The wait is -almost- over!  Eighteen years after the case was filed and nearly one year from the day the Second Circuit heard oral arguments in the MasterCard/Visa Interchange Fee Litigation, the Court of Appeals affirmed District Judge Margo Brodie’s approval of the $5.6 billion class action settlement agreed upon by the parties.  While many observers believed the settlement would ultimately be affirmed, the panel did so with some unanticipated wrinkles, affirming a majority of the district court’s order, but leaving many of appellants’ questions and issues unanswered.

The resolution of the appeal clears an important obstacle for distribution of the funds, and any merchant who accepted MasterCard or Visa in the US from 2004-2019 should now prepare to make claims to the settlement, given the likelihood that a claim deadline will be set soon.

Resolution of the Appeal

Following the district court’s approval of the settlement in 2019, oil companies and their franchisors that operate service stations were in dispute over who is eligible to make claims to the settlement.  Both claimed to have “accepted” Visa and/or MasterCard payments, and therefore assert entitlement under the class definition.  Judge Brodie did not resolve this particular question of who “accepted” the payment, but instead set aside this determination on a case-by-case basis for a special master.  Appellants contended that Judge Brodie’s plan rendered the class unascertainable.  The Second Circuit disagreed, holding that the district court properly concluded that the class definition is guided by federal antitrust standards and that “the only entities that could fall within the class definition were those deemed to be direct payors.”  The appellate judges were similarly unpersuaded by appellants’ additional arguments that such an intraclass conflict left franchisees without adequate representation.  In its conclusion, the panel directly states that it made no ruling as to how damages should be allocated between the oil companies and their franchisees or to the reasonableness of the special master’s ultimate findings.

In similar fashion, the Second Circuit also left the ruling on the legality of the release of hypothetical future claims for another day and another case.  In its reasoning, the panel points to language from the release of claims provision, stating that as read, the language acts as a de-facto severability clause, thereby allowing the settlement agreement to stand even if the release were to fail.

The panel’s only disagreement with the district court’s order was related to the grant of $900,000 in service awards to lead plaintiffs.  Accepting appellants’ argument that the class should not pay for time spent lobbying for changes in law that did not benefit the class, the panel directed the district court to reduce the award in proportion to the amount for time spent lobbying.

So What’s Next?

Now that the district court has its marching orders, it is believed that a claims process will be established quickly.  The court is expected to determine a deadline for all claim submissions soon, and there is reason to believe that deadline could be set for a date sometime later this year.

With a looming claims deadline, retailers will need to prepare not only to submit their claims in a timely manner, but to maximize their potential recoveries as well.  Claim submissions that are tailored to individualized aspects of each retailer’s history, structure, and payment records will be positioned favorably.  Outside legal counsel can help guide collection of all necessary data, research and work to solve potential issues related to unavailability of older information, resolve eligibility issues, and assist with structuring claims in a manner that will help retailers maximize their potential recovery, while minimizing the disruption to a retailer’s regular course of business.

More details on the history of the Interchange Fee Litigation can be found in our last posts from May 2019 and March 2020.No claims deadline has been set and claims forms are not currently available; however, merchants can pre-register online to receive the form upon court approval.  Class members do not need to sign up with a third-party service in order to participate in the class.  Additional information regarding the class settlement can be found at the court-approved website.

  1. Preparing Claims

Retailers should consider the following:

  • Data Collection and Organization: Retailers can make claims to the settlement fund without independently pulling data.  However, in order to maximize recovery, some exploration of data is advisable, and moreover, merchants should consider acquisitions or other aspects of the business that may not be captured on a first pass by the claims administrator.  Larger merchants are advised to pull some data available internally or from processors in order to develop the best record of their transactions.   
  • Eligibility of Transactions: Certain factors can affect eligibility of the claimed transactions, including: strength and availability of evidentiary proof, location of card acceptance, debit or credit status, potentially discounted interchange rates, and use of co-branded credit cards.
  • Calculation of Estimated Fees Paid and Supporting Documentation: Due to the length of the class period, it is likely that many retailers will have incomplete or missing data.  As a result, retailors will need to submit business records and documentation to back up any estimated claims data.  The claims administrator may look for the following categories of data and documentation: amount of known interchange fees paid, estimated rate of interchange fees, annual credit card sales volume, growth rate information, among other potential items.

Even assuming we see a deadline for claims submissions later this calendar year, recovery for class members is still many months, and probably years, away.  After claims are submitted, they will be reviewed by the administrator, who often audits larger claims and seeks information to substantiate claimed transactions.  Because the settlement funds will be shared among all claimants on a pro rata basis, no funds will be distributed until all claims have been reviewed.  With over 12 million class members eligible to make claims, it is estimated that the process may take 18-24 months or longer.

  1. Monetizing Claims

Especially given the long timeline still anticipated, in many instances, retailers are also fielding solicitations and opportunities to monetize or sell claims to litigation funders.  This option can provide certainty along with an accelerated timetable for recovery.  Maximizing value through this option involves developing good evidence of eligible transactions and generating interest among multiple bidders to obtain competitive offers. 

  1. Other Jurisdictions

Retailers should also be aware of recovery opportunities in other jurisdictions.  In Canada, the claim period to a settlement amounting over $188 million CAD just recently closed.  And in Europe, the UK Court of Appeal just recently dismissed MasterCard’s appeal, allowing a consumer class action to run alongside a retailer class action.  Retailers with international operations should keep an eye to the potential presence of overlapping transactions in their claim submissions.

While class members are not required to work through attorneys or any intermediary to prepare or submit claims, evaluation of options in order to maximize outcomes and align with business goals may warrant consultation by larger merchants with outside counsel.