Visa, MasterCard Class-Action Settlement With Retailers Rejected by U.S. Court -- 3rd Update
June 30 2016 - 2:54PM
Dow Jones News
By Robin Sidel and Austen Hufford
A U.S. appeals court threw out a record-setting $7.25 billion
antitrust settlement between credit-card firms Visa Inc. and
MasterCard Inc. and millions of retailers after determining that
some of the merchants who were part of the pact weren't adequately
represented.
The ruling from the U.S. Court of Appeals, which was largely
unexpected, upends more than a decade of litigation between the
credit-card industry and merchants that range from Wal-Mart Stores
Inc. to The Iron Barley Restaurant in St. Louis. The settlement had
already been muddied as many big retailers, including Home Depot
Inc. and Macy's Inc., had dropped out of it.
The wide-ranging settlement, first struck in 2012 and completed
by a court in 2013, sought to resolve many long-running disputes
between merchants and the card industry. Among other things, the
pact permitted merchants to charge more to customers who pay with
credit cards.
But, in its decision Thursday, the three-judge appeals panel
challenged the structure of the accord, calling it "unreasonable
and inadequate." In particular, it criticized a portion of the
settlement that applies to future merchants that may not be in
business yet, but would be still be bound by the agreement. "The
benefits of litigation peace do not outweigh class members' due
process right to adequate representation," the ruling said.
MasterCard said it was disappointed by the ruling and is
reviewing the decision to determine its next steps. "We believe we
presented a clear case to the court that the settlement was fair
and appropriate based on more than four years of negotiation and
the close involvement of the District Court," the company said in a
statement.
A spokeswoman for Visa declined to comment.
The settlement divided merchants into two classes: those that
accepted credit cards up to that point and those that would accept
them after the settlement. The legal deal allowed members of the
first group to opt out, as many have, but the second group would be
required to abide by the terms.
Merchants who had been unhappy with the settlement praised the
court's ruling. "Everything was wrong with this settlement and the
court saw that," said Jeffrey Shinder, a lawyer at Constantine
Cannon LLP, who represents merchants that have opted out of the
pact, including Wal-Mart Stores Inc., Gap Inc. and Amazon.com
Inc.
Shares of Visa fell $1.95, or $2.55%, to $74.79 in midday
trading Thursday. Shares of MasterCard were down $2.35, or $2.53%,
to $89.80.
Jason Kupferberg, an analyst at Jefferies LLC, said the case
would likely go back to the lower court that oversaw the original
settlement. He also warned that any future settlement could have a
larger price tag. "If history is any guide, the new litigation
could take years," he said in a note to clients.
The case dates back to 2005, when merchants began filing
lawsuits against Visa and MasterCard, accusing the firms of
conspiring with card-issuing banks to set fees on credit-card
transactions. Merchants pay the "interchange fees" that are set by
Visa and MasterCard to card-issuing banks for each credit-card
transaction.
The merchants had challenged a series of card-industry rules as
being anticompetitive, including a so-called "honor all cards"
requirement. This meant merchants had to accept all Visa and
MasterCard credit cards regardless of the different fees associated
with them. Other rules prohibited merchants from charging different
prices for different types of payment.
The merchants claimed that the rules allowed card-issuing banks
to impose fees that the merchants essentially were forced to
accept. "The settlement orchestrated by the card networks and banks
would have undermined merchants' legal rights," said Deborah White,
general counsel for the Retail Industry Leaders Association, which
opposed the settlement.
A number of large card-issuing banks were also defendants in the
case, including J.P. Morgan Chase & Co. and Bank of America
Corp.
Among other things, the appeals court noted that the settlement
called for $544.8 million in lawyer fees. The initial case included
more than 400 depositions and more than 80 million pages of
documents, the court said.
In a bizarre twist, the settlement came under a different type
of attack last summer when it was discovered that two opposing
lawyers in the case, who were also close friends, shared
confidential information. Merchants sought to unravel the pact
because of those communications, but that effort wasn't part of the
appellate court's decision.
Write to Robin Sidel at robin.sidel@wsj.com and Austen Hufford
at austen.hufford@wsj.com
(END) Dow Jones Newswires
June 30, 2016 14:39 ET (18:39 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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