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In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation

United States District Court, E.D. New York

January 2, 2020




         On June 7, 2019, a group of objectors previously identified in this multi-district litigation (the “MDL”) as Retailer and Merchant Objectors (“R&M Objectors”) filed a motion to be compensated for attorneys' fees, expenses, and service awards for their role in objecting to the previously approved settlement agreement (the “2013 Settlement Agreement”) that was later set aside by the Second Circuit. (R&M Mot. for Attys' Fees, Expenses, and Service Awards (“R&M Mot.”), Docket Entry No. 7474; R&M Mem. in Supp. of R&M Mot. (“R&M Mem.”), Docket Entry No. 7474-1.) The Rule 23(b)(3) Class Plaintiffs (“Plaintiffs”) opposed the motion. (Pls. Opp'n to R&M Mot. (“Pls. Opp'n”), Docket Entry No. 7635.)

         On July 24, 2019, the Court referred the motion to Magistrate Judge James Orenstein for a report and recommendation. (Order dated July 24, 2019.) On September 5, 2019, Judge Orenstein heard oral argument on the motion. (Min. Order dated Sept. 5, 2019, Docket Entry No. 7678; Sept. 5, 2019 Hr'g Tr. (“Sept. 2019 Tr.”), Docket Entry No. 7683.) By report and recommendation dated October 11, 2019 (the “R&R”), Judge Orenstein recommended that the Court deny the motion. (R&R, Docket Entry No. 7734.) R&M Objectors timely objected to the R&R, and Plaintiffs responded to the objections. (R&M Obj. to the R&R (“R&M Obj.”), Docket Entry No. 7744; Pls. Opp'n to R&M Obj. (“Opp'n to Obj.”), Docket Entry No. 7754.)

         On December 13, 2019, the Court granted final approval of a Rule 23(b)(3) class settlement agreement (the “Superseding Settlement Agreement”). (Final Approval Order, Docket Entry No. 7818.) By Memorandum and Order dated December 16, 2019 (the “Attorneys' Fees Order”), the Court granted attorneys' fees and expenses to Rule 23(b)(3) Plaintiffs' Class Counsel (“Class Counsel”). (Attys' Fees Order, Docket Entry No. 7822.) In the Attorneys' Fees Order, the Court also adopted the R&R in its entirety and denied R&M Objectors' motion for attorneys' fees, expenses, and services awards, noting that it would set forth its reasons for doing so in a separate opinion. (Attys' Fees Order 17 n.10.)

         The Court explains its reasons for adopting the R&R in its entirety and denying R&M Objectors' motion.

         I. Background

         R&M Objectors consist of “restaurants, clothing stores, gas stations, and all manner of small to mid-sized businesses” located in thirteen different states. (R&M Mem. 1.) The Court assumes familiarity with the facts and extensive procedural history of the MDL, as set forth in prior decisions.[1] The Court therefore provides only a summary of the relevant facts and procedural history.

         a. R&M Objectors' objections to the 2013 Settlement Agreement

         i. Objections before the district court

         On October 18, 2012, R&M Objectors submitted objections to the then-proposed settlement agreement (the “2012 Proposed Settlement Agreement”). (R&M Obj. to 2012 Proposed Settlement Agreement, Docket Entry No. 1653; 2012 Proposed Settlement Agreement, Docket Entry No. 1588-1.) R&M Objectors articulated “four primary reasons” for objecting: (1) the “monetary fund and proposed refund [was] inadequate for the class”; (2) the “injunctive relief [was] inadequate for the class”; (3) the “release [was] excessive and overbroad”; and (4) the “proposed attorney[s'] fees award [was] excessive.” (R&M Obj. to 2012 Proposed Settlement Agreement ¶ 40.) They argued that the proposed relief was insufficient given the broad release of claims against Defendants, (id. ¶ 49), and that, “[a]t a minimum, all unlawful fees should be refunded as restitution to the class, ” (id. ¶ 53), and the injunctive relief period should be “extended for five years into the future to allow the marketplace to regulate this behavior, ” (id. ¶ 54). Finally, R&M Objectors requested that former District Judge John Gleeson hold a hearing on the preliminary approval motion then before the court. (Id. ¶ 56.) By letter dated October 22, 2012, R&M Objectors “suggest[ed] that the [c]ourt organize a Proposed Objectors' Committee to allow for a pooling of resources to examine, analyze and, if necessary, report on the viability of any proposed objections.” (Letter dated Oct. 22, 2012, Docket Entry No. 1657.)

         By Order dated October 24, 2012 (the “October 2012 Order”), Judge Gleeson invited all parties opposing preliminary approval to submit their written objections by October 31, 2012, and scheduled oral argument on the preliminary approval motion, despite not “[o]rdinarily” doing so, noting that “it seem[ed] clear that there [was] an expectation among some interested parties that the preliminary approval process should be more involved in this case than in the usual class action.” (Oct. 2012 Order 2, Docket Entry No. 1668.) Judge Gleeson denied R&M Objectors' request that the court form an Objectors' Committee and grant it access to certain discovery. (Id.)

         On November 5, 2012, R&M Objectors submitted a memorandum in opposition to preliminary approval, arguing that (1) the release was overbroad, particularly given the short period of injunctive relief and limited money damages relief, (R&M Opp'n to Prelim. Approval of 2012 Proposed Settlement Agreement 6, Docket Entry No. 1703); (2) the proposed monetary and injunctive relief was “illusory and facially inadequate, ” in part because not all members of the (b)(2) class would benefit from the surcharge provision, (id. at 6-7); and (3) the 2012 Proposed Settlement Agreement “[did] not change the marketplace as is, ” and ultimately would “leave[] the broken, anti-competitive system in place, ” (id. at 7).

         On November 9, 2012, Judge Gleeson held oral argument on the motion for preliminary approval and granted the motion. (2012 Prelim. Approval Hr'g Tr. 61:7-8, annexed to R&M Mot. as Ex. 9, Docket Entry No. 7474-9.) Counsel for R&M Objectors were present at the hearing. (R&M Mem. 3.)

         On May 15, 2013, R&M Objectors filed their objections to final approval of the 2012 Proposed Settlement Agreement, arguing that (1) the release of future damages claims by the mandatory Rule 23(b)(2) class was impermissible under Supreme Court precedent, (R&M Obj. to Final Approval of 2012 Proposed Settlement Agreement 8-11, Docket Entry No. 2281); (2) the release of future claims by the Rule 23(b)(3) class, with no “legitimate opportunity to opt out, ” was “[i]nappropriate” and unconstitutional, (id. at 11-20); (3) the 2012 Proposed Settlement Agreement did not comply with the “identical factual predicate” rule governing releases in class actions, (id. 20-22); (4) the notice to the class was insufficient to inform even “the most legally astute Class Member, ” and did “not provide a legitimate opportunity to [opt out] to protect individual claims against the Defendants for their future conduct, ” (id. at 22-24); and (5) the surcharge element of the proposed relief would not benefit all members of the class, given differences in state law as well as practical barriers, and thus would not constitute uniform class relief as required, (id. at 24-27).

         On September 12, 2013, Judge Gleeson held a fairness hearing to hear arguments as to final approval, (2013 Final Approval Hr'g Tr., Docket Entry No. 6094), at which R&M Objectors raised the two issues they believed to be “the most significant impediments to approval” - the “confounding notice” and the “worthless surcharge.” (R&M Mem. 5, 8.)

         Counsel for R&M Objectors informed the court that:

The main concern that [their] clients [had] is understanding and interpreting the notice and the language and the brea[d]th, as it describes the brea[d]th of the release. . . .
No matter . . . what the settlement payments are, the settlement awards and the recovery in the settlement, no matter how great they are it's not worth releasing future claims on MasterCard and Visa. But the problem was in the notice. [They] can opt out but [they're] still in. [They're] stuck with the broad release of the (b)(2) settlement no matter what [they] do.
So unless the court strikes down the broad release in the (b)(2) settlement, there's really no opt out in the (b)(3) . . . class.

(2013 Final Approval Hr'g Tr. 173:9-11, 174:5-15.) Counsel added that “the amount of damages that might be awarded under the (b)(3) class was not even an issue to our clients because of their struggle with understanding what the release was, ” (id. at 173:12-15), and noted that “if the [c]ourt strikes down the broad release in both the (b)(2) and the (b)(3) Class, then we may want to . . . participate in the damages, ” (id. at 176:3-5). Counsel also argued that the “notice misrepresent[ed]” the surcharge provision because it did not explain that “if [class members] accept American Express, or they live in one of the states that have barred or prohibited surcharges, they can't surcharge.” (Id. at 176:10-15.)

         On December 13, 2013, Judge Gleeson granted the final approval motion, Interchange Fees I, 986 F.Supp.2d 207; that decision was subsequently appealed to the Second Circuit, see Interchange Fees II, 827 F.3d 223.

         ii. Objections on appeal

         On appeal, R&M Objectors “wholeheartedly join[ed] in the [b]rief[s]” filed by other objectors- and plaintiffs-appellants - specifically, the Joint Merchant Appellants, the Retail Industry Leaders Association, and the National Retail Federation - but “wr[o]te separately . . . to emphasize the inadequacy of the Notice . . . and to highlight the due process shortcomings of a Settlement featuring benefits that were falsely represented in the Notice to Class Members and are of no value to many of them.” (R&M App. Br. 3-4, annexed to R&M Mot. as Ex. 16, Docket Entry No. 7474-16.) R&M Objectors argued that the Notice failed to (1) “provide absent Class Members with their constitutional right to [opt out] of classes involving monetary damages, ” (2) “adequately describe the breadth of applicable releases, ” and (3) “accurately inform Class Members of what the Settlement achieve[d].” (Id. at 4.) R&M Objectors reiterated that to them, the “release of futures claims [was] by far the most significant feature of this deal.” (Id. at 5.) In addition, R&M Objectors argued that because many merchants would not benefit from the surcharge provision of the 2013 Settlement Agreement, “the (b)(2) class lack[ed] the cohesion required by Rule 23.”[2] (Id. at 32.)

         b. Second Circuit's decision

         In June of 2016, the Second Circuit vacated the certification of the class, reversed the approval of the settlement, and remanded the case to the district court. See Interchange Fees II, 827 F.3d at 240.

         In setting aside the 2013 Settlement Agreement, the Second Circuit first held that “[s]tructural defects . . . created a fundamental conflict between the (b)(3) and (b)(2) classes and sapped class counsel of the incentive to zealously represent the latter, ” id. at 236, rendering “unitary representation of these plaintiffs . . . inadequate, ” id. at 233. The Court of Appeals found a clear conflict between the members of the (b)(3) class, pursuing monetary relief, and members of the (b)(2) class, seeking only injunctive relief - “[t]he former would want to maximize cash compensation for past harm, and the latter would want to maximize restraints on network rules to prevent harm in the future.” Id. at 233. Meanwhile, attorneys' fees for class counsel - who, the court observed, had strong incentives to reach a settlement - were linked to relief for the (b)(3) ...

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