Class Action Settlements, Claims, Opt-Outs, and the In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation


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.

This may be familiar to you because if you are a merchant and accept Visa and MasterCard, you probably received a notice of this class action settlement recently. The notice does a decent job explaining your options and the overall litigation. You can read the notice here.

The class roughly includes merchants that have paid interchange fees relating to Visa and MasterCard from between January 1, 2004 and January 25, 2019 (with certain common exclusions).

By the way, you might not know that an interchange fee is the fee that merchants pay to companies like Visa and MasterCard every time a customer uses the card. It is typically a percentage of the purchase price.

This case, like many major antitrust class actions, has been going on forever—well, about thirteen years. For many attorneys involved, it has been part of much of their career.

For fans of Charles Dickens, we can call this the Jarndyce v. Jarndyce (of Bleak House) of recent antitrust history.

In the Visa-MasterCard case, a class of plaintiff merchants accused Visa, MasterCard, and their member banks of antitrust violations arising out of interchange fees and the rules that they set for merchants that limited or eliminated competition (like anti-steering, no-surcharge rules, no-discounting rules, honor-all-cards rules, etc.). There were also allegations about horizontal coordination among Visa, MasterCard, and their respective member banks in setting these rules.

Plaintiffs allege that this anticompetitive conduct resulted in excessive interchange fees for companies that accept Visa and MasterCard. They argue that in the famous utopian “but for” world where these antitrust violations didn’t exist, there would not have been interchange fees at all, or at least they would have been lower.

So the alleged damage to the plaintiff class members are their interchange fees or some portion of them (trebled, of course). Here, plaintiffs utilized the class action structure because even though some individual merchants paid millions of dollars in interchange fees (and would therefore have incentive to sue individually), there were so many merchants out there that were similarly affected that it makes sense to utilize the class structure to decide the common issues—like the question of whether defendants violated the antitrust laws through their interchange fees, merchant rules, and other conduct.

Rather than continue the case, the parties have agreed to settle. Interestingly, however, this isn’t their first settlement. They settled a few years ago. In fact, they went through what they are going through now. And the trial court actually issued a final approval of that settlement.

But trial-court final approval isn’t the end of the process (despite the word “final”). The trial court is in New York, so the appeal went to the United States Court of Appeals for the Second Circuit, who—in a relatively unusual move—rejected it. I won’t go too deep into the details of the decision—which you can read here—but the Second Circuit rejected the agreement primarily because of an attorney conflict relating to the injunctive relief and damages classes/cases and some structural issues with the settlement, that, for example, the release by merchants was too broad in certain ways.

Before the Second Circuit rejected the settlement, many large merchants engaged defendants in separate negotiations and reached private settlements, which resulted in them ultimately dismissing their individual cases (presumably as an opt-out).

What is Happening Now in the Visa-MasterCard case?

As of early May 2019, the trial court has issued its preliminary approval of the settlement. You can read the shorter order approving the settlement here and the longer order going into great detail behind the preliminary approval here. That happened near the end of January 2019 (soon before my birthday).

If you read the long opinion, you might notice that even though the amount of the entire settlement is large—in the five to six billion dollar range—the actual settlement comes down to just a few months of interchange fees. The class period stretches from January 2004 to January 25, 2019. That is a lot of years of interchange fees. And if you paid interchange fees during that period, you may be part of the class.

Interestingly, the settlement actually requires merchants to release related future claims up to five years after final settlement approval.

The next big date in this case is July 23, 2019. This is the day by which each merchant can (1) opt-out of the class and either negotiate with or pursue separate litigation against defendants; or (2) file papers challenging the settlement itself (while staying in the class). To do either of these things, you have to make sure you take timely action, which is detailed in the notice.

Then, on November 7, 2019, the trial court will hold what is called a fairness hearing, in which the Court will hear from proponents of the settlement and objectors to the settlement. It is from that hearing and the papers filed that the trial court will decide whether to issue a final approval to the settlement (which, of course, is subject to appeal to the Second Circuit). The final approval and appeal could take some time (if, of course, it is ultimately approved and upheld on appeal).

If there is a final approval and it is upheld on appeal, the claims administration process can start. The details of that process will be fleshed out later, but if there is an upheld settlement approval, the court will approve a claim form and any member of the class that wants their share of the settlement must fill it out and submit the form. You can read more about the claims process for this case in the FAQ on the website set up for this case. Importantly, please note that the claim forms are not yet available (as of early May 2019).

If you opt-out of the case, you don’t have a right to file a claim. You are on your own. You could settle with the defendants separately, or engage in litigation yourself. That sometimes happens in class actions. At Bona Law and during my career at DLA Piper and Gibson Dunn, we’ve been on the defense side of big antitrust class actions, and it is common to litigate not only against the class itself, but also individual opt-out members of the class.

Court Order about Third-Party Claims Filing Services

On September 26, 2018, the trial court issued an interesting order about third-party claims filing services. Throughout the process of the first and now second settlements, there apparently have been some third-party claims filings services that have issued misleading information to merchants that they wanted to sign up for their service.

To minimize future misleading actions, the trial court requires any claims service that wants to participate in the settlement to include the following in any solicitation about this case:

  1. A statement that claim forms are not yet available.
  2. A statement making clear that class members need not sign up for a third-party service in order to participate in any monetary relief and explaining that no-cost assistance will be available from the Class Administrator and Class Counsel during the claims-filing period.
  3. Information directing class members to the Court-approved website for additional information [that website, which we have been linking to throughout, is here.].

What Should I Do Now?

As of early May 2019, as we described above, the next big date is July 23—the deadline to opt-out or challenge the settlement. Of course, if you want to challenge the settlement, you and your attorney should start working on your papers well before July 23, 2019.

Most likely, some merchants will negotiate with defendants to see if they can reach a separate settlement between now and then. If you aren’t going to try to negotiate separately, opt-out, or challenge the settlement, you should watch for a potential final approval sometime after November 7, 2019 (and the likely appeal). After that—if the settlement survives—there will be claim forms that you must submit to receive any money.

If you don’t have legal counsel for this case (and even if you do), you can follow any developments on the website set up by court order for this case.

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