A U.S. judge rejected American Express Co.'s settlement with merchants over credit card fees after finding the plaintiffs' lawyer tainted the deal by exchanging confidential information with an attorney for MasterCard Inc.
A conference is now scheduled in Brooklyn, New York, federal court for Oct. 5, when the next steps in the litigation may be determined.
Small merchants supported the settlement that required AmEx to change its rules on credit card surcharges, while dozens of retailers, including Wal-Mart Stores Inc., said it didn't go far enough. The retailers also oppose a separate $5.7 billion swipe fee settlement with MasterCard and Visa Inc. claiming it's not big enough and the terms are too restrictive.
The retailers used an exchange of e-mails between the plaintiffs' lead lawyer Gary Friedman and Keila Ravelo, who represented MasterCard in a separate case, to support their claims that the deals were rigged.
"Friedman's bringing MasterCard's counsel into the negotiating process created a conflict between class members and class counsel," U.S. District Judge Nicholas Garaufis said Tuesday in the ruling, throwing out the settlement. There was a risk "that Friedman, with Ravelo in his ear, negotiated settlement terms that are worse for class members."
Under the settlement announced in 2013, American Express agreed to end a company policy that compelled merchants to charge the same fee regardless of the card that was used. In a separate antitrust dispute, the U.S. Justice Department won a ruling in February requiring the company to drop many of its merchant rules. AmEx has challenged that ruling.
The New York-based card company is "disappointed in the court's decision to deny final approval of the settlement," Sanette Chao, an AmEx spokeswoman, said in a statement. "We continue to believe the agreement was fair."
The case is American Express Anti-Steering Rules Antitrust Litigation, 1:11-md-2221, U.S. District Court, Eastern District of New York (Brooklyn).