March 27, 2017
By John Stewart
The U.S. Supreme Court on Monday heightened the uncertainty surrounding crucial payment card rules and practices by refusing to hear an appeal of a lower-court decision last summer that threw out a $5.7 billion antitrust settlement.
White: “The best outcome would be for the card [networks] to stop their unfair practices and have a competitive system."
The top court’s decision will likely lead to years of continuing litigation and negotiation, observers say, as the massive case heads back to the federal court in Brooklyn, N.Y., where it was originally decided. Central to the case is a range of contentious issues including credit card interchange pricing and leeway for merchants to surcharge consumers who use credit cards.
"The Supreme Court’s refusal to hear the case now forces the parties to rethink the settlement terms to try to come up with something that will pass muster with the appeals court, since it is likely to wind up with them again if a new settlement closely resembles the old one," says Anita Boomstein, a partner with New York City-based Manatt, Phelps & Phillips LLP who follows payments litigation.
Merchant trade groups celebrated the Supreme Court’s decision. “If this settlement had been approved, the structure of fees that drive up the prices of everything consumers buy would have been cemented into place forever,” said Mallory Duncan,, senior vice president and general counsel for the Washington, D.C.-based National Retail Federation, in a statement. “Now something can finally be done to bring these fees under control.”
The appeal to the Supreme Court arose from a decision June 30 by a three-judge panel of the U.S. Court of Appeals for the Second Circuit to void the settlement in the case, known as MDL 1720. Arguing the terms of the settlement unfairly penalized one class of merchants to benefit another, the court rejected an agreement that had capped litigation that originated 12 years ago with individual suits by merchants against Visa Inc., Mastercard Inc., and major banks, alleging the defendants unfairly set interchange rates. Interchange is a major component in the cost of card acceptance for merchants.
When it was reached in July 2012, the $7.25 billion settlement was the biggest on record in an antitrust case. But opt-outs by some 8,000 dissenting merchants, including some of the country’s biggest retailers, ultimately whittled that sum down to $5.7 billion in the ensuing months. Appealing to the Supreme Court were the settling merchants plus the card networks. Many of the opt-out merchants are pursuing separate litigation.
Now, with MDL 1720 wending its way back to Brooklyn, observers say it’s hard to predict what the outcome will be, though it’s likely to be a long time in coming. For one thing, with the original set of plaintiff classes invalidated by the appeals court, new classes will have to be determined and certified, observers say.
The preferred result for the merchants hasn’t changed, says Deborah White senior executive vice president and general counsel at the Arlington, Va.-based Retail Industry Leaders Association. “The best outcome would be for the card [networks] to stop their unfair practices and have a competitive system where [they] can’t gang up on merchants and set the prices merchants have to pay,” she tells Digital Transactions News.
But others argue the merchants have a deeper agenda. “The merchant Goliaths want to permanently slash credit card interchange and network fees, and a seat at the table determining network rules and standards,” says Eric Grover, principal at Minden, Nev.-based payments consultancy Intrepid Ventures. “This case is fundamentally about merchants seeking economics through litigation that they can’t get in the market.”
Whatever the outcome, a new settlement now will require even more determination than before, some say, given the tortured history of the first pact. “While all parties would prefer a settlement to playing a version of Russian roulette before a jury, it’ll be much more difficult to reach,” notes Grover.
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