Antitrust Law Daily $7.25B Visa, MasterCard interchange fee price fixing settlement vacated
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Thursday, June 30, 2016

$7.25B Visa, MasterCard interchange fee price fixing settlement vacated

By Greg Hammond, J.D.

An order granting final approval of a $7.25 billion settlement, concerning claims that the two largest credit card issuing networks in the United States conspired to fix credit and debit card interchange fees paid by merchants, was vacated by the U.S. Court of Appeals in New York City. The class plaintiffs were inadequately represented in violation of Federal Rule of Procedure 23(a)(4) and the Due Process Clause because there was a clear conflict between the two classes—one seeking solely monetary relief and one seeking only injunctive relief—which required that the classes be represented by separate counsel (In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, June 30, 2016, Jacobs, D.).

The class action was brought on behalf of approximately 12 million merchants against Visa U.S.A. Inc. and MasterCard International Inc., alleging that the two credit card issuing networks and various issuing and acquiring banks conspired to fix interchange fees. The district court granted final approval of the settlement and—at the same time—certified two settlement classes: (1) an opt-out class that would receive $7.25 billion in monetary relief and (2) a non-opt-out class that would receive injunctive relief in the form of changes to Visa’s and MasterCard’s network rules. Numerous objectors and opt-out plaintiffs argued on appeal that the class action was improperly certified and that the settlement was unreasonable and inadequate.

The appellate court concluded that the class members of the non-opt-out class were inadequately represented in violation of both Rule 23(a)(4) and the Due Process Clause. The unitary representation of these plaintiffs was inadequate, according to the court, because the class representatives had interests antagonistic to those of some of the class members they were representing. In particular, the court noted that the opt-out class would want to maximize cash compensation for past harm, while the non-opt-out class would want to maximize restraints on network rules to prevent harm in the future. This represented a manifest tension on an "essential allocation decision," requiring that the two classes be represented by separate counsel, because the opt-out class would share in billions of dollars of damages, while the non-opt-out merchants would enjoy the benefit of some temporary changes to the defendants’ network rules.

Moreover, many members of the non-opt-out class had little to no interest in the efficacy of the injunctive relief because they no longer operated, or no longer accepted Visa or MasterCard, or had declining credit card sales, the court stated. Consequently, a significant proportion of merchants in the non-opt-out class were either legally or commercially unable to obtain incremental benefit from the primary relief negotiated for them by their counsel, according to the court, and class counsel knew at the time the settlement agreement was entered into that this relief was virtually worthless to vast numbers of class members.

"Class counsel stood to gain enormously if they got the deal done," the court stated, noting that the district court granted class counsel $544.8 million in fees. This created a fundamental conflict between the opt-out and non-opt-out classes and "sapped class counsel of the incentive to zealously represent the latter."

Because the plaintiffs were inadequately represented, the court concluded that the settlement and release are nullities.

The case is No. 12-4671-cv(L).

Attorneys: Eric F. Citron (Goldstein & Russell PC) and Adam Owen Glist (Constantine Cannon LLP) for Coborn’s Inc., D’Agostino Supermarkets, Inc., and National Restaurant Association. Mark E. Tully (Goodwin Procter LLP) and Kenneth A. Gallo (Paul, Weiss, Rifkind, Wharton & Garrison LLP) for Visa U.S.A. Inc. and MasterCard International Inc.

Companies: Visa U.S.A. Inc.; MasterCard International Inc.; Coborn’s Inc.; D’Agostino Supermarkets, Inc.; National Restaurant Association

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