In 1999, a couple of partners at the firm now known as Wilmer Cutler Pickering Hale and Dorr had a fabulous idea. Businesses were just beginning to recognize the potential advantages of imposing mandatory arbitration provisions and class action waivers on their customers. In early 1998, First USA was the first credit card bank issuer to adopt a mandatory arbitration clause, followed by American Express at the end of the year. Wilmer, which had a roster of credit card clients, came up with a marketing strategy to position itself as an expert on the clauses. In May 1999, Wilmer lawyers invited big credit card issuers to attend a conference on arbitration provisions at its Washington offices “to show these folks that this was something on which we were at the leading edge,” one of the partners later testified.
Wilmer was absolutely right about the marketing potential of mandatory arbitration. After that initial meeting at the firm’s offices on May 25, 1999, Wilmer teamed up with another firm, Ballard Spahr, and several in-house credit card lawyers. They dubbed themselves the “Arbitration Coalition” and invited lawyers from other outside firms and from companies in other industries to join the group. The coalition met throughout 1999 and 2000, as credit card issuers rushed to adopt class action waivers and arbitration clauses. Spin-off groups — including a very short-lived cluster called the Class Action Working Group and a loose band of lawyers for credit card issuers, known as the In-house Working Group — also held sessions in 2000 and 2001.
In all, including that initial session Wilmer convened in 1999, members of the credit card industry met 28 times over the course of four years to discuss how to impose and implement mandatory arbitration clauses. By the end of 2001, when Citi adopted the provisions in its agreements with cardholders, mandatory arbitration clauses had become the industry standard.
That mass conversion to mandatory arbitration was not a coincidence — but nor was it a violation of antitrust law, according to a 92-page opinion issued Thursday by U.S. District Judge William Pauley of Manhattan. After 10 years of litigation, culminating with a five-week bench trial last spring, Pauley held that Discover, Citigroup and American Express did not engage in an antitrust conspiracy when they and other credit card issuers adopted antitrust clauses between 1999 and 2001.(Four other issuers previously settled out of the two parallel, injunction-only class actions before Judge Pauley and agreed to remove mandatory arbitration clauses from cardholder agreements.)
Pauley considered the allegations by class counsel at Berger & Montague and Scott + Scott credible enough that he denied the credit card defendants’ summary judgment motions and permitted the two cardholder class actions to proceed to last year’s bench trial. But when he weighed the evidence from the trial, he said in Thursday’s opinion, he concluded that credit card holders hadn’t shown an anticompetitive agreement among the banks to implement arbitration across the industry. “While the extensive record of inter-firm communications among competitors would give any court pause,” he wrote, “this court cannot infer an illegal agreement based on the evidence marshaled at trial.”