Second Circuit Blows Away Retailers’ “Umbrella” Claims Against AMEX

By Bob Connolly,   Law Office of Robert Connolly

A class of retailers who do not accept American Express cards sued for damages as “umbrella” plaintiffs–retailers who alleged they had their own swipe fees increased because their credit card vendors followed Amex’s lead. The Second Circuit dismissed the suit holding that the non-Amex retailers were not efficient enforcers of the antitrust laws and therefore lacked antitrust standing. In re American Express Anti-Steering Rules Antitrust Litigation, Case No., 20-1766 (2d Cir. November 22, 2021) (hereinafter “Amex Anti-Steering Lit.”).

“Umbrella Plaintiffs”

The suing stores do not accept American Express.  They sued as “umbrella” plaintiffs, claiming their own credit card fees were increased due to Amex’s Anti-Steering Rules on merchants that do accept American Express as a form of payment.  The plaintiff retailers alleged that these Anti-Steering Rules, when combined with Amex’s higher merchant fees, have raised fees throughout the industry, including the fees they pay.  The umbrella theory “seeks to hold price-fixers liable for harm allegedly flowing from the illegal conduct even though the price-fixing defendants received none of the illegal gains and were uninvolved in their competitors’ pricing decisions.” Amex Anti-Steering Lit., at 12-13 citing, In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 691 F.2d 1335, 1339 (9th Cir. 1982).

The Second Circuit described the classic umbrella scenario being as when ‘“[a] cartel cuts output, which elevates price throughout the market.’ Because of that price umbrella, ‘customers of fringe firms (sellers that have not joined the cartel) pay this higher price, and thus suffer antitrust injury, just like customers of the cartel’s members.”’ Amex Anti-Steering Lit., at 12. (citation omitted).

Plaintiffs Not “Efficient Enforcers”

The Second Circuit, like the district court, rejected the umbrella argument claim because the non-Amex merchants could not be considered “efficient enforcers” of antitrust law. The key principle underlying the efficient enforcers test is proximate cause, and the Second Circuit held that appellants failed to show the required direct connection between the harm and the alleged antitrust violation.  Upholding the district court decision, the Second Circuit found that “The appellants are not efficient enforcers of the antitrust laws and therefore lack antitrust standing.” Id. at 21 (footnote omitted).

To determine whether a party can sue under the antitrust laws—whether the party has “antitrust standing”—the court applied the “efficient enforcer” test. The efficient-enforcer test is an elaboration on the proximate cause requirement of Associated General Contractors of California, Inc. v. California State Council of Carpenters (AGC), 459 U.S. 519, 535-36 (1983).

Whether a plaintiff is an “efficient enforcer” depends on four factors: (1) “the directness or indirectness of the asserted injury”; (2) “the existence of more direct victims” or the “existence of an identifiable class of persons whose self-interest would normally motivate them to vindicate the public interest in antitrust enforcement”; (3) the extent to which the claim is “highly speculative”; and (4) “the importance of avoiding either the risk of duplicate recoveries on the one hand, or the danger of complex apportionment of damages on the other.” Amex Anti-Steering Lit., at 12 (citing AGC, 459 U.S. at 535-36).  The court found that “Because the four efficient-enforcer factors do not establish antitrust standing, we affirm the district court’s judgment.” Amex Anti-Steering Lit., at 13.

1.         Directness of Injury

The court noted that in the context of antitrust standing, proximate cause generally follows the first-step rule and “[o]ur court has repeatedly followed the first-step rule in the antitrust context.” Id. at 15.  The Court found that the appellants did not suffer a direct injury from the alleged antitrust violation.  The first step was Amex raising the prices for Amex accepting merchants: “Amex did  not raise the appellants’ fees.  Nor could it have: the appellants do not accept American Express cards.? Id. at 16-17.

2.         The Existence of More Direct Victims

This factor considers whether denying the plaintiff a remedy would leave the alleged harm undetected or unremedied. The court noted that Amex merchants were harmed and did sue.  (“[t]he merchants who have a relationship with Amex were harmed at the first step by Amex’s Anti-Steering Rules. And those merchants have already sued Amex.” Id. at 18.  Accordingly, the Court of Appeals “follow[ed] our precedent in holding that “the second efficient-enforcer factor weighs against … antitrust standing in this case.” Id. at 18 (citation omitted).

3.         Is the Claim “Highly Speculative?”

The court did not find that the plaintiffs’ claim for damages was “highly speculative,” but this did not confer antitrust standing. “The appellants’ injury may have been foreseeable, predictable, and even calculable, but proximate cause—especially in the economic harm context—requires more than foreseeability.” Id. at 20 (citation omitted).

4.         Risk of Duplicative Recoveries

While there was no risk of duplicative recoveries in the case, this factor also was not sufficient to overcome the lack of “first step” injury. Id. at 21.

Conclusion:  While Plaintiffs had the better of the argument on two of the four efficient enforcers factors, taken as a whole, and based primarily on lack of proximate cause, “the four efficient-enforcer factors do not establish antitrust standing.”  Id.

California Unfair Competition Law

The Second Circuit noted that dismissal of the appellants’ federal antitrust claims did not necessarily require the dismissal of their claims under the California Unfair Competition Law (“UCL”) and California antitrust law. Id. at 22-23 (citation omitted).  Nonetheless, the Court held that the appellants’ California law claims fail for similar reasons as the federal claims–lack of standing. Id.  The court reviewed California decisions and found that “the California legislature, like Congress, was ‘familiar with the common-law rule’ of proximate cause,” and “[a]ccordingly, the lack of proximate cause in this case means that the appellants cannot state a claim under the Cartwright Act.” Id. at 23-24.