986 F. Supp. 2d 207
E.D.N.Y2013Background
- Merchants (putative class ~12 million) sued Visa, MasterCard, and issuing/acquiring banks alleging antitrust conspiracy fixing interchange fees and enforcing merchant restraints (no-surcharge, no-discount, honor‑all‑cards, etc.).
- Litigation was heavily litigated (discovery from 2005, 400+ depositions, 80M+ pages, expert reports) and overlapped with industry changes (Visa/MasterCard IPOs, Durbin Amendment, DOJ consent decrees).
- Parties negotiated a settlement: up to ~$7.25 billion cash (before opt-outs) plus injunctive rule changes (permit brand- and product-level surcharging, require good‑faith negotiations with merchant buying groups, preserve Durbin/DOJ reforms).
- Many merchants objected (including large retailers); objections addressed at a fairness hearing and by court-appointed economic expert Dr. Alan S. Sykes.
- Judge Gleeson applied Rule 23(e) and the Grinnell factors, finding the settlement procedurally and substantively fair and approving the settlement and allocation plan (fees decided separately).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing / Illinois Brick (indirect purchaser) | Merchants are directly injured because interchange is separately identifiable and effectively borne by merchants. | Acquiring banks are direct purchasers; merchants are indirect purchasers barred by Illinois Brick. | Court: Illinois Brick poses a significant risk to plaintiffs; uncertainty counsels in favor of settlement. |
| Legality of default‑interchange & honor‑all‑cards (Rule of Reason) | These network rules facilitate supracompetitive interchange and should be enjoined/eliminated. | Rules have procompetitive justifications (universal acceptance, reduced negotiation costs, card benefits); challenges likely face Rule‑of‑Reason scrutiny and may fail. | Court: Default‑interchange and honor‑all‑cards present hard Rule‑of‑Reason issues; DOJ declined to challenge them; settlement reasonably leaves them while targeting merchant restraints. |
| No‑surcharge / anti‑steering rules (injunctive relief) | Eliminating no‑surcharge/no‑discount rules and permitting surcharging/steering will inject competition and reduce interchange costs. | Relief is limited by state no‑surcharge laws, American Express rules, and level‑playing‑field provisions, making surcharging of limited utility. | Court: Rule changes (brand/product surcharging, buying‑group negotiations) are procompetitive, meaningful, and likely to spur competition despite practical limitations; approves injunctive relief. |
| Releases and class structure (b)(2) non‑opt‑out & release scope) | Releases and non‑opt‑out (b)(2) class are necessary to secure injunctive reforms; releases cover claims that could have been brought. | Releases are overbroad, bar future meritorious challenges, and (b)(2) should allow opt outs; due‑process concerns. | Court: Releases are appropriate for settled claims arising from same factual predicate; (b)(2) non‑opt‑out class proper for class‑wide injunctive relief; clarifying language added for state sovereign claims. |
Key Cases Cited
- Illinois Brick Co. v. Illinois, 431 U.S. 720 (U.S. 1977) (indirect‑purchaser rule bars recovery by non‑direct purchasers absent narrow exceptions)
- Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974) (factors for evaluating fairness of class settlements)
- Wal‑Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96 (2d Cir. 2005) (treatment of class releases and settlement approval principles)
- Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (U.S. 2007) (Rule of Reason framework for certain restraints)
- Kendall v. Visa U.S.A., Inc., 518 F.3d 1042 (9th Cir. 2008) (dismissal of interchange‑fee conspiracy allegations as insufficient)
- Nat’l Bancard Corp. v. VISA U.S.A., Inc., 779 F.2d 592 (11th Cir. 1986) (upholding default interchange as critical to payment‑card system)
- D'Amato v. Deutsche Bank, 236 F.3d 78 (2d Cir. 2001) (mediator involvement as evidence against collusion in settlement negotiations)