC, and Lajolla Auto Tech, Inc., on behalf of themselves and all others similarly situated, Plaintiffs,

v.American Express Company and American Express Travel Related Services Company, Inc., Defendants.

11-MD-2221 (NGG) (RER)

United States District Court, E.D. New York.

Signed January 14, 2020

Filed January 15, 2020

MEMORANDUM & ORDER

NICHOLAS G. GARAUFIS, United States District Judge.

Plaintiffs bring claims against Defendants American Express Company and American Express Travel Related Services Company, Inc. (together, "Amex") on behalf of two putative classes: (1) a class of merchants who accept Amex cards pursuant to a Card Acceptance Agreement ("CAA") with Amex (the "Amex Class"); and (2) a class of merchants who do not accept Amex cards and who have no contract with Amex (the "Non-Amex Class"). (See Second Amended Consolidated Class Action Complaint ("SAC") (Dkt. 864).) Currently pending before the court are two motions: (1) Amex's motion to stay proceedings and compel arbitration of all the Amex Class's claims; and (2) Amex's motion to dismiss all of the Non-Amex Class's claims under Federal Rules of Procedure 12(b)(1) and 12(b)(6). (See Mot. to Compel & Mot. to Dismiss ("Mot.") (Dkt. 875).)

For the following reasons, Amex's motion to compel arbitration is GRANTED and its motion to dismiss is GRANTED as to the Non-Amex Class.

I. BACKGROUND

This action challenges non-discrimination provisions (the "Anti-Steering Rules") contained in the CAAs. (SAC ¶ 1.) Plaintiffs allege that the Anti-Steering Rules unreasonably restrain interbrand price competition among general purpose credit and charge card networks ("credit card networks") because they: "(1) stifle competition among the networks; (2) impose supracompetitive merchant fees, with corresponding offsetting credit card user economic benefits; (3) increase the overall price of credit card transactions above competitive levels; and (4) raise consumer retail prices throughout the country, thereby reducing output." (Id. )

The background of this case—including the procedural history, the restraints on competition, the workings of the credit-card market in general, and Amex's platform in particular, etc.—have been discussed at great length in this court's previous opinions in this matter and in the related case brought by the federal government. See In re Am. Exp. Anti-Steering Rules Antitrust Litig., 361 F. Supp. 3d 324, 331-34 (E.D.N.Y. 2019) ; In re Am. Exp. Anti-Steering Rules Antitrust Litig., No. 11-MD-2221 (NGG), 2016 WL 748089, at *1-4 (E.D.N.Y. Jan. 7, 2016) ; United States v. Am. Exp. Co. ("U.S. v. Amex"). 88 F. Supp. 3d 143, 149-67 (E.D.N.Y. 2015), rev'd, 838 F.3d 179 (2d Cir. 2016), aff'd sub nom. Ohio v. Am. Exp. Co. ("Ohio"), ––– U.S. ––––, 138 S. Ct. 2274, 201 L.Ed.2d 678 (2017). The court facts and aspects of the procedural history necessary to introduce and to decide the instant motion are laid out below.

A. The Parties

The class representatives fall into two groups. The representatives of the Amex Class, which accept Amex cards, are: (1) Animal Land, Inc., a Georgia corporation; (2) Il Forno, Inc., a California corporation; (3) Italian Colors Restaurant, a California business; (3) Jasa Inc., a Louisiana corporation; (4) Lopez-Dejonge, Inc., an Alabama corporation; (5) Plymouth Oil Corp. d/b/a Liberty Gas Station, a Pennsylvania corporation, and (6) Clam Lake Partners, LLC (successor in interest to previous class representative Firefly Air Solutions, LLC), a Minnesota corporation. (Id. ¶¶ 5-11). The representatives of the Non-Amex Class, which do not accept Amex cards, are: (1) Qwik Lube, LCC, a New York corporation and (2) LaJolla Auto Tech, Inc., a California corporation. (Id. ¶¶ 12-13.) Plaintiffs also assert the existence of two California Subclasses: A California Amex Subclass and a California Non-Amex Subclass. (Id. ¶ 104(c).) The California Amex Subclass is represented by Il Forno, Inc. and Italian Colors Restaurant, and the California Non-Amex Subclass is represented by LaJolla Auto Tech., Inc. (Id. ) All Plaintiffs are merchants. (Id. ¶ 104.)

Defendant American Express Company is a New York corporation. (Id. ¶ 14.) Defendant American Express Travel Related Services Company, Inc. is a Delaware corporation with its principal place of business in New York, New York. (Id. ¶ 15.) It is a wholly owned subsidiary of American Express Company. (Id. )

B. The Relevant Market

Plaintiffs lay out two geographic markets: (1) the United States for Counts One, Two, and Three; and (2) California for Counts Four and Five. (SAC ¶ 22.) The relevant product market is the two-sided credit card market, including all transactions provided by Amex and its competitors, MasterCard, Discover, and Visa. (Id. ¶ 23.)

C. The Credit Card Industry

Amex is one of four significant competitors in the nationwide credit card market. (SAC ¶ 25.) The others are Visa, MasterCard, and Discover; in 2018, the Supreme Court described their market shares as Visa 45%, Amex 26.4%, MasterCard 23.3%, and Discover 5.3%. (Id. ¶ 51 (citing Ohio, 138 S. Ct. at 2282 ).) According to Plaintiffs, these market shares have not meaningfully changed in many years. (Id. )

Credit card companies provide services both to cardholders, who use the cards to purchase goods and services, and to merchants, who accept those cards as payment in exchange for goods and services. These credit card companies thus operate a two-sided platform, offering services to two, distinct groups (merchants and consumers) and facilitating transactions between them. See Ohio, 138 S. Ct. at 2280. Credit card companies need to make a sale to both sides of the market to succeed; after all, "no credit-card transaction can occur unless both the merchant and the cardholder agree to use the same credit-card network." Id. (See also SAC ¶ 18.) Amex offers services directly to both merchants and consumers. (SAC ¶ 27.)

As Plaintiffs allege, "[w]hen a consumer uses a credit card, the merchant's point of sale terminal transmits a record of the transaction to the card's network." (Id. ¶ 20.) The network then pays, or facilitates the payment of, money for that transaction to the merchant, consisting of the purchase price charged to the customer minus the fee that network or bank charges merchants. (Id. ) Consumers may also pay fees to use their credit cards and get rewards for making purchases with a particular card. (Id. ¶ 21.) Unlike its competitors, who charge variable merchant fees depending on the particular card the individual consumer is using, "Amex charges a single, typically higher merchant fee for all Amex credit cards." (Id. ¶ 32.) Plaintiffs further allege that, unlike its competitors, "Amex's revenues are primarily dependent on its merchant fees." (Id. ¶ 34.)

D. The CAA

1. Relevant Version of the Agreement

According to Amex, the "current, operative" form of the CAA between Amex and the merchants in the Amex Class has been in effect since October 2018. (Mot. at 5.) Plaintiffs do not state whether they disagree or disagree with this assertion, but do note:

In the [SAC], Plaintiffs assert that Amex arbitration agreements also state "... the arbitrator's authority to make awards is limited to awards to you and us alone." SAC ¶ 90. For years, this language was contained in the Amex arbitration agreement, but was removed by Amex in the 2018 edition of the agreement. Notwithstanding this change, the 2018 agreement continues to prohibit Plaintiffs from obtaining market-wide injunctive relief against Amex.

(Pls. Resp. Mem. in Opp'n to Mot. ("Opp'n") (Dkt. 879) at 2 n.6.) Amex does not dispute this characterization of the changes made in 2018, and agrees with Plaintiffs that the agreement prohibits Plaintiffs from obtaining market-wide injunctive relief (see Amex May 24, 2019 Letter (Dkt. 894)). The court will therefore cite to the 2018 version of the CAA Amex has provided. All members of the Amex Class are bound by this agreement. (See SAC ¶¶ 47, 90.)

2. Arbitration Provisions

The CAA provides, inter alia:

You or we may elect to resolve any Claim by individual, binding arbitration.

...

If arbitration is chosen by either party, neither you nor we will have the right to litigate that Claim in court or have a jury trial on that Claim. Further, you and we will not have the right to participate in a representative capacity or as a member of any class pertaining to any Claim subject to arbitration.... The arbitrator's decisions are as enforceable as any court order and are subject to very limited review by a court. Except as set forth below, the arbitrator's decision will be final and binding.

(2018 CAA (Dkt. 877-3) § 7.c.) The provision defines "Claim" as:

[A]ny claim (including initial claims, counterclaims, cross-claims, and third-party claims), dispute, or controversy between you and us arising from or relating to the Agreement or prior Card acceptance agreements, or the relationship resulting therefrom, whether based in contract, tort (including negligence, strict liability, fraud, or otherwise), statutes, regulations, or any other theory, including any question relating to the existence, validity, performance, construction, interpretation, enforcement, or termination of the Agreement or prior Card acceptance agreements, or the relationship resulting thereform, except for the validity, enforceability, or scope of section 7.c of the General Provisions.

(Id. § 1.c.)

3. Anti-Steering Rules

Amex's Anti-Steering Rules provide that merchants may not:

• indicate or imply that they prefer, directly or indirectly, any Other Payment Products over [Amex] Card[s];

• try to dissuade cardholders from using [their Amex] Card;

• criticize or mischaracterize [the Amex]

...