If the banking industry has the upper hand in the fight over swipe fees — and it certainly appears to — its advantage stems in no small part from divisions within the eight million retailers in the United States. It's always easier to defeat a divided enemy than a united one.

Merchants that have signed onto a $7.25 billion settlement agreement argue they are unlikely to get a better deal anytime soon, while dissenters contend that no deal at all would be better than what they see as an insider's bargain that lopsidedly favors the banks.

"The reason that I signed on to the settlement is that it's time to move on," said Michael Schumann, co-owner of Traditions Classic Home Furnishings, which has three locations in Minnesota and Florida, and is one of the lawsuit's plaintiffs.

But Mallory Duncan, general counsel of the National Retail Federation, a trade association that opposes a proposed settlement in the case argues that the plaintiffs never should have accepted the deal.

"So they're saying, 'We've created a mess, and now we want to rope people into the mess that we've created,'" he says.

Under the proposed settlement, which could go down as the largest class-action settlement in U.S. history, merchants would receive $7.25 billion from Visa (NYSE: V), MasterCard (MC) and the large banks that issue their cards. Retailers would also get, for the first time, the right to impose surcharges on credit-card transactions, although there are questions about the practical value of that concession.

For their part, the banks and payment networks would retain control over the pricing of credit card swipe fees, while also getting a broad release from future lawsuits.

Earlier this month, the proposed settlement was submitted to U.S. District Judge John Gleeson, who will determine whether to approve it. Before that can happen, the case needs to be certified as a class-action suit, with all merchants nationwide notified of their right to object.

On Wednesday, Gleeson wrote in an order that the settlement proposal appears to satisfy the threshold requirements for preliminary approval, though he also noted that a higher bar must be met in order for the deal to get final approval.

The seven-year-old suit was brought by Robins, Kaplan, Miller & Ciresi L.L.P., a Minneapolis-based law firm that extracted a multi-billion dollar settlement out of the tobacco industry in 1998, and which stands to receive a percentage of any eventual settlement in the swipe fee case. At one time, the case had as many as 19 plaintiffs, but only nine of them signed on to the proposed settlement.

The remaining plaintiffs include Payless Shoe Source, the discount footwear chain, and CHS Inc., an energy, grain and food company that operates the Cenex convenience store chain. Other plaintiffs are smaller, including a seven-store transmission service chain in southern California and a parking garage operator based in Philadelphia.

The 10 plaintiffs that backed out of the deal consist of four merchants and six retail trade groups — the National Association of Convenience Stores, the National Grocers Association, the National Community Pharmacists Association, the National Cooperative Grocers Association, the National Association of Truck Stop Operators, and the National Restaurant Association. The National Retail Federation, which was never a party to the lawsuit, is also opposed.

Since the settlement deal was announced, much of the media attention has focused on the views of the dissenting trade groups, with little focus on retailers who signed onto to the agreement.

A public-relations firm hired by Robins Kaplan made two of the plaintiffs available for interviews. Other plaintiffs, which were contacted directly by American Banker, declined to comment.

Mitch Goldstone, president and CEO of Scanmyphotos.com, an Irvine, Calif., company that is one of the case's plaintiffs, argued in an interview that the deal's opponents are being foolish and unwise.

"I think realistically this is the best agreement that could be had now without going to trial," he said. "That's why I am entirely discounting those who are dissenting."

Craig Wildfang, a partner at Robins Kaplan, agreed. He said that the proposed deal is "incredibly good" for merchants.

The merchants' gains go beyond the specific terms of the proposed settlement, Wildfang said. For example, he argued that when the suit was filed in 2005, one of the key remedies the plaintiffs would have sought was the banks' divestiture of their ownership in Visa and MasterCard, and that has already happened.

Wildfang also asked whether the dissenting merchants would be willing to provide their own money to fund 10 more years of litigation, suggesting that the plaintiffs' lawyers are being outgunned financially by the banks and payment networks.

Finally, Wildfang argued that the dissenters are seeking to have the settlement rejected on the theory that a legal stalemate will make Congress more likely to eventually pass a law that establishes price caps on credit card swipe fees, rather than any legal strategy.

"They're doing it because they see the settlement of this lawsuit as being wrapped up in Washington politics," Wildfang said. "And you know, settling a lawsuit is not an exercise in political lobbying."

"They're wanting something that a federal judge can't give them," he added.

Though opponents of the settlement dismiss that assessment of their strategy, it certainly looks plausible, particularly in light of recent comments by Sen. Richard Durbin, D-Ill, the author of the law that caps debit card swipe fees.

"I believe this proposed settlement represents a capitulation to the Wall Street banks and credit card giants," Durbin said in remarks on the Senate floor. "It is a sweetheart deal for them and a bad deal for merchants and for consumers."

In the coming months, the fight between the plaintiffs' lawyers and their merchant opponents will likely become more prominent, with both sides trying to sway unaligned retailers.

For now, the plaintiffs' lawyers may not even be done with the job of persuading their nine clients of the deal's merits.

Schumann, who has been in the retail furniture business for 25 years, said that he supports the settlement as the best available alternative. But he added, "I don't want to come across as a cheerleader for the settlement. I think the settlement has some problems."

In particular, Schumann raised concerns about whether merchants will be able to impose surcharges on credit-card transactions. Part of his concern involves laws in 10 states that ban such surcharges, and part of it has to do with a provision of the deal that could make it impossible for surcharging merchants to also allow payment with American Express cards.

Wildfang, the plaintiffs' lawyer, argued that the concerns about whether the surcharge provision will work are overblown.

"I think the record is clear that even merchants who can't or won't surcharge will benefit because rates overall will come down," he said.

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