Antitrust Law Daily Court approves new $6.26B settlement with Visa and Mastercard in swipe fee class action
Tuesday, January 29, 2019

Court approves new $6.26B settlement with Visa and Mastercard in swipe fee class action

By Robert B. Barnett Jr, J.D.

A New York federal district court has given preliminary approval to (1) a $6.26 million settlement of an antitrust suit filed by 12 million merchants against Visa and Mastercard for overcharging card fees and (2) class certification of the money damages class for settlement purposes, both of which are required by Federal Rule of Civil Procedure 23(e) before the settlement can be finalized.

A New York federal district court has granted preliminary approval to a $6.26 billion settlement of a case filed by more than 12 million merchants who alleged that Visa, Mastercard, and various banks violated antitrust laws in overcharging them for credit card transactional fees, and it has also preliminarily granted class certification for the purposes of settlement. The new settlement addresses issues that caused the Second Circuit to reverse approval of the prior settlement agreement, largely on the ground that both plaintiff classes—the money damages class involved in this settlement and a separate injunctive relief class not involved in this settlement—could not be represented by the same attorneys where conflicts existed between the two classes (In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, January 28, 2019, Brodie, M.).

This settlement approval process marks one of the first applications of the new amendments to Federal Rule of Civil Procedure 23(e), which took effect on December 1, 2018. Prior to the amendments, Rule 23(e) provided no standards for district courts to follow when deciding whether to grant preliminary approval in class actions. As a result, district courts in the Second Circuit applied the Second Circuit’s rule that class actions should be approved if they fell within the range of possible final approval. After the amendments, however, all district courts are required to determine whether giving notice is justified by the parties’ showing that the court will likely be able to (1) approve the proposal under Rule 23(e)(2) and (2) certify the class for purposes of judgment on the proposal.

Rule 23(e)(2) sets forth the factors to be considered for preliminary approval, which include whether (1) the class representatives and class counsel adequately represent the class, (2) the proposal was negotiated at arm’s length, (3) the relief provided for the class was adequate, and (4) the proposal treats class members equitably relative to each other. This change, the court said, produced a more exacting standard on class action approvals than before, at least in the Second Circuit.

Painstakingly examining each factor, the court concluded that the proposed settlement agreement had satisfied each of Rule 23(e)’s various requirements. As a result, it (1) granted preliminary approval to the superseding settlement agreement, (2) granted class certification for the purposes of settlement, (3) appointed class counsel and the class administrator, and (4) approved the proposed Notice Plan, Class Notices, and Plan of Administration and Distribution.

The parties’ original $7.25 billion agreement, which many major retailers opposed, was vacated by the U.S. Court of Appeals in New York City, finding that the class plaintiffs were inadequately represented in violation of FRCP 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. After the court appointed separate counsel for the injunctive relief class, the money damages class reached a new settlement agreement with Visa, Mastercard, and the banks. They then sought preliminary approval of the settlement from the court.

In their original lawsuit, the merchants alleged that Visa and MasterCard adopted and enforced rules relating to payment cards that had the combined effect of unreasonably restraining trade and injuring merchants. They included: (1) rules regarding the settling of default interchange fees, (2) "anti-steering" rules, including "no surcharge," "no discounting" or "non-discrimination," and "no minimum purchase" rules that restricted merchants from steering customers to lower-cost credit cards and/or forms of payment other than Visa or MasterCard cards, (3) "exclusionary" rules, including "all outlets," "no bypass," and "no multi-issuer" rules, restricting merchants in accepting and processing payments made with Visa and MasterCard cards, and (4) "Honor-all-Cards" rules, requiring merchants to accept all the network’s credit cards or all the network’s debit cards when proffered for payment, regardless of which bank issued the card.

With preliminary approval having been granted, the remaining step is final approval, which the parties will seek after class members are notified of the settlement and are provided an opportunity to be heard.

This case is No. 1:05-md-01720-MKB-JO.

Attorneys: William Jay Blechman (Kenny Nachwalter, PA) for QVC, Inc., Payless ShoeSource, Payless Shoe Source, Inc., GMRI, Inc. and Capital Audio Electronics, Inc. Perry Lange (Wilmer Cutler Pickering Hale and Dorr LLP) for HSBC Bank USA, NA. Abby Faith Rudzin (O'Melveny & Myers LLP) for Capital One Bank and Capital One Financial Corp.

Companies: QVC, Inc.; Payless ShoeSource, Payless Shoe Source, Inc.; GMRI, Inc.; Capital Audio Electronics, Inc.; HSBC Bank USA, NA; Capital One Bank; Capital One Financial Corp

MainStory: TopStory Antitrust NewYorkNews

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