Client Alert

Southern District Rules That Cardholders Subject To Arbitration Are Properly Estopped From Litigating Same Claims Against Non-Signatories


The Southern District of New York (Pauley, J.) recently issued an important decision for the financial services industry in a case involving allegations by credit card customers that Visa and MasterCard ("Networks") and various credit card issuing banks ("Issuers") (collectively, "Defendants") conspired in violation of the Sherman Act to fix currency conversion charges on credit card transactions and that the Issuers violated the Truth in Lending Act ("TILA"). In re Currency Conversion Fee Antitrust Litig., MDL No. 1409, M 21-95 (S.D.N.Y. Mar. 9, 2005).

The Court had previously certified various antitrust and TILA classes of the Issuers’ cardholders. See In re Currency Conversion Fee Antitrust Litig., No. MDL 1409, M 21-95, 2004 WL 2327938265 (S.D.N.Y. Oct. 15, 2004). In so doing, the Court had concluded that cardholders who had agreed to enforceable arbitration clauses with their own issuer were not estopped from litigating against any other Defendant.[1] Instead, the Court had allowed claims to proceed against non-signatory Issuers and the Networks because they were not parties to enforceable arbitration agreements. The Court had also found that cardholders of Chase, Citibank, and Providian were not subject to arbitration because they had been sent Change-In-Terms notices that included arbitration clauses only after the litigation had begun. See id. at *13-*14.

Motions to Reconsider and Stay.

The Defendants moved for reconsideration and to stay the litigation pending appeal. The Court granted the motions in part and denied them in part.

The Court’s most significant ruling was that the doctrine of estoppel prevented any cardholder who had entered into an enforceable arbitration agreement with one issuer from litigating the same claims against any Defendant. Relying on the intervening Second Circuit decision, JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163 (2d Cir. 2004), the Court held that non-signatory Defendants, including the Networks, could enforce the arbitration agreements of signatory Issuers. The reason was that the claims against non-signatories were "intertwined" with the claims against signatories. More specifically, the Court found that Plaintiffs had themselves alleged that (1) there was a "close relationship" between non-signatories and signatories to arbitration agreements; (2) the relationship concerned Plaintiffs’ claims of joint and several liability; and (3) the claims against non-signatories were "closely linked" with claims against signatories because they concerned the same cardholder agreements.

Importantly, the Court rejected Plaintiffs’ argument that the arbitration clauses at issue were unenforceable because they were allegedly adopted by collusion. According to the Court, any alleged antitrust violation was severable from the "intelligible economic transaction" of a valid arbitration clause. The Court also rejected the argument that a waiver of class remedies rendered the arbitration clauses unconscionable.

Next, the Court agreed that some Citibank and Chase cardholders were subject to arbitration.[2] Arbitration agreements imposed after the litigation began were enforceable against Chase and Citibank cardholders who (1) opened their Chase or Citibank credit card accounts after the suit began; or (2) became cardholders due to Chase or Citibank post-litigation acquisitions; or (3) did not have a foreign currency credit card transaction until after Chase or Citibank added arbitration clauses to card agreements. The Court excluded these cardholders from any class because they had agreed to arbitration before becoming putative class members.

However, the Court reaffirmed that Citibank and Chase should have alerted putative class members to the pending litigation when they sought to impose arbitration through Change-in-Terms notices. Because they did not do so, it would undermine Rule 23 to enforce arbitration against any Chase or Citibank cardholder who was a putative class member before Chase or Citibank sent their notices. The Court specifically noted that this result did not impair these banks’ substantive state law rights to amend their contracts with cardholders. In dicta, the Court further noted that Chase and Citibank had waived their arbitration rights by failing to move for a stay pending arbitration earlier in the case.


The decision has the effect of drastically reducing the size of the class from one that included cardholders from all Issuer Defendants to one that includes only certain Chase and Citibank cardholders.

The opinion and order are available online. (pdf format, 1.8 MB).

Morrison & Foerster LLP represents Bank of America Corporation and Bank of America, N.A. (USA)


1: The Court had previously ruled that Bank of America and Bank One cardholders had agreed to enforceable arbitration clauses, and, on that basis, it had stayed their claims against their own issuer. See In re Currency Conversion Fee Antitrust Litig., Nos. MDL 1409, M 21-95, 265 F. Supp. 2d 385, 416 (S.D.N.Y. 2003).

2: The Court did not consider the enforceability of Providian’s arbitration clauses because there was no longer a Providian plaintiff to represent a Providian class. The same ruling applied to Diners as well.




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