Antitrust Litigation & Investigations

Second Circuit Affirms $5.6B Settlement of Antitrust Claims in Merchants’ Credit Card Fee Case

Appellate panel says district judge acted within her discretion to approve half-billion-dollar fee award.


Photo by Blake Wisz on Unsplash

The Second Circuit affirmed a district court’s approval of a $5.6 billion settlement in a Sherman Act antitrust case brought on behalf of 12 million merchants against Visa U.S.A. Inc., MasterCard International Inc., and a phalanx of financial institutions. The merchants maintained that the card companies and banks adopted payment card rules that allowed Visa and MasterCard to charge supracompetitive interchange fees on each transaction. In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 2nd Cir., No. 20-339-CV(L).

Certain defendants claimed that Judge Margo Kitsy Brodie of the Eastern District of New York erred in certifying the class, then further erred by approving a settlement that included $900,000 in service awards to lead plaintiffs and attorneys’ fees of $520 million – 2.45 times the plaintiffs’ firms’ lodestar. The settling class members accepted Visa or Mastercard-branded cards in the U.S. between Jan. 1, 2004 and Jan. 24, 2019.

When It Comes to Gasoline, Whose Transaction Is It?

One issue addressed by the court was the class definition as it applied to oil companies on one hand and branded service station owners on the other. In a concurring opinion, Judge Dennis Jacobs observed, “The dispute is not over which group of class members will get the recovery; the dispute is over which claimants are within the class. Whoever ‘accepted’ the payment cards is by definition in the class, gets compensation, and is bound by the release; an entity that did not accept the payment is by definition excluded from the class and is not bound by the settlement.” Judge Jacobs wrote that whether subclasses or the appointment of additional counsel will be needed for disputes between the service stations and oil companies will be for the district court to resolve.

The appellants made the mistake of characterizing this as a “dispute between class members rather than a dispute over class membership.” The judge also wrote that such an appointment after certification is “nothing unusual,” noting that any of the special master’s decisions will be subject to de novo review by the district court and on appeal.

Circuit Judge Pierre N. Leval also addressed the apparent controversy between oil companies and the service stations in a separate concurring opinion. “The participants appear to assume that only one of the two can have standing to win any part of the settlement funds attributable to a card payment,” he wrote. Neither Illinois Brick nor logic support a contention that there can be only one antitrust plaintiff. While there typically is only one purchaser in the eyes of antitrust law, “it does not follow that, in the unusual circumstance in which two entities share a direct purchase, the two may not share the recovery that would have gone to one of them if that one had been the sole purchaser.”

The judge was careful not to say, however, that the oil companies and service stations should split any settlement, writing that the circumstances may be different from case to case. But, he said, it “would be a mistake” to assume that Illinois Brick would deny a split recovery. Instead, he wrote: “The parties, the special master, and the district court should carefully study the precedents to explore whether the Illinois Brick rule, which unquestionably denies standing to an indirect purchaser from the violator, similarly denies standing to one of two entities when the two have joined in making a direct purchase from the violator, notwithstanding the absence of any persuasive reason for choosing one over the other as the authorized plaintiff.”

Five-Year Release

The settlement releases all claims that “accrue no later than five years after” the settlement becomes final, when all appeals are over. Newer merchants argued that they were getting shortchanged and were inadequately represented because the class reps accepted credit card payments for the full 15 years of the litigation. The newer merchants say they are being treated unfairly because they must give up relief for the same length of time as older businesses. Judge Jacobs wrote that the proper scope and alignment with federal law of the future release “can await a case in which the issue would directly affect the proceedings.”

Attorneys’ Fees: Public Policy Interests

Despite the large attorneys’ fee award, the district court did not abuse its discretion. The district judge relied on a percentage of the fund to calculate the fees, then reduced the percentage by .25% given the damages claimed by the plaintiffs were so much higher. District Judge Brodie cross-checked the percentage sum against the lodestar method, which yielded a multiplier of 2.45 times the attorneys’ hourly rate. In the end, the results were comparable. Further, Judge Jacobs said Judge Brodie conducted the requisite review of factors including time and expense, magnitude and complexity, litigation risk, the ratio of the fee to the settlement, and promotion of public policy.

The appellants challenged the district court’s lodestar multiplier, which included time spent on injunctive relief, without which the multiplier would have exceeded 2.45x, straying into “unreasonable” territory. However, Judge Jacobs wrote, the district court acted within its discretion, noting that the number of hours in question were small. Judge Jacobs said District Judge Brodie appropriately used comparable lodestar figures to determine the reasonableness of the fee award. “The district court reasonably concluded that the significant litigation risk present in this case meant that class counsel had taken on a venture with a high risk of failure, and that the risk should be compensated,” Judge Jacobs wrote.

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