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Friday, November 9, 2012

Visa, MasterCard Fee Deal Falls Too Short, Retailers Claim

Per www.bloomberg.com:

By Christie Smythe - Nov 9, 2012

Hundreds of retailers opposed to Visa Inc. (V) and MasterCard Inc. (MA)’s proposed $7.25 billion settlement of a merchant fee price-fixing case are trying to convince a federal judge the deal should be thrown out.

U.S. District Judge John Gleeson in Brooklyn, New York, today is considering arguments over whether to give the deal preliminary approval, a move that would allow plaintiffs to begin signing up the more than 7 million retailers that might be eligible to participate.

Estimated to be the largest-ever private antitrust settlement, the deal would end a seven-year-long case alleging that the card companies conspired with major banks to fix interchange, or swipe, fees charged to merchants when customers pay with plastic.

Gleeson said in an Oct. 24 order that the deal will likely meet requirements for the initial sign-off, a threshold he said is “meaningfully lower” than that of a later final approval. Still, lawyers for the opponents are hopeful they can change his mind, given that there are provisions in the deal allowing some of elements they say are particularly unfair to go into effect at the preliminary stage.

Gleeson said in court that he may rule today.

‘Serious Damage’

“These merchants and their representatives object to the settlement because it will neither introduce transparency nor give merchants the ability to inject competition in a market that has not functioned competitively for decades,” Jeffrey Shinder, a lawyer for some of the settlement opponents, said in a Nov. 2 court filing.

Even if the judge later rejects the deal when it is up for final approval, “serious damage may have already been done,” Shinder said.

In court papers, retailers and trade associations opposing the settlement amount -- including $6.05 billion in cash payments and a temporary interchange fee abatement -- say it falls far short of the damages plaintiffs might have recovered at trial.

Plaintiffs could have won as much as $300 billion if the case had been fully litigated and the court awarded triple damages as permitted under antitrust law, a lawyer for one group of objectors said in an Oct. 18 filing, referring to an August analysis by Georgetown University law professor Adam Levitin.

“The proposed settlement is far south of this number, not even 10 percent of the potential recoverable damages should this case be tried,” said the lawyer, Jerrold Parker, who is representing about three dozen small businesses, including restaurants and auto dealerships.

‘Overbroad’ Releases

Lawyers for the objectors further argue that the settlement contains overbroad releases protecting Visa and MasterCard from future lawsuits by retailers, including those not yet in existence, over a wide spectrum of the card companies’ practices.

The card companies are hoping to “bar every merchant from ever again suing them, leaving Visa and MasterCard free to thwart competition, maintain their monopolies and charge exorbitant interchange fees without fear of challenge,” said Gregory Clarick, a lawyer for several large retailers including Neiman Marcus Group Inc., Saks Inc. (SKS) and Target (TGT) Corp., in a Nov. 1 objection.

A twist in the structure of the settlement eliminates retailers’ rights to opt out of certain parts of the deal, “making it impossible for merchants to escape the noose of the release and covenant,” Clarick said in his filing.

Later Stage

The release would go into effect upon preliminary approval, not at the later final approval stage, Shinder said.

A concession by the card companies purportedly allowing merchants to make up for interchange costs by passing along surcharges to customers also does little to help retailers, objectors said.

The measure would be subject to complicated rules making it difficult if not impossible to surcharge, Shinder said in his filing. On top of that, 10 states, including California, Florida, New York and Texas, prohibit surcharging, Shinder said.

Initial approval of a class-action deal “is appropriate where the proposal appears to be the product of serious negotiations and further appears to be within the range of possible final approval,” Gleeson said in his Oct. 24 order. He said he usually doesn’t hold argument until the later final approval stage for class-action settlements, after prospective participants are notified about the deal.

‘Smell Test’

“It is supposed to be a preliminary look to see if it passes a very rough smell test,” said Samuel Issacharoff, a New York University law professor and expert on class actions, in a phone interview. Issacharoff isn’t involved in the interchange case.

Nevertheless, a judge might decide to stop a deal in its tracks if it seems too broad or grossly unfair, he said.

“When settlements start resolving things which were never part of the lawsuit, then you worry that the lawyers in charge of the lawsuit are selling things that were never theirs in the first place,” he said.

Lawyers for plaintiffs in favor of the deal have said they are confident they will win preliminary approval.

“The agreement is very much in the interests of the merchants and those who have objected are either misinformed or have other agendas, or both,” K. Craig Wildfang, a lead lawyer for the plaintiffs, said in a phone interview Oct. 19.

Plaintiffs in favor of the deal include Payless ShoeSource Inc. and eight small businesses including Photos Etc. Corp., Discount Optics Inc. and Leon’s Transmission Service Inc., according to court papers.

Dropped Out

An additional 10 retailers and trade groups that were previously among the plaintiffs decided to drop out of the deal after it was made public in July.

Since the deal’s release, a growing number of trade groups and retailers have waged publicity campaigns against it, including the National Retail Federation, the National Restaurant Association, the National Community Pharmacists Association and the National Association of Convenience Stores, as well as retailers Wal-Mart Stores Inc. (WMT) and Target.

About 1,200 total retailers and trade groups now oppose it, according to court filings.

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn). . . .

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