* American Express, Citigroup, Discover prevail
* Cardholders alleged collusion to require arbitration
(Adds comments from Citigroup, Discover lawyer)
By Jonathan Stempel
NEW YORK, April 10 Consumers suffered a setback
on Thursday as three big credit card issuers won the dismissal
of U.S. lawsuits accusing them of colluding to require that
disputes be settled in arbitration rather than class action
U.S. District Judge William Pauley in Manhattan said
cardholders failed to show that American Express Co,
Citigroup Inc and Discover Financial Services
conspired to violate the Sherman antitrust law.
The plaintiffs had argued that the conspiracy ran from May
1999 to October 2003, when 10 card-issuing banks and their
lawyers held 28 meetings to discuss how to impose mandatory
arbitration clauses in cardholder agreements.
Pauley said his decision in the decade-old case was a close
call, given the "conscious parallel action" among the biggest
card issuers to include the clauses.
"It was only by a slender reed that plaintiffs failed to
demonstrate that the lawyers who organized these meetings had
spawned a Sherman Act conspiracy among their clients," Pauley
wrote in a 92-page decision, following a 2013 non-jury trial.
Class action litigation can allow consumers to pool
resources and obtain greater recoveries at lower cost than
"This is a big dent for consumer rights," said Curtis
Arnold, a consumer advocate and founder of CardRatings.com in
Little Rock, Arkansas. "Class action lawsuits have over the
years kept this industry in check. Individuals don't have much
recourse taking on card giants by themselves."
Cardholders had sought to force American Express, Citigroup
and Discover to remove arbitration clauses from their cardholder
agreements for eight years.
Merrill Davidoff, a partner at Berger & Montague
representing the plaintiffs, said his clients were "obviously
disappointed" and strongly disagreed with Pauley's decision. He
said it is premature to address whether there will be an appeal.
Robert Sperling, a partner at Winston & Strawn representing
Discover, said the cardholders "never came close to proving
collusion." Citigroup spokeswoman Emily Collins said that the
bank is pleased with the decision. Spokeswomen for American
Express did not respond to requests for comment.
American Express, Citigroup and Discover collectively held
about 31.1 percent of U.S. outstanding credit card balances in
2013, according to the Nilson Report.
AVOIDING A BACKLASH
In April 2010, Bank of America Corp, Capital One
Financial Corp, HSBC Holdings Plc and JPMorgan
Chase & Co settled with the plaintiff cardholders by
agreeing to remove their arbitration clauses for 3-1/2 years.
The U.S. Consumer Financial Protection Bureau estimated in
December that just over 50 percent of outstanding credit card
loans remain subject to the clauses. It said the percentage
would have been 94 percent absent the earlier settlements.
Other industries also use arbitration clauses. The U.S.
Supreme Court in 2011 upheld contracts used by AT&T Inc
requiring consumers to arbitrate disputes individually.
In his decision, Pauley noted that of the 10 banks that had
been part of the litigation, just two had mandatory arbitration
clauses at the start of the alleged collusion.
He found "compelling evidence" that cardholders would have
little economic incentive to fight alleged abuses absent class
actions, and said that the banks' "need to parry consumer
backlash and temper any 'rogue' players" established a motive to
"A motive to conspire, however, does not mean that a
conspiracy existed," he said. "This court is convinced that the
evidence is just as consistent with legitimate activity in
furtherance of the issuing banks' independent self interests."
Pauley said the case also offered a "cautionary lesson" to
lawyers, given that the banks' cost to defend against the
lawsuits offset potential savings from the arbitration clauses.
"In retrospect, the issuing banks' short-term goal of
lowering litigation costs eluded them," he wrote.
The cases are in the U.S. District Court, Southern District
of New York. They are Ross et al v. American Express Co et al,
No. 04-05723; and Ross et al v. Bank of America NA et al, No.
(Reporting by Jonathan Stempel in New York; Editing by Lisa Von
Ahn, Jonathan Oatis and Bernard Orr)