Adding yet another chapter to the odyssey pitting Visa, MasterCard, and numerous major banks against merchants and retail industry trade groups, a federal judge ruled on Thursday that merchant groups must add a banner to their websites informing consumers about previously misleading information and directing them to a court-approved summary of the case. Judge John Gleeson also ordered attorneys for the various merchant interests to meet within a week’s time to discuss options for correcting the misinformation campaign designed to build opposition to a controversial preliminary settlement struck back in July.
The case in question, which dates back to 2005, revolves around claims that Visa, MasterCard, and a number of major banks for years conspired to keep the fees owed by merchants for card payment processing artificially high. Final resolution seemed near in July when the parties reached a settlement that scored merchants a $7.3 billion payday, a temporary reduction in “swipe fees” worth an additional $1.25 billion, and the ability to assess a surcharge when a customer buys something with a credit card.
However, complex card network rules and industry competition prevent many merchants from excising their surcharge rights, and the settlement requires the merchant class to forgo certain key legal rights moving forward. What’s more, the financial windfall it provides for simply doesn’t cut it, at least as far as the likes of Walmart, Target, and the National Retail Federation are concerned – hence the suspect lobbying efforts that have subsequently drawn the court’s ire.
But in light of Judge Gleeson’s recent order and a looming Sept. 12 hearing date at which he is expected to rule on the proposed settlement, it’s fair to wonder what options merchants opposed to the deal have. And as it turns out, things are far from finalized.
“The federal district court has granted only ‘preliminary’ approval of the proposed settlement which, quite frankly, means little,” Debra Bassett, the Justice Marshall F. McComb Professor of Law at Southwestern Law School, said. “With respect to the remaining procedures in the approval process, of particular significance is the ‘fairness hearing,’ which is a required prerequisite to ‘final’ settlement approval. At the fairness hearing, both supporters and opponents of the proposed settlement have an opportunity to present their positions to the judge.”
But how often do judges actually side with the opposition to a proposed settlement that’s been years in the making? Not very often, says Brian Fitzpatrick, a professor at Vanderbilt Law School.
“It is rare that objections persuade a court to reject a settlement, but it has happened,” Fitzpatrick recently told WalletHub. “If the court approves the settlement, class members in most settlements can nonetheless opt out and choose not to accept any payments (and not lose the right to sue later). There are legal limitations on how broad the release of legal rights can be, but the releases are nonetheless often quite broad.”
In other words, if individual class-members don’t like the ultimate ruling they can strike out on their own and try again. It’s likely that only the largest corporate plaintiffs will attempt this, however, because while a class-action suit may require compromise given the number of parties involved, it also helps level the playing field for the little guy.
“Many class members could not have sued on their own because their losses would have been dwarfed by the costs of litigation; by banding together, it becomes viable for everyone to pursue their losses,” according to Fitzpatrick. “Moreover, with everyone in the suit, counsel for the class can reap economies of scale in litigation expenses that puts the class on a level playing field when going up against a corporate defendant.”
Indeed, attorneys for the class are attempting to reap $720 million in legal fees and $27 million in expenses related to the case. And much like the plaintiffs they represent, we’ll see if the attorneys get what they’re after in September.
“Ultimately, the judge can either accept the settlement or reject it,” says Bassett. “The judge cannot rewrite the settlement’s terms. Accordingly, if objectors raise concerns and the judge rejects the settlement, then the case will proceed to trial or the parties will make a second attempt to settle.”