Merchants, Visa, MasterCard, Banks Seek Approval Of $7.25B Antitrust Settlement

by Tara Arick on October 23, 2012 · 0 comments

in Contract Law

- From LexisNexis® Mealey’s™ Daily Legal News.

Merchants moved on Oct. 19 for preliminary approval of a class action settlement with Visa, MasterCard and a large number of banks that the proposed class alleges fixed the prices of interchange fees paid by merchants when customers use Visa and MasterCard credit cards, for $ 6.05 billion, an eight-month reduction in interchange fees worth $ 1.2 billion and modifications of the Visa and MasterCard rules (In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation [All Cases], No. 05-MD-1720, E.D. N.Y.).
The merchants contend that the settlement would be “the largest private damage recovery in United States antitrust history” and would “continue a series of reforms that restructure the payment card industry, making it more competitive.” Several proposed class representatives oppose the settlement, and, pursuant to an earlier ruling by U.S. Magistrate Judge James Orenstein of the Eastern District of New York, objections to preliminary approval of the proposed settlement must be submitted within 30 days after the filing of the motion for preliminary approval.

Terms Of Settlement

Pursuant to the agreement filed in the U.S. District Court for the Eastern District of New York, Visa Inc., Visa U.S.A Inc. and Visa International Service Association (collectively, Visa) will pay two-thirds of the cash settlement amount, approximately $ 4 billion, and (MasterCard Inc. and MasterCard International Inc. (collectively, MasterCard) and the banks will pay approximately $ 2 billion. The banks are issuing banks – banks that issue MasterCard-branded payment cards to customers – and acquiring banks – banks that acquire payment transactions from merchants and act as a liaison between the merchant and the issuing banks.

Visa and MasterCard agreed to reduce interchange fees for eight months.

The settlement agreement also permits the merchants to impose a surcharge on credit card purchases, subject to a cap and a clear disclosure of the surcharging practices.

In addition, the “settlement locks in the $ 10 minimum for credit card transactions enacted by Congress through the Durbin Amendment even if Congress repeals that part of the legislation” and “locks in the reforms imposed by the Final Judgment in the Department of Justice lawsuit against Visa and MasterCard even if those reforms are terminated,” the merchants say.

Opposition To Settlement

The proposed class representatives seeking preliminary approval of the settlement include Photos Etc. Corp., Traditions Ltd., Capital Audio Electronics Inc., CHS Inc., Crystal Rock LLC, Discount Optics Inc., Leon’s Transmission Service Inc., Parkway Corp. and Payless ShoeSource Inc.

Former proposed class representatives who oppose the settlement include the National Association of Convenience Stores, National Grocers Association, National Community Pharmacists Association, National Cooperative Grocers Association, National Restaurant Association, Coburn’s Inc., D’Agostino Supermarkets, Jetro Holdings Inc., Jetro Cash & Carry Enterprises LLC, Affiliated Foods Midwest Cooperative Inc. and NATSO Inc.


The litigation began in 2005, when putative class actions were brought by merchants against the defendants. The merchants asserted that because the board of directors of MasterCard and Visa set the interchange fees the issuing banks paid the acquiring banks and the banks controlled the board of directors, the banks dictated the amount charged as interchange fees.

VISA and MasterCard announced their initial public offerings (IPOs), wherein they redeemed and reclassified the stock held by theirs member banks and then transferred new shares to the banks.

The merchants then argued that the agreements leading up to the IPOs violated federal antitrust law and state fraudulent conveyance law. The merchants asserted that the purported transformations from joint ventures to “single entities” would insulate internal actions from antitrust laws.

The merchants alleged that the defendants adopted interchange rules and rates, other network rules and corporate reorganizations that constituted unlawful price fixing, unreasonable restraints of trade, monopolization, lessening of competition, and fraudulent conveyances, in violation of the Sherman Act, the Clayton Act, California’s Cartwright Act and the New York Uniform Fraudulent Conveyance Act.

The settlement was reached while both the class plaintiffs’ and the defendants’ motions for summary judgment were pending. The settlement is subject to approval by Judge John Gleeson.

Class Definitions

The bank defendants are Bank of America N.A., BA Merchant Services, Bank of America Corp. and MBNA America Bank N.A. (collectively, Bank of America); Barclays Bank plc, Barclays Bank Delaware and Barclays Financial Corp. (collectively, Barclays); Capital One Bank (USA) N.A., Capital One F.S.B. and Capital One Financial Corp. (collectively, Capital One); Chase Bank USA N.A., Chase Manhattan Bank USA N.A., Chase Paymentech Solutions LLC, JPMorgan Chase Bank N.A., JPMorgan Chase & Co., Bank One Corp., Bank One Delaware N.A., and Washington Mutual Bank (collectively, JP Morgan Chase & Co.); Citibank (South Dakota) N.A., Citibank N.A., Citigroup Inc. and Citicorp (collectively, Citibank); Fifth Third Bancorp; First National Bank of Omaha; HSBC Finance Corp. and HSBC North America Holdings Inc. (collectively, HSBC); National City Corp. and National City Bank of Kentucky (collectively, National City); SunTrust Banks Inc. and SunTrust Bank (collectively SunTrust); Texas Independent Bancshares Inc.; and Wachovia Bank N.A., Wachovia Corp., Wells Fargo Bank N.A. and Wells Fargo & Co. (collectively, Wachovia).

The Federal Rule of Civil Procedure 23(b)(2) and 23(b)(3) classes are defined as merchants “that have accepted Visa-Branded Cards and/or MasterCard-Branded Cards in the United States at any time from January 1, 2004 to the Settlement Preliminary Approval Date.”

Individual plaintiffs are Ahold U.S.A. Inc., Albertson’s Inc., BI-LO LLC, Bruno’s Supermarkets Inc., Delhaize America Inc., Eckerd Corp., The Great Atlantic & Pacific Tea Co., H.E. Butt Grocery Co., Hy-Vee Inc., The Kroger Co., Maxi Drug Inc., Meijer Inc., Meijer Stores Limited Partnership, Pathmark Stores Inc., Publix Supermarkets Inc., QVC Inc., Raley’s, Rite Aid Corp., Safeway Inc., Supervalu Inc., Wakefern Food Corp. and Walgreen Co.

Plaintiffs’ Counsel

Co-lead counsel for the class plaintiffs are K. Craig Wildfang, Martin R. Lueck, Thomas J. Undlin and Ryan W. Marth of Robins, Kaplan, Miller & Ciresi in Minneapolis; H. Laddie Montague Jr., Merrill G. Davidoff, Bart D. Cohen and Michael J. Kane of Berger & Montague in Philadelphia; and Patrick J. Coughlin, Bonny E. Sweeney, David W. Mitchell and Alexandra S. Bernay of Robbins Geller Rudman & Dowd in San Diego.

The objecting plaintiffs are represented by Jeffrey I. Shinder and Kevin E. Coughlin of Constantine Cannon in New York.

Liaison counsel for individual plaintiffs is Richard Alan Arnold of Kenny Nachwalter P.A. in Miami.

Add a Comment

Asterisks (*) indicate required fields.

Use of and participation in this website are subject to Terms & Conditions