WAL-MART STORES, INC., The Limited, Inc., Sears Roebuck and Co., Safeway Inc., Auto-Lab of Farmington Hills, Bernie's Army-Navy Store, Burlington Coat Factory Warehouse Corporation, Circuit City Stores, Inc., The Coffee Stop, Inc. d/b/a Torreo Coffee & Tea Company, Computer Supplies Unlimited, Denture Specialists, Inc., Payless Shoesource, Inc., Shoes Etc., Inc. d/b/a Arnold's Shoes, Scrub Shop, Inc., Sportstop, Inc., Geneva White, D.M.D., UCC Kwik Doc., Inc., f/k/a UCC Express, Inc., International Mass Retail Association, National Retail Federation, and Food Marketing Institute, Plaintiffs-Appellees,
Constantine & Partners PC, et al., Class Counsel-Appellees-Cross-Appellants,
Dow Jones and Company, Inc., Intervenor-Plaintiff-Appellee,
v.
VISA U.S.A. INC. and MASTERCARD INTERNATIONAL, INC., Defendants-Appellees,
Citigroup, Inc., Pulse EFT Association, and Edgar, Dunn and Company, Interested Parties,
v.
Reyn's Pasta Bella LLC, Jeffrey Ledon DeWeese, M.D., Barry Leonard d/b/a Critter Fritters, Hat-In-The-Ring, Inc. d/b/a Eddie Rickenbacker's, Objectors-Appellants,
Nucity Publications, Inc., Objector-Appellant,
Lupita Llamas Martinez d/b/a Del Yaqui Restaurant, Armenta's Mexican Food, Inc., Objectors-Appellants,
Leonardo's Pizza By The Slice, Inc., 710 Corp., Objectors-Appellants-Cross-Appellees,
Roman Buholzer d/b/a The Continental Garden Restaurant, Objector-Cross-Appellee,
Preston Center Personal Training, Inc., UCC Kwik Doc., Inc., f/k/a UCC Express, Inc., Duke Products, Inc., Southern Network Services, Inc., Sound Deals, Inc., Digital Solutions, Inc., Village Fabrics and Furnishings, Inc., Rental Solutions, Inc., Rent Tech, Inc., G & G Enterprises, NSG Enterprises, Inc., S & GJ Enterprises, Inc., Jac Vaca, Inc., John Wenturine, Y.P.I., Inc., Mobil Town USA, Inc., Young Pioneers, Inc., Digital Playroom, Inc., Wagner's Bakery, Inc., Beaches N Cream, Kickers' Corner of the Americas, Inc., MSV Records & Production, Inc., Southern Lady Flowers, Round House, Inc., Ron Jen, Inc., d/b/a The Boathouse, and Ron Fred, Inc., Objectors.
No. 04-0344.
No. 04-1052.
No. 04-0514.
No. 04-1055.
United States Court of Appeals, Second Circuit.
Argued: August 25, 2004.
Decided: January 4, 2005.
COPYRIGHT MATERIAL OMITTED COPYRIGHT MATERIAL OMITTED Richard J. Archer, Archer & Hanson, Occidental, CA (James A. Kopcke, Golden Kopcke, LLP, San Francisco, CA, on the brief) for Objectors-Appellants Reyn's Pasta Bella, LLC, Jeffrey Ledon DeWeese, M.D., Barry Leonard d/b/a Critter Fritters, and Hat-In-The-Ring, Inc. d/b/a Eddie Rickenbacker's.
Stanley M. Grossman (H. Adam Prussin, John Balestriere, Murielle J. Steven Walsh, on the brief), Pomerantz Haudek Block Grossman & Gross, LLP, New York, N.Y. (Howard Langer, John Grogan, Langer and Grogan, P.C., Philadelphia, PA, on the brief; Joseph Goldberg, Sara Berger, Alexandra Freedman Smith, Zachary Ives, Freedman Boyd Daniels Hollander Goldberg & Cline, P.A., Albuquerque, NM, on the brief) for Objector-Appellant Nu-City Publications, Inc.
John Rasmussen (Dale W. Robinson, on the brief), Johnson, Rasmussen, Robinson & Allen, P.L.C., Mesa, AZ for Objectors-Appellants Armenta's Mexican Food, Inc. and Lupita Llamas Martinez d/b/a Del Yaqui Restaurant.
N. Albert Bacharach, Jr., Gainesville, FL for Objectors-Appellants-Cross-Appellees Leonardo's Pizza By the Slice, Inc. and 710 Corp. Inc.
M. Laurence Popofsky (Stephen V. Bomse, Marie L. Fiala, Peggy J. Williams, Russell P. Cohen, on the brief), Heller Ehrman White & McAuliffe LLP, San Francisco, CA (Philip H. Curtis, Robert C. Mason, Arnold & Porter LLP, New York, NY, on the brief; Kevin J. Arquit, Joseph F. Tringali, Mariya S. Treisman, Simpson Thacher & Bartlett LLP, New York, NY, on the brief; Kenneth A. Gallo, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, on the brief; Keila D. Ravelo, Clifford Chance U.S. LLP, New York, N.Y. on the brief) for Defendants-Appellees.
Lloyd Constantine (Robert L. Begleiter, Matthew L. Cantor, Stacey Anne Mahoney, Michelle A. Peters, Amy N. Roth, Gordon Schnell, Jonathan Shaman, Jeffrey I. Shinder, on the brief), Constantine & Partners, New York, N.Y. for Class Counsel-Appellees-Cross-Appellants and for Class Plaintiffs-Appellees.
Lawrence W. Schonbrun, Law Offices of Lawrence W. Schonbrun, Berkeley, CA on submission for Objector-Cross-Appellee Roman Buholzer d/b/a The Continental Garden Restaurant.
Before: CABRANES and WESLEY, Circuit Judges.*
WESLEY, Circuit Judge.
Appellants challenge the district court's approval of a class action settlement, including the award of attorneys' fees. The class action involved approximately five million merchants and alleged, inter alia, that defendants Visa U.S.A. Inc. and MasterCard International Inc. tied merchant use of defendants' debit products to use of defendants' credit cards, in violation of the Sherman Act. Plaintiffs contended that Visa and MasterCard used their power in the credit card market to force merchants to accept an artificially-inflated transaction fee when accepting payment from consumers using debit cards operated by Visa or MasterCard. Plaintiffs further alleged that defendants employed a scheme of anti-competitive conduct to bar competition in the debit card market. In this bitterly contested lawsuit fought by expert counsel on all sides, the parties agreed to settle just before trial commenced. The resulting settlement was the largest in the history of antitrust law. As part of the settlement, defendants agreed not to tie their debit and credit products together and to pay more than $3 billion to plaintiffs in exchange for the release of any and all claims that were or could have been filed against defendants or their member banks (non-parties in this action) based on the conduct alleged.
On appeal, appellants contest the validity of the settlement's release of non-parties, the adequacy of class representation, the adequacy of notice, the fairness of settlement, and the reasonableness of attorneys' fees. We AFFIRM the district court's order in all respects.
BACKGROUND
This case involves a clash of commercial titans. Plaintiffs, a class of merchants approximately five million strong led by Wal-Mart, the world's largest retailer, and several other large and sophisticated merchants, including The Limited, Sears, and Safeway, filed suit on October 25, 1996 against Visa U.S.A. Inc. and MasterCard International, Inc. ("Visa" and "MasterCard," respectively),1 seeking damages amounting to tens of billions of dollars for alleged violations of Sections One and Two of the Sherman Act, 15 U.S.C. §§ 1, 2.2 First, plaintiffs claimed that the defendants'"Honor All Cards" policy, which forced merchants who accepted Visa and MasterCard credit cards to accept Visa and MasterCard debit cards, was an illegal "tying arrangement" that violated Section One of the Sherman Act.3 Second, plaintiffs alleged that defendants used their Honor All Cards policy in conjunction with other anti-competitive conduct to monopolize the debit market, in violation of Section Two of the Sherman Act. As a consequence, plaintiffs claimed that they incurred supra-competitive "interchange fees" (described in the next subheading) during every debit and credit transaction made between October 1992 and June 2003.
A. Visa and MasterCard Transactions
Essentially, every debit or credit card transaction using a Visa or MasterCard product involves five entities: (1) Visa or MasterCard, (2) a "card-issuing" bank, (3) an "acquiring" bank, (4) a consumer, and (5) a merchant. At the outset, either Visa or MasterCard, each an association, grants a license to a member bank to issue credit and debit cards with its brand name. A "card-issuing" member bank then issues a credit or debit card to a cardholder with either the Visa or MasterCard brand name. An "acquiring" bank, a member of Visa and MasterCard, contracts with a merchant to accept payment through Visa and MasterCard. When a cardholder makes a purchase with either a Visa or MasterCard product, the acquiring institution reimburses the merchant for the cardholder's purchase, less a "discount fee." The discount fee is determined by the acquiring institution. The card-issuing bank charges an "interchange fee" each time it provides funds to the acquiring bank as payment to a merchant for the cardholder's purchase. Visa and MasterCard set the interchange fee that all card-issuing banks charge. Economics demands that the discount fee be greater than the interchange fee the acquiring institution must pay to the card-issuing institution. See Visa Check II,
Bank A issues a Visa credit card to Consumer X, who purchases a garment for $100 at Store Y, which was "acquired" for Visa by Bank B. Visa rules mandate that Bank B must pay Bank A an interchange fee of 1.25% of the amount of the transaction, i.e., $1.25. Bank B will charge Store Y a "discount fee" higher than $1.25 in order to recover the mandated interchange fee and other fees that Visa rules mandate Bank B to pay Visa on each and every Visa credit card (and debit card) transaction and to earn a profit for itself. Thus, Bank B may charge a discount fee of 1.60% of the transaction amount (or $1.60) to Store Y. When Store Y presents Consumer X's $100 Visa transaction to Bank B, the bank will credit Store Y's account for $98.40, send the Visa mandated $1.25 interchange fee to Bank A and retain the $.35 balance of the "discount fee."
2d Am. Compl. ¶ 8(o).
B. Procedural History
Plaintiffs originally filed their complaint on October 26, 1996. The district court certified plaintiffs as a class in February 2000. See Visa Check II,
C. The Settlement
The Settlement is the culmination of approximately seven years of hard-fought litigation and represents "the largest antitrust settlement in history." Id. at 508. The district court described the Settlement as providing for, among other things:
(1) the cessation, as of January 1, 2004, of defendants'"Honor All Cards" rules, by which the defendants' debit card services to merchants were tied to their credit card services;
(2) the creation of a $3.05 billion settlement fund;
(3) the creation of clear, conspicuous and uniform visual identifiers on Visa and MasterCard debit cards by January 1, 2007 (80% by July 1, 2005), so merchants and consumers can distinguish these products from credit cards;
(4) the lowering, by roughly one third, of the interchange rates on debit products for the period from August 1, 2003, through December 31, 2003;6
(5) other injunctive relief, such as the provision of signage from defendants to merchants communicating the merchants' acceptance of defendants' untied debit products; and a prohibition on defendants enacting any rules that prohibit merchants from encouraging or steering customers to use forms of payment other than defendants' debit cards, including by discounting other forms of payment; (6) the Court's continuing jurisdiction to ensure compliance with the Settlement; and
(7) the release of Visa and MasterCard from claims arising out of the conduct at issue in the action prior to January 1, 2004.
Id. (internal citations and footnote omitted). Visa and MasterCard will make cash payments totaling $2,025,000,000 and $1,025,000,000, respectively, in annual installments during the next ten years. Id. The district court concluded that "[t]he discounted present value of the total compensatory relief ... amounts to $3,383,400,000." Id. at 509.
D. Issues on Appeal
1. Scope of the Release and Adequacy of Representation
At the district court, five of the eighteen objecting merchants challenged the scope of the release provided in the Settlement. All five of these merchants appealed. They are Reyn's Pasta Bella, LLC, Jeffrey Ledon DeWeese, M.D., Barry Leonard d/b/a Critter Fritters, and Hat-In-The-Ring, Inc. d/b/a Eddie Rickenbacker's (collectively, "Pasta Bella"), and NuCity Publications, Inc. The Settlement's release precludes actions for conduct occurring prior to January 1, 2004 that was or could have been alleged in the complaint. If approved by this Court, the release will bar class actions previously filed by Pasta Bella and NuCity.
Pasta Bella, purporting to represent a class, initiated an action against Visa and MasterCard and three member banks (collectively, the "Reyn's defendants") in the United States District Court for the Northern District of California on June 24, 2002. Reyn's Pasta Bella, LLC v. Visa U.S.A., Inc.,
NuCity initiated a putative class action in the United States District Court for the Southern District of New York on November 13, 2001. In re Visa/MasterCard Membership Rules Antitrust Litigation, No. 01-CV-10027 ("Membership Rules").8 Membership Rules arose out of United States v. Visa U.S.A., Inc.,
On appeal, Pasta Bella and NuCity argue that the release is overbroad. Alternatively, they argue that the release is not valid with respect to them because their interests were inadequately represented during settlement. Issues involving the release of claims are discussed in Part I of the Discussion section of this opinion.
2. Notice to the Class
The Settlement established a notice plan that required mailing the settlement notice to class members and publishing a condensed version of the settlement notice in numerous widely-distributed publications (collectively, the settlement notice and summary notice are referred to as the "Settlement Documents"). As part of the notice plan, plaintiffs' counsel provided direct notice via first class mail to 8,148,276 class members and published notices in publications with a combined circulation of more than 151 million.10 All of this information was printed in English only.
On appeal, Pasta Bella and NuCity argue that they were denied due process because the Settlement Documents did not specifically apprise class members that approval of the Settlement would release the pending claims in Reyn's and Membership Rules.
Armenta's Mexican Food, Inc. and Lupita Llamas Martinez d/b/a Del Yaqui Restaurant (collectively, "Armenta's"), argue that the Settlement Documents and notice plan did not afford them due process or comply with Federal Rule of Civil Procedure 23. Armenta's claims that it learned of the Settlement by observing a summary notice in an English-language magazine.11 Afterward, it retained counsel, filed its objections to the Settlement and also filed a motion to intervene. Counsel for Armenta's appeared and argued at the September 2003 fairness hearing in support of its client's objections to the Settlement. The district court's approval of the Settlement implicitly denied the motion to intervene; Armenta's appealed.
These notice arguments are discussed in Part II of the Discussion section of this opinion.
3. Fairness of the Settlement
Pasta Bella, Armenta's, 710 Corp., Inc., and Leonardo's Pizza by the Slice, Inc. challenge the fairness of the Settlement. NuCity seeks limited discovery to determine whether class counsel independently valued the Membership Rules claims, and, if so, the amount of that valuation. Pasta Bella argues that the parties should be judicially estopped from asserting the release against the Reyn's claims because Visa and MasterCard failed to comply with Rule 3-13 of the Local Rules of Practice in Civil Proceedings before the United States District Court for the Northern District of California ("Northern District of California Local Rule 3-13"), which required that they file a notice of pendency in that court concerning the instant action. Part III of the Discussion section of this opinion examines all of these issues.
4. Attorneys' Fees
Class counsel submitted a fee petition to the district court seeking $609,012,000 in fees. The court found this request "excessive," "fundamentally unreasonable, and wholly out of character for a group of counsel whose commitment to the comer store merchants they represent has, until now, been admirable and unflagging." Visa Check III,
DISCUSSION12
PART I
THE RELEASE IS VALID
Broad class action settlements are common, since defendants and their cohorts would otherwise face nearly limitless liability from related lawsuits in jurisdictions throughout the country. Practically speaking, "[c]lass action settlements simply will not occur if the parties cannot set definitive limits on defendants' liability." Stephenson v. Dow Chem. Co.,
Plaintiffs in a class action may release claims that were or could have been pled in exchange for settlement relief. Plaintiffs' authority to release claims is limited by the "identical factual predicate" and "adequacy of representation" doctrines. Together, these legal constructs allow plaintiffs to release claims that share the same integral facts as settled claims, provided that the released claims are adequately represented prior to settlement. Adequate representation of a particular claim is established mainly by showing an alignment of interests between class members, not by proving vigorous pursuit of that claim.
A. Identical Factual Predicate Doctrine
The law is well established in this Circuit and others that class action releases may include claims not presented and even those which could not have been presented as long as the released conduct arises out of the "identical factual predicate" as the settled conduct. TBK Partners, Ltd. v. W. Union Corp.,
1. Identical Factual Predicate Doctrine Permits Release of Membership Rules Claims
The Settlement precludes lawsuits relating to any conduct that was alleged in the complaint or was, or could have been, asserted in this litigation. NuCity argues that the district court strayed from the identical factual predicate rule by approving release of the Membership Rules claims based simply on the court's recognition of the similarities between the claims in this case and those in Membership Rules.14 We disagree.
The plaintiffs in Membership Rules alleged that Visa and MasterCard's exclusionary rules, which prohibited member banks from issuing or providing services to other credit cards (such as Discover or American Express), inflated the cost of credit card transactions, in violation of Section One of the Sherman Act. Id. at 515. As part of their tying claim, plaintiffs in the case before us claimed that the exclusionary rules solidified Visa and MasterCard's power in the credit card market, enabling Visa and MasterCard to force plaintiffs to accept their debit cards. Id. Thus, the "exclusionary rules have been central to this case from its inception." Id.15 In fact, in January 2000, more than one year before it approved the Settlement, the district court had concluded that this action and Government's Membership Rules — the precursor to Membership Rules — alleged common claims. In re Visa Check/MasterMoney Antitrust Litig.,
NuCity stresses the difference between the elements of an antitrust tying case — this case — and a horizontal boycott case — Membership Rules — to argue that the same factual predicate does not underlie both. Specifically, NuCity argues that
[p]laintiffs' own description of their damage theory indicates that the damages they sought to recover stemmed from the effects of the illegal tying arrangement and [the effects] other associated anticompetitive conduct (which may or may not include the exclusionary rules) had in retarding the development of "regional debit networks" from entering the market — not the exclusion of major competing credit card brands like American Express and Discover.
NuCity Br. at 31 (emphasis added).
NuCity misses the mark. When considering the permissibility of a release, the overlap between elements of claims is not dispositive. Class actions may release claims, even if not pled, when such claims arise out of the same factual predicate as settled class claims. TBK Partners,
Based on the foregoing, the district court did not abuse its discretion by concluding that the claims in Membership Rules are based on the identical factual predicate as the claims in this case.
2. Identical Factual Predicate Doctrine Permits Release of Non-Parties
Even though the Reyn's claims may be released with respect to Visa and MasterCard, Pasta Bella objects to the release of the member banks, since they were not parties to this action. However, "class action settlements have in the past released claims against non-parties where, as here, the claims against the non-party being released were based on the same underlying factual predicate as the claims asserted against the parties to the action being settled." In re Lloyd's Am. Trust Fund Litig.,
The banks' settlement contributions further support the district court's conclusion. The banks "not only contributed to the Settlement[ ], but virtually all of the relief comes from them." Visa Check III,
B. Due Process Requires that Released Claims be Adequately Represented17
A determination that all of the settled claims arose from the same factual predicate does not necessarily end the inquiry. Claims arising from a shared set of facts will not be precluded where class plaintiffs have not adequately represented the interests of class members. On appeal, Pasta Bella interprets the adequacy of representation doctrine to require that "settled claims of absent class members [be] adequately represented as a matter of fact before they can be barred." Pasta Bella Br. at 23. Consequently, Pasta Bella presses that the Settlement inadequately represents the Reyn's claims because it does not require payment from the member banks who were defendants in Reyn's. In the same vein, NuCity argues that Membership Rules seeks damages for billions of dollars stemming from the boycott of credit cards, whereas the Settlement is based merely on damages stemming from alleged tying arrangements in the debit card market and the concomitant effect on interchange rates. Respondents counter that these arguments amount to baseless allegations that the plaintiffs "left significant claims on the table."
We agree. Adequate representation is not solely an assessment of effort. Rather, an examination of the interests of the settling plaintiffs and of the Settlement's effect on those who would be bound by it leads us to the conclusion that lead plaintiffs, who are also members of the classes led by Pasta Bella and NuCity, adequately represented the claims asserted in
and
in this case.
As support for its claim that adequate representation requires vigorous pursuit of class claims, Pasta Bella cites Stephenson. Stephenson involved two Vietnam War veterans who sued several chemical manufacturers for Agent Orange-related injuries. Their injuries manifested after a $180 million class action settlement — involving the same manufacturers and similar allegations — was exhausted. Stephenson,
Stephenson is not directly on point, however, because that case involved future claimants, whereas this case does not. Here, injured parties may obtain remuneration from the settlement fund if they accepted Visa or MasterCard within a finite period — October 25, 1992 through June 21, 2003. Visa Check III,
National Super Spuds, Inc. v. New York Mercantile Exchange,
Super Spuds is inapposite to the instant case, however, because Super Spuds hinged on the fact that the class representatives did not possess the unliquidated futures. Id. at 17. On this basis, we held, "The named plaintiffs in a class action `cannot represent a class of whom they are not a part.'" Id. (quoting Bailey v. Patterson,
In Joel A. v. Giuliani,
The Joel A. panel found that the Marisol A. class adequately represented the Joel A. class. Id. at 144. While the remedy contemplated in the Marisol A. settlements was broader than the relief sought by the Joel A. sub-class, the remedy provided in the Marisol A. settlement was "likely to deal with these complaints." Id. at 142. We held that "our precedents do not dictate that the settlement be invalidated because [the Joel A. class] claims are subsumed within a more generalized claim." Id. That is precisely the case here.
NuCity hopes that In re Auction Houses Antitrust Litigation,
Respondents, however, distinguish Auction Houses, and, for that matter, Super Spuds, by explaining that, in those cases, marginalized groups did not receive any benefit in exchange for the releases contemplated, whereas here, every claimant in Membership Rules benefits from the settlement. Visa Check III,
A recent Eighth Circuit case, In re Gen. Am. Life Ins. Co. Sales Practices Litig.,
The Eighth Circuit found that the language used in the class action settlement agreement encompassed the General American plaintiff's state court claims as a subset of the claims released. Id. at 803. Since the notice to the class in General American Class Action was clear and fair — providing class members the opportunity to opt out if they wished — the court found that releasing certain claims was not problematic. Id. Thus, the court affirmed the dismissal of General American plaintiff's claim on the ground that the General American Class Action settlement agreement and the class notice clearly articulated a release of future claims. Id. at 803. In light of the valid and "very broad" settlement release in the class action, which included known and unknown causes of action, the court held that "[w]e have no difficulty in concluding that the [class] judgment bars the New Mexico action." Id. The court articulated the give-and-take nature of the settlement process and the court's role in scrutinizing the efforts of lead plaintiffs:
The release of [a particular] category of claims was one of a series of benefits conferred on the defendant by the class as part of the settlement. On the other side, defendant conferred benefits on the plaintiff class, including a monetary settlement, from which the plaintiff in this [related] case has benefitted, and a ... procedure that could produce additional relief. No part of the consideration on either side is keyed to any specific part of the consideration of the other. Each side gives up a number of things. This is the way settlements usually work. It was the judgment of the class representative that [a particular category of claims], known and unknown, was a proper thing to give up to obtain the benefits offered by [the defendant] .... [W]e have no way to criticize the judgment of the class representative. Accordingly, we hold that the representation afforded was adequate, and that the provisions of Fed.R.Civ.P. 23 were fully met.
Id. at 805.
The Eighth Circuit's analysis of the settlement process is especially compelling here, where class representatives possessed the released claims and did not agree to preclude lawsuits arising out of similar conduct in the future. We agree with respondents that due process does not require that all class claims be pursued. Instead, where different claims within a class involve the identical factual predicate, adequate representation of a particular claim is determined by the alignment of interests of class members, not proof of vigorous pursuit of that claim. Thus, the district court did not err in ruling that plaintiffs' release of the Reyn's and Membership Rules claims did not violate due process, where plaintiffs are members of the Reyn's and Membership Rules classes and the release was part of the consideration necessary to obtain the largest antitrust settlement in history. Visa Check III,
Like the plaintiff in General American, who complained that "the class representative gave away all modal-billing claims (in the release) and received nothing in exchange for them,"
PART II
NOTICE TO CLASS MEMBERS WAS ADEQUATE
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 reasonableness. See Soberal-Perez v. Heckler,
A. Pasta Bella Received Adequate Notice
Since the class notice did not name the banks as parties and the settlement notice did not specifically inform class members that the Reyn's claims would be included in the Settlement, Pasta Bella argues that it was denied due process because class members were not given the opportunity to opt out after the settlement notice was issued. Although Pasta Bella forfeited this contention by failing to preserve it at the district court, see Krumme v. WestPoint Stevens Inc.,
Here, although the member banks were not named as defendants, the complaint described "[a]pproximately 4,400 banks that have issued Visa and/or MasterCard credit cards and also issued Visa Check and/or MasterMoney debit cards" as co-conspirators.2d Am. Compl. ¶ 32. The notice of pendency, which incorporated the allegations in the complaint, alleged a conspiracy between Visa, MasterCard, and "their member banks." Notice of Pendency ¶ 3. Attempting to distinguish the Reyn's claims from those in the instant action, Pasta Bella's amended complaint in Reyn's states, "Plaintiffs do not contest in this action, as averred in other litigation, any tying arrangement, of the VISA and MASTERCARD debit charges with other charges." Reyn's 1st Am. Compl. ¶ 11. Yet, Pasta Bella's attempt to distinguish the claims in Reyn's from the claims in the instant action does not alter the fact that the claims in both cases arise out of the identical factual predicate. Indeed, Pasta Bella's artful language belies its recognition of the potential for overlap between the two lawsuits. Thus, Pasta Bella cannot reasonably argue that it was not on notice of the possibility that, pursuant to settlement in this action, the banks would be released from future claims. Pasta Bella was required to opt out at the class notice stage if it did not wish to be bound by the Settlement.
B. NuCity Received Adequate Notice
NuCity argues that the settlement notice denied the Membership Rules class due process because it failed to disclose:
1. the judgment against Visa and MasterCard in Government's Membership Rules;
2. the pending claims in Membership Rules;
3. the prospect that the Settlement's contemplated release would extinguish all claims in Membership Rules;
4. the value attributed by plaintiffs' counsel to the Membership Rules claims; and
5. the value received by the class in exchange for release of the Membership Rules claims.
NuCity points to the notice of settlement in Auction Houses and argues that the settlement notice in this case comes up short. In Auction Houses, the notice explicitly informed class members that the settlement would permanently bar them from pursuing claims based on auctions held outside the U.S., and that class members with potential claims arising out of foreign auctions "should consider whether or not to forego the benefits of the proposed settlement." Auction Houses,
Underscoring the need for additional disclosure, NuCity relies on In re Nissan Motor Corp. Antitrust Litigation,
In this case, the settlement notice quoted verbatim the Settlement's release. Respondents argue that (1) the law does not require parties to describe pending actions covered by a release in a proposed settlement notice, and, in any event, (2) quoting a release word for word in the settlement notice is sufficient to inform class members of the scope and effect of the release. In support of its approval of the settlement notice, the district court relied on Weinberger,
C. Armenta's Lacks Standing to Challenge its Notice
Armenta's appeals the district court's approval of the Settlement on the ground that the English-only Settlement Documents violated due process and Federal Rule of Civil Procedure 23 because an identifiable class — Spanish-speaking class members who could not read and understand the English-only Settlement Documents — was not afforded notice.23
Armenta's does not provide sufficient evidence that it represents an identifiable subclass of claimants who could not comprehend the Settlement Documents. While the representatives of the purported subclass describe a significant preference for Spanish, they do not claim that they cannot read English or that they cannot conduct business in English. See Armenta Aff. ¶¶ 4-5; Martinez Aff. ¶¶ 4-5. Further, the statistics provided by Armenta's to the district court — statistics concerning the number of Spanish-speaking families and businesses in the United States — even if taken as true, do not establish that Spanish-speaking class members could not understand the Settlement Documents. Thus, we do not find error in the district court's conclusion that "a lack of comfort [in the English language] does not mean there was a significant defect in the notice." Visa Check III,
PART III
THE SETTLEMENT IS FAIR
A. The Settlement is Entitled to a Presumption of Fairness
A court may approve a class action settlement if it is "fair, adequate, and reasonable, and not a product of collusion." Joel A.,
In the instant case, the district court rightly praised the efforts of plaintiffs' lead counsel. Visa Check III,
We agree with this assessment and conclude that the district court did not abuse its discretion in determining that a presumption of fairness arose.
B. The Settlement is Substantively Fair
When reviewing a district court's approval of a settlement, a "trial judge's views are accorded `great weight ... because he is exposed to the litigants, and their strategies, positions and proofs.... Simply stated, he is on the firing line and can evaluate the action accordingly.'" Joel A.,
In this Circuit, courts examine the fairness, adequacy, and reasonableness of a class settlement according to the "Grinnell factors." Id. at 138. The factors are:
(1) the complexity, expense and likely duration of the litigation;
(2) the reaction of the class to the settlement;
(3) the stage of the proceedings and the amount of discovery completed;
(4) the risks of establishing liability;
(5) the risks of establishing damages;
(6) the risks of maintaining the class action through the trial;
(7) the ability of the defendants to withstand a greater judgment;
(8) the range of reasonableness of the settlement fund in light of the best possible recovery;
(9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.
Grinnell,
1. Complexity, Expense and Likely Duration of Litigation
Federal antitrust cases are complicated, lengthy, and bitterly fought. See Weseley v. Spear, Leeds & Kellogg,
2. Reaction of the Class to the Settlement
On the whole, the class appears to be overwhelmingly in favor of the Settlement. Only eighteen class members out of five million objected to the Settlement. Id. at 511. "If only a small number of objections are received, that fact can be viewed as indicative of the adequacy of the settlement." 4 NEWBERG § 11.41, at 108; see also D'Amato,
3. Stage of Proceedings and Amount of Discovery Completed
"If all discovery has been completed and the case is ready to go to trial, the court obviously has sufficient evidence to determine the adequacy of settlement." 4 NEWBERG § 11:45, at 129. Here, plaintiffs entered into settlement only after a thorough understanding of their case. As noted earlier, extensive discovery proceedings spanning over seven years and millions of pages of documents preceded the Settlement. Visa Check III,
4. Risks of Class Prevailing (Establishing Liability, Establishing Damages, Maintaining the Class through Trial)
Characterizing the defendants'"Honor All Cards" policy as having at least some pro-competitive features, the district court concluded that establishing liability "was no sure thing" for the plaintiffs. Id. at 511. "Indeed, the history of antitrust litigation is replete with cases in which antitrust plaintiffs succeeded at trial on liability, but recovered no damages, or only negligible damages, at trial, or on appeal." In re NASDAQ Market-Makers Antitrust Litig.,
5. Ability of Defendants to Withstand a Greater Judgment
The compensatory relief provided in the Settlement constitutes "the largest settlement ever approved by a federal court." Id. (quoting plaintiffs' expert Professor John C. Coffee, Jr. of Columbia University Law School). Additionally, the injunctive relief — valued at approximately $25 to $87 billion or more, id. at 511-12 — adds great value to the Settlement. Yet, Pasta Bella insists that a settlement requiring payment from the banks could have been substantially higher. We cannot agree with this argument. It is hardly surprising that the district court did not make explicit findings with respect to the ability of the member banks to withstand a significantly greater damages award, since the banks are not defendants in this case. Even if such a finding were helpful, our concern about financial resources of member banks would be assuaged by the district court's finding that virtually all of the relief in the Settlement already comes from the banks. Id. at 514.
6. Range of Reasonableness of Settlement Fund in Light of Best Possible Recovery and Attendant Risks of Litigation
[T]here is a range of reasonableness with respect to a settlement — a range which recognizes the uncertainties of law and fact in any particular case and the concomitant risks and costs necessarily inherent in taking any litigation to completion — and the judge will not be reversed if the appellate court concludes that the settlement lies within that range.
Newman v. Stein,
Indeed, the favorable reaction of the overwhelming majority of class members to the Settlement is perhaps the most significant factor in our Grinnell inquiry. Having considered this factor along with the others, we conclude that the district court did not err in finding the Settlement substantively fair.25
C. NuCity is Not Entitled to Discovery
NuCity appeals the district court's denial of its motion for limited discovery to examine whether the Settlement included consideration for claims asserted in Membership Rules, the value attributed to claims foregone, and the justification for such valuation. Generally, such a discovery request depends on "whether or not the District Court had before it sufficient facts intelligently to approve the settlement offer. If it did, then there is no reason to hold an additional hearing on the settlement or to give appellants authority to renew discovery." Grinnell,
As noted by the Grinnell analysis described above, the district court possessed an abundance of facts to make a fairness determination. Plaintiffs were not required to bargain separately for relief in exchange for the Membership Rules claims. "No part of the consideration on either side is keyed to any specific part of the consideration of the other. Each side gives up a number of things. This is the way settlements usually work." General American,
D. The Parties are Not Judicially Estopped from Including the Reyn's Claims in the Settlement
Northern District of California Local Rule 3-13 provides that:
Whenever a party knows or learns that an action filed or removed to this district involves all or a material part of the same subject matter and all or substantially all of the same parties as another action which is pending in any other federal ... court, the party must file with the Court in the action pending before this Court ... a Notice of Pendency of Other Action....
N.D. Cal. Civil L.R. 3-13(a). Instead of filing the required notice in the Northern District of California, Visa and MasterCard settled the instant action and then sought to dismiss Reyn's on the ground that the claims in that case were barred by the Settlement. Pasta Bella argues that Visa and MasterCard knowingly violated Northern District of California Local Rule 3-13 to escape liability for the conduct alleged in Reyn's. According to Pasta Bella, if the actions are related, then compliance with Rule 3-13 would have caused Reyn's to have been transferred to the Eastern District of New York and consolidated with the instant action. See N.D. Cal. Civil L.R. 3-13(b)(3)(B); cf. 28 U.S.C. § 1407 (providing a mechanism for the transfer of "civil actions involving one or more common questions of fact" pending in different districts "for coordinated or consolidated pretrial proceedings"). Pasta Bella contends that if Reyn's had been consolidated with this action, the class recovery would have been higher. Thus, Pasta Bella urges us to estop Visa and MasterCard from benefitting from their failure to comply with the Northern District of California's local rules.
We have previously held that "judicial estoppel applies only when a tribunal in a prior separate proceeding has relied on a party's inconsistent factual representations and rendered a favorable decision." Adler v. Pataki,
PART IV
THE DISTRICT COURT'S FEE AWARD IS REASONABLE
At the district court, lead counsel for the plaintiffs sought a fee of $609,012,000 — approximately 18% of the present value of the Settlement's compensatory relief, 2.14% of the present value of the Settlement (inclusive of injunctive relief), and 9.68 times the lodestar figure of $62,940,045.84.26 Visa Check III,
A. "Percentage of the Fund" is an Appropriate Method
The district court utilized the "percentage of the fund" method to calculate attorneys' fees. Visa Check III,
B. The Goldberger Factors Confirm the Reasonableness of the Fee Award
Irrespective of which method is used, the "Goldberger factors" ultimately determine the reasonableness of a common fund fee. They include:
(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.
Goldberger,
The district court concluded that the Goldberger factors compel an "extraordinary" fee under these circumstances: lead counsel devoted tremendous time and labor to this case for seven years; antitrust cases, by their nature, are highly complex; this case was especially large and complicated, involving almost every U.S. bank and more than five million U.S. merchants; the risk of the litigation was very high; lead counsel devoted 52% of its legal staff to work on a case that spanned seven years without any guarantee of recovery; plaintiffs' counsel achieved extraordinary results; plaintiffs' counsel did not have the benefit of "piggybacking" off of a previous case — instead, the Government piggybacked off of plaintiffs' counsel's work by using it in Government's Membership Rules; even a very large fee award would be a small percentage of the settlement fund; and the Settlement produced "significant and lasting benefits for America's merchants and consumers." Visa Check III,
Were the Fund not so large, dwarfing the funds in all of the cases Lead Counsel have cited, a larger percentage might be appropriate. But given the circumstances as they are, my award is appropriate. Only in comparison to the amount sought can it be considered anything but generous.
Id. at 525 (footnote omitted). C&P argues that the district court's fee award was insufficient because (a) the fee award provides a meager percentage of the settlement fund and (b) the fee award reduces the incentive to class lawyers to seek maximum relief.
1. The Fee Award is Based on a Reasonable Percentage of the Fund
C&P cites In re Linerboard Antitrust Litigation,
We need not dispute whether the sliding scale approach is economically rational in the context of ensuring competent and committed counsel. Public policy concerns oftentimes redefine the focus of the court. In this case, the district court's decision in favor of protecting the instant class from an excessive fee award militates against awarding attorneys' fees based purely on economic incentives. Satisfied that its ruling would not deter plaintiffs' attorneys from pursuing similar claims, the district court remarked, "If [this fee award] amounts to punishment, I am confident there will be many attempts to self-inflict similar punishment in future cases." Visa Check III, 297 F.Supp.2d. at 525. We agree.
While courts in megafund cases often award higher percentages of class funds as fees than the district court awarded in this instance, see id. at 525 n. 33, the sheer size of the instant fund makes a smaller percentage appropriate. As a "cross-check" to a percentage award, courts in this Circuit use the lodestar method. Goldberger,
2. The District Court Was Not Required to Adhere to the Fee Agreement Between Plaintiffs' Counsel and Lead Plaintiffs
Plaintiffs' counsel argues that the district court was aware that class counsel had negotiated a fee arrangement with five of the nation's largest merchants that exceeded the 18% fee class counsel requested from the court and far exceeded the fee the court awarded.28 Thus, class counsel argues that the district court ignored the Goldberger proviso that "market rates, where available, are the ideal proxy for [class counsel's] compensation." Goldberger,
A final word is in order here. Measuring the difficulties of a large antitrust action and the degree of success by counsel in forging a settlement is not an easy task. In our view, the district court carried out its responsibility with admirable care and thoroughness, and with an eye to a just result. There is no doubt this case dominated the lives of all involved for many years. In approving the district court's fee award, we recognize the sacrifice and commitment plaintiffs' counsel made to its clients while preserving as much as possible for those who were harmed.
CONCLUSION
The settlement release is enforceable against the claims in Reyn's and NuCity because the claims in those cases arose out of the identical factual predicate as the claims in this case and were adequately represented here. The settlement notice was adequate because it fairly apprised members of the terms of settlement, including the scope of the release. Under a Grinnell analysis, the Settlement is fair. As a result, NuCity is not entitled to discovery. Judicial estoppel is not appropriate here, where the defendants did not benefit from any concealment. The district court's fee award is reasonable, as confirmed by the Goldberger factors.
We AFFIRM the district court in all respects.
Notes:
Notes
Because the Honorable Chester J. Straub recused himself prior to oral argument, this case was decided by a two-judge panelSee Murray v. NBC,
Visa and MasterCard are national bank card associations. Their members include more than 6,000 banksSee 2d Am. Compl. ¶¶ 30-31, 43.
The district court described plaintiffs' claims, and the factual basis for those claims, in its resolution of the parties' motions for summary judgment,In re Visa Check/Mastermoney Antitrust Litig.,
"A tying arrangement is `an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product.'"Yentsch v. Texaco, Inc.,
Although the first page of each settlement agreement states that the agreement was made "as of the 4th day of June 2003," the district court found that the agreements were dated June 5, 2003. We do not know the basis on which the court concluded that the settlement agreements were dated June 5th, but this discrepancy is inconsequential to the issues before us
In pertinent part, the release states:
[T]he Released Parties shall be released and forever discharged from all manner of claims ... against the Released Parties... that any Releasing Party ever had, now has or hereafter can, shall or may have, relating in any way to any conduct prior to January 1, 2004 concerning any claims alleged in the Complaint or any of the complaints consolidated therein, including, without limitation, claims which have been asserted or could have been asserted in this litigation which arise under or relate to any federal or state antitrust, unfair competition, unfair practices, or other law or regulation, or common law, including, without limitation, the Sherman Act, 15 U.S.C. § 1 et seq.
Visa Check III,
This reduction caused a savings to the class of approximately $846 millionId. at 509.
For the purpose of discussing the effect of the Settlement onReyn's claimants, this opinion assumes that the putative Reyn's class was certified even though Reyn's was dismissed before a motion for class certification had been filed.
For the purpose of discussing the effect of the Settlement onMembership Rules claimants, this opinion assumes that the putative class in Membership Rules is certified even though a motion for class certification has not yet been filed.
The exclusionary rules are described in Visa By-law 2.10(e) and MasterCard's Competitive Programs Policy ("CPP"). Visa By-law 2.10(e) provides in pertinent part: "the membership of any member shall automatically terminate in the event it, or its parent, subsidiary or affiliate, issues, directly or indirectly, Discover Cards or American Express Cards, or any other card deemed competitive by the Board of Directors."Visa U.S.A., Inc.,
This group of more than eight million included not only the original class members, but also "new merchants" who began accepting Visa and MasterCard after June 20, 2002 and who self-registered after the class notice was distributed. Lead Counsel Status Report, dated September 18, 2003, at 2
Armenta's claims that it never received the settlement notice in the mail. Class counsel disputes this claim, arguing that Armenta's was among the approximately 8 million class members to receive settlement notices. Regardless, whether Armenta's received personal notice is of no importance to the analysis in this opinion. At the very least, it received actual notice by publication
We review questions of law raised in this appealde novo. Abrahamson v. Bd. of Educ.,
The Eighth Circuit notes, "There is no impropriety in including in a settlement a description of claims that is somewhat broader than those that have been specifically pleaded. In fact, most settling defendants insist on this."In re Gen. Am. Life Ins. Co. Sales Practices Litig.,
The district court found that "Reyn's is a virtual clone of the centerpiece of this case." Visa Check III,
In describing the exclusionary rules, the complaint alleged that:
Visa members collectively adopted a rule barring their members from issuing any plastic cards competitive with Visa cards. This rule exempted MasterCard, permitting Visa's dual members to continue issuing MasterCard plastic cards. Visa members then turned around and, acting as MasterCard members, adopted the same non-competition rule. The effect of these rules was to deprive existing and new competitors of a marketing outlet at the 6,000 largest and most appropriate vendors of their products., i.e., the dual bank members of Visa and MasterCard.
2d Am. Compl. ¶ 50. Another part of the complaint alleged that Visa and MasterCard asked members to boycott American Express and Discover cards. Id. ¶¶ 52-54.
NuCity also argues that the parties' conduct prior to settlement displays their clear understanding that theMembership Rules claims and the instant claims were distinct. As proof, NuCity highlights the fact that defendants did not move to consolidate Membership Rules and this action pursuant to the multidistrict litigation statute, 28 U.S.C. § 1407, or to dismiss one of the cases on the ground that one cause of action had been split into two cases. NuCity's retelling of the procedural facts is not accurate. In fact, class plaintiffs sought collateral estoppel against defendants based on the guilty verdict in Government's Membership Rules, see Status Conference Transcript, dated June 21, 2002, and the district court chose to delay briefing and argument on the estoppel issue until Government's Membership Rules was concluded on appeal, Order, dated June 24, 2002. Since this Circuit decided the appeal of Government's Membership Rules months after the parties signed the settlement agreement, the need to brief the estoppel issue never arose. See Government's Membership Rules,
"Due process requires adequate representation at all times throughout the litigation...."Stephenson,
Since the interests of class counsel and defendants are, in essence, aligned in this appeal, both parties are collectively referred to as "respondents" in this opinion
Pasta Bella did not raise this argument
By the time it issued its opinion, the district court had already dismissed the foreign auction claims,see id. at *11, leaving only the opportunity to bring those claims in foreign courts. Concluding that the foreign auction claims therefore lacked significant value, the district court nonetheless refused to approve even this minimal sacrifice without due consideration. Id.
Defendants argue that the release is "no broader than the effect ofres judicata from the district court's judgment." Case No. 04-0344, Defs. Br. at 31 n. 11; Case No. 04-1052, Defs. Br. at 33 n. 16. We need not consider this argument because we conclude that the Settlement validly released the non-party banks.
We note, however, that class notices do sometimes include specific reference to pending actionsSee, e.g., Auction Houses,
As previously defined, "Settlement Documents" is the term used in this opinion to refer collectively to the settlement notice and the summary notice
The record does not include evidence concerning the likelihood of maintaining the class through trial, though decertification is always possible as a case progresses and additional facts are developedSee Visa Check II,
By failing to plead it at the district court, Pasta Bella forfeited its argument that the Settlement perpetuated illegal price-fixing because it set a fixed interchange rate during the period from August 1, 2003 through December 31, 2003See Krumme,
The district court described the fee award as "9.68% times the lodestar figure."See Visa Check III,
As noted in subsection A of this Part, the lodestar method calculates attorneys' fees by multiplying hours reasonably expended against a reasonable hourly rate; courts may use their discretion to increase the lodestar by applying a multiplier based on factors such as the riskiness of the litigation and the quality of the attorneys. Here, the lodestar calculation yields $62,940,045.84,Visa Check III,
This argument is based on an assertion made by Lloyd Constantine, managing partner of Constantine & Partners, lead counsel, in a declaration submitted to the court. In that declaration, Mr. Constantine stated, "I declare that the fee arrangement embodied in [the retention agreements C&P has with its large merchant clients] is much less favorable to the Class than the fee for which C&P has applied on behalf of itself and the 29 other Class Counsel firms." Constantine Supp'l. Decl. ¶ 8. Mr. Constantine offered to make these agreements available to the court for an inspectionin camera. Id.
At the district court, Leonardo's failed to contest class counsel's fee petition. "The law in this Circuit is clear that where a party has shifted his position on appeal and advances arguments available but not pressed below, ... waiver will bar raising the issue on appeal."United States v. Braunig,