In re Payment Card Interchange Fee & Merchant Discount Antitrust Litigation
2016 U.S. App. LEXIS 12047
| 2d Cir. | 2016Background
- Merchants (≈12 million) sued Visa and MasterCard alleging anticompetitive network rules (honor-all-cards, default interchange, anti‑steering) in violation of Section 1 of the Sherman Act.
- After extensive discovery and mediation, parties reached a settlement: (1) a (b)(3) class (past merchants) could opt out and receive up to $7.25 billion in monetary relief; (2) a mandatory (b)(2) class (current and future merchants) received injunctive relief (notably a right to surcharge) but could not opt out.
- Injunctive relief expired July 20, 2021; the settlement release, however, was perpetual and barred claims arising from network rules not altered by the settlement.
- Many (b)(2) merchants (e.g., in states banning surcharging or accepting American Express) would get little or no benefit from the principal injunctive relief, yet were bound by the broad, indefinite release.
- Class counsel represented both classes and received large fees tied to the (b)(3) monetary recovery; no separate counsel represented the (b)(2) class.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adequacy of representation under Rule 23(a)(4) and Due Process for settlement‑only classes | Single representation was adequate; settlement benefits all classes | Unitary settlement appropriate given overlap and negotiated compromises | Court: Representation inadequate — conflict between (b)(3) cash claimants and (b)(2) injunctive‑only claimants required separate structural protections (vacated cert.) |
| Conflict of interest from counsel’s incentives/fees | Counsel negotiated best aggregate deal for all class members | Fees tied to monetary class are permissible; mediation and court oversight ensured fairness | Court: Counsel’s large contingent fees tied to (b)(3) created incentive to favor monetary class; mediation/court involvement insufficient to cure conflict |
| Fairness of the release (scope/duration) | Release needed for comprehensive peace and to secure defendants’ concessions | Release limited to claims arising from rules in place as of settlement and protects defendants’ willingness to pay | Court: Release was overbroad and prejudiced (b)(2) members (especially future merchants and those who cannot surcharge), demonstrating inadequate representation |
| Certifying a mandatory (b)(2) class for injunctive relief that binds future claimants without opt‑out | Mandatory class proper under Rule 23(b)(2) for injunctive relief | Certifying a (b)(2) settlement class that extinguishes monetary claims of future merchants is acceptable here | Court: Impermissible — due process requires stronger protections (opt‑out or separate counsel) when monetary rights of absent future claimants are extinguished |
Key Cases Cited
- Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997) (settlement‑only class combining present and future claimants may require subclasses and separate representation)
- Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999) (classes divided between present and future claimants require homogenous subclasses with separate counsel)
- Literary Works in Elec. Databases Copyright Litig., 654 F.3d 242 (2d Cir. 2011) (absence of independent representation for a disadvantaged subgroup shows inadequate representation)
- Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) (due process requires at minimum an opt‑out opportunity to bind absent plaintiffs on monetary claims)
- Wal‑Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011) (limits on certifying (b)(2) classes where monetary claims of individuals may be precluded)
- Stephenson v. Dow Chem. Co., 273 F.3d 249 (2d Cir. 2001) (future claimants inadequately represented where settlement extinguished claims without recovery)
- Charron v. Wiener, 731 F.3d 241 (2d Cir. 2013) (heightened scrutiny for settlement‑only class certification)