Sorting Through the Latest Legal Maneuvers in Swipe-Fee Suits

Retailers and the major card brands are throwing more legal punches at each other over the controversial proposed $7.25 billion swipe-fee settlement in a years-long anti-trust case.

Lawyers on both sides, plus millions of merchants and payments industry stakeholders, will need scorecards to determine where things stand as interested parties brace for a final approval hearing Sept. 12 in Judge John Gleeson's New York district court.

Today marks a significant day in the anti-trust saga, as it is the deadline for merchants to either opt out or object to the settlement.

"The judge will determine how significant the number is of those who decide to opt out," says Doug Kantor, a lawyer representing merchant groups in the case.

The past two weeks have represented significant legal posturing and tons of more paperwork for the case, originally initiated by merchant groups in 2005 with claims of price fixing on the interchange, or swipe fees, charged to merchants to accept card payments.

Last week, Visa and MasterCard sued the trade groups and retailers that rejected the settlement, which earned Gleeson's preliminary approval last fall.

The card brands filed their suit two days after Target Corp. and Macy's Inc., along with other retailers, brought the argument to another New York district court, filing a lawsuit saying the $7.25 billion deal was too generous to the card brands and left too much leeway for future fee hikes.

The retailers filed their lawsuit in New York's southern district court, while the card brands filed in Gleeson's eastern district Brooklyn court.

Because the retailers filed their lawsuit in a different district, the card brands likely wanted to get the details of those suits in front of Judge Gleeson in his district, considering Gleeson has already granted preliminary approval of the settlement and thus may be viewed by the brands as having a sympathetic ear to their concerns.

Representatives and lawyers for Visa and MasterCard did not respond to inquiries by deadline. Visa has typically declined to comment on the case, while MasterCard has not elaborated beyond comments made last year expressing confidence the settlement would be accepted by merchants.

Earlier in May, Judge Gleeson dealt with a separate issue related to the case, opting not to find objectors to the settlement in contempt of court based on wording used on websites to inform retailers of the options for opting out or objecting to the proposed settlement. Gleeson had previously threatened a contempt ruling.

In early April, lawyers for the plaintiffs filed court papers, asking the judge for final approval of the settlement as well as provisions for $720 million in legal fees and $27 million in expenses.

The firm of Robbins Geller Rudman & Dowd LLP, one of the lead firms representing up to 7 million merchants in the case, filed the papers. The firm calls the settlement the "largest-ever cash relief in an antitrust class action settlement" and says it includes "unprecedented rules changes that would enable merchants to recover their costs of credit card acceptance," according to a Bloomberg report.

One of those rule changes was the card brands' lifting its restrictions on surcharges. In late January, as part of the settlement, merchants were allowed to begin adding surcharges to card payments as long as they register with the card brand to do so, and provide visible notifications in the stores to alert consumers about the fees. The general consensus in the industry was that most merchants would hold off on passing along fees to consumers.

"The retailers' lawyers decided to take the settlement and reject their clients," Kantor says. "Getting the deal was more important to them and they have tossed us aside, so we don't hear from them any more."

On the Electronic Payments Council website, spokeswoman Trish Wexler called the interchange fee settlement "finally over" at the preliminary approval stage. Since then, Wexler and the council have been supportive of the settlement, stating last week that 

"After years of negotiation, the same retailer trade groups that willingly agreed to a multibillion dollar settlement are now turning around and demanding even more."

Wexler was not available for further comment prior to deadline for this story.

Kantor says that those who object to the settlement are more concerned about future rules for establishing fees and want any restrictions on future lawsuits lifted.

"There is well over $50 billion a year collected in these fees, so it is how the system is set  up and how it should  operate in the future that is a much bigger deal than most any dollar number that could be in a settlement," Kantor says.

As such, many merchants say the $6 billion or $7 billion proposed settlement "dramatically short-changes the real harm here," Kantor adds.

"That amount would be OK if the system was made better moving forward," he adds. "But everything is wrong here."

Gleeson had to know trouble was brewing after his preliminary approval of the settlement last October.

By November, some plaintiffs had begun filing appeals, mostly citing a portion of the settlement that bar merchants from suing the card brands over fees in the future.