Second Circuit Upholds $5.6 Billion Settlement in Credit Card Fee Antitrust Case

Second Circuit Upholds $5.6 Billion Settlement in Credit Card Fee Antitrust Case

A $5.6 billion settlement in a Sherman Act antitrust case was approved by a district court and affirmed by the Second Circuit. The case was brought on behalf of 12 million merchants against Visa USA Inc., MasterCard International Inc., and multiple financial institutions. The merchants argued that payment card rules adopted by the card companies and banks allowed Visa and MasterCard to charge excessively high interchange fees on every transaction.

Defendants argued that Judge Margo Kitsy Brodie from the Eastern District of New York made two mistakes. Firstly, they claimed that she made an error by certifying the class. Secondly, they believed that she erred again by approving a settlement that granted lead plaintiffs $900,000 in service awards and awarded attorneys’ fees of $520 million, which was 2.45 times the plaintiffs’ firms’ lodestar. The settlement involved individuals who accepted US-based Visa or Mastercard-branded cards between January 1, 2004, and January 24, 2019.

The court addressed an issue regarding the class definition and its application to both oil companies and branded service station owners. Judge Dennis Jacobs provided a concurring opinion stating that the dispute did not involve which group of class members would receive the settlement. Rather, it concerned which claimants were within the class.

According to Judge Jacobs, anyone who accepted payment cards would be part of the class, eligible for compensation, and bound by the release. Conversely, entities that did not accept the payment cards would be excluded from the class and not bound by the settlement.

Judge Jacobs further noted that any disputes between service stations and oil companies would be resolved by the district court, which may consider the appointment of additional counsel or the creation of subclasses.

The appellants mischaracterised the issue as a "dispute between class members" instead of a "dispute over class membership," according to the judge’s opinion. The judge also noted that appointing a special master after certification was not unusual and that any decisions made by the special master would be reviewed de novo by the district court and on appeal.

Circuit Judge Pierre N. Leval provided a separate concurring opinion addressing the controversy between oil companies and service stations.

Judge Leval observed that both parties seemed to assume that only one of them could have standing to receive settlement funds associated with a card payment. However, according to Judge Leval, neither Illinois Brick nor logic supported the notion that only one party could be an antitrust plaintiff. Although antitrust law typically recognised only one purchaser, it did not mean that two entities that shared a direct purchase could not share the recovery that would have been awarded to one of them if it were the sole purchaser, Judge Leval explained.

The Judge refrained from suggesting that oil companies and service stations should split any settlement, acknowledging that each case may present different circumstances. However, the judge warned against assuming that Illinois Brick would preclude a split recovery, stating that it would be a mistake to do so.

Instead, the Judge recommended that the parties, special master, and district court review relevant precedents to determine whether the Illinois Brick rule, which generally bars indirect purchasers from having standing, would similarly preclude either of the two entities when both parties had jointly made a direct purchase from the violator.

The judge further emphasised that there was no compelling reason to favour one party over the other as the authorised plaintiff.

According to the settlement, all claims that arise no later than five years after the settlement becomes final, following the exhaustion of all appeals, will be released.

However, newer merchants contested that they were being treated unfairly and inadequately represented because the class representatives accepted credit card payments for the entire 15-year litigation period. These newer merchants further claimed that they must forfeit relief for the same duration as older businesses.

Judge Jacobs opined that the appropriate scope and compliance with federal law regarding the future release could be considered in a case that directly pertains to the matter.

Despite the considerable amount awarded as attorneys’ fees, the district court did not abuse its discretion. The district judge calculated the fees based on a percentage of the fund but then decreased the percentage by 0.25 per cent due to the substantial damages claimed by the plaintiffs. District Judge Brodie cross-checked the percentage amount with the lodestar method, which resulted in a multiplier of 2.45 times the attorneys’ hourly rate. Ultimately, the outcomes were comparable.

Additionally, Judge Jacobs noted that Judge Brodie reviewed several factors, such as time and expenses, the magnitude and complexity of the case, litigation risk, the ratio of the fee to the settlement, and the promotion of public policy, as required.

The appellants disputed the district court’s use of a lodestar multiplier that included time spent on injunctive relief. Without including such time, the multiplier would have exceeded 2.45x, which appellants considered "unreasonable."

However, Judge Jacobs noted that the district court acted within its discretion and that the number of hours spent on injunctive relief was minimal. Judge Jacobs also affirmed that District Judge Brodie used comparable lodestar figures to determine the reasonableness of the attorneys’ fee award.

“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,” Judge Jacobs wrote.