Court Approves Settlement of Credit-Card Antitrust Case

, New York Law Journal

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In a highly anticipated ruling issued on Friday, Eastern District Judge John Gleeson (See Profile) granted final approval to a $5.7 billion class action settlement that would resolve claims by merchants that Visa Inc. and MasterCard Inc. improperly fixed so-called interchange fees—the fees retailers are charged every time a customer pays with a credit card. Gleeson brushed aside unusually strident objections from class members like Wal-Mart Stores Inc. and Target Corp., writing that they engaged in "needless hyperbole" and "feigned hysteria."

The deal had initially called for a $6 billion cash payment by Visa and MasterCard, plus a temporary reduction in fees valued at $1.2 billion. Opt-outs by a number of merchants shrunk the cash pool to roughly $4.5 billion, which will be distributed to a nationwide class of about 12 million merchants. The credit card companies also agreed to injunctive relief. The deal is the largest antitrust class action settlement in U.S. history.

"I conclude that the proposed settlement secured both a significant damage award and meaningful injunctive relief for a class of merchants that would have a substantial likelihood of securing no relief at all if this case were to proceed," Gleeson wrote. "For the first time, merchants will be empowered to expose hidden bank fees to their customers, educate them about those fees, and use that information to influence their customers' choices of payment methods."

The ruling represents a hard-fought triumph for a trio of plaintiffs firm—Robins Kaplan Miller & Ciresi, Robbins Geller Rudman & Dowd, and Berger & Montague. As soon as they announced the settlement in July 2012, large retailers like Wal-Mart and Target opted out, arguing that it unfairly released Visa and MasterCard from future liability and would do little to affect interchange fees.

Those fees are the second biggest expense for many businesses and represent a major revenue stream for Visa and MasterCard. Ten of the 19 named plaintiffs eventually opted out, including the National Grocers Association and National Association of Convenience Stores. Constantine Cannon, which represented merchants in a similar 2003 settlement over debit card fees, has spearheaded the opposition.

In his ruling, Gleeson lamented the rhetoric used by some objectors at a September 2013 hearing on the fairness of the deal. "One of the merchant association principals who participated in the settlement discussions and initially agreed to its terms argued that the members of his association would be worse off if I approved the proposed settlement than they would be if they proceeded all the way through trial and lost. Another likened the prospect of approval to deprivation of civil liberties in the aftermath of a terrorist attack, warning that only a 'slippery slope' would separate an order binding a large retailer to the proposed settlement and the government stripping us of our houses and civil rights. A third cast Visa and MasterCard as modern-day Nazis, and warned me not to assume the role of Neville Chamberlain."

In an interview, R. Craig Wildfang of Robins Kaplan, who represented the class, said that he is "very gratified that Judge Gleeson agreed with us and found that the settlement met the standard for approval and the objections were ill-founded."

One consumer group that opposed the deal, the National Retail Federation, said in a statement that it expects to appeal. "The settlement permanently ties the hands of thousands of businesses who wanted nothing to do with this misguided case, and a decision to approve it violates established law and common sense," the group said.

The case is In re Payment Charge Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-9720.

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