Class action against credit card companies gets the green light

A proposed class action against the credit card companies for allegedly conspiring with each other to limit the resolution of cardholder complaints was revived by the Second Circuit, which uses the opportunity to remind us about standing, a legal doctrine which can kill any good lawsuit.

The case is Ross v. Bank of America, decided on April 25. The plaintiffs claim that, in violation of the antitrust laws, the credit card companies illegally conspired with each other to force cardholders into accepting arbitration as the only dispute resolution method in the event a dispute arises regarding credit accounts. The arbitration clauses also prohibit class actions. Companies generally like arbitration clauses because arbitration is a less expensive means to resolve disputes than lawsuits. Plaintiffs and their lawyers generally think that arbitrations favor the defendant and pre-arbitration discovery, if any exists, is not as far-reaching as pre-trial discovery. The district court dismissed the Complaint for lack of standing because the plaintiffs were complaining about the arbitration clauses before any of them actually had disputes with the credit card companies. The Court of Appeals (Parker, Leval and Sotomayor) reversed.

The Second Circuit holds that the trial court misunderstood what the lawsuit was about. It's not that the plaintiffs are complaining about unfair arbitration clauses, but that the alleged conspiracy to set arbitration clauses throughout the industry deprived consumers of "any meaningful choice on a critical term and condition of their general purpose card accounts." In addition, "[t]he Complaint alleges that reduced choice and diminished quality in credit services result directly from the banks’ illegal collusion to constrict the options available to cardholders." Another injury is that the allegedly illegal arbitration agreements make the credit cards less valuable because "[a] card that limits the holder to arbitration is less valuable (all other factors being equal) than a card that offers the holder a choice between court action or arbitration. Even assuming that the cardholders might be able to void that limitation when an actual dispute arises by opposing the banks’ motion to compel arbitration via a claim of antitrust collusion, that possibility is more theoretical [in part, because] [t]he cost of litigating the antitrust issue when the particular dispute arises will almost certainly be disproportionate to the dispute."

The Court of Appeals finds that the injuries to the market created by the industry's alleged conspiracy to adopt arbitration clauses creates "injury in fact" among the plaintiffs sufficient to give them standing to sue the defendants. Without any such injury in fact, for example, when the plaintiffs allege a hypothetical or speculative injury, there is no standing.