UPDATE: Retailer Groups Appealing Swipe Ruling
Published in CSP Daily News
NACS, others seek to "put brakes" on broken system
UPDATE: NACS and other named plaintiffs announded Monday that they are filing a notice of appeal to challenge last Friday's district court ruling that granted preliminary approval to a proposed settlement of the longstanding antitrust class-action lawsuit filed by merchants against Visa, MasterCard and large banks. A majority of the 19 named plaintiffs have indicated that they will ask the U.S. Court of Appeals for the Second Circuit to deny preliminary approval due to the legal defects in the proposed $7.25 billion settlement over interchange or "swipe" fees.
NEW YORK -- NACS and a number of other merchant groups are likely to appeal the Nov. 9 decision of the U.S. District Court for the Eastern District of New York granting preliminary approval to a proposed $7.25 billion settlement of the longstanding antitrust class-action lawsuit filed by merchants against Visa, MasterCard and large banks.
The deal, announced in July, had sparked opposition from some merchants and retail trade groups who argued the proposed settlement would not prevent the interchange or "swipe" fees merchants pay on each credit-card transaction from rising in the future.
They also claimed that releases from future litigation that defendants Visa Inc. and MasterCard Inc. would gain as a result of the settlement would prevent them from bringing claims against the companies in the future.
But as reported in a Raymond James/CSP Daily News Flash, U.S. District Court Judge John Gleeson said during a hearing in Brooklyn Friday that concerns raised so far "have been overstated." He said opponents at this stage have not raised sufficient arguments to "derail preliminary approval."
Gleason last month had said that the deal agreed to by Visa, MasterCard and several banks appeared to meet the threshold for preliminary approval, but noted the threshold for final approval would be higher, according to a Dow Jones report.
As a result of the preliminary approval, changes to Visa and MasterCard rules are set to take effect in 60 days. One of those rule changes will allow merchants for the first time charge a fee to customers who pay with a credit cards.
If it reaches final approval, the deal would allow Visa, MasterCard and the banks that issue their credit cards to close chapter on litigation dating back to 2005 that accused them of setting swipe fees at arbitrarily high levels.
The majority of named plaintiffs, including NACS, have rejected the proposed settlement, and approximately 1,200 additional merchants and retailer groups have filed papers objecting to preliminary approval of the proposed settlement.
( Click here for previous CSP Daily News coverage of the swipe fee issue.)
"We remain convinced that this is a bad deal, and we will look at our options to appeal this decision. This bad deal should not be forced upon the vast majority of merchants--and their customers--who do not want it," said NACS president and CEO Hank Armour.
NACS and the other named plaintiffs want a trial to establish that the anticompetitive practices engaged in by the credit-card industry are illegal.
"We respectfully disagree with the court's assessment of the proposed settlement," National Retail Federation senior vice president and general counsel Mallory Duncan said. "We do not believe the proposal meets the legal tests required to meet even preliminary approval. Retailers, their customers and competition would suffer irreparable harm if this one-sided deal is allowed to move forward. We will consult with our attorneys and act as soon as possible to correct this injustice."
He added, "This proposal benefits no one but lawyers and credit card companies, and should not be forced on the retail industry or retailers' customers. It's a morass of legal flaws, and rather than bringing about reform it would only entrench the anticompetitive behavior of the card companies while putting them beyond the reach of the law."
Merchants continue to stress that the proposed settlement would make them worse off than they would be without the settlement, that it provides the credit-card companies with a free pass to abuse merchants and violate the antitrust laws and that it violates merchants' rights to due process.
"The merchant community is deeply committed to reforms that bring transparency and competition to the broken electronic payments market. The volume and diversity of those objecting to this flawed proposal is remarkable and continues to grow. Today's hearing was the first of many opportunities for the merchant community to highlight the substantial flaws in the proposed settlement," said Jeff Shinder, managing partner of Constantine Cannon LLC, counsel to a majority of named class plaintiffs. "We will seek to appeal today's ruling in order to stop the misleading notice from being sent to merchants and to put the brakes on a proposed settlement that would cause significant harm to merchants and ultimately their customers."
The plaintiffs object to the settlement on the grounds that it locks in the broken interchange system, deprives merchants of their right to fight the anticompetitive practices of the Visa, MasterCard duopoly in court and it constrains innovations that could bring competition to the marketplace, such as mobile technology.
The named class plaintiffs opposing the proposed settlement of the case, In Re Payment Card Interchange Fee & Merchant Discount Antitrust Litigation,are Affiliated Foods Midwest, Coborn's Inc., D'Agostino Supermarkets, Jetro Holdings LLC, NACS, NATSO, National Community Pharmacists Association, National Cooperative Grocers Association, National Grocers Association and National Restaurant Association.
The only issues considered at the preliminary approval hearing were whether there are legal defects in the proposal--the overall fairness of the proposal will not be fully considered until later.