UPDATE: Appeals Court Rules Against American Express In Arbitration Dispute

A federal appeals court says American Express Co. (AXP) can't force merchants to arbitrate claims over the credit-card company's fees, reiterating its earlier decision in the long-standing matter.

The New York-based U.S. Court of Appeals for the Second Circuit said in its opinion Wednesday that binding retailers to policies that waive their ability to bring class-action suits against the company prevents them from "enforcing their statutory rights."

The decision stems from lawsuits brought by merchants since 2003 against American Express in U.S. District Court over the fees the lender charges to accept its charge and credit cards.

American Express plans to appeal the decision, said a spokesman for the New York-based company, who declined further comment on the matter.

The U.S. District Court for the Southern District of New York ruled in 2006 the lender could require merchants to address their complaints through arbitration, as specified in policies in the contracts retailers agree to when they sign up to accept American Express cards.

The U.S. Court of Appeals later overturned the ruling, but American Express petitioned the U.S. Supreme Court to review the matter. The Supreme Court vacated the appeals court's decision, sending it back to the appeals court for reconsideration.

The appeals court again in March ruled to reverse the district court's decision but held off on sending it back to the district court pending the outcome of a separate Supreme Court case involving arbitration clauses. In that case, AT&T Mobility LLC v. Concepcion, the Supreme Court upheld AT&T Inc.'s (T) ability to enforce mandatory arbitration clauses in its customer contracts.

That decision was seen as ammunition for companies to hold their customers to arbitration clauses rather than filing lawsuits to address grievances. But the appeals court said Wednesday that case doesn't address the key issue in the American Express matter, which is whether it can enforce its clause if merchants can show doing so would "preclude their ability to vindicate their federal statutory rights."

The merchants showed that the costs of "individually arbitrating their dispute with Amex would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws," the appeals court said.

In another case earlier this month, the Supreme Court blocked a class-action lawsuit that credit cardholders filed against CompuCredit Holdings Corp. (CCRT), saying the case must go through arbitration per CompuCredit's customer contract.

The initial suits that retailers filed against American Express take aim at the company's "merchant discount rate," or the amount they pay each time a cardholder swipes a card. They argue American Express unfairly binds them to accepting both its charge cards, which borrowers typically must pay in full each month, and its revolving credit cards. Because of that, merchants pay significantly higher fees on American Express credit cards than what they pay to accept credit cards from Visa Inc. (V), MasterCard Inc. (MA) and Discover Financial Services (DFS).

Merchant fees have been a contentious issue in the credit-card industry for years. Retailers argue the fees drive up the costs their customers pay for goods.

Visa and MasterCard also face a slew of merchant lawsuits over their own fees, which are set to go to trial in September. Unlike American Express and Discover, Visa and MasterCard don't lend to consumers; instead, they process transactions for the banks that issue their credit and debit cards.

Analysts have speculated that Visa and MasterCard will settle the suits, which also name several large banks, to the tune of $10 billion to $15 billion.

Last year new federal rules that cap how much banks can charge merchants to accept debit cards took effect. The rules didn't limit fees for credit cards.

American Express shares closed up 1% at $50.62 Wednesday and were up slightly in after-hours trading.

-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214; andrew.r.johnson@dowjones.com

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