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Judge Dismisses Amex Class Action

Cardholders' travel insurance gripes don't hold up, judge finds

By Jon Hood
ConsumerAffairs.com

March 31, 2009

American Express • AmEx Blue • Platinum Card • Centurion Bank • Corporate Card • Gift Cards • Travelers Cheques --- • Account reviews • Collection policies • Declined charges • Disputed charges • Fraud • "Free card" offers • Incorrect charges • Merchant complaints • Payment posting • Rewards programs • Theft of identity • Unauthorized charges --- News • American Express Axes Gift Card Fee • Judge Dismisses Amex Class Action • American Express Safe from Class Actions? Court Says No

American Express has scored a big victory, turning aside a class action lawsuit by aggrieved cardholders who said they were scalped on travel insurance.

A California judge dismissed the case, ruling that the plaintiffs had failed to prove their case. The suit alleged that Amex cardholders who used their cards to buy airline tickets were overcharged for insurance, and that advertising about the program was misleading.

According to the suit, Amex tacked insurance costs onto any airline-related purchase in excess of $45, including things like baggage handling fees and seat upgrades. The plaintiffs argued that insurance should have been added only to ticket purchases. The plaintiffs also alleged that Amex failed to refund insurance to customers with airline tickets that were later cancelled, or to those who didn’t quality for the insurance under its terms.

Amex countered that the contract explicitly disclosed the fees and the manner in which they were added to the bill.

According to Amex attorney David Shapiro, consumers could seek a refund of the fees by filling out a company-provided form or placing a phone call. In support of his claim, he cited data showing that about $140 million had been issued in refunds over the past 13 years.

After 11 weeks of testimony from the plaintiffs, California Superior Court judge George Hernandez ruled that the plaintiffs had not sustained their burden, and dismissed the case.

His decision was the second blow to the class; in February, he ruled that the contract outlining the insurance charges was unambiguous, thereby eliminating the plaintiffs’ claim for breach of contract. The judge noted that some class representatives had contacted Amex for refunds or credits, “thus demonstrating their understanding that this term was a condition precedent to obtaining a refund.” Last week’s ruling came at the end of the trial’s second phase, and turned aside the class’s claims that the program’s marketing campaign was deceptive.

The lawsuit was filed in 2001 on behalf of Amex cardholders who paid for the travel insurance between 1995 and 2008; the class consisted of about six million consumers. A related suit in the Eastern District of New York was stayed pending Judge Hernandez’s ruling. The fate of that action remains unclear, although the court’s decision likely doesn’t give the consumer attorneys much reason to be optimistic.

Welcome respite

Judge Hernandez’s ruling was surely a welcome respite for Amex, which has suffered a few adverse decisions in recent months.

In January, the Second Circuit ruled that the company couldn’t necessarily enforce class action waivers against small merchants, if the vendors could prove that individual litigation would cost more than their potential recovery. Then a New Jersey court held that some class action waivers were unconscionable – and thus unenforceable – under New Jersey law.

The current case was unusual for two reasons. First, it was dismissed before Amex even presented its side of the story; the entire trial consisted of testimony from the plaintiffs. More significantly, very few class actions even go to trial in the first place; most settle out of court or are dismissed on summary judgment.

Indeed, a recent study found that less than one percent of class actions brought in California make it to trial. This suit was argued during a bench trial, or one decided solely by the judge; class actions can also be heard by juries, if the parties so choose.

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