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Interchange Preliminary Settlement

posted by Adam Levitin

Preliminary approval was granted for the interchange litigation settlement (MDL 1720) last Friday. Approval was widely expected, but I would also expect an appeal.  What the 2d Circuit will say is anyone's guess, and then there is still the question of final approval. Nonetheless, I think it's worth commenting on one aspect of the settlement that I haven't previously addressed, namely the incentives of the various named plaintiffs to support or oppose the settlement.  This is both a matter of law and a matter of optics. 

There are 19 named plaintiffs serving as putative class representatives.  10 of the 19 opposed the settlement, including all of the institutional plaintiffs (trade associations). This majority includes almost all of the larger, and presumably more sophisticated named plaintiffs. The support for the settlement comes largely from the named plaintiffs that are operating small-to-medium-sized businesses.

One might read this as a divide between the interests of smaller and larger merchants. I don't think that's right. The trade associations that oppose the settlement represent a lot of small merchants. Instead, I worry that there's another factor that explains the smaller plaintiffs' support. All of the named plaintiffs get a special payment of $200,000 for having served as named the named plaintiffs. $200,000 is not a material amount to the larger merchants, but it is for a small merchant. Imagine a small business with a single owner that does $5 million in annual sales. Getting $200,000 for serving as a named plaintiff (which I assume consists largely of being subject to some depositions and other discovery) would be quite a nice payday. Would these smaller merchants have supported the settlement if they were paid only $2,000 or nothing?  I'm not sure. Bu to be fair to the named plaintiffs, $200,000 is nothing compared to the $875 million reserved for the attorneys in the settlement. 

Now to be sure, Federal Rule of Civil Procedure 23(g)(4) states that class counsel has a duty to fairly and adequately represents the interests of the class, which is not the same as the named plaintiffs', but when a bunch of sophisticated merchants and trade associations with long experience dealing with the interchange issue reject a settlement as a bad deal, and are joined by objections filed by some of the largest most sophisticated retailers (Target, Gap, Home Depot) that should be a pretty strong sign that the deal is not in the interests of the class.  

There's all kinds of other weird stuff with the settlement, such as releases running from the date of the preliminary rather than final approval, the apparent release of anti-trust claims by MasterCard and Visa's competitors (e.g., Amex and First Data, both of whom are "merchants" under the settlement), and of course the lumping into a single class of merchants in states with no-surcharge laws and those in states without such laws. All of this is to say that I don't think the interchange issue is quite dead yet.   


Argentina seeks rehearing http://mobile.reuters.com/article/idUSBRE8AC17920121113?irpc=932

Is this even possible?

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