Penguin’s Motion to Compel Arbitration is Put on Ice by Court in eBooks Case

A New York federal judge denied Penguin’s motion to compel arbitration for a subset of the putative class in In re: Electronic Books Antitrust Litigation.  The plaintiffs claim that Penguin, other publishers, and Apple Inc., fixed prices for electronic books or “eBooks.”  Penguin argued in their motion that the putative class members who purchased their eBooks through the vendors Amazon.com and Barnes & Noble agreed to arbitrate any disputes related to their purchases of eBooks.

Judge Denise Cote denied Penguin’s motion based in large part on the recent decision by the Second Circuit, In re American Express Merchants’ Litigation (“Amex III”), 667 F.3d 204 (2d Cir. 2012).  Judge Cote explained that the eBooks case “falls squarely within the ambit of” Amex III. The district judge noted that in “Amex III, the Second Circuit invalidated an arbitration agreement that contained a class action waiver on the grounds that the costs of pursing the action through an individual arbitration, when compared with the size of the damages at issue, rendered arbitration prohibitively expensive.”  In the eBooks case, plaintiffs expected at most a median recovery of $540 in treble damages and were faced with several hundred thousand dollars to millions of dollars in expert expenses.  Judge Cote criticized Penguin for not demonstrating “how plaintiffs could rationally account for th[e] risk of losing and still go forward with individual arbitrations that will net them, at most, an average of $540.”  The district court concluded that “it would be economically irrational for any plaintiff to pursue his or her claims through an individual arbitration.”  Abbey Spanier will continue to monitor the growing body of case law regarding the intersection of arbitration clauses and class actions.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.