Articles Posted in Financial and Insurance Industry

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Author: Jarod Bona

Even if you aren’t an antitrust lawyer, you have certainly seen notices of class actions, perhaps with a solicitation from an attorney stating in legalese that you may be entitled to money or something to that effect. You probably ignored them—and for good reason—perhaps the amount you could receive was small, or the subject didn’t really have anything to do with you or your business or you just didn’t want to suffer through the poor lawyer-drafted prose.

Did it surprise you to learn that while you were just minding your own business you were apparently a part of what looks like pretty major litigation?

In this article, I’ll offer some background about how antitrust class action settlements work and do it by describing a big one: In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation. This is the antitrust litigation against Visa, MasterCard, and their member banks.

As of early May 2019, this case is between second settlement (more about that below) and final approval. The settlement amount will range from $5.54 billion to $6.24 billion. The class members are merchants that have accepted Visa and/or MasterCard between January 1, 2004 and January 25, 2019.

Is that you or your company?

But before we begin, a disclaimer: Bona Law doesn’t typically represent classes in antitrust class action cases. We do represent defendants. But there is one exception: We will represent members of an existing class or opt-out plaintiff members, typically businesses. This, of course, follows our practice—which is common among large international firms as well, to represent both plaintiff and defendant companies in antitrust litigation (but not plaintiff-side classes).

If you are a defendant facing a class action, you might want to read our articles on an antitrust blizzard and defending an antitrust MDL.

Here is the disclaimer: In the Interchange Fee litigation, Bona Law (along with Cahen Law P.A.) represents multiple merchant members of the class that are seeking relief from either the existing settlement (if approved) or as an opt-out.

And here is a good life lesson: Whenever someone has an interest (including attorneys representing clients with an interest), consider their bias, which may be unintentional but present. So assume that we are biased here in favor of the merchants that are seeking relief from the evil antitrust violations.

With that out of the way, let’s jump into the substance.

How Do Class Action Settlements Work?

I won’t go too deeply into the basics of class actions or how class certification works. We’ve written about it elsewhere. You can read our blog post about defending against class certification here. You can read about the requirements of class certification here. And if you want to appeal a class certification decision, read this article.

Here is the gist of class actions: There are some cases in which many people are damaged only a little bit—maybe even just a few dollars. It doesn’t make sense for those people to hire an attorney and file a lawsuit to recover a few dollars. So—absent another method of relief—there won’t be lawsuits if a legal violation results in widespread but minimal harm to each. Some people may say “good” to that. But our legal system has adopted a private-attorney general model in antitrust and elsewhere that places some of the enforcement of law in the hands of private individuals and companies that have been harmed, and their attorneys.

If you want to learn more about the private attorney general model, you can read a law review article that I wrote many years ago with Carl Hittinger.

Even if each individual has sufficient incentive to file a lawsuit (i.e. enough money is at stake), the law has determined that there may be overall efficiencies for the individuals to handle their claims as part of a class if, for example, the common issues in the case predominate over any individual issues.

The class action approach, codified under federal law into Federal Rules of Civil Procedure, Rule 23, allows courts to hear and decide actions on behalf of an entire class of people that have been injured. Class actions, not surprisingly, happen a lot in antitrust, especially when plaintiffs allege that price-fixing, bid rigging, or market allocation, for example, led to an overcharge of some minimal amount, resulting in widespread, but often minimal individual damages.

There is a certification requirement, but other than that much of the litigation is just like any other case, except settlement.

If you want to settle with a class, it is a big to-do. That is because the class action can, in fact, eliminate the right to seek relief by people that may have no idea about the litigation. In addition, the attorneys that brought the action on behalf of the class typically receive their fees (which are usually contingency) out of the settlement proceeds (or judgment proceeds if the case gets that far).

So, to deal with all of these issues, a class-action settlement requires a preliminary approval by the court, a notice to the class, an opportunity for class members to opt-out or challenge the settlement, and, eventually, a final approval. And the court’s final approval is subject to appeal by class members that may disagree with the settlement. Then, if the settlement survives all of that, there is a process for paying the class members from the settlement funds through a claims administrator.

The paragraph above listed a lot of steps, each with its own nuances and details. So please just take that as the “gist” of it.

It will be easier to understand with a concrete example.

In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation

If we are going to talk about a particular class-action settlement, I can’t think of a better current one to discuss than the In re Payment Card Interchange and Merchant Discount Antitrust Litigation, which some people just call the “Visa-MasterCard case.” The settlement is valued at between $5.54 billion and $6.24 billion. That’s a lot of money, even for a big antitrust case.

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Downtown Hartford

Author: Jarod Bona

In many instances, conduct involving the business of insurance is, indeed, exempt from antitrust liability.

So why does insurance sometimes get a free pass?

In 1945, Congress passed a law called The McCarran-Ferguson Act. Insurance, of course, has traditionally been regulated by the States. Territorial and jurisdictional disputes between the States and the Federal government are a grand tradition in this country. We call it Federalism. In 1945, it appears that the states won a battle over the feds.

As a result, in certain instances, business-of-insurance conduct can escape federal antitrust scrutiny.

The business of insurance isn’t the only type of exemption from the antitrust laws. There are a few. At The Antitrust Attorney Blog, we have discussed state-action immunity quite a bit (as suing state and local governments under the antitrust laws is a favorite topic of mine). Indeed, the week of this article update, Bona Law filed a petition for cert to the US Supreme Court asking it to review a state-action immunity from antitrust liability ruling by the Ninth Circuit.

An exemption that is similar to the McCarran-Ferguson Act is the filed-rate doctrine, which we discuss here. There are, of course, several others, including–believe it or not–an antitrust exemption for baseball. The courts, however, disfavor these exemptions and interpret them narrowly.

But back to the insurance-business exemption and The McCarran-Ferguson Act. Do you notice that I keep calling it the “business of insurance” exemption and not the insurance-company exemption? That is because the courts don’t just exempt insurance companies from antitrust scrutiny. No, the exemption only applies to the business of insurance and in certain circumstances.

Below are the basic elements a defendant must satisfy to invoke the McCarran-Ferguson Act:

  1. The conduct in question must be regulated by the state or states.
  2. The conduct must qualify as the business of insurance—the business of insurers is not sufficient.
  3. The conduct must not consist of a group boycott or related form of coercion.

Each of these elements, in turn, has its own requirements, case law, and doctrinal development. The most interesting of the three elements is how to define the business of insurance.

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The doctrine of federal antitrust law includes several immunities and exemptions—entire areas that are off limits to certain antitrust actions. This can be confusing, especially because these “exceptions” arise, grow, and shrink over time, at the seeming whim of federal courts.

As a matter of interpretation, the Supreme Court demands that courts view such exemptions and immunities narrowly, but they are still an important part of the antitrust landscape. This includes, prominently, the Filed Rate Doctrine, which is the topic of this article.

Here at The Antitrust Attorney Blog, we write about these antitrust exceptions periodically. In particular, we spend a lot of time on state-action immunity, but have also published articles on, for example, the baseball antitrust exemption, and the business of insurance exception (which, unlike many others, arose from statute: The McCarran-Ferguson Act).

What is the Filed Rate Doctrine?

The filed rate doctrine is simply a judicially created exception to a civil antitrust action for damages in which plaintiffs challenge the validity of rates or tariff terms that have been filed with and approved by a federal regulatory agency.

But what does that mean?

In some industries, notably insurance, energy, and shipping (or other common carriers), the participants must file the rates that they offer to all or most customers with a government agency. This regulatory agency must then, in some manner, approve those rates. This approach is an exception to a typical market and was more common in certain industries pre-deregulation.

The idea of filing these rates is that the benevolent and all-knowing government agency, rather than the market, will best look after customers. It arises from the same seed as socialism and was particularly popular in the early to mid-20th century when the view that educated people could perform better than markets was in vogue.

Anyway, these “filed rates” are still with us and are a defense, through the filed rate doctrine, to certain antitrust actions.

The filed rate doctrine itself arose in a 1922 US Supreme Court case called Keogh v. Chicago & Northwest Railway Co., 260 U.S. 156 (1922). In that case, the plaintiffs sought antitrust damages by arguing that defendants violated the Sherman Act and the rates charged by certain common-carrier shippers were higher than they would have been in a competitive market.

The defendants, however, had filed these rates with the Interstate Commerce Commission (ICC), a federal agency that had approved them. The Supreme Court responded by precluding plaintiffs’ antitrust lawsuit on that basis, as the rates, once filed, “cannot be varied or enlarged by either contract or tort of the carrier.” It is the legal rate.

The Supreme Court has since reaffirmed this holding, most prominently in a case called Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409 in 1986, which you can read at the link if you want to dig deeper.

When Does the Filed Rate Doctrine Preclude Antitrust Liability?

The filed rate doctrine is a defense to an antitrust lawsuit, premised on damages, so long as the claim requires the Court to examine or second guess the rates filed with a federal agency.

So if you are a plaintiff that wants to bring an antitrust action against a defendant that filed rates, you could (1) seek certain types of injunctive relief; and (2) develop your action in a way that doesn’t require the Court to determine liability or calculate damages by comparing current filed rates to a hypothetical rate in a but-for world. This can get complicated, so if you are not an antitrust attorney, you might want to find one.

If you are or represent a defendant that has been sued under the antitrust laws and the defendant company files rates with some agency, you should also seek antitrust-specific guidance. You might have a strong defense.

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Rotten WoodThe defendants in Halliburton Co. v. Erica P. John Fund, Inc. failed to show the US Supreme Court the “special justification” necessary to overturn settled precedent.

As we explained in a previous post, the Supreme Court in this case agreed to reconsider its 1988 decision in Basic v. Levinson, which allowed a shareholder class in a securities fraud lawsuit to satisfy statutory “reliance” requirements by invoking a presumption that stock prices traded in “efficient” markets incorporate all material information, including alleged misrepresentations.

But between then and now, academics, economists, and commentators chipped away at the economic theory underlying this presumption, which is based upon “the efficient capital markets hypothesis.”

So if a legal precedent depends upon an economic theory that now appears less valid than it did before, do you overrule it or keep it in place because it has ingrained itself into a larger legal structure?

Here is a similar question from real estate: If part of the wood in a load-bearing wall has started to rot, do you replace it? The Supreme Court held that you do, if you can show a “special justification.”

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Supreme Court BuildingOn March 5, the Supreme Court will hear arguments on whether the fraud-on-the-market presumption in securities class actions should survive. The case is Halliburton v. Erica P. John Fund and it could be groundbreaking. If the Supreme Court jettisons the presumption, it will close a major avenue for securities class-action lawsuits.

Update: The US Supreme Court issued its decision on June 23, 2014.

But what does this mean for antitrust lawsuits? We’ll get to that in a moment.

First, some background: In 1988, the Supreme Court held in Basic v. Levinson that when a shareholder class sues a company under Rule 10b-5 (for misrepresentation, etc.), it need not show that the individual class members relied on the misrepresentations because the stock market is “efficient” and such statements are quickly incorporated into the stock price.

So if you purchased a share of stock after a management official said that the company increased revenue twenty-percent year-over-year even though the manager knew that the revenue numbers were not accurate, you purchased stock that was already inflated from the statements because the market incorporated those statements immediately into the stock price.

Remember the classic book, A Random Walk Down Wall Street? It is all about efficient-market theory. Great book, by the way.

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