American Express Waives Arbitration through Settlement Misrepresentations

Remember that case in contracts class about whether promising to do something you were already going to do constituted consideration for a promise?

The lawyers for American Express in the First District Court of Appeal case of Aviation Data, Inc. v. American Express Travel Related Services Co., Inc., case no. A111602 (July 6, 2007) apparently didn’t remember that day in contracts class.  So they promised during class action settlement negotiations to implement a computer program in exchange for a release of claims . . . even though AmEx had already been using the program for two years.  Then, as part of proceedings for court approval of the settlement, AmEx made a sworn statement to the court that AmEx was implementing the program as a result of the settlement.

The settlement fell apart after these misrepresentations came to light.  American Express moved to compel arbitration, the trial court said, “No,” and the Court of Appeal affirms. 

Evaluating AmEx’s arbitration provisions with its individual customers under the Federal Arbitration Act, the court finds that the public policy favoring settlement (which generally precludes settlement efforts from being deemed a waiver of arbitration) loses against other policy considerations:

But competing here against the public policy favoring settlement is the equally important value that settlement—and most certainly one that may affect thousands, perhaps millions of absent class members—should not be achieved through deceit upon the court and parties. Public policy concerns support the rule that parties must indeed be free to attempt to settle their disputes without losing their arbitration right if settlement fails. We perceive, however, no policy justification to extend this principle to encompass attempts to secure judicial imprimatur and finality on settlements obtained through misleading or deceptive tactics. We will not take such a remarkable step.

But the court does not rely on the misconduct alone.  Instead, it evaluates prejudice to the plaintiffs, and finds plenty of it.