Merchants File Swipe-Fee Appeal

Officially challenges judge's preliminary approval of settlement with Visa, MasterCard

NEW YORK -- Several merchants and retail trade groups are appealing a judge's preliminary approval of a class-action settlement over the credit-card transaction fees imposed by Visa Inc. and MasterCard Inc., reported Dow Jones.

The plaintiffs, who have lobbied to derail the $7.25 billion deal since it was unveiled in July, officially filed a notice of appeal in federal court on Tuesday. The notice is the first step in challenging U.S. District Court Judge John Gleeson's preliminary approval of the interchange or swipe fee settlement.

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"This settlement has fatal legal defects and should not get preliminary approval," said Jeff Shinder, a managing partner with Constantine Cannon LLP, which is representing the objecting plaintiffs, in a statement. "We look forward to presenting the problems we see in this proposal to the Second Circuit Court of Appeals."

The objecting plaintiffs specifically said in their notice they take issue with a portion of the order that enjoins merchants "from challenging in any action or proceeding any matter covered by" the settlement agreement, which has been a sticking point for critics who say the deal gives overly broad releases from future litigation to the payments networks.

Critics including Home Depot Inc. and NACS, one of the objecting plaintiffs, have also taken issue with a provision that doesn't allow merchants to opt out of rule changes that Visa and MasterCard agreed to make two months after the settlement gained preliminary approval.

"We are 100% attacking through this appeal what we feel to be the heart and soul of this settlement, and that is the way the settlement improperly deprives merchants of their due process rights through the injunction and the mandatory class," Shinder told the news agency.

Shinder's clients include D'Agostino Supermarkets Inc., NACS and the National Grocers Association.

Bob Stolebarger, a partner with Bryan Cave LLP and antitrust counsel to the Electronic Payments Coalition (EPC), which represents payments networks and banks, said the objecting plaintiffs' are limited in their ability to appeal all of Judge Gleeson's preliminary approval order, citing case law. The move also should not "hinder or delay proceedings at the district court level," Stolebarger said.

The settlement would allow Visa, MasterCard and several card-issuing banks including Bank of America Corp. and J.P. Morgan Chase & Co. to put to bed litigation brought against them by merchants in 2005, accusing the companies of conspiring over the fees that retailers pay to accept credit cards. Visa and MasterCard set the fees, which are collected as revenue by the banks that issue the payments networks' cards.

The deal has reignited a longstanding battle between merchants and the payments industry, with some retailers arguing that the deal will solidify practices by Visa and MasterCard that have led to rising interchange fees over the years rather than helping merchants control their costs.

Gleeson said he was granting preliminary approval to the deal at a court hearing on Nov. 9, and on Tuesday signed a formal order doing so.

A spokesperson for Visa declined to comment to Dow Jones about the objectors' appeal plans on Tuesday. A spokesperson for MasterCard referred to a Nov. 9 statement from General Counsel Noah Hanft, who said the settlement "represents a solution reached after years of litigation and months of negotiation."

Under the deal, merchants who opt in to the settlement stand to receive payments totaling $6.05 billion. Visa and MasterCard have also agreed to temporarily reduce swipe fees by an amount equal to $1.2 billion, and alter certain rules that merchants have complained about. Those rule changes, including the elimination of a ban against surcharging customers who pay with credit cards, are set to take effect in two months.

Proponents of the deal have accused critics of embarking on a smear campaign against the settlement in hopes of drumming up political support on Capitol Hill for potential legislation that would permanently limit credit-card swipe fees.

Similar rules that lowered debit-card swipe fees took effect in October 2011 per a provision of 2010's Dodd-Frank Act called the Durbin amendment. The rules did not affect credit-card swipe fees.

"If they were party to a settlement agreement ... it would be very, very hard for them to go up on the Hill" and garner support for legislation addressing the "interchange issue on the credit side in the same way that they did on the debit side with the Durbin amendment," Stolebarger said.

"This obscure appeal is just a badly underthrown legal Hail Mary that shouldn't give anyone any concern," Trish Wexler, a spokesperson for EPC, said in a statement cited by Bloomberg.

"The retailer objectors are focusing on an extremely limited and technical issue," she said. The move "does nothing to slow or change the settlement process."

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