Antitrust Law Daily Wrap Up, ANTITRUST—E.D.N.Y.: Nearly $545 million in attorney fees awarded in retail credit card fee class action litigation, (Jan 13, 2014)

By Linda O’Brien, J.D., LL.M.

In a class action against Visa U.S.A., Inc. and MasterCard International Corporation and their issuing and acquiring banks for conspiring to fix credit card interchange fees paid by merchants, the federal district court in Brooklyn, New York, has granted the plaintiffs an award of $544.8 million in attorney fees. The court also approved Class Counsel’s request for expenses in the amount of $27,037,716.97 (In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, January 10, 2014, Gleeson, J.).

A putative class of approximately 12 million merchants filed suit against Visa U.S.A., Inc. and MasterCard International Corporation, as well as their issuing and acquiring banks, alleging that the companies conspired to fix interchange fees and merchant discount fees by adopting and enforcing practices relating to payment cards that unreasonably restrained trade and caused injury to the merchants.

The plaintiffs’ motion for approval of the settlement was granted in December 2013 (2013-2. The settlement had two components: (1) the creation of two cash fund of about $5.7 billion (after reductions for merchants that opted out of the class) and (2) injunctive relief in the form of various credit card network rules changes. The plaintiffs simultaneously filed a motion for an award of attorneys’ fees and reimbursement of expenses. The plaintiffs’ motion for an award of attorneys’ fees comprised of an amount of approximately ten percent of the cash portion of the settlement funds after reduction for opt-outs of the class, plus reimbursement for costs and expenses.

The court found that the fees were justified by the size, duration, complexity, and nature of relief afforded in the case. Using a percentage of the fund to award the fees, the court weighed the time expended by counsel, the risks and complexities of the case, the quality of the representation, the requested fee in relation to the settlement, and public policy considerations.

Risk and complexity of litigation. The risks of class certification, trial and establishing damages were high since the suit did not piggyback on any previous government action and there were no prior cases challenging the manner in which interchange fees were set. The case was also enormously legally and factually complex. Accordingly, counsel should be rewarded for undertaking the serious risk in recovery and achieving substantial benefits for the class, the court stated.

Quality of representation. The settlement constituted a significant step in remedying the merchants’ claims about the interchange rates in Visa and MasterCard payment card transactions and the rule changes allowing merchants to surcharge the use of credit cards at the product level will save merchants billions of dollars in the future. The case also precipitated government reforms that enable merchants to stimulate network and bank competition on interchange rates.

Graduated schedule. The court adopted a graduated schedule as a “reasoned and transparent” calculation of the percentage of the attorneys’ fees compared to other contingency fee cases – to adhere to the norms of the legal profession and address any concerns of a windfall to class counsel. Additionally, the court utilized a lodestar multiplier to compare the overall fee award across a wide range of cases and settlement fund sizes to confirm the reasonableness of the award. Also, the unreimbursed costs and expenses requested by the plaintiffs’ counsel were reasonable and necessary to the prosecution of the litigation.

Incentive payments. Finally, the plaintiffs’ request for incentive payments for the class representatives was denied without prejudice to renewal in a properly-supported motion. Although the requested payments were a small fraction of the settlement fund, the proposed average incentive award was far greater than the average monetary recovery per class members. The plaintiffs failed to provide documentation of their expenses or any relevant authority to support the requested awards.

The case is No. 05-MD-1720 (JG) (JO).

Attorneys: Alexandra S. Bernay (Coughlin Stoia Geller Rudman & Robbins LLP), Bart D. Cohen (Berger & Montague, P.C.), Benjamin R. Nagin (Sidley, Austin Brown & Wood LLP), and Bonny E. Sweeney (Robbins Geller Rudman & Dowd LLP) for Plaintiffs. Mark E. Tully (Goodwin Procter, LLP) and Joshua N. Holian (Latham & Watkins) for Visa U.S.A., Inc. and MasterCard International Incorporated

Companies: Visa U.S.A., Inc.; MasterCard International Incorporated

Cases: Antitrust NewYorkNews