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October 19, 2005.


The opinion of the court was delivered by: JOHN GLEESON, District Judge


In this antitrust action, a class of approximately five million merchants (the "Class") alleges that, among other things, defendants Visa U.S.A. Inc. ("Visa") and MasterCard International Incorporated ("MasterCard") have illegally tied their debit products to their credit cards, in violation of the Sherman Act. Just as the trial was about to commence, the parties agreed to settle. Essentially, the defendants promised to untie the two products, and to pay the Class more than $3 billion, in return for the Class' promise to release defendants from the claims in the case and other claims based on the same conduct. Now, lead counsel for the Class, Constantine & Partners, P.C. ("Lead Counsel"), seek approval of these settlements with Visa and MasterCard and of the proposed plan of allocation for distribution of the damages to the Class members. They seek attorneys' fees for their efforts and the efforts of co-counsel*fn1 in successfully prosecuting the case, and reimbursement of their expenses.

  I approve the settlements and the plan of allocation. I also award attorneys' fees in the amount of $220,290,160.44, and authorize reimbursement of costs in the amount of $18,716,511.44. BACKGROUND

  The claims in the case, and the factual basis for those claims, are set forth in some detail in my decision on the parties' motions for summary judgment, In re Visa Check/MasterMoney Antitrust Litig., No. 96-CV-5238, 2003 WL 1712568 (E.D.N.Y. Apr. 1, 2003), and my decision certifying the Class, In re Visa Check/MasterMoney Antitrust Litig., 192 F.R.D. 68 (E.D.N.Y. 2000), aff'd, 280 F.3d 124 (2d Cir. 2001). Familiarity with those decisions is assumed here. The following is a brief summary of the facts and procedural history relevant to the issue before me.

  In a complaint filed on October 25, 1996, the named plaintiffs asserted claims under sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2. They alleged that the defendants' practice of requiring merchants who accepted defendants' credit cards to also accept their debit products (the "Honor All Cards" rule) was an illegal tying arrangement, in violation of section 1. The plaintiffs further alleged that, through these tying arrangements and other anticompetitive conduct, the defendants attempted to monopolize the debit card market, in violation of section 2.

  On February 22, 2000, I certified the Class, and the Second Circuit affirmed that order on October 17, 2001. Following the Second Circuit's decision, the parties supplemented their previously filed motions for summary judgment, and oral argument of those motions was held on January 10, 2003. On April 1, 2003, I granted plaintiffs' motions in part and denied them in part. I denied the defendants' motions. The parties then submitted a comprehensive, joint pretrial order. On April 21, 2003, jury selection began.

  On April 28, 2003, the day opening statements were to occur, MasterCard agreed to settle with the Class. Because Visa and the plaintiffs were on the procipice of a settlement as well, opening statements in the trial against Visa were postponed for two days. On April 30, 2003, with a jury in the box awaiting opening statements, Visa and the plaintiffs agreed to settle. Thereafter, the parties entered into memoranda of understanding. These memoranda served as blueprints for the final proposed settlement agreements dated June 5, 2003 ("Settlements" or "Settlement Agreements").*fn2

  The Settlement Agreements are the proposed culmination of approximately seven years of litigation, and represent the largest antitrust settlement in history. They provide, among other things, for:
(1) the cessation, as of January 1, 2004, of defendants' "Honor All Cards" rules, by which the defendants' debit card services to merchants were tied to their credit card services (Settlements ¶ 4);
(2) the creation of a $3.05 billion settlement fund (id. ¶ 3(a));
(3) the creation of clear, conspicuous and uniform visual identifiers on Visa and MasterCard debit cards by January 1, 2007 (80% by July 1, 2005), so merchants and consumers can distinguish these products from credit cards (id. ¶¶ 5, 7);*fn3
(4) the lowering, by roughly one third, of the interchange rates on debit products for the period from August 1, 2003, through December 31, 2003, (id. ¶ 8); (5) other injunctive relief, such as the provision of signage from defendants to merchants communicating the merchants' acceptance of defendants' united debit products; and a prohibition on defendants enacting any rules that prohibit merchants from encouraging or steering customers to use forms of payment other than defendants' debit cards, including by discounting other forms of payment (id. ¶¶ 6, 9);
(6) the Court's continuing jurisdiction to ensure compliance with the Settlement (id. ¶ 41); and
(7) the release of Visa and MasterCard from claims arising out of the conduct at issue in the action prior to January 1, 2004 (Visa Settlement ¶ 28; MasterCard Settlement ¶ 30).
  Most of the compensatory relief will take the form of cash payments by Visa totaling $2,025,000,000 and by MasterCard totaling $1,025,000,000, in annual installments over the next 10 years. (Lead Counsel's Fee Pet. at 22 ("Fee Pet.") (citing Settlements ¶ 3).) The relief also includes approximately $846 million — the amount by which the interchange rates for defendants' debit products have been reduced for the period from August 1, 2003 through December 31, 2003. (Fisher Suppl. Dec. ¶¶ 4-6.)*fn4 The discounted present value of the total compensatory relief, on which Lead Counsel base their requested fee, amounts to $3,383,400,000 (the "Fund"). (Fee Pet. at 3.)

  The general terms of the Settlement Agreements were contained in a notice to the Class in July and August 2003.*fn5 Only 18 merchants, out of approximately five million, filed objections to the Settlements and the plan of allocation.*fn6 On September 25, 2003, I held a fairness hearing in our ceremonial courtroom to hear argument of those objections and any others that might be raised.


  A. The Settlement

  1. The Standard for Approving a Proposed Settlement

  Pursuant to Federal Rule of Civil Procedure 23(e), any settlement of a class action requires court approval. In order to approve such a settlement, the court must assure itself that the settlement is "fair, adequate, and reasonable, and not a product of collusion." Jocl A. v. Giuliani, 218 F.3d 132, 138 (2d Cir. 2000). The decision to grant or deny such approval lies within the discretion of the trial court, see In re NASDAO Market-Makers Antitrust Litig., 187 F.R.D. 465, 473 (S.D.N.Y. 1998), and that discretion should be exercised in light of the general policy favoring settlement, see Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir. 1982). In making this determination, a court must neither rubber stamp the settlement nor engage in "the detailed and thorough investigation that it would undertake if it were actually trying the case." City of Detroit v. Grinnell Corp., 495 F.2d 448, 462 (2d Cir. 1974) ("Grinnell I"), abrogated on other grounds by Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir. 2000).

  To evaluate whether or not a class settlement is fair, a district court examines the negotiations that led up to the settlement and the substantive terms of the settlement. See In re Holocaust Victim Assets Litig., 105 F.Supp. 2d 139, 145 (E.D.N.Y. 2000). As to the first issue, "[t]he [negotiation] process must be examined `in light of the experience of counsel, the vigor with which the case was prosecuted, and the coercion or collusion that may have marred the negotiations themselves.'" Id. at 145-46 (quoting Malchman v. Davis, 706 F.2d 426, 433 (2d Cir. 1983)). In this case, there could not be any better evidence of procedural integrity. Experienced and able counsel on all sides fought aggressively (albeit always with professionalism) for many years, and negotiated feverishly (with the same professionalism) to produce the Settlement Agreements at the eleventh hour. Collusion or coercion could not conceivably have tainted the process. (See Green Dec. ¶ 12 ("[I]t is my opinion that the [S]ettlement[s] w[ere] achieved through a fair and reasonable process and [are] in the best interest of the class. . . . the court system and the mediation process worked exactly as they are supposed to work at their best; a consensual resolution was achieved based on full information and honest negotiation between well-represented and evenly balanced parties.").)*fn7

  As for substantive fairness, the Second Circuit has held that the relevant factors include:
(1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; [and] (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.
Grinnell I, 495 F.2d at 463 (citations omitted).

  The potential for this complex litigation to result in enormous expense, and to continue for a long time, was great. The complexity of federal antitrust law is well known, see, e.g., Weseley v. Spear, Leeds & Kellogg, 711 F.Supp. 713, 719 (E.D.N.Y. 1989) (antitrust class actions "are notoriously complex, protracted, and bitterly fought"), as are the particular difficulties with the law that governs tying arrangements, see, e.g., Herbert Hovenkamp, Tying Arrangements and Class Actions, 36 Vand. L. Rev. 213, 213 (1983) ("Few areas of federal antitrust law are more confusing than the law that governs tying arrangements."). This action would have taken three months (at a grucling pace) to try. Past that, it would have taken many more years to finally resolve, taking into account the time necessary to exhaust all avenues of review. Accordingly, this factor weighs heavily in favor of approving the Settlements. See Slomovics v. All for a Dollar, Inc., 906 F. Supp. 146, 149 (E.D.N.Y. 1995) (citing In re Crazy Eddie See, Litig., 824 F. Supp. 320, 324 (E.D.N.Y. 1993)); see also, e.g., Maley v. Del Global Techs. Corp., 186 F. Supp. 2d 358, 362 (S.D.N.Y. 2002) (approval granted where "[d]elay, not just at the trial stage but through post-trial motions and the appellate process, would cause Class Members to wait for years for any recovery, further reducing its value.").

  The second factor — the reaction of the class — may be the most significant factor in this inquiry. See id. The extremely small number of objectors — a mere 18 out of approximately five million Class members — heavily favors approval. See 4 Alba Conte & Herbert Newberg, Newberg on Class Actions § 11.41, at 108 (4th ed. 2002) ("Newberg") ("[A] certain number of objections are to be expected in a class action with an extensive notice campaign and a potentially large number of class members. If only a small number of objections are received, that fact can be viewed as indicative of the adequacy of the settlement."); see also D'Amato v. Deutsche Bank, 236 F.3d 78, 86-87 (2d Cir. 2001) (holding that "[t]he District Court properly concluded that this small number of objections [18 where 27,883 notices were sent] weighed in favor of the settlement.").

  The third factor also favors approval. Settlements were not reached literally until trial was about to commence, after complete and exhaustive discovery,*fn8 summary judgment proceedings, and substantial mediation.

  The risks of establishing liability and damages at trial, and of maintaining the Class throughout the trial (the fourth, fifth, and sixth factors, respectively) also militate in favor of approval. Crucial to the plaintiffs' claims was their ability to prove that the tying arrangements had anticompetitive effects. In light of the procompetitive features of the "Honor All Cards" rule, this was no sure thing. Even if liability had been established, the Class would still have faced the problems and complexities inherent in proving damages to the jury. The plaintiffs' theory of damages would have been hotly contested at trial. See, e.g., In re NASDAO Market-Makers Antitrust Litig., 187 F.R.D. 465, 476 (S.D.N.Y. 1998) ("[T]he history of antitrust litigation is replete with cases in which antitrust plaintiffs succeeded at trial on liability, but recovered no damages, or only negligible damages, at trial, or on appeal."). Even if they succeeded on that level, they would have faced the practical problem of asking jurors — who felt they had already absorbed the cost of high interchange rates through higher prices at the merchants' checkout counters — to absorb them once again through the higher bank fees that would result from a hefly damage award. Finally, it is possible that the Class could have been decertified or modified as the litigation continued. See In re Visa Check/MasterMoney Antitrust Litig., 192 F.R.D. 68, 89 (E.D.N.Y. 2000) ("If factual or legal underpinnings of the plaintiffs' successful class certification motion are undermined once they are tested under a more stringent standard . . . a modification of the order, or perhaps decertification, might then be appropriate.").

  The seventh factor, the ability of the defendants to withstand a greater judgment, also supports approval of the Settlement Agreements. The compensatory relief by itself constitutes "the largest settlement ever approved by a federal court." (Coffee Dec. ¶ 12.)*fn9 The injunctive relief will result in future savings to the Class valued from approximately $25 to $87 billion or more. (Fisher Suppl. Dec. ¶¶ 7-8.) I find that the defendants would not likely be able to withstand a significantly greater damage award.

  Finally, I find that the Settlement Agreements are within the range of reasonableness in light of the best possible recovery and in light of all the ...

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