Credit Card Merchant Fee Class Action: The Release From Liability
posted by Steve Semeraro
This is the final installment in my four-part series on the credit card merchant fee antitrust class action. The district court is currently considering whether to approve the settlement. Prior posts described the settlement and addressed the damages and injunctive relief provisions. This one focuses on the release that the class would provide to the defendants.
Although broad releases are common in class actions, this settlement is unusual. Typically, class settlements (1) release the defendants from further liability for past conduct, and (2) bar them from engaging in the future in the problematic conduct that gave rise to the litigation. The proposed settlement here, by contrast, (1) fails to enjoin the merchants from continuing most of the practices that led to the litigation; and (2) releases the defendants from liability for their past and future conduct with respect not only to the rules examined in the litigation, but any to (1) any existing Visa or MasterCard rule; (2) any future rule that is substantially similar to an existing one; or (3) any conduct relating to a rule that fits into categories (1) or (2).
The objecting merchants point out that only a tiny portion of Visa’s and MasterCard’s massive rulebooks were examined in the course of the litigation. Such a broad release, the objecting merchants argue, violates due process. That Visa and MasterCard are not now employing a particular rule anticompetitively, the merchants argue, is no guarantee that they won’t do so in the future. The objecting merchants illustrate the problem by pointing to the defendants’ use of the honor-all-cards rules with respect to debit cards. Prior to the 1990s, the aspect of those rules requiring merchants that accepted credit cards to also accept debit had de minimis competitive effect. When the debit card market expanded, however, the rules’ impact on merchants became more significant. At that point, Visa and MasterCard used the honor-all-cards rules without alteration as the basis to insist that merchants accept debit cards if they wanted to continue accepting credit cards, potentially violating the antirust rule against tying. As written, the proposed settlement would prohibit the merchants from suing if the defendants use an old rule in an unanticipated way to restraint future competition.
Even if this were purely a b(3) opt out class, the settlement would be suspect. Courts must carefully scrutinize whether the name plaintiffs and the counsel negotiating the settlement can adequately represent each member of the class. Although the merchants share an interest in competitively set interchange fees, the nature of the proposed relief as well as the release create distinctions among sub-groups of merchants that may render the existing class-wide representation inadequate. For example, because surcharging is the only potential form of relief that could foster a more competitive environment, the varying abilities of merchants in different sectors of the economy and parts of the country to surcharge their customers could lead a court to conclude that unified representation of the class is inadequate.
In addition, a number of plaintiffs who would otherwise have been in the class settled on non-public terms with the defendants in advance of the proposed global class settlement. This too raises questions about the adequacy of representation. In Amchem Products, the Supreme Court rejected a global class settlement, clearly troubled by class counsel’s settling all of their existing clients’ claims on terms different from those available to the class members.
The proposed settlement also purports to release claims that might be filed by future merchants who do not now accept credit cards and thus are not entitled to damages. The interests of these class members obviously differ from those who will receive damages because for future merchants the entire benefit of the settlement necessarily rests on the injunctive remedy. And they would have no ability to opt out, because by definition a future merchant is not a merchant now and thus would not receive notice of the settlement. To ensure adequate class representation, future merchants should have their own counsel participating in the formation of the settlement.
Whether the release could be justified in an opt out class is an academic question, because the drafters have set up the proposed settlement to include all present and future merchants in a mandatory b(2) class for injunctive relief purposes. As a result, neither existing card-accepting merchants nor merchants accepting cards in the future may opt out of the case entirely (opting out is limited to the damages pool only). As the settlement is drafted, every merchant that accepts Visa or MasterCard cards into perpetuity will be bound by the release of all claims based on the defendants past and future conduct relating to existing rules or new ones that are substantially similar.
The final passages of the principal release paragraph seek to cement the breadth of the release by declaring that the parties “expressly agreed, for purposes of clarity . . . that any claims based on or relating to [the subsections of the principal release paragraphs] are claims that were or could have been alleged in this Action.” Those provisions of the settlement, however, purport to release claims, inter alia, arising out of the future application of a rule that was (1) created after approval of the settlement (so long as it is substantially similar to a then-existing rule); (2) applied to future market conditions that could be wholly unanticipated when the settlement was approved; and (3) involved the application of a rule having nothing to do with interchange, merchant discount fees, or any other allegation in the Complaint. The proposed settlement’s drafters fail to explain in what sense such a claim “could have been alleged in this Action.”