The United States Court of Appeals for the Second Circuit has overturned a $7.25 billion antitrust settlement among Visa and MasterCard and millions of retailers that accused the card networks of improperly fixing interchange fees. The settlement, the culmination of a decade-long litigation approved by the District Court for the Eastern District of New York in December 2013, was believed to be the largest antitrust settlement in U.S. history. The case had attracted interest among investors willing to purchase claims from retailers in anticipation of a future payout under the settlement agreement.

On June 30, 2016, a three-judge panel of the Second Circuit Court of Appeals ruled in a strongly-worded decision that certain merchants were "inadequately represented" during the long settlement negotiations. Under the settlement, one class of merchants was to receive distributions from a cash fund, while a second class was to receive injunctive relief in the form of rule changes. The Court of Appeals found that the settlement was fundamentally flawed because two classes with diverging interests were nevertheless represented by the same lawyers. Such a conflict "sapped class counsel of the incentive to zealously represent" the second group of merchants.

In a concurring opinion, U.S. Circuit Judge Pierre Leval added that he was particularly troubled by the broad release that binds not only merchants who receive cash compensation as part of the settlement, but all merchants, in perpetuity, who accept Visa and MasterCard in the future.

When Judge John Gleeson approved the settlement in 2013 he said it offered both a significant damage award and meaningful injunctive protection. Judge Gleeson, however, has since stepped down from the bench, making it especially difficult to ascertain what will happen when the matter comes before a new judge later this summer. The parties may try to renegotiate a settlement, or the case could go to trial. Judge Margo K. Brodie of the United States District Court for the Eastern District of New York has scheduled a conference with all parties for August 11, 2016. The parties have been ordered to meet and confer in advance of the conference, and to file a proposed conference agenda regarding the next steps in the litigation on or before August 2.

The District Court case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn).

The Court of Appeals case is In Re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 2nd U.S. Circuit Court of Appeals, No. 12­4671.


Charging Forward: An Investor's Guide to Visa/ MasterCard Settlement Claims (Feb 2015)