Visa, MasterCard$5.7B Antitrust Class Deal Nixed

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By Perry Cooper

June 30 — Visa and MasterCard suffered a blow in a long-running antitrust dispute with merchants over swipe fees, as the Second Circuit rejected a $5.7 billion class settlement ( In re Payment Card Interchange Fee & Merchant Discount Antitrust Litig., 2016 BL 210542, 2d Cir., No. 12-4671, 6/30/16 ).

The deal would have provided up to $7.25 billion for merchants who accepted payment cards from 2004 to 2012.

But merchants who accepted them from 2012 on would have gained only injunctive relief.

And that injunctive relief, the appeals court said here, had little real value as it would have allowed merchants to impose surcharges that are prohibited under many state laws.

Also, while the injunction would have remained in effect until 2021, those merchants would have waived their right to pursue related claims against the card issuers forever.

The U.S. Court of Appeals for the Second Circuit, in an opinion by Judge Dennis Jacobs, found that the members of the injunction-only class were inadequately represented, making the settlement “unreasonable and inadequate.”

Judge Pierre N. Leval wrote a separate concurrence to stress a deeper problem with the settlement—that one class of plaintiffs accepted substantial payments from the defendants in return for compelling plaintiffs in another class to give up their claims.

“This is not a settlement; it is a confiscation,” he said.

Unknowable Scope

Jeffrey Isaac Shinder, lead counsel for the merchant-objectors including Walmart and Amazon, called the ruling a “total victory.”

The deal was bad for merchants, customers and competition, and violated basic principles of due process, Shinder of Constantine Cannon LLP in New York told Bloomberg BNA June 30.

“The future was traded for present cash,” he said. “And one lawyer represented a sprawling class that included the present claimants and an unknowable massive universe of future claimants.”

The release would have covered every merchant that accepts Visa or MasterCard in the future.

How many would that include? “Ten million? 100 million? A billion merchants over the next 100 or 200 years?” Shinder said. “They get nothing.”

Counsel for the plaintiffs and defendants didn't respond to e-mail requests for comment.

‘Conflict Is Clear.'

The Second Circuit relied on the U.S. Supreme Court's decision in Amchem Prods. Inc. v. Windsor, 521 U.S. 625 (1997).

That case involved workers exposed to asbestos who had already manifested asbestos-related injuries and those who had not. The court held that a single class representative couldn't adequately represent the interests of both groups.

Here too, “unitary representation of these plaintiffs was inadequate,” the Second Circuit said.

“The conflict is clear” between merchants pursuing monetary relief and those seeking injunctive relief, the court said.

“The former would want to maximize cash compensation for past harm, and the latter would want to maximize restraints on network rules to prevent harm in the future,” the court said. “Such divergent interests require separate counsel.”

Now Valued at $5.7B

A putative class of about 12 million merchants alleged the defendants unlawfully fixed interchange fees, restrained trade and engaged in other conduct in violation of the Sherman Act, the Clayton Act and state laws.

The settlement was approved in 2013 (14 CLASS 1521, 12/27/13). The classes were certified for settlement purposes only.

Once worth as much as $7.25 billion, the proposed settlement was valued at about $5.7 billion as of August 2013, when about 8,000 merchants dropped out of the damages portion of the suit.

Judge Ralph K. Winter joined the opinion.

The U.S. Supreme Court agreed June 28 to review two related class actions brought by individuals challenging the way Visa, MasterCard and their former bank owners set ATM fees (see related story).

Thomas C. Goldstein of Goldstein & Russell P.C. in Washington argued for the merchant-objectors.

Paul D. Clement of Bancroft PLLC in Washington argued for the plaintiffs.

Carter G. Phillips of Sidley Austin LLP in Washington argued for the credit card companies.

To contact the reporter on this story: Perry Cooper in Washington at pcooper@bna.com

To contact the editor responsible for this story: Steven Patrick at spatrick@bna.com

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