NEW YORK - (Mealey's) A federal judge in New York on Nov. 9 granted preliminary approval to the $7.25 billion class action settlement between merchants and Visa, MasterCard and a large number of banks that the proposed class alleges fixed the prices of interchange fees paid by merchants when customers use Visa and MasterCard credit cards, despite objections by 10 of the 19 named plaintiffs and other merchants and trade associations (In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation [All Cases], No. 05-MD-1720, E.D. N.Y.).
Also on Nov. 9, U.S. Judge John Gleeson of the Eastern District of New York denied objector Home Depot U.S.A. Inc.'s motion for certification for an interlocutory appeal.
In their Oct. 19 motion for preliminary approval of the settlement, the merchants asserted that the settlement would be "the largest private damage recovery in United States antitrust history" and would "continue a series of reforms that restructure the payment card industry, making it more competitive." The proposed class representatives that sought preliminary approval of the settlement include Photos Etc. Corp., Traditions Ltd., Capital Audio Electronics Inc., CHS Inc., Crystal Rock LLC, Discount Optics Inc., Leon's Transmission Service Inc., Parkway Corp. and Payless ShoeSource Inc.
Terms Of Settlement
The settlement provides for a $6.05 billion fund, an eight-month reduction in interchange fees worth $1.2 billion and modifications of the Visa and MasterCard rules. Visa Inc., Visa U.S.A Inc. and Visa International Service Association (collectively, Visa) will pay two-thirds of the cash settlement amount, approximately $4 billion, and MasterCard Inc. and MasterCard International Inc. (collectively, MasterCard) and the banks will pay approximately $2 billion. The banks are issuing banks - banks that issue MasterCard-branded payment cards to customers - and acquiring banks - banks that acquire payment transactions from merchants and act as a liaison between the merchant and the issuing banks.
Visa and MasterCard agreed to reduce interchange fees for eight months.
The settlement agreement also permits the merchants to impose a surcharge on credit card purchases, subject to a cap and a clear disclosure of the surcharging practices.
The bank defendants are Bank of America N.A., BA Merchant Services, Bank of America Corp. and MBNA America Bank N.A. (collectively, Bank of America); Barclays Bank plc, Barclays Bank Delaware and Barclays Financial Corp. (collectively, Barclays); Capital One Bank (USA) N.A., Capital One F.S.B. and Capital One Financial Corp. (collectively, Capital One); Chase Bank USA N.A., Chase Manhattan Bank USA N.A., Chase Paymentech Solutions LLC, JPMorgan Chase Bank N.A., JPMorgan Chase & Co., Bank One Corp., Bank One Delaware N.A. and Washington Mutual Bank (collectively, JP Morgan Chase & Co.); Citibank (South Dakota) N.A., Citibank N.A., Citigroup Inc. and Citicorp (collectively, Citibank); Fifth Third Bancorp; First National Bank of Omaha; HSBC Finance Corp. and HSBC North America Holdings Inc. (collectively, HSBC); National City Corp. and National City Bank of Kentucky (collectively, National City); SunTrust Banks Inc. and SunTrust Bank (collectively SunTrust); Texas Independent Bancshares Inc.; and Wachovia Bank N.A., Wachovia Corp., Wells Fargo Bank N.A. and Wells Fargo & Co. (collectively, Wachovia).
The Federal Rule of Civil Procedure 23(b)(2) and 23(b)(3) classes are defined as merchants "that have accepted Visa-Branded Cards and/or MasterCard-Branded Cards in the United States at any time from January 1, 2004 to the Settlement Preliminary Approval Date."
Individual plaintiffs are Ahold U.S.A. Inc., Albertson's Inc., BI-LO LLC, Bruno's Supermarkets Inc., Delhaize America Inc., Eckerd Corp., The Great Atlantic & Pacific Tea Co., H.E. Butt Grocery Co., Hy-Vee Inc., The Kroger Co., Maxi Drug Inc., Meijer Inc., Meijer Stores Limited Partnership, Pathmark Stores Inc., Publix Supermarkets Inc., QVC Inc., Raley's, Rite Aid Corp., Safeway Inc., Supervalu Inc., Wakefern Food Corp. and Walgreen Co.
Objecting Named Plaintiffs
On Nov. 2, 10 of the 19 named plaintiffs filed objections to the motion for preliminary approval. The opposition described itself as "represent[ing] trillions in retail sales and a substantial portion of the putative class." The opposition's "massive and diverse breadth is a powerful signal that something is obviously wrong with this settlement. Fundamentally, these merchants and their representatives object to the settlement because it will neither introduce transparency nor give merchants the ability to inject competition in a market that has not functioned competitively for decades. And the release, given its scope, will make the competitive problems in the marketplace worse for merchants, not better," the objecting named plaintiffs said.
The objecting named plaintiffs are Coborn's Inc., D'Agostino Supermarkets Inc., Jetro Holdings Inc. and Jetro Cash & Carry Enterprises LLC, Affiliated Foods Midwest Cooperative Inc., National Association of Convenience Stores, National Association of Truck Stop Operators, National Community Pharmacists Association, National Cooperative Grocers Association, National Grocers Association and the National Restaurant Association.
The objecting named plaintiffs argued that "due to restrictions in the settlement, the vast majority of the putative class - including all merchants that accept Visa and MasterCard transactions in any of the ten states that prohibit surcharging and merchants that accept American Express - cannot take advantage of the limited ability to surcharge Visa and MasterCard credit card transactions that the settlement purports to provide. Moreover, the no-surcharging rules will still apply to Visa and MasterCard debit transactions, and thus the majority of Visa and MasterCard transactions will not be subject to the 'relief.'"
In addition, the objecting named plaintiffs contend that the Federal Rule of Civil Procedure 23 "(b)(2) release . . . is a thinly disguised attempt by Visa and MasterCard and the bank defendants to improperly get immunity from merchant claims going forward, immediately and forever. By its express terms, the release purports to cover all of Visa's and MasterCard's rules, and related conduct, up to the date of preliminary approval, and 'substantially similar' future rules and future conduct going forward forever. The factual predicates of this case could not possibly have covered the thousands of pages in Visa's and MasterCard's massive rulebooks, and all conduct related to those rules. . . . Such a release is void against public policy and violates the identical factual predicate doctrine."
Moreover, "[t]he settlement improperly sacrifices the interests of generations of future merchants, particularly merchants that start accepting Visa and MasterCard after 2021," the objecting named plaintiffs said.
Objections also were filed by putative class members. In addition, ATM Industry Association and PayPal Inc. filed amicus curiae briefs opposing the settlement, contending that the class definitions and release covered parties not intended to be covered by the action.
Similarly, American Express Co., American Express Travel Related Services Co. Inc., Travel Impressions Ltd. and American Express Publishing Corp. (collectively, American Express) filed an opposition to the proposed settlement on Nov. 2, stating that the "release could be improperly invoked by Visa, MasterCard, and other MDL 1720 defendants to try to block legitimate actual and potential claims held by American Express that are not shared by the class representatives themselves-including American Express' unique claims as a competitor of Visa and MasterCard."
The litigation began in 2005, when putative class actions were brought by merchants against the defendants. The merchants asserted that because the board of directors of MasterCard and Visa set the interchange fees the issuing banks paid the acquiring banks and the banks controlled the board of directors, the banks dictated the amount charged as interchange fees.
Visa and MasterCard announced their initial public offerings (IPOs), wherein they redeemed and reclassified the stock held by their member banks and then transferred new shares to the banks.
The merchants then argued that the agreements leading up to the IPOs violated federal antitrust law and state fraudulent conveyance law. The merchants asserted that the purported transformations from joint ventures to "single entities" would insulate internal actions from antitrust laws.
The merchants alleged that the defendants adopted interchange rules and rates, other network rules and corporate reorganizations that constituted unlawful price fixing, unreasonable restraints of trade, monopolization, lessening of competition and fraudulent conveyances, in violation of the Sherman Act, the Clayton Act, California's Cartwright Act and the New York Uniform Fraudulent Conveyance Act.
The settlement was reached while both the class plaintiffs' and the defendants' motions for summary judgment were pending.
Co-lead counsel for the class plaintiffs are K. Craig Wildfang, Martin R. Lueck, Thomas J. Undlin and Ryan W. Marth of Robins, Kaplan, Miller & Ciresi in Minneapolis, H. Laddie Montague Jr., Merrill G. Davidoff, Bart D. Cohen and Michael J. Kane of Berger & Montague in Philadelphia and Patrick J. Coughlin, Bonny E. Sweeney, David W. Mitchell and Alexandra S. Bernay of Robbins Geller Rudman & Dowd in San Diego.
The objecting named plaintiffs are represented by Jeffrey I. Shinder, Kevin E. Coughlin, A. Owen Glist and Daniel J. Vitelli of Constantine Cannon in New York and W. Stephen Cannon and Todd Anderson of the firm's Washington, D.C., office.
Liaison counsel for individual plaintiffs is Richard Alan Arnold of Kenny Nachwalter P.A. in Miami.
Home Depot is represented by Stephen R. Neuwirth, Deborah K. Brown and Steig D. Olson of Quinn Emanuel Urquhart & Sullivan in New York. American Express is represented by Donald L. Flexner, Philip C. Korologos, Eric J. Brenner and John F. LaSalle of Boies, Schiller & Flexner in New York and David Boies of the firm's Armonk, N.Y., office. Amicus ATMIA is represented by Anthony J. Staltari of Manatt, Phelps & Phillips in New York and Benjamin G. Shatz of Manatt Phelps in Los Angeles. Amicus PayPal is represented by Francis M. Curran of McCormick & O'Brien in New York.
Visa is represented by Robert J. Vizas of Arnold & Porter in San Francisco, Robert C. Mason of the firm's New York office and Mark R. Merley and Matthew A. Eisenstein of the firm's Washington office.
MasterCard is represented by Keila D. Ravelo, Wesley R. Powell and Matthew Frimuth of Willkie Farr & Gallagher in New York and Kenneth A. Gallo of Paul, Weiss, Rifkind, Wharton & Garrison in Washington and Andrew C. Finch and Gary R. Carney of Paul Weiss in New York.
Bank of America is represented by Mark P. Ladner and Michael B. Miller of Morrison & Foerster in New York. Barclay's is represented by Wayne D. Collins and Lisl J. Dunlop of Shearman & Sterling in New York. Capital One is represented by Andrew J. Frackman of O'Melveny & Myers in New York. JP Morgan Chase is represented by Peter E. Greene and Peter S. Julian of Skadden, Arps, Slate, Meagher & Flom in New York and Michael Y. Scudder of Skadden Arps in Chicago. Citibank is represented by David F. Graham and Eric H. Grush of Sidley Austin in Chicago and Benjamin R. Nagin of Sidley Austin in New York.
Fifth Third Bancorp is represented by Richard L. Creighton, Joseph M. Callow Jr. and Drew M. Hicks of Keating Muething & Klekamp in Cincinnati. First National Bank of Omaha is represented by John P. Passarelli and James M. Sulentic of Kutak Rock in Omaha, Neb. HSBC is represented by David S. Lesser of Wilmer Cutler Pickering Hale and Dorr in New York and Ali M. Stoeppelwerth and Perry A. Lange of Wilmer Cutler in Washington. National City is represented by John M. Majoras and Joseph W. Clark of Jones Day in Washington. Texas Independent is represented by Jonathan B. Orleans and Adam S. Mocciolo of Pullman & Comley in Bridgeport, Conn. Sun Trust is represented by Teresa T. Bonder, Valarie C. Williams and Kara F. Kenedy of Alston & Bird in Atlanta. Wachovia is represented by Robert P. LoBue and Norman W. Kee of Patterson Belknap Webb & Tyler in New York.
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