In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation
Docket Nos. 20-339(L), 20-340(CON), 20-341(CON), 20-342(CON), 20-343(CON), 20-344(CON)
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
March 15, 2023
August Term, 2021 (Argued: March 16, 2022 Decided: March 15, 2023)
Plaintiff - Appellant,
Plaintiffs in civil action Photos Etc. Corp. v. Visa U.S.A., Inc. 05-cv-5071JG-JO, CHS Inc., Leons Transmission Service, Inc., Traditions, Ltd., Plaintiffs in civil action Parkway Corp. v. Visa U.S.A., Inc. 05-cv-5077 JG-JO, Plaintiffs in civil action Discount Optics, Inc., et al. v. Visa U.S.A., Inc., et al. 05-cv-5870 JG-JO, Payless Shoe Source, Inc., Capital Audio Electronics, Inc.,
Plaintiffs - Appellees,
Plaintiffs in civil action Jetro Holding, Inc. et al v. Visa U.S.A., Inc. et al 05-cv 4520 JG-JO, Plaintiffs in civil action National Association of Convenience Stores et al v. Visa U.S.A., Inc. et al 05-cv-4521 JG-JO, Plaintiffs in civil action Supervalu Inc. v. Visa U.S.A. Inc. et al 05-cv-4650 JG-JO, Plaintiffs in civil action Seaway Gas & Petroleum, Inc. v. Visa U.S.A., Inc. et al 05-cv-4728-JG-JO, Plaintiffs in civil action Raley‘s v. Visa U.S.A. Inc. et al 05-cv- 4799 JG-JO, Plaintiffs in civil action East Goshen Pharmacy, Inc. v. Visa U.S.A., Inc. 05-cv-5073 JG-JO, Plaintiffs in
Plaintiffs,
HSBC Bank USA, N.A., Capital One Bank, Capital One, F.S.B., Capital One Financial Corporation, Wells Fargo & Company, Juniper Financial Corporation, National City Bank of Kentucky, National City Corporation, Mastercard Incorporated, HSBC Finance Corporation, HSBC North America Holdings Inc., Citibank, N.A., Citigroup Inc., Chase Bank USA, N.A., JPMorgan Chase & Co., Fifth Third Bancorp, Bank of America, N.A., First National Bank of Omaha, Barclays Financial Corp., Chase Paymentech Solutions, LLC, Visa International Service Association, Visa U.S.A. Inc., Bank of America Corporation, Texas Independent Bancshares, Inc., Wells Fargo Merchant Services, LLC, Visa Inc., Capital One Bank, (USA), N.A., JP Morgan Chase Bank, N.A., Barclays Bank PLC, Barclays Bank Delaware, MBNA America Bank, N.A., HSBC Finance Corporation, HSBC Holdings PLC, HSBC North America Holdings, Inc, PNC Financial Services Group, Inc., SunTrust Bank, Suntrust Banks Inc, Wells Fargo Bank, N.A., Wachovia Corporation, Wachovia Bank, National Association, BA Merchant Services LLC, FKA National Processing, Inc., FIA Card Services, N.A., Mastercard International Incorporated,
Defendants - Appellees,
Defendants in civil action Jetro Holding, Inc. et al v. Visa U.S.A., Inc. et al 05-cv 4520 JG-JO, Defendants in civil action National Association of Convenience Stores et al v. Visa U.S.A., Inc. et al 05-cv-4521 JG-JO, Defendants in civil action Supervalu Inc. v. Visa U.S.A. Inc. et al 05-cv-4650 JG-JO, Defendants in civil action Publix Supermarkets, Inc. v. Visa U.S.A. Inc. et al 05-cv-4677-JG-JO, Defendants in civil action Seaway Gas & Petroleum, Inc. v. Visa U.S.A., Inc. et al 05--cv-4728 JG-JO, Defendants in civil action Raley‘s v. Visa U.S.A. Inc. et al 05- cv-4799- JG-JO, Defendants in civil action East Goshen Pharmacy, Inc. v. Visa U.S.A., Inc 05-cv-5073-JG-JO, Defendants iin civil action National Grocers Association et al v. Visa U.S.A., Inc. et al 05-cv- 5207 JG -JO, Defendants in civil action American Booksellers Association v. Visa U.S.A., Inc. et al 05-cv-5319 JG - JO, Defendants in civil action Rookies, Inc. v. Visa U.S.A., Inc. 05-cv-5069-JG-JO, Defendants in civil action Jasperson v. Visa U.S.A., Inc. 05-cv-5070-JG-JO, Defendants in civil action Animal Land, Inc. v. Visa U.S.A., Inc. 05-cv-5074-JG-
Defendants,
v.
Jack Rabbit LLC, Cahaba Heights Service Center, Inc., DBA Cahaba Heights Chevron, R & M Objectors, Falls Auto Gallery, DBA Falls Car Collection, Gnarlywood LLC, Quincy Woodrights, LLC, Kevan McLaughlin, Unlimited Vacations and Cruises Inc., Pets USA LLC, Slidell Oil Company, LLC, National Association of Shell Marketers, Inc., Petroleum Marketers Association of America, Midwest Petroleum Company, Society of Independent Gasoline
Objectors - Appellants.
Before: JACOBS, LEVAL, and PARK, Circuit Judges.
A putative class of over 12 million merchants brought this antitrust action under the
We conclude that these arguments are without merit and therefore AFFIRM the district court‘s orders in all respects, except as noted below.
The opinion of the Court is unanimous. Judge Jacobs and Judge Leval each concur in separate opinions.
NATHANIEL A. TARNOR, Hagens Berman Sobol Shapiro LLP, New York, NY (Steve W. Berman, Hagens Berman Sobol Shapiro LLP, Seattle, WA, on the brief), for Objectors-Appellants Fikes Wholesale, Inc., еt al.
N. ALBERT BACHARACH, JR. (Paul S. Rothstein, on the brief), Gainesville, FL, for Objectors-Appellants Jack Rabbit, LLC, et al.
KENDRICK JAN, San Diego, CA, for Objectors-Appellants Gnarlywood LLC, et al.
JOHN J. PENTZ, Sudbury, MA, for Objectors-Appellants Pets USA LLC, et al.
PATRICK J. COUGHLIN, (Joseph D. Daley, Alexandra S. Bernay, and Carmen A. Medici, on the brief) Robbins Geller Rudman & Dowd LLP, San Diego, CA; K. Craig Wildfang, Thomas J. Undlin, Ryan W. Marth, Robins Kaplan LLP, Minneapolis, MN; H. Laddie Montague, Jr., Merrill G. Davidoff, Michael J. Kane, Berger Montague PC, Philadelphia, PA, for Plaintiffs-Appellees.
KANNON K. SHANMUGAM (Kenneth A. Gallo, Jessica Anne Morton, Stacie M. Fahsel, on the brief) Paul, Weiss, Rifkind, Wharton & Garrison LLP, Washington, DC; Gary R. Carney, Elyssa E. Abuhoff, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for Defendants-Appellees.
DENNIS JACOBS, Circuit Judge:
A putative class of over 12 million merchants brought this antitrust action under the
The appellants are various objectors who argue that the district court erred when it certified the class, approved the settlement, granted servicе awards and computed attorneys’ fees.1
We conclude that these arguments are without merit and therefore AFFIRM the district court‘s orders in all respects, except as noted below.
I
It is well known that Visa and MasterCard operate two of the world‘s largest payment-card networks. An understanding of this case requires some knowledge of how those networks operate. In brief: the customer presents a payment card to the merchant; the merchant relays the card information to its bank (the acquiring bank); the acquiring bank forwards that information to the appropriate network (Visa or MasterCard); the network relays the information to the bank that issued the customer‘s card (the issuing bank); and the issuing bank confirms that the customer has sufficient credit or funds to cover the purchase. . When these steps are completed, the issuing bank transmits its approval back through the chain to the acquiring bank, which relays it to the merchant at the point of sale.
Next, the issuing bank provides the funds via the appropriate network to the acquiring bank, less the “interchange fee” (the focus of this litigation) which the issuing bank – a member of the Visa or MasterCard network - keeps. While the issuing and acquiring banks are contractually free to agree on an applicable interchange fee, Visa and MasterCard each set a default fee in the absence of such
Merchants who accept Visa- and MasterCard-branded cards are bound by the issuers’ network rules, which in effect are identical to one another. For example, the “honor-all-cards” rules require any merchant that accepts a Visa- or MasterCard-branded credit card to accept all credit cards of that brand, regardless of the differences in interchange fees. Further, multiple rules prohibit merchants from influencing customers to use one type of payment over another--such as a credit card with a lower interchange fee, or cash rather than credit. These “anti-steering” rules include the “no-surcharge” and “no-discount” rules, which prohibit merchants from charging different prices at the point of sale depending on the means of payment.
Numerous antitrust lawsuits were filed against Visa and MasterCard beginning in 2005. The first consolidated complaint in this action (which was followed by several amended complaints) was filed the following year. The then-operative complaints alleged that the Visa and MasterCard interchange fees, and associated rules, were anticompetitive and violated the
Prolonged negotiation resulted in a “2012 Settlement Agreement.” Consistent with the then-operative complaint, the proposed settlement divided the plaintiffs into two classes. The first--the Rule 23(b)(3) damages class--covered merchants that accepted Visa and/or MasterCard from January 1, 2004 to November 27, 2012. The second--the Rule 23(b)(2) injunction class--covered merchants that accepted (or would accept) Visa and/or MasterCаrd on or after November 27, 2012. The 23(b)(3) class was set to receive roughly $5.3 billion, after opt-out payments. The 23(b)(2) class would receive injunctive relief in the form of changes to Visa‘s and MasterCard‘s network rules. While members of
The settlement agreement was given preliminary approval in late 2012. Final approval by the district court came roughly a year later.
III
On June 30, 2016, we held that the members of the (b)(2) injunction class received inadequate representation, in violation of the Due Process Clause and
IV
On remand, the district court appointed the three law firms that had previously served as class counsel (together, “Class Counsel“) to serve as interim counsel only for the Rule 23(b)(3) damages class.2 About two years later, after additional disсovery and renegotiation, the parties executed this new settlement agreement (the “Settlement Agreement“), which provides for a collective award of $5.6 billion (as reduced in the amount of $700 million to reflect opt-outs). The district court granted preliminary approval on January 24, 2019, and final approval on December 13, 2019.
In exchange for this cash, each class member released claims “arising out of or relating to” any conduct or acts that were or could have been alleged in the litigation. Id. at 3337 ¶ 31(a). That release covers all claims that have accrued during the class period, or that will “accrue no later than five years after the Settlement Final Date,” id., which is defined as the date on which appeals from the Settlement Agreement become final, id. at 3321-22 ¶ 3(ss).
Because of the dispute described below between integrated oil companies and their franchised service stations operating under the trademark of the franchisor, contesting which should receive the settlement funds allocated to customers using payment cards to purchase primarily gasoline, the district court determined to appoint a special master to study and determine the question, subject to de novo review by the district court.
Separately, the district court granted the class representatives $900,000 in service awards, in addition to out-of-pocket expenses. The district court recognized that “[t]here is no indication that any Class Representative assumed the position or undertook the time and labor they did in anticipatiоn of being compensated,” but still granted the award because of the “enormous amount of time and resources” they spent on the case. App‘x at 7456-57.
Appellants argue that the district court abused its discretion when it certified the class, approved the settlement, granted service awards and computed attorneys’ fees.
I
The settlement-only class is defined to include (with limited exceptions) “all persons, businesses, and other entities that have accepted any Visa-Branded Cards and/or Mastercard-Branded Cards in the United States at any time from January 1, 2004 to [January 24, 2019].” App‘x at 3324 ¶ 4. A controversy over the class definition exists between integrated oil companies (e.g., Shell, Chevron, and Valero) and their branded service stations--i.e., between franchisors and their franchisees--both of which claim to have been injured by the interchange fees imposed on gas sales and claim to “have accepted” Visa-Branded and MasterCard-Branded cards in payment for sales. Appellants are representatives of the service stations, and raise challenges regarding: (A) ascertainability, (B) adequacy of representation, (C) claims administration, and (D) notice.
A
The ascertainability challenge hinges on the interpretation of a single word: “accepted.” The word “accepted” creates ambiguity. Both the franchisors and the franchisees claim to have “accepted” the payment card from the
Ascertainability requires only that “a proposed class is defined using objective criteria that establish a membership with definite boundaries.” In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig.
True, the word “accepted” lends itself to ambiguity. But the district court properly concluded that “the class definition is . . . objectively guided by federal antitrust standards.”4 Final Approval, No. 05-md-1720, 2019 WL 6875472, at *31; see also In re Motorola Sec. Litig., 644 F.3d 511, 517 (7th Cir. 2011) (“[A]s a general rule, a class definition is interpreted according to the substantive law that provides the basis for the class action.“). In view of those standards, the district court accepted Class Counsel‘s claim that “they represent only . . . the direct
Appellants argue that it is not enough for the definition to be discernible: the criteria for class membership must be “administratively feasible,” such that identifying the class members “would not require a mini-hearing on the merits of each case.” Brecher v. Republic of Arg., 806 F.3d 22, 24-25 (2d Cir. 2015) (internal quotation marks omitted). Appellants contend that the administrative feasibility requirement is not satisfied in this case, since the dispute over which entity was the direct payor for any given transaction will lead to “hundreds of thousands of mini trials.” Jack Rabbit Br. at 64.
B
Appellants next contend that the class definition gave rise to an intra-class conflict that left the franchisees without adequate representation. We are unpersuaded.
“Class actions are an exception to the rule that only the named parties conduct and are bound by litigation.” In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 827 F.3d 223, 231 (2d Cir. 2016). “In order to justify a departure from that rule, a class representative must be part of the class and possess the same interest and suffer the same injury as the class members.” Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 348-49 (2011) (internal quotation marks omitted). That principle is secured in part by
Appellants argue that the franchisees have been inadequately represented because no class representative has a shared interest in the franchisees’ dispute with their franchisors. Such shared interests are necessary to protect the franchisees, Appellants contend, since the loser of the intra-class conflict will be entitled to no recovery, but will still be bound by the settlement‘s release.
Appellants are confused. 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. See Rothstein v. Am. Int‘l Grp., Inc., 837 F.3d 195, 204 (2d Cir. 2016) (noting that non-class members “cannot be bound by any orders or judgments entered in respect to the settlement” (internal quotation marks omitted)). The class representatives owe nothing to the losing entities; outsiders are irrelevant.
The district court emphasized that point: “[B]ecause the conflict is not between class members, but between entities disputing who has the right to
We agree with the district court that the arguments advanced by the franchisees present no reason why the settlement affecting all claimants other than the franchisors and franchisees of integrated oil companies should not be consummated.
Until now, there has been no conflict between franchisors and franchisees. To the contrary, thеy have shared an interest in maximizing the recovery for all class members, which each claims to be. Going forward, however, franchisors and franchisees will become adverse to each other for resolution of the questions regarding which should be deemed to have accepted the cards and therefore to come within the class and receive settlement funds, and how those funds should
Whether this will require designations of subclasses and appointment of further counsel to represent them or whether their existing privately retained counsel will adequately serve the needs, we leave to the good judgment of the district court.
C
Appellants next challenge the district court‘s plan to refer the dispute over class membership to a special master, subject to its de novo review. Appellants raise three arguments on this score.
First: they contend this dispute should have been resolved before class certification because “no class may be certified that contains members lacking Article III standing,” and “[t]he class must therefore be defined in such a way
Second: they contend that the claims process is fundamentally unfair because it will necessarily result in one group receiving nothing and yet releasing all its claims. As discussed above, however, that is just not so. Excluded entities would not be bound by the settlement.
Third: they contend that the contemplated special master process is too vague, complicated, and adversarial to be appropriate under
As to the complicated and adversarial nature of the impending special master proceedings, special masters have been frequently tasked with deciding antitrust standing issues at the summary judgment stage. These are tough and hotly disputed issues. But district courts with loaded dockets may rely on special masters to decide thorny things. With respect to the restrictions imposed by
D
The final objection is raised on behalf of franchisees who had been designated “Dismissed Plaintiffs,” a term defined in the Settlement Agreement to include entities that opted out via a separate agreement. The problem first raised at the preliminary settlement hearing was that some or all of the franchisors that settled separately had included their franchisees in the release. The franchisees contested their dismissed status on the grounds that the franchisors lacked authority to release their claims and that, in any event, some of them dealt with
At the final approval stage, exclusion was again contested. In response to the claim that separate settlements were entered without the consent of the franchisees, the district court instructed Class Counsel to send supplemental notice informing all entities that had received a “notice of exclusion” that that they could “make a claim for class settlement funds if [the settling entity] did not have authority to settle and release [their] claims.” App‘x at 7220. Appellants contend that this supplemental notice violated the Due Process Clause because it was sent only after final approval of the Settlement Agreement, thereby preventing the franchisees from opting out of or objecting to the settlement. We disagree.
“The standard for the adequacy of a settlement notice in a class action under either the Due Process Clause or the Federal Rules is measured by
There was nothing unreasonable about the supplemental notice. The district court ordered these notices out of caution, after an objection raised at the final approval stage. There was no need then to provide an opt-out because all entities receiving the notice were already presumed to be excluded from the class.8 Nor was the notice needed to provide these entities with the opportunity to object; after all, it was the objection of a “Dismissed Plaintiff” that caused the supplemental notices to be sent in the first place.
II
In exchange for the $5.6 billion, the settlement releases all claims that “accrue no later than five years after” the date on which appeals from the settlement become final. App‘x at 3337 ¶ 31(a); see also id. at 3321-22 ¶ 3(ss). This feature of the release is said to violate two related rules.
Rule 23(a)(4). Newer merchants, who started accepting payment cards only toward the end of the class period, are said to be inadequately represented in violation of
Rule 23(e)(2)(D). Relatedly, it is contended that the future release results in inequitable treatment among the class members in violation of
We have no occasion to decide these questions. That is because the release of claims provision contains a de-facto severability clause, providing that the release “extend[s] to, but only to, the fullest extent permitted by federal law.” App‘x at 3337 at ¶ 31(a). This language ensures that the Settlement Agreement will stand even if certain aspects of the release were to fall. A holding as to the proper scope of the release--i.e., whether the futurе release violates federal law--can await a case in which the issue would directly affect the proceedings.
III
The district court granted $900,000 in service awards to the lead plaintiffs. Appellants contend that such awards are prohibited by Supreme Court precedent and that, even if they were generally permissible, the amount awarded in this case was excessive. We will address these two arguments in turn.
A
Service awards are likely impermissible under Supreme Court precedent. The Supreme Court has held that it was “decidedly objectionable” for cash allowances to be “made for the personal services and private expenses” of a creditor who brought suit on behalf of himself and other similarly situated bondholders. Trustees v. Greenough, 105 U.S. 527, 537 (1881). Such allowances, the Court reasoned, “would present too great a temptation to parties to intermeddle in the management of valuable property or funds in which they have only the interest of creditors, and that perhaps only to a small amount.” Id. at 538.
Appellants argue that Greenough precludes the granting of service awards in this case, and in virtually all other cases9--as the Eleventh Circuit held in Johnson v. NPAS Solutions, LLC, 975 F.3d 1244 (11th Cir. 2020). True, Greenough‘s holding was not about persons designated as class representatives under the later-formulated class action rules; but it “involved an analogous litigation actor.” Id. at 1259. Finally, appellants argue that although
But practice and usage seem to have superseded Greenough (if that is possible). See Melito v. Experian Mktg. Sols., Inc., 923 F.3d 85, 96 (2d Cir. 2019); Hyland v. Navient Co., 48 F.4th 110, 123-24 (2d Cir. 2022). And even if (as we think) practice and usage cannot undo a Supreme Court holding, Melito and Navient are precedents that we must follow.
B
Appellants contend that the service awards here are excessive, even if service awards are otherwise deemed permissible, and must be reduced. We have articulated no standard by which district courts can consider the grant of service awards. District courts within this Circuit have generally relied upon the following factors:
[1] the existence of special circumstances including the personal risk (if any) incurred by the plaintiff-applicant in becoming and continuing as a litigant, [2] the time and effort expended by that plaintiff in assisting in the prosecution of the litigation or in bringing to bear added value (e.g., factual expertise), [3] any other burdens
sustained by that plaintiff . . . and, of course, [4] the ultimate recovery.
Dial Corp. v. News Corp., 317 F.R.D. 426, 439 (S.D.N.Y. 2016) (ellipsis in original) (quoting Roberts v. Texaco, 979 F. Supp. 185, 200 (S.D.N.Y. 1997)). District courts also “often look to the sums awarded in similar cases, and compare the named plaintiff‘s requested award to each class member‘s estimated pro rata share of the monetary judgment or settlement.” In re AOL Time Warner ERISA Litig., No. 02-cv-8853, 2007 WL 3145111, at *2 (S.D.N.Y. Oct. 26, 2007) (citations omitted). Given the Supreme Court‘s precedent in apparent opposition to the practice, and the standardless use of it nevertheless, it is unsurprising that, as has been said, “the decision to grant the [service] award, and the amount thereof, rests solely within the discretion of the Court.” Dial, 317 F.R.D. at 439.
Here, the district court bestowed a total of $900,000 in service awards to the eight lead plaintiffs, with the two highest awards in the amount of $200,000. The district court justified these awards as follows:
- “Courts have approved similarly-sized service awards, even in cases with smaller settlement fund sizes and for cases that proceeded for a shorter duration of time.”
“Class Representatives spent an enormous amount of time and resources in serving as named representatives in this complex litigation that has spanned well over a decade.” - “There is no indication that any Class Representative assumed the position or undertook the time and labor they did in anticipation of being compensated.”
- “Class Counsel does not seek service awards in excess of the service awards requested and previously granted pursuant to the now-vacated 2012 Settlement Agreement, despite significant additional efforts and time spent by the Class Plaintiffs in the six years since that time, including time spent as a result of another round of discovery.”
App‘x at 7455-56 (citations omitted). Appellants challenge the amount of these awards on four grounds.
First: Appellants argue that the lead plaintiffs cannot adequately represent the class because the service awards dwarf the recovery for the lead plaintiffs and the average class member. As Appellants point out, certain lead plaintiffs will receive service awards that are about 100 times as large as their expected settlement recovery. Thus, Photos Etc., with an estimated claim of about $2,000, gets a service award of $200,000--more than 400 times the average recovery, which is less than $500. We recognize that certain district courts have relied on
Second: The district court credited each lead plaintiff for the full time it spent on the litigation. Appellants contend that, to avoid rewarding inefficiency, the district court should have limited its consideration to the average number of hours expended by the lead plaintiffs with the largest claims--CHS and Payless. This idea is more creative than it is compelling, or workable. We cannot say that the district court‘s approach was an abuse of discretion.
Third: Payless reported that participation in this case cost it $70,000 in salary and wages; and CHS reported $39,000. Appellants contend that service awards should have been directly tied to those losses, and that the district court‘s failure to do so amounted to an abuse of discretion. Service awards have been limited to lost wages and out-of-pocket expenses in the context of private federal
Fourth: Appellants contend that much of the work that the lead plaintiffs performed was geared toward obtaining legislative reform for the injunction class, and that those efforts should have been excluded in arriving at a service award for the damages class. Given that the basis for any service award in a class action is at best dubious under Greenough, and that, unsurprisingly, calculation of such an award is standardless, it is difficult to find traction for a ruling that this award is an abuse of discretion. In any event, among the variety of factors considered, the district court made no more than passing reference to time that lead plaintiffs spent on legislative activities. But the point here is valid. The class should not pay for time spent lobbying for changes in law that do not benefit the class. We direct the district court to reduce the award to the extent its size was increased because of time spent lobbying.
IV
The award of attorneys’ fees exceeds half a billion dollars. The district court acknowledged that the “sheer size” of this award resulted in “apparent unfairness,” but found that “public policy interests weigh in favor of a substantial award.” In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., No. 05-md-1720, 2019 WL 6888488, at *21 (E.D.N.Y. Dec. 16, 2019) (“Fee Opinion“). True, the amount is brеathtaking; but the only question for us is whether the district court abused its discretion in awarding such fees. We cannot say that it did.
A
It is well-established under the common fund doctrine that “attorneys who create a fund for the benefit of a class of plaintiffs are entitled to reasonable compensation from that fund.” Victor v. Argent Classic Convertible Arbitrage Fund L.P., 623 F.3d 82, 84 (2d Cir. 2010). This reasonableness principle has deep roots in Supreme Court jurisprudence, stemming from the decisions in Greenough and Central Railroad & Banking Co. v. Pettus, 113 U.S. 116 (1885). While this Circuit‘s approach to calculating fees has “evolved in a somewhat
Regardless of which method is chosen, the analysis is effectively the same. In calculating a reasonable common fund fee, district courts are to be guided by the following factors: “(1) the time and labor expended by counsel; (2) the magnitude and complexities of the litigation; (3) the risk of the litigation . . . ; (4) the quality of representation; (5) the requested fee in relation to the settlement; and (6) public policy considerations.” Id. (alteration in original) (citation omitted). What is more, district courts that use the percentage method routinely keep the lodestar in sight, heeding Goldberger’s advice to “requir[e] documentation of hours as a cross check on the reasonableness of the requested percentage.” Id. (internal quotation marks omitted).
The district court here followed the trend in this Circuit by applying the percentage method. See Fee Opinion, No. 05-md-1720, 2019 WL 6888488, at *9, *24. Class Counsel had requested 9.56% of the settlement fund, which amounted
The district court then conducted a lodestar cross-check, dividing the percentage fee requested ($537 million) by the lodestar ($215 million).12 It concluded that the resulting multiplier of 2.5 fell “well within a range of multipliers that have been deemed acceptable, especially in complex actions.” Id. at *22 (citing Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 123 (2d Cir. 2005) (finding a multiplier of 3.5 to be reasonable in a megafund antitrust action)).
The district court then decided to reduce the requested percentage by .25% to account for the relatively small settlement figure, as a percentage of the amount of damages reasonably claimed. See id. at *24. This resulted in an award of 9.31% of the common fund, or roughly $523 million. See id. The final lodestar multiplier was 2.45. See id.
B
Appellants first challenge the roughly 630,000 hours that Class Counsel is found to have expended on the case. Specifically, Appellants contend that the district court abused its discretion by failing to either: (1) exclude from its analysis all pre-remand time--about 500,000 hours--because of Class Counsel’s conflicting representation of the damages and injunction class; or (2) limit pre-remand time to exclude time that benefitted the injunction class only. Appellants argue that the district court’s failure to adjust the pre-remand time in either of these ways allowed inflated hours to distort its Goldberger review (specifically,
1
Appellants’ first argument seeks a сategorical exclusion. That is, Appellants claim that Class Counsel should not have received credit for any pre-remand work, since attorneys cannot be compensated for their simultaneous representation of competing parties.13 We are unpersuaded.
Appellants’ argument hinges on Silbiger v. Prudence Bonds Corp., 180 F.2d 917 (2d Cir. 1950) (L. Hand, J.), in which the district court awarded attorney’s fees from a bankruptcy reorganization in which the attorney represented two classes of bondholders with directly opposing interests, such that one class would be “certain to lose by the success of the [other].” Id. at 920. Judge Hand noted that the “usual consequence” of this sort of conflicting
It is unclear whether that rule applies in the class action context. See In re Austrian & German Bank Holocaust Litig., 317 F.3d 91, 104 n.17 (2d Cir. 2003) (“We do not believe that the strict approach taken in Silbiger, which was not a class action, requiring forfeiture of at least one-third of the attorney’s fee, is applicable in the context of the pending litigation.” (citation omitted)).14 In any event, Silbiger noted an “exception” to the general rule: “it is reasonable not to impose an entire forfeiture of the allowance,” when the award “comes in no part out of any group that [could] have been prejudiced by the attorney’s divided allegiance.” 180 F.2d at 921. This language provides the “salient distinguishing feature relied upon in Silbiger.” New York, N.H. & H.R. Co. v. Iannotti, 567 F.2d 166, 176 (2d Cir. 1977).
2
Alternatively, Appellants contend that if Class Counsel is compensated for time spent prior to remand, there should be exclusion of hours spent pursuing injunctive-related relief--e.g., time pursuing extra-judicial legislative changes, and supporting third-party investigations and litigations. This exclusion, we are told, is not intended to be a penalty for conflicted representation; instead, it seeks to ensure that the damages class does not pay more than its fair share. This
Appellants rely on Hensley v. Eckerhart, 461 U.S. 424 (1983), which considered whether prevailing counsel can be compensated for time spent on unsuccessful claims under a fee-shifting statute providing that “the court, in its discretion, may allow the prevailing party . . . a reasonable attorney’s fee.” Id. at 426 (quoting
But the Supreme Court went on to consider cases in which “the plaintiff’s claims for relief will involve a common core of facts or will be based on related legal theories.” Id. In those cases, the Court reasoned, “[m]uch of counsel’s time will be devoted generally to the litigation as a whole, making it difficult to divide
Hensley’s reasoning is instructive here. In considering the time and labor expended on litigation (the first Goldberger factor), it makes little sense to credit counsel for work performed on behalf of a class that it no longer represents. So if the work done on behalf of the injunction class could all be teased apart from the work done for the damages class, the district court should have done so. But that was not an option. The injunctive and monetary claims were interwoven, such that “the majority of Class Counsel’s work leading up to the 201[2] Settlement Agreement would have been aimed generally at proving antitrust violation, regardless of the particular remedy sought or class represented.” Fee Opinion, 2019 WL 6888488, at *11.
Under the circumstances, “[t]here was simply no need for the district court to engage in an artificial distribution of attorney time between [monetary] and [injunctive] claims.” Dague v. City of Burlington, 935 F.2d 1343, 1359 (2d Cir. 1991) (internal quotation marks omitted), rev‘d in part, 505 U.S. 557 (1992).
Finally, Appellants raise three challenges to the lodestar multiplier, which was pegged at 2.45.
First: Appellants contend that Class Counsel artificially inflated the lodestar by failing to weed out the time spent working for injunctive-related relief. Had this time been excluded, and the lodestar lowered, the multiplier would have exceeded 2.45 and might have fallen out of a range deemed reasonable. As explained above, however, the district court acted within its discretion when it declined to exclude hours spent solely on behalf of the injunction class, which was in any event small in number relative to the 630,000 total hours.
Second: Appellants challenged the district court’s comparison of the lodestar multiрlier in this case to multipliers found reasonable in other similar actions. See Fee Opinion, 2019 WL 6888488, at *22. But in Wal-Mart, we endorsed the use of lodestar comparators, see 396 F.3d at 123, which would seem necessary to avoid picking numbers arbitrarily.16
Third: The district court justified the lodestar multiplier by reference to the “significant litigation risk.” Fee Opinion, 2019 WL 6888488, at *22. According to Appellants, that was an abuse of discretion because the risks identified--e.g., the challenge of proving antitrust standing--are not of the sort that we deemed applicable in Fresno County Employees’ Retirement Association v. Isaacson/Weaver Family Trust, 925 F.3d 63 (2d Cir. 2019). That case, Appellants posit, relied exclusively on the risk generated from counsel’s devotion of resources to a specific case while forgoing other paying work.
Appellants’ reading of Fresno County is too narrow. The true risk we identified in Fresno County was the risk that a case taken on contingency will fail:
The plaintiff class is . . . appropriately charged for contingency risk where such risk is appreciable because the class has benefited from class counsel’s decision to devote resources to the class’s cause at the expense of taking other cases. That is, because class counsel has decided to represent the plaintiff class, class counsel’s ability to freely represent other clients is limited by the risk she has assumed that the class’s cause will be unsuccessful.
925 F.3d at 70 (emphasis added). 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.
Finally: Appellants argue that the straight lodestar--i.e., the figure without any multiplier--is the presumptively reasonable fee in cases (such as this one) initiated under fee-shifting statutes.17 But we rejected that same argument in Fresno County, explaining that “an attorney seeking a fee after establishing a common fund will receive a fee calculated using either the lodestar method or a percentage-of-the-fund method, which can yield a fee that is less than, equal to,
CONCLUSION
For the foregoing reasons, we AFFIRM in all respects the district court’s orders, to the extent they constituted a final judgment, with the exception that we direct the district court to reduce the service award to class representatives to the extent that its size was increased by time spent in lobbying efforts that would not increase the recovery of damages. We make no ruling as to how damages should be allocated as between branded oil companies and their branded service station franchisees, the reasonableness of the special master’s ultimate findings, or the legality of releasing an as-of-yet hypothetical future claim; such issues must wait for a developed factual record and a final judgment, and, as to the breadth of the releases, the assertion by the defendants in a future
DENNIS JACOBS, Circuit Judge, concurring:
Visa and MasterCard agreed to pay more than $5.6 billion to a class of roughly 12 million merchants for alleged antitrust violations built into contractual arrangements governing credit and debit cards. In return, the plaintiffs agreed to releasе any claims that were or could have been brought during the class period of fifteen years, as well as any related claims that accrued for an indeterminate number of years after the class period closed.
As the Opinion of the Court demonstrates, approval of the settlement in this case did not constitute an abuse of discretion under controlling principles. Nevertheless, several results produced by application of those principles in this case are so remarkable as to prompt disquiet.
I
1. Lawyers for the plaintiffs billed 630,000 hours. That is over 300 lawyer years. One of plaintiffs’ lawyers billed over 14,000 hours; three others billed between 10,800 and 12,000 hours; and no fewer than 38 lawyers lavished over 2,000 hours on this case. They are to be richly rewarded: compensation to Plaintiffs’ counsel will be half a billion dollars. The average hourly take-home
2. The substantive issue in the case is whether a handful of standard-form contracts between the card issuers and the merchants (and their banks) violated the antitrust law. It would not seem that the question would entail heroic labors. Even so, that issue — the merits -- was preempted by settlement and was never decided.
3. As in many antitrust suits, there was here a preliminary question as to whether certain plaintiffs are the persons who can sue to vindicate the claim that is alleged. That was not settled either. As to that, Judge Leval’s concurrence raises a pointed question.
4. Under this settlement, the card companiеs may continue the allegedly anticompetitive conduct, while members of the class agree to forbear from suing about it for five years. After five years, a new litigation over the same unresolved issues can be started; and why would it not be? A jaundiced observer might view the case as a delivery system for attorneys’ fees.
5. If, as is likely, there is to be injunctive relief, it will be the subject of
6. The average award, if every class member claims every dollar, will be $325. But no one knows how much of the $5 billion settlement amount will be claimed and actually paid out. Whatever is left over, the trial judge will be authorized to donate for unspecified good causes, defined as the “next best compensation use, e.g., for the aggregate, indirect, prospective benefit of the class.” Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 436 (2d Cir. 2007) (quoting 2 HERBERT B. NEWBERG & ALBA CONTE, NEWBERG ON CLASS ACTIONS § 10:17 (4th ed.2002)). The judge may become one of that year’s most munificent philanthropists. A lesser payment to the class itself will not, however, impair the lawyers’ fees.
II
The half billion in legal fees is roughly ten percent of the class recovery, and thus appears plausible, prudent and restrained. But the principles for
The trend in this Circuit is to award fees based on the percentage-of-the-fund method, which nearly always results in an award that exceeds the lodestar method: i.e., the number of hours times the billing rate. Here, the percеntage award exceeded the lodestar by more than $300 million. It is thought that the percentage method “directly aligns the interests of the class and its counsel and provides a powerful incentive for the efficient prosecution and early resolution of litigation.” Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 121 (2d Cir. 2005) (citation omitted). As this case demonstrates, however, the benefit can be illusory.
The problem is that fee awards are usually computed at the end of a case, which prevents counsel from knowing which method of compensation will be used. This uncertainty can be an incentive for class counsel to maximize the time expended, as a hedge against the possibility that the lodestar method will be used. And the incentive to maximize the recovery for the class is diminished
The lodestar cross-check is supposed to correct the incentive, but does not. If the percentage award exceeds the lodestar figure by too high a multiple, district courts will reduce the award to shrink the gap. See, e.g., In re Visa Check/Mastermoney Antitrust Litig., 297 F. Supp. 2d 503, 522 (E.D.N.Y. 2003) (reducing multiplier to 3.5 after finding the requested multiple of 10 to be “absurd”). The cross-check is thus an incentive for counsel to prolong litigation and maximize billable hours to arrive at a lodestar that does not operate as a cap on a percentage award. It is only fair to add that I am not in a position to know whether these or any abuses occurred in this case.
III
The named plaintiffs in this case are deemed private attorneys general. Yet they are getting a total of $900,000 as a kind of tip. That is $900,000 more than permitted under Supreme Court authority. See Trustees v. Greenough, 105 U.S. 527 (1882). The Eleventh Circuit held as much in Johnson v. NPAS Solutions, LLC, 975 F.3d 1244 (11th Cir. 2020), and I am in accord with the views set forth in that thorough and well-reasoned opinion.
Melito can be best understood as an attempt to avoid a split with the Eleventh Circuit, which had held – in an opinion later vacated – that Greenough did not categorically prohibit service awards. See Muransky v. Godiva Chocolatier, Inc., 922 F.3d 1175, 1196 (11th Cir. 2019), reh‘g en banc granted, opinion vacated, 939 F.3d 1278 (11th Cir. 2019), and on reh‘g en banc, 979 F.3d 917 (11th Cir. 2020). But because the Eleventh Circuit changed course in Johnson, we now find ourselves on the wrong side of a circuit split.
Some fear that to do away with service awards would “do away with the incentive for people to bring class actions.” Johnson, 975 F.3d at 1264 (Martin, J., concurring in part and dissenting in part). But the district court in this case
IV
For all the attorneys’ fees, one would hope that this case vindicated the public interest in antitrust enforcement. But it is just the opposite. Subject only to a possible future injunction, Defendants can continue their allegedly anticompetitive behavior, with Plaintiffs releasing all claims that will “accrue no later than five years” after all appeals from the settlement become final. App’x 3321, 3367-68.
For the class representatives, the release of claims accruing after the class period may well be a sacrifice worth making; all of them were in business fоr the full fifteen-year class period. But the same cannot be said for the newer merchants--i.e., those that started accepting Visa and/or MasterCard toward the end of that period. These newer merchants stood to gain only marginally from
It is arguable that the future release: (A) resulted in newer merchants receiving inadequate representation from the class representatives; (B) caused class members to be treated inequitably relative to each other; and therefore (C) should be stricken from the settlement agreement.
Ordinarily, we would reject a settlement which involved inadequate representation or inequitable treatment. That is what we did on the last appeal. But no such action need be considered this time around because the settlement agreement contains a safety valve: the release of claims extends “to, but only to, the fullest extent permitted by federal law.” App’x 3336-37.
A holding as to the legality of the future release will therefore await the day that a class member brings suit based on claims that accrued after the close of the class period. (I suspect there will be a line of counsel willing to assist.) When such a case is brought, Visa and MasterCard will undoubtedly raise the future release as an affirmative defense. And the district court will have to make a ruling.
I concur in Judge Jacobs’s majority opinion and write separately to address an important question, which appears to have been overlooked in the litigation. In considering the dispute between the oil companies and their branded service stations over settlement funds paid by the defendants on account of customer payments by payment card for gas purchased at the service stations, the parties, and perhaps also the district court, appear to be making an unquestioned assumption that, under the rule of Illinois Brick, only one of the oil company or its branded service station may be deemed to have accepted a card payment. 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, so that a division between them of those settlement funds would violate the Illinois Brick rule. See In re Payment Card Interchange Fee & Merchant Discount Antitrust Litig., No. 05-md-1720, 2019 WL 6875472, at *30–31 (E.D.N.Y. Dec. 16, 2019). In my opinion, this assumption is ill founded.
Illinois Brick holds only that an indirect purchaser from the antitrust violator, i.e., one whose purchase was downstream from the direct purchaser, may not recover for an antitrust injury. Illinois Brick Co. v. Illinois, 431 U.S. 720, 727–29 (1977). In Hanover Shoe, the Supreme Court had held that the direct purchaser from the antitrust violator, who buys at a price inflated by the antitrust violation, is deemed to suffer the full brunt of the antitrust injury, even if the direct purchaser raised his price to the next purchaser down the line (an “indirect” purchaser) so as to pass on the brunt of the injury. See Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 488–89 (1968). Hanover Shoe thus established that the antitrust violator cannot avoid liability to the direct purchaser by showing that the direct purchaser, by raising its price to the next purchaser in line, had avoided any loss. See id. In Illinois Brick, the Court espoused a corollary rule to the effect that, in the same scenario of a chain of purchases, it is only the direct purchaser from the antitrust violator (the one that is deemed to have borne the full brunt of the harm), аnd not indirect purchasers further down the line, who may sue the violator. Illinois Brick, 431 U.S. at 735–36. Accordingly, when illegal overcharges are passed down the “chain” of successive purchases, id. at 729, (absent specified exceptions)1 only the first purchaser may sue. Simply put,
Nowhere, however, does Illinois Brick state the wider proposition that there can be only one antitrust plaintiff. Nor does its logic support that conclusion. While Illinois Brick’s prohibition of recovery by an indirect purchaser who purchased from the direct purchaser commonly results in there being only one purchaser who is qualified to sue for the injury inflicted in that sale, 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.
Consider a circumstance in which farmers, A and B, jointly purchase an expensive crop-processing machine (too expensive for either of them to afford on their own), sharing the cost of the purchase and agreeing to divide equally between them the use of the machine and share equally the costs of its maintenance. If the seller of the machine violated the antitrust laws, inflicting an antitrust injury on its direct purchasers, then A and B, having purchased the machine jointly, have equal claim to being a direct purchaser. Neither one is
Furthermore, to the extent that the Supreme Court was concerned, in fashioning the Illinois Brick rule, about multiplication of claims for treble damages, see Illinois Brick, 431 U.S. at 730–31 (“[A]llowing offensive but not defensive use of pass-on would create a serious risk of multiple liability for defendants. . . . [W]e are unwilling to open the door to duplicative recoveries . . . .” (internal quotation marks omitted)), allowing joint direct purchasers to sue for their shared injury would not undermine that concern. They would not be adding claims, but rather dividing between them the damages attributable to a single direct purchase.
Not knowing the facts that define each of the relationships between oil companies and their service stations with respect to gas sales at the pump (which have not yet been determined in the district court), I can express no view how the settlement payments on account of those sales should be distributed. I can only say that, in my view, it would be a mistake for the court or the parties to assume (as some appear to have done) that, under Illinois Brick, there can be no more than one direct purchaser per transaction. 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
Furthermore, should any oil company-service station pairs reach a settlement between them, agreeing to a formula for division between them of the settlement funds, I can see no reason why a court would not give effect to that settlement.