Appeals Court Tells Settlement Challengers To Wait Until Agreement Gets Final Approval

A federal appellate court has turned down a retailer appeal to review part of the controversial settlement in a massive credit card interchange case, clearing the way for the trial court to move toward final approval. Meanwhile, the Herculean task of notifying millions of merchants about the settlement is getting under way.

Legal experts say the terse refusal of the Second U.S. Circuit Court of Appeals in New York this week to intervene is no surprise. With settlements, appellate courts usually refuse to get involved until after the trial court gives final approval. In this case, the trial court is the U.S. District Court in Brooklyn, N.Y., where Judge John Gleeson gave preliminary approval Nov. 9 and has set a hearing for next Sept. 13 to consider final approval.

“It\'s hard to get an appellate court to rule on that, they want the trial court to do its thing,” says payments attorney Anita Boomstein, a partner with Hughes Hubbard & Reed LLP in New York who has advised some merchants but is not formally involved in the case.

Lawyers representing some individual merchants as well as at least seven merchant trade groups asked the Second Circuit to consider a narrow part of Gleeson’s preliminary approval, that being a provision of the settlement that releases defendants Visa Inc., MasterCard Inc., and a handful of major banks from liability for interchange pricing policies. That release, which would affect current and future card-accepting merchants, is shaping up to be the key objection that 1,200 retailers and trade associations have to the settlement of the 7-year-old litigation in which merchant plaintiffs accused the networks and banks of using anti-competitive practices in setting interchange.

Under the settlement announced in July by lawyers for both sides, the defendants will pay class merchants about $6 billion in damages, and Visa and MasterCard will provide another $1.2 billion in temporarily reduced interchange rates and ease up on certain rules, especially ones restricting merchants’ ability to surcharge for card transactions. In return, the networks want release from future court challenges by merchants to interchange and network rules. The defendants also are paying about $550 million to a handful of large merchant plaintiffs that have now dropped their claims.

Gleeson indicated that the standard for final approval is much higher than the one for preliminary approval, which means that the objecting plaintiffs still have some hope even though parts of the settlement already are going into effect or will be soon. For example, the networks have 60 days from Nov. 27, when the court entered Gleeson’s order implementing preliminary approval, to conform their rules to terms of the proposed settlement.

Meanwhile, the district court is setting up the machinery to administer the settlement process. Gleeson appointed Kansas City, Kan.-based Epiq Systems Inc., a specialist in legal-systems administration and technology, to oversee notifications and related matters. That will be a big job: the class settlement covers any merchant that has accepted Visa and MasterCard cards between Jan. 1, 2004, and late 2012. Experts estimate that universe to include 6 million to 8 million merchants. The settlement agreement calls for merchant acquirers to assist in the notification process.