The docket at the U.S Second Circuit Court of Appeals quickly attracted appeals to Judge John Gleeson's Dec. 13 ruling to approve the class-action swipe-fee settlement on an antitrust case that has lingered in his court for nearly nine years.
Home Depot Inc. and the Constantine Cannon LLC law firm, representing various merchants, had filed appeals Friday in New York, not long after Gleeson's ruling, which, on the surface, would effectively put an end to merchants' claims of interchange price fixing and eliminate their ability to bring future legal action against the card brands.
Home Depot and other merchants sought to appeal the ruling in its preliminary stages a year ago, but the circuit court refused to expedite the appeal process until the settlement had received Gleeson's final approval.
Gleeson's ruling last week allows merchants who did not opt out of the settlement to receive payment from a fund now valued at $5.7 billion, down from the original $7.25 billion proposal because fewer merchants stayed involved in the process.
"This is far from over," says Doug Kantor, general counsel for the National Association of Convenience Stores. "We're appealing and looking forward to airing our concerns about the settlement with the second circuit."
A key issue remains regarding the merchants' legal rights moving forward, Kantor says.
Of the merchants that opted out, a number have already filed lawsuits, and the rest still can, Kantor adds. But lawsuits are limited by terms of the settlement to monetary claims for the period of 2004 to November 2012, Kantor says.
"The settlement actually tries to cut off those plaintiffs, even though they opted out, from challenging any of the Visa or MasterCard rules, or suing for any future monetary losses because of their antitrust behavior," Kantor says.
As part of the settlement, future litigation would cover a timeframe from November of last year forward "into the indefinite future," Kantor adds.
The judge's ruling and the quick legal reaction of merchants is not surprising, says Gil Luria, analyst with Los Angeles-based Wedbush Securities.
"Many retailers do not see the settlement as the end of their struggles with Visa, MasterCard and their banks," Luria says.
Rather, the ruling in Gleeson's court represents only one front on which the retailers' fight against the card brands has unfolded, Luria says.
Retailers are engaged in a separate legal case on which they scored a victory with Judge Richard Leon calling for the Federal Reserve Board to revisit the fee caps as mandated through the Durbin amendment, Luria says.
"Concerning the legal front of this new [Durbin] battle, that's probably where most of the retailers' resources are going to go right now," Luria adds.
For the time being, MasterCard is preparing to mend fences with merchants.
The card brand is pleased that Judge Gleeson has granted final approval to the U.S. merchant class settlement agreement, MasterCard general counsel Noah Hanft says in an e-mail.
"Today is an important milestone in putting this litigation behind us and we look forward to working in partnership with the merchant community," Hanft states.
Visa CEO Charlie Scharf issued a statement that expresses his company's desire to put the legal issues in the past.
"We have realized a significant achievement in our efforts to resolve the long-standing legal differences between merchants and the payments industry," Scharf says. "This settlement, which was negotiated over many years, is fair for all parties involved."
Vis is confident the settlement agreement will open the door to "new opportunities for collaboration with our merchant clients so that we can more effectively grow our businesses," Scharf adds.
As an organization that has not taken an official position on the merits of the settlement, the Merchant Advisory Group has members who favor and oppose the settlement, says group CEO Mark Horwedel. However, those who oppose the settlement "greatly outnumber" those who favor it, Horwedel adds.
The settlement will do little to satisfy the demands of the broad merchant community that a more equitable card payment system is needed, Horwedel says.
"Contrary to views expressed by the card networks, as well as the many public commentators who regularly express sentiments on their behalf, this case will not close the ongoing dispute with the networks by merchants," Horwedel adds.
As such, merchants will continue to seek relief in the courts through legislation, and with regulators charged with enforcing existing laws addressing unfair competition, Horwedel says.
In addition, the ongoing legal tussles will pave the way for continued development of alternate payment schemes to compete directly with the card networks, he adds.
When the case first landed in Gleeson's court in late 2005, after a federal court decision in California to dismiss a merchant lawsuit challenging interchange, it set the stage for dozens of major retailers, including Wal-Mart Stores Inc., to makes claims of antitrust violations against the card brands.
Finally, in July of 2012, the card brands and their issuing banks announced the proposed settlement, agreeing to a $7.25 billion fund for about seven million merchants affected by interchange fees. Lawyers in the case were calling it the largest antitrust class-action settlement in U.S. history.
Many retailers were quick to protest Gleeson's preliminary approval of the settlement by filing formal objections to the court.
In November of 2012, as part of a two-step preliminary approval process, Gleeson again tentatively approved the settlement, saying some issues needed to be addressed, but none were serious enough to derail a preliminary sign-off.
Nearly a year later, in September of 2013, Gleeson had the option to make a ruling in the case after conducting a fairness hearing to gather more information from retailers and the card brands regarding their positions in the case.
Prior to that hearing, the card brands in August had determined they would stay the course with the proposed $7.25 billion settlement, even though they had the option to walk away from the case because retailers accounting for more than 25% of the total volume of credit card purchases decided to opt out of the agreement.
Not waiting on Gleeson to rule, various other merchants filed a separate lawsuit in August, making similar antitrust claims against Visa and MasterCard.
Two months earlier, Visa sued Walmart in an attempt to halt the world's largest retailer from filing the price-fixing claims against the card brand as they relate to swipe fees.
In May, Visa and MasterCard filed a suit against trade groups and retailers rejecting the settlement, as the number of retailers choosing to opt out of the settlement mounted.
The appeals court process could prolong the issues surrounding the swipe-fee settlement for another year or two, Kantor says.
