Credit Card Settlement Judge Says He Sees Grounds for Preliminary Approval of Pact

The judge overseeing the mammoth litigation involving credit card interchange said on Wednesday the controversial proposed settlement appears to meet the requirements for preliminary approval. Judge John Gleeson, however, also said he would hear merchants’ objections to the settlement struck by lawyers for the merchant plaintiffs and the payment card network and bank defendants when he considers a motion for preliminary approval on Nov. 9.

“It seems clear that there is an expectation among some interested parties that the preliminary approval process should be more involved in this case than in the usual class action,” Gleeson, of U.S. District Court in Brooklyn, N.Y., wrote in an order setting the hearing. Gleeson’s brief comments represent his first public statements about the case since lawyers announced the settlement July 13.

Indeed, this is no ordinary case. The litigation involves merchants and merchant trade groups, some individually and as a class, that sued Visa Inc., MasterCard Inc., and some large banks in 2005 to challenge credit card interchange on antitrust grounds. The proposed settlement would have the defendants pay $6.6 billion in damages and temporarily cut interchange to the tune of $1.2 billion, and provide merchants with relief from some network rules. In return, the merchants would forgo the right to sue the networks in the future over interchange and rules.

Over the past few months, many of the named plaintiffs have come out against the settlement, saying it gives too much to the networks and would bind millions of current and future card-accepting merchants to its terms.

Gleeson acknowledged the controversy. “I understand from both filings in the case and the considerable media coverage of the proposed settlement that there are objections to the proposal, and I assume there will be more such objections in the future,” he wrote. “As in every case, those objections deserve, and will get, careful consideration by the court.”

The judge went on to note, however, that the threshold for preliminary approval of a settlement is “meaningfully lower” than the standard for final approval. “Preliminary approval is appropriate where the proposal appears to be the product of serious negotiation and further appears to be within the range of possible final approval,” Gleeson said. He later added: “I have reviewed the settlement agreement, and at first blush it appears to satisfy the threshold requirements for preliminary approval.”

Attorney Jeffrey Shinder of the prominent antitrust law firm Constantine Cannon in New York, who is representing a number of dissident plaintiffs, said in an Oct. 23 letter to Gleeson “that the proposed settlement does not qualify for preliminary approval because of its obvious and facial defects.”

Gleeson denied a request from another attorney representing anti-settlement merchants and trade groups that the court form an “Objectors’ Committee” that would have full access to documents produced in the case (the file reportedly has about 50 million pages), and then produce a report for the court. “I see no need to form an Objectors’ Committee or to arrange for the discovery requested,” Gleeson said. “The parties seeking that relief have a great deal of sophistication and familiarity with both the terms of the settlement agreement and the course of the negotiations that culminated in that agreement.”

Also, in response to a request for clarification from Shinder, the judge said he saw no need to establish procedures for absent class members to intervene in the case so that their objections to the preliminary settlement would be heard.

Lawyers for the class plaintiffs filed the motion for preliminary approval. Although he could rule from the bench after hearing the arguments Nov. 9, lawyers say the more likely scenario is that Gleeson will decide on the motion later and issue a written opinion.

Gleeson is the same judge who presided at another years-long interchange case, the one involving debit cards that came to be known as the Wal-Mart case for its most prominent plaintiff, Wal-Mart Stores Inc. The 2003 settlement of that case resulted in merchants no longer having to accept Visa or MasterCard debit cards if they accepted those networks’ credit cards, payment by the networks of approximately $3 billion in damages, and a temporary lowering of debit interchange.