On April 25, 2008. the United States Court of Appeals for the Second Circuit reversed the District Court’s dismissal of a class action challenge to mandatory arbitration provisions contained in the cardholder agreements of several card-issuing banks. Ross v. Bank of America, N.A. (USA), — F.3d —-, 2008 WL 1836640 (2nd Cir., Apr. 25, 2008). The lower court had dismissed the plaintiffs’ antitrust claims for failure to establish standing under Article III of the United States Constitution, but the Second Circuit reversed, holding that plaintiffs established Article III standing to pursue their claims.

The plaintiffs’ putative class action alleged that the banks, with other co-conspirators, illegally colluded to force cardholders to accept mandatory arbitration clauses in their cardholder agreements. The defendant-banks allegedly formed an “Arbitration Coalition” to recruit other credit card issuers into using such arbitration clauses by holding meetings and sharing plans designed to exercise “immense market power.”

The court considered the narrow issue of whether mandatory arbitration clauses found in credit card agreements, assuming they are the product of illegal collusion among credit providers, give rise to Article III “injury in fact.” The court held that a “reduction in choice and diminished quality of credit services to which the cardholders claim they have been subjected… constitute Article III injury in fact” sufficient to reverse the dismissal. In reaching its decision, the court reasoned that to the extent that cardholders have lost the benefit of class actions, they will be forced to expend time and legal fees to monitor the banks’ conduct rather than having the option of relying on motivated class action attorneys to perform this function.

Although the court reversed the dismissal, plaintiffs will be required to demonstrate “antitrust standing” on remand, which will be more difficult and will require establishing “antitrust injury.”

Michael Tomkies