BROOKLYN, N.Y. – In a decision that could affect the $6-billion antitrust settlement between Visa and MasterCard and retailers including convenience-store retailers over the setting of interchange or "swipe" fees for consumers to use credit or debit cards, a judge has rejected a proposed class-action settlement between American Express Co. and retailers—including 7-Eleven, Wal-Mart and others—that sued the company over swipe fees.
As reported in a 21st Century Smoke/CSP Daily News Flash, he ruled that a lawyer for the merchants compromised the fairness of the agreement, reported Reuters.
U.S. District Judge Nicholas Garaufis in Brooklyn, N.Y., ruled that lawyer Gary Friedman acted improperly by talking about the case and sharing confidential information with a friend who represented MasterCard Inc. in a parallel class-action against MasterCard and Visa Inc.
While investigating the actions of Keila Ravelo, who represented MasterCard in the antitrust case when she was a partner at Willkie Farr & Gallagher LLP, Willkie Farr discovered emails and documents Ravelo exchanged with Friedman, who represented merchants through Friedman Law Group LLC. The two lawyers were colleagues at another firm early in their careers.
“Whether Friedman exchanged confidential and/or privileged materials with Ravelo and consulted with her regarding these actions for financial reasons, out of personal loyalty, due to a misplaced sense that her advice would in fact benefit the merchant class and was not improper, and/or for some other reason(s), is something this court cannot currently, and need not, determine,” Garaufis wrote in his decision, according to a Credit Union Times report.
“Whatever his reason for doing so, Friedman's bringing MasterCard's counsel into the negotiating process created a conflict between class members and Class Counsel, and specifically a risk that Friedman, with Ravelo in his ear, negotiated settlement terms that are worse for class members than the terms he might have negotiated absent that conflict. This risk requires the court to deny approval of the settlement,” the judge concluded.
Garaufis wrote that Friedman repeatedly violated court rules meant to protect confidential information and created a conflict of interest.
The judge ordered Friedman removed as co-lead counsel for the merchants and ordered a new round of written briefs to be filed in the case by September 8.
In a statement, American Express said it was “disappointed” in the ruling because it considered the settlement agreement fair. "We believe we have strong defenses against the merchants’ claims, and will continue to fight our case in court," it said.
The proposed antitrust settlement would have allowed merchants to impose a surcharge on American Express users, potentially treating those cardholders differently from other customers. Such settlements generally require court approval.
Merchants were not due to receive any money from the agreement, although Friedman and two other law firms that served as co-lead counsel were due to receive $75 million in fees.
The case is In Re: American Express Anti-Steering Rules Antitrust Litigation, U.S. District Court for the Eastern District of New York, No. 1:11-md-2221.
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