Casting doubt on availability of service awards, 2nd Circuit affirms massive interchange-fee settlement

Almost twenty years ago, various groups of merchants filed antitrust litigation against Visa, Mastercard, and banks that serve as payment-card issuers for those networks, tied to the “interchange fees” charged for each transaction. (In full disclosure, I worked on one of the district court cases over a decade ago. I remember close-to-nothing about the case.)  In 2012, the parties reached a settlement. In 2016, the Second Circuit vacated the certification of that class action settlement on the grounds that the (b)(2) injunction class received inadequate representation, as it was represented by the same lead plaintiff and counsel as the (b)(3) damages class.

On remand, the parties, entered into a new settlement agreement as to the (b)(3) class only.  (The (b)(2) litigation continues).  The district court approved that settlement in 2019, granting $900,000 in service awards to the class representatives, and awarding class counsel 9.31% of the settlement fund in attorneys’ fees (approximately $523 million).  Objectors appealed to the Second Circuit again, which, in a complicated set of opinions today, largely affirmed.

In the lead (unanimous) opinion, among other things, the Court rejected the objectors ascertainability argument, rejecting the argument that a court must determine that criteria for class membership be “administratively feasible,” as opposed to simply “objectively possible.” The court also rejected arguments arising out of a dispute  between franchisors and franchisees of integrated oil companies over which were the proper class members (and thus entitled to damages). The court explained this dispute over who was in the class was not a conflict requiring subclasses and separate representation, but rather an independent dispute that the district court had, within its discretion, referred to a special master and did not need to be resolved prior to settlement approval.

Objectors also challenged the release of future claims, as evidence of inadequate representation and inequitable treatment among class members. The court declined to consider these arguments, asserting that the agreement’s severability clause made it unnecessary to do so, and leaving that dispute to future proceedings where the release is invoked.

As to service awards, the court stated that “Service awards are likely impermissible under Supreme Court precedent,” citing a recent Eleventh Circuit case, but nonetheless found compelled to hold otherwise in light of Second Circuit precedent. The court did direct the district court to reduce the awards to account for any time spent toward lobbying for changes in the law that effected only the injunction class.

The court rejected the grab-bag of challenges to the attorney’s fee award.

The court’s opinion was accompanied by two unusual concurrences:

First, concurring in his own opinion, Judge Jacobs wrote to express “disquiet” over several aspects of the case, including the lack of injunctive relief, the magnitude of the fee award given how little was actually decided and the attorney fee lodestar, and the service fee award.

Second, Judge Leval concurred to note that the Illinois Brick rule about recovery by indirect purchasers for antitrust violation might not require that only the franchisees or franchisors serve as plaintiffs.


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