Numerous antitrust lawsuits were filed against Visa and MasterCard beginning in 2005. Prolonged negotiations resulted in a 2012 Settlement Agreement. Consistent with the then-operative complaint, the proposed settlement divided the plaintiffs into two classes: A Rule 23(b)(3) damages class, which covered merchants that accepted Visa and/or MasterCard from January 1, 2004 to November 27, 2012; and a Rule 23(b)(2) injunction class, which covered merchants that accepted (or would accept) Visa and/or MasterCard on or after November 27, 2012. The 23(b)(3) class was set to receive roughly $5.3 billion, after opt-out payments. The 23(b)(2) class would receive injunctive relief in the form of changes to Visa’s and MasterCard’s network rules. While members of the (b)(3) damages class could opt out, members of the (b)(2) injunction class could not. The same counsel represented both classes. On appeal of that settlement approval, the Second Circuit held that the members of the (b)(2) injunction class received inadequate representation, because, despite their divergent interests, they were represented by the same counsel and lead plaintiffs as the (b)(3) damages class. Specifically, the interest of the (b)(3) class members was in maximizing cash compensation for past harm, while the interest of the (b)(2) class members was in maximizing restraints on network rules to prevent harm in the future. This conflict disadvantaged the (b)(2) injunction class, because the class counsel and class representatives who negotiated and entered into the 2012 Settlement Agreement were in the position to trade diminution of (b)(2) relief for increase of (b)(3) relief. In re Payment Card Interchange Fee Antitrust Lit., 827 F.3d 223 (2d Cir. 2016). On remand, the District Court appointed three law firms to serve as interim counsel only for the Rule 23(b)(3) damages class. About two years later, after additional discovery and re-negotiation, the parties executed a new Settlement Agreement, which provides for a collective award of $5.6 billion (as reduced in the amount of $700 million to reflect opt-outs). The Settlement Agreement defines the class as: “all persons, businesses, and other entities that have accepted any Visa-Branded Cards and/or Mastercard-Branded Cards in the United States at any time from January 1, 2004 to the Settlement Preliminary Approval Date.” The Settlement Agreement provides that each claimant will receive a pro rata share of the monetary fund in accordance with the relative economic interests of the Claimants as measured by the Interchange Fee amounts attributable to their Visa-and Mastercard-Branded Card transactions during the Class Period.
On appeal, the Second Circuit rejected the objectors’ attack on “ascertainability”. In particular, the appellants argued that, since the dispute over which entity was the direct payor for any given transaction will lead to hundreds of thousands of mini-trials. Yet, the Court of Appeal held: “This argument rests on a faulty premise. HN3 Requiring administrative their ascertainability argument must fail. Feasibility is neither compelled by precedent nor consistent with Rule 23. The only relevant inquiry is whether determinations as to class membership are objectively possible. Appellants do not contend that identifying the direct payor for each transaction is impossible.”
The Court of Appeal then rejected an attack on the Adequacy of Representation: “Appellants argue that the franchisees have been inadequately represented because no class representative has a shared interest in the franchisees’ dispute with their franchisors. Such shared interests are necessary to protect the franchisees, Appellants contend, since the loser of the intra-class conflict will be entitled to no recovery, but will still be bound by the settlement’s release.” However: “Appellants are confused. The dispute is not over which group of class members will get the recovery; the dispute is over which claimants are within the class. Whoever accepted the payment cards is by definition in the class, gets compensation, and is bound by the release; an entity that did not accept the payment is by definition excluded from the class and is not bound by the settlement. The class representatives owe nothing to the losing entities; outsiders are irrelevant.”
The Court does note, at the same time, that, going forward, there may be some potential conflict between the franchisors and franchisees, which must be addressed on remand: “”Until now, there has been no conflict between franchisors and franchisees. To the contrary, they have shared an interest in maximizing the recovery for all class members, which each claims to be. Going forward, however, franchisors and franchisees will become adverse to each other for resolution of the questions regarding which should be deemed to have accepted the cards and therefore to come within the class and receive settlement funds, and how those funds should be allocated…. Whether this will require designations of subclasses and appointment of further counsel to represent them or whether their existing privately retained counsel will adequately serve the needs, we leave to the good judgment of the district court.”
In the attorney fee award portion of the decision, the Court of Appeal rejects the notion that the (b)(3) Damages Class Counsel should be precluded from receiving any award based on their pre-remand efforts, due to the conflict of interest in representing both the (b)(2) class and the (b)(3) class at that time. “All fees will come out of the common fund created for the damages class – i.e. the class which always stood to benefit from Class Counsel’s conflicted representation. The injunction class will pay none of it. So total forfeiture is neither required nor appropriate.” In addition: “This analysis is unaffected by Appellants’ attempt to cast Class Counsel’s representation as an ‘ethical violation’. Class Counsel never violated the New York Rules of Professional Conduct, (see Fee Opinion, No.05-md-1720, 2019 U.S.Dist.LEXIS 216796, 2019 WL 6888488 at *18), and we expressly declined to impugn the motives or acts of class counsel on the last appeal. Indeed, it was only in the context of a settlement (where relief for one party could be used as a bargaining chip to enhance relief for another) that a conflict between the classes arose. Class Counsel could have represented both classes without any conflict had the case proceeded to trial and to a final disposition.”
Fikes Wholesale v. Visa, 62 F.4th 704 (2d Cir. 2023).