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.; See October 2012).
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
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
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
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
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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