mastercard visa settlement overturned 12-4671_complete_opn

7/25/2019 Mastercard Visa Settlement Overturned 12-4671_complete_opn

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124671cv(L)

InrePaymentCardInterchangeFeeandMerchantDiscountAntitrustLitigation

UNITEDSTATESCOURTOFAPPEALS

FOR

THE

SECOND

CIRCUIT

AugustTerm,2015

(Argued:September28,2015 Decided:June30,2016)

DocketNos.124671cv(L);124708(CON);124765(CON);134719(CON);

134750(CON);134751(CON);134752(CON);1432(CON);14117(CON);

14119(CON);

14

133(CON);

14

157(CON);

14

159(CON);

14

192(CON);




14584(CON);14606(CON);14663(CON);14837(CON)

x

INREPAYMENTCARDINTERCHANGEFEE

ANDMERCHANT

DISCOUNT

ANTITRUST

LITIGATION

x

Before: WINTER,JACOBS,andLEVAL,CircuitJudges.

Thisantitrustclassactionwasbroughtonbehalfofapproximately12

millionmerchants

against

Visa

and

MasterCard,

which

are

the

two

largest

credit

cardissuingnetworksintheUnitedStates,aswellasagainstvariousissuingand

acquiringbanks,allegingaconspiracyinviolationofSection1oftheSherman


2/46

2

Act. Afternearlytenyearsoflitigation,thepartiesagreedtoasettlementthat

releasedallclaimsinexchangefordisparaterelieftoeachoftwoclasses:upto

$7.25billion

would

go

to

an

opt

out

class,

and

a

non

opt

out

class

would

get

injunctiverelief. Thedistrictcourtcertifiedthesetwosettlementonlyclasses,

andapprovedthesettlementasfairandreasonable. Onthisappeal,numerous

objectorsandoptoutplaintiffsarguethatthisclassactionwasimproperly

certifiedandthatthesettlementwasunreasonableandinadequate. Weconclude

thattheclassplaintiffswereinadequatelyrepresentedinviolationofRule23(a)(4)

andtheDueProcessClause. Accordingly,wevacatethedistrictcourts

certificationofthisclassactionandreversetheapprovalofthesettlement.

Vacated,reversed,andremanded.

JudgeLevalconcursinaseparateopinion.

THOMASC.GOLDSTEIN(EricF.Citron,

onthebrief),Goldstein&RussellP.C.,

Washington,DC;StephenR.Neuwirth,

SanfordI.Weisburst,SteigD.Olson,and

ClelandB.WeltonII,QuinnEmanuel

Urquhart&Sullivan,LLP,NewYork,NY;

JeffreyI.

Shinder,

Gary

J.

Malone,

and

A.

OwenGlist,ConstantineCannonLLP,New

York,NY;MichaelJ.Canter,RobertN.

Webner,andKennethJ.Rubin,Vorys,

Sater,SeymourandPeaseLLP,Columbus


3/46

3

OH;GregoryA.Clarick,ClarickGueron

ReisbaumLLP,NewYork,NY,for

ObjectorsAppellantsand

PlaintiffsAppellants(Merchant

Appellants).

PHILIPC.KOROLOGOS,Boies,Schiller&

FlexnerLLP,NewYork,NY,for

ObjectorsAppellantsAmericanExpress

Company,etal.

JENNIFERM.SELENDY(WilliamH.Pratt,

onthebrief),Kirkland&EllisLLP,New

York,NY,

for

Objectors

Appellants

DiscoverBank,etal.

JASONA.YURASEK(AnahitSamarjian,on

thebrief),PerkinsCoieLLP,SanFrancisco,

CA,forObjectorsAppellantsFirstData

Corporation,etal.

AndrewG.Celli,Jr.andDebraL.

Greenberger,EmeryCelliBrinckerhoff&

AbadyLLP,NewYork,NY,for

ObjectorsAppellants(MerchantTrade

Groups).

JerroldS.ParkerandJayL.T.Breakstone,

ParkerWaichman,LLP,PortWashington,

NY;ThomasP.ThrashandMarcusN.

Bozeman,Thrash

Law

Firm,

P.A.,

Little

Rock,AR;PhillipDuncanandRichard

Quintus,DuncanFirm,P.A.,LittleRock,

AR,forAppellantRetailersandMerchants

Objectors.


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4

ElizabethWolstein,SchlamStone&Dolan

LLP,NewYork,NY,for

ObjectorsAppellantsU.S.PIRGand

ConsumerReports.

AnthonyF.Shelley,AdamP.Feinberg,

LauraG.Ferguson,MichaelN.Khalil,and

KatherineE.Pappas,Miller&Chevalier

Chartered,Washington,DC,forAppellants

BlueCrossandBlueShieldEntitiesand

WellpointEntities.

SteveA.

Miller,

Denver,

CO,

for

Appellant

TheIronBarleyRestaurantLLC.

JohnJ.Pentz,Sudbury,MA,forAppellants

UnlimitedVacationsandCruises,Inc.,etal.

N.AlbertBacharach,Jr.,Gainesville,FL,for

AppellantOpticalEtc.LLC.

ChristopherA.Bandas,CorpusChristi,TX,

forObjectorsAppellants1001Property

Solutions,LLC,etal.

PAULD.CLEMENT(JeffreyM.Harrisand

CandiceC.Wong,onthebrief),Bancroft

PLLC,Washington,DC;K.Craig,Wildfang,

ThomasJ.Undlin,RyanW.Marth,and

BernardPersky,

Robins

Kaplan,

Miller

&

CiresiL.L.P.,Minneapolis,MN;H.Laddie

Montague,MerrillG.Davidoff,and

MichaelJ.Kane,Berger&Montague,P.C.,

Philadelphia,PA;BonnyE.Sweeney,


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5

JosephD.Daley,andAlexandraS.Bernay,

RobbinsGellerRudman&DowdLLP,San

Diego,CA;JosephGoldberg,Freedman

BoydGoldbergUrias&Ward,P.A.,

Albuquerque,MN,

for

Plaintiffs

Appellees.

CARTERG.PHILIPS(DavidF.Graham,

RobertN.Hochman,BenjaminR.Nagin,

EamonP.Joyce,andMarkD.Taticchi,on

thebrief),SidleyAustinLLP,Washington,

DC;RobertC.Mason,Arnold&PorterLLP,

NewYork,NY;RobertJ.Vizas,Arnold&

PorterLLP,SanFrancisco,CA;MarkR.

Merleyand

Matthew

A.

Eisenstein,

Arnold

&PorterLLP,Washington,DC;RichardJ.

Holwell,MichaelS.Shuster,andDemian

Ordway,HolwellShuster&GoldbergLLP,

NewYork,NY;MatthewFreimuthand

WesleyR.Powell,WillkieFarr&Gallagher

LLP,NewYork,NY;KennethA.Gallo,

Paul,Weiss,Rifkind,Wharton&Garrison

LLP,Washington,DC;MarkP.Ladnerand

MichaelB.Miller,Morrison&FoersterLLP,

NewYork,NY;AndrewJ.Frackmanand

AbbyF.Rudzin,O=Melveny&MyersLLP;

JamesP.Tallon,Shearman&SterlingLLP,

NewYork,NY;RichardL.Creightonand

DrewM.Hicks,KeatingMuething&

KlekampPLL,Cincinnati,OH;JohnP.

PassarelliandJamesM.Sulentic,Kutak

RockLLP,

Omaha,

NE;

Peter

E.

Greene,

BorisBershteyn,andPeterS.Julian,

Skadden,Arps,Slate,Meagher&FlomLLP,

NewYork,NY;JonathanS.Masseyand

LeonardA.Gail,Massey&Gail,


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6

Washington,DC;AliM.Stoeppelweth,

WilmerCutlerPickeringHaleandDorr

LLP,Washington,DC;JohnM.Majorasand

JosephW.Clark,JonesDay,Washington,

DC;Teresa

T.

Bonder,

Valarie

C.

Williams,

andKaraF.Kennedy,Alston&BirdLLP,

Atlanta,GA;JonathanB.Orleansand

AdamS.Mocciolo,Pullman&Comley,

LLC,Bridgeport,CT;RobertP.LoBueand

WilliamF.Cavanaugh,PattersonBelknap

Webb&TylerLLP,NewYork,NY,for

DefendantsAppellees.

DENNISJACOBS,

Circuit

Judge:

Thisantitrustclassactionwasbroughtonbehalfofapproximately12

millionmerchantsagainstVisaU.S.A.Inc.(Visa)andMasterCardInternational

Incorporated(MasterCard),whicharethetwolargestcreditcardissuing

networksintheUnitedStates,aswellasagainstvariousissuingandacquiring

banks(collectivelywithVisaandMasterCard,thedefendants),alleginga

conspiracyinviolationofSection1oftheShermanAct. Afternearlytenyearsof

litigation,thepartiesagreedtoasettlementthatreleasedallclaimsinexchange

fordisparatereliefforeachoftwoclasses:upto$7.25billionwouldgotoan

optoutclass,andanonoptoutclasswouldgetinjunctiverelief. Thedistrict

courtcertifiedthesetwosettlementonlyclasses,andapprovedthesettlementas


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7

fairandreasonable. Onthisappeal,numerousobjectorsandoptoutplaintiffs

arguethatthisclassactionwasimproperlycertifiedandthatthesettlementwas

unreasonableand

inadequate.

We

conclude

that

the

class

plaintiffs

were

inadequatelyrepresentedinviolationofRule23(a)(4)andtheDueProcess

Clause. Accordingly,wevacatethedistrictcourtscertificationofthisclass

actionandreversetheapprovalofthesettlement.

BACKGROUND

Detailedinformationabouthowthecreditcardindustryoperatesissetout

inthedistrictcourtopinionapprovingthesettlementinthiscase,InrePayment

CardInterchangeFeeandMerchantDiscountAntitrustLitig.(PaymentCardI),

986F.Supp.2d207,21415(E.D.N.Y.2013),andinourpreviousopinionsdealing

withpastantitrustlawsuitsagainstVisaandMasterCard,WalMartStores,Inc.v.

VisaU.S.A.,Inc.,396F.3d96,10102(2dCir.2005);UnitedStatesv.VisaU.S.A.,

Inc.,344F.3d229,23437(2dCir.2003);InreVisaCheck/MasterMoneyAntitrust

Litig.(VisaCheck),280F.3d124,12931(2dCir.2001). Thissectionofthe

opinionlays

out

only

the

facts

and

procedural

history

needed

to

explain

our

analysisandresult.


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8

Ingeneralterms,aVisaorMasterCardcreditcardtransactionisprocessed

asfollows:thecustomerpresentsacreditcardtopayforgoodsorservicestothe

merchant;the

merchant

relays

the

transaction

information

to

the

acquiring

bank;

theacquiringbankprocessestheinformationandrelaysittothenetwork(here,

VisaorMasterCard);thenetworkrelaystheinformationtotheissuingbank;ifthe

issuingbankapprovesthetransaction,thatapprovalisrelayedtotheacquiring

bank,whichthenrelaysittothemerchant. Ifthetransactionisapproved,the

merchantreceivesthepurchasepriceminustwofees:theinterchangefeethat

theissuingbankchargedtheacquiringbankandthemerchantdiscountfeethat

theacquiringbankchargedthemerchant.

Inagiventransaction,theinterchangefeethattheacquiringbankpays

(andisinturnpaidbythemerchant)variesdependingonthecreditcardnetwork

andthetypeofcreditcard. Thus,theAmericanExpresscreditcardnetwork

generallychargesahigherinterchangefeethantheVisaorMasterCardnetworks.

AndVisaandMasterCardhavedifferentproductlevelswithintheircreditcard

portfolios,such

as

cards

that

give

consumers

generous

rewards,

and

typically

chargeahigherinterchangefeethancardsthatofferfewrewardsornone. The

differenceininterchangefeebetweenAmericanExpressandVisaorMasterCard


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9

isoneatthebrandlevel,whilethedifferencebetween,e.g.,arewardscardfrom

VisaandanorewardscardfromVisaisoneattheproductlevel.

Plaintiffsare

all

merchants

who

accept

Visa

and

MasterCard

branded

creditcardsandarethereforeboundbytheissuersnetworkrules. Plaintiffs

challengeasanticompetitiveseveralofthefollowingnetworkrules(whichare

effectivelyidenticalasbetweenVisaandMasterCard). Thedefault

interchangefeeappliestoeverytransactiononthenetwork(unlessthemerchant

andissuingbankhaveenteredintoaseparateagreement). The

honorallcardsrulerequiresmerchantstoacceptallVisaorMasterCardcredit

cardsiftheyacceptanyofthem,regardlessofthedifferencesininterchangefees.

Multiplerulesprohibitmerchantsfrominfluencingcustomerstouseonetypeof

paymentoveranother,suchascashratherthancredit,oracreditcardwitha

lowerinterchangefee. Theseantisteeringrulesincludethenosurcharge

andnodiscountrules,whichprohibitmerchantsfromchargingdifferentprices

atthepointofsaledependingonthemeansofpayment.

Plaintiffsallege

that

these

Visa

and

MasterCard

network

rules,

working

in

tandem,allowtheissuingbankstoimposeanartificiallyinflatedinterchangefee

thatmerchantshavelittlechoicebuttoaccept. Theargumentisthatthe


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11/46

11

fromcreditcardsuse. Noneofthesedevelopmentsaffectedthehonorallcards

ornosurchargingrules,ortheexistenceofadefaultinterchangefee.

Notwithstandingthese

pro

merchant

industry

developments,

the

plaintiffs

pressedon. Discoveryincludedmorethan400depositions,17expertreports,32

daysofexpertdepositiontestimony,andtheproductionofover80millionpages

ofdocuments. Thepartiesfullybriefedamotionforclasscertification,amotion

todismisssupplementalcomplaints,andcrossmotionsforsummaryjudgment.

Beginningin2008,thepartiesparticipatedinconcurrentsettlementnegotiations

assistedbywellrespectedmediators. Attheendof2011,thedistrictjudgeand

themagistratejudgeparticipatedinthepartiesdiscussionswiththemediators.

InOctober2012,afterseveralmoremarathonnegotiationswiththemediators

(includingonemorewiththedistrictcourtandmagistratejudges),theparties

executedtheSettlementAgreement. Thedistrictcourtgrantedpreliminary

approvaloftheproposedsettlementonNovember27,2012,andfinalapprovalon

December13,2013. PaymentCardI,986F.Supp.2dat213,217.

TheSettlement

Agreement

divides

the

plaintiffs

into

two

classes:

one

the

Rule23(b)(3)classcoversmerchantsthatacceptedVisaand/orMasterCardfrom

January1,2004toNovember28,2012;theothertheRule23(b)(2)classcovers


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12

merchantsthataccepted(orwillaccept)Visaand/orMasterCardfromNovember

28,2012onwardsforever. Theformerclasswouldbeeligibletoreceiveupto

$7.25billion

in

monetary

relief;

the

latter

would

get

injunctive

relief

in

the

form

of

changestoVisa=sandMasterCardsnetworkrules. Becauseofthedifference

betweenRule23(b)(3)andRule23(b)(2),membersofthefirstclass(which

receivesmoneydamagesinthesettlement)couldoptout,butmembersofthe

second,forwardlookingclass(whichreceivesonlyinjunctiverelief)couldnot.

Themostconsequentialreliefaffordedthe(b)(2)classwastheabilityto

surchargeVisa andMasterCardbrandedcreditcardsatboththebrandand

productlevels. Thatis,amerchantcouldincreasethepriceofagoodatthepoint

ofsaleifaconsumerpresents(forexample)aVisacardinsteadofcash,oraVisa

rewardscardinsteadofaVisacardthatyieldsnorewards. Theincremental

valueandutilityofthisreliefislimited,however,becausemanystates,including

NewYork,California,andTexas,prohibitsurchargingasamatterofstatelaw.

See,e.g.,ExpressionsHairDesignv.Schneiderman,808F.3d118,127(2dCir.

2015)(upholding

the

New

York

ban

on

credit

card

surcharges);

Rowell

v.

Pettijohn,816F.3d73,80(5thCir.2016)(upholdingtheTexasbanoncreditcard

surcharges). ButseeDanasR.R.Supplyv.AttorneyGen.,Florida,807F.3d1235,


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13

1249(11thCir.2015)(strikingdownFloridabanoncreditcardsurcharges).

Moreover,underthemostfavorednationclauseincludedintheSettlement

Agreement,merchants

that

accept

American

Express

cannot

avail

themselves

of

thesurchargingreliefbecauseAmericanExpresseffectivelyprohibits

surcharging,andtheSettlementAgreementpermitssurchargingforVisaor

MasterCardonlyifthemerchantalsosurchargesforuseofcardsissuedby

competitorssuchasAmericanExpress.

VisaandMasterCardalsoagreedtomodifytheirnetworkrulestoreflect

thattheywill:negotiateinterchangefeeswithgroupsofmerchantsingoodfaith,

lockinthebenefitsoftheDurbinAmendmentandDepartmentofJusticeconsent

decree,andpermitamerchantthatoperatesmultiplebusinessesunderdifferent

namesorbannerstoacceptVisaorMasterCardatfewerthanallofitsbusinesses.

TheSettlementAgreementprovidesthatalloftheinjunctivereliefwill

terminateonJuly20,2021.

Inreturn,theplaintiffsareboundbyareleasethatwaivesanyclaimsthey

wouldhave

against

the

defendants

for:

all

of

the

conduct

challenged

in

the

operativecomplaint,allotherpoliciesandpractices(concerningcreditcard

transactions)thatwereinplaceasofNovember27,2012,andanysubstantially


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14

similarpracticestheyadoptinthefuture. Whiletheinjunctivereliefforthe

(b)(2)classwillexpireonJuly20,2021,thisreleasehasnoenddate. Itoperates

inperpetuity,

provided

only

that

Visa

and

MasterCard

keep

in

place

the

several

rulesthatweremodifiedbytheinjunctivereliefprovidedtothe(b)(2)class

(including,interalia,permittingmerchantstosurcharge),orimposerulesthatare

substantiallysimilartothemodifiedrules. Thatis,afterJuly20,2021,foraslong

asVisaandMasterCardelecttoleaveinplacetheirnetworkrulesasmodifiedby

theSettlementAgreementoradoptrulessubstantiallysimilarthereto,the

defendantscontinuetoenjoythebenefitofthereleaseastoallclaimstheplaintiffs

potentiallyhadagainstthedefendantsforanyofthenetworkrulesexistingasof

November27,2012.

If,afterJuly20,2021,theVisaorMasterCardnetworksrulesarechanged

suchthattheyarenolongersubstantiallysimilartotheirformasmodifiedbythe

SettlementAgreement,thenmerchantsarefreedfromthereleaseastoclaims

arisingoutofthatnewnetworkrulebutonlyastosuchclaims. Forexample,if

Visaor

MasterCard

revert

to

their

pre

Settlement

Agreement

rules

by

forbidding

merchantsfromsurcharging,thenthereleasewillnotbarfuturemerchants

includedinthe(b)(2)classfrombringingantitrustclaimsarisingoutofthe


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15

prohibitiononsurcharging;buttherestofreleasewouldremainineffect,sothata

suitbythefutureplaintiffcouldnotchallengeanyoftheunchangednetwork

rules,such

as

the

honor

all

cards

rule

or

imposition

of

default

interchange

fees.

Insum,regardlesswhatVisaorMasterCarddowiththeirnetworkrulesafterJuly

20,2021,nomerchantwilleverbepermittedtobringclaimsarisingoutofthe

networkrulesthatareunaffectedbythisSettlementAgreement,includingmost

importantly,thehonorallcardsruleorexistenceofdefaultinterchangefees.

Appellants,includingthosethatoptedoutfromthe(b)(3)classand

objectedtothe(b)(2)class,arguethatthe(b)(2)classwasimproperlycertifiedand

thatthesettlementwasinadequateandunreasonable.

DISCUSSION

Certificationofaclassisreviewedforabuseofdiscretion,i.e.,whetherthe

decision(i)restsonalegalerrororclearlyerroneousfactualfinding,or(ii)falls

outsidetherangeofpermissibledecisions. InreLiteraryWorksinElec.

DatabasesCopyrightLitig.(LiteraryWorks),654F.3d242,249(2dCir.2011).

Thedistrict

courts

factual

findings

are

reviewed

for

clear

error;

its

conclusions

of

lawarerevieweddenovo. Charronv.Wiener,731F.3d241,247(2dCir.2013).


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16

Classactionsareanexceptiontotherulethatonlythenamedparties

conductandareboundbylitigation. SeeHansberryv.Lee,311U.S.32,4041

(1940).In

order

to

justify

a

departure

from

that

rule,

a

class

representative

must

bepartoftheclassandpossessthesameinterestandsufferthesameinjuryasthe

classmembers. WalMartv.Dukes,131S.Ct.2541,2550(2011)(internal

quotationmarksandcitationsomitted). ThatprincipleissecuredbyRule

23(a)(4)andtheDueProcessClause. Rule23(a)(4),whichrequiresthatthe

representativeparties...fairlyandadequatelyprotecttheinterestsoftheclass,

servestouncoverconflictsofinterestbetweennamedpartiesandtheclassthey

seektorepresent,aswellasthecompetencyandconflictsofclasscounsel.

AmchemProds.,Inc.v.Windsor,521U.S.591,625,626n.20(1997). [T]heDue

ProcessClauseofcourserequiresthatthenamedplaintiffatalltimesadequately

representtheinterestsoftheabsentclassmembers. PhillipsPetroleumCo.v.

Shutts,472U.S.797,812(1985). Classactionsandsettlementsthatdonotcomply

withRule23(a)(4)andtheDueProcessClausecannotbesustained.

Weconclude

that

class

members

of

the

(b)(2)

class

were

inadequately

representedinviolationofbothRule23(a)(4)andtheDueProcessClause.

Proceduraldeficienciesproducedsubstantiveshortcomingsinthisclassaction


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17

andthesettlement. Asaresult,thisclassactionwasimproperlycertifiedandthe

settlementwasunreasonableandinadequate.

I

UnderRule23(a)(4),[a]dequacyistwofold:theproposedclass

representativemusthaveaninterestinvigorouslypursuingtheclaimsofthe

class,andmusthavenointerestsantagonistictotheinterestsofotherclass

members. Denneyv.DeutscheBankAG,443F.3d253,268(2dCir.2006);see

alsoRobinsonv.MetroNorthCommuterR.R.Co.,267F.3d147,170(2dCir.2001)

(TwofactorsgenerallyinformwhetherclassrepresentativessatisfytheRule

23(a)(4)requirement:(1)absenceofconflictand(2)assuranceofvigorous

prosecution.)Toassurevigorousprosecution,courtsconsiderwhethertheclass

representativehasadequateincentivetopursuetheclasssclaim,andwhether

somedifferencebetweentheclassrepresentativeandsomeclassmembersmight

underminethatincentive. Id.at171. Toavoidantagonisticinterests,any

fundamentalconflictthatgoestotheveryheartofthelitigation,Charron,731

F.3dat

249

50

(internal

citations

omitted),

must

be

addressed

with

a

structural

assuranceoffairandadequaterepresentationforthediversegroupsand

individualsamongtheplaintiffs. Amchem,521U.S.at627. Onecommon


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18

structuralprotectionisdivisionoftheclassintohomogenoussubclassesunder

Rule23(c)(4)(B),withseparaterepresentationtoeliminateconflictinginterestsof

counsel.Ortiz

v.

Fibreboard

Corp.,

527

U.S.

815,

856

(1999).

Adequacymustbedeterminedindependentlyofthegeneralfairness

reviewofthesettlement;thefactthatthesettlementmayhaveoverallbenefitsfor

allclassmembersisnotthefocusinthedeterminationwhetherproposed

classesaresufficientlycohesivetowarrantadjudication. Denney,443F.3dat

268(quotingOrtiz,527U.S.at858). ThefocusoftheRule23(a)inquiryremains

oninequityandpotentialinequityattheprecertificationstage. Ortiz,527U.S.

at858. Sowhen(ashere)thedistrictcourtcertifiestheclassatthesametimeit

approvesasettlement,therequirementsofRule23(a)demandundiluted,even

heightened,attention. Amchem,521U.S.at620.

A

TheSupremeCourtwrotethegroundrulesforadequaterepresentationin

thesettlementonlyclasscontextinAmchemandOrtiz,twoasbestoscases. Our

recentdecision

in

Literary

Works

contributed

a

gloss

on

the

subject.

ThesingleclassproposedsettlementinAmchempotentiallyencompassed

millionsofplaintiffswhohadbeenexposedtoasbestos,withoutdistinction


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19

betweenthosewhohadalreadymanifestedasbestosrelatedinjuriesandsought

generousimmediatepayments,andthosewhohadnotmanifestedinjuryand

soughtan

ample,

inflation

protected

fund

for

the

future.

Amchem,

521

U.S.

at

626. Asingleclassrepresentativecouldnotadequatelyrepresentbothinterests.

Thetwosubgroupshadcompetinginterestsinthedistributionofasettlement

whosetermsreflectedessentialallocationdecisionsdesignedtoconfine

compensationandtolimitdefendantsliability. LiteraryWorks,654F.3dat

250(quotingAmchem,521U.S.at627). Theantagonisticinterestswereso

pronounced,onanissuesocrucial,thatthesettlementrequiredastructural

assuranceoffairandadequaterepresentationforthediversegroupsand

individuals. Amchem,521U.S.at627.

Twoyearslater,theSupremeCourtagainconsideredasettlementonly

classactionthatjoinedpresentandfutureclaimantsinasingleclass,and

emphasized:itisobviousafterAmchemthataclassdividedbetweenholdersof

presentandfutureclaims...requiresdivisionintohomogenoussubclasses

underRule

23(c)(4)(B),

with

separate

representation

to

eliminate

conflicting

interestsofcounsel. Ortiz,527U.S.at856. Asecondfataldeficiencyinthe

Ortizsettlementwasthatallpresentclaimantsweretreatedequally,


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20

notwithstandingthatsomehadclaimsthatweremorevaluable. Itisnoanswer

tosay...thattheseconflictsmaybeignoredbecausethesettlementmakesno

disparateallocation

of

resources

as

between

the

conflicting

classes

for

the

very

decisiontotreatthemallthesameisitselfanallocationdecisionwithresults

almostcertainlydifferentfromtheresultsthat[thedisparateclaimants]would

havechosen. Id.at857. Thesefaultlinesbetweenpresentandfuture

plaintiffs,andamongplaintiffswithdifferentlyvaluedclaims,wereso

fundamentalthattheyrequiredstructuralprotectionintheformofsubclasses

withseparatecounsel. Id.

LiteraryWorkscontainedthesameingredientsofconflictidentifiedin

AmchemandOrtiz. LiteraryWorks,654F.3dat251. Thesettlementdivided

classclaimsintothreecategories,cappeddefendantsoverallliabilityat$18

million,andusedaformulaforsplittingthisamount. Thesettlementwasless

generoustothethirdcategory,andrequiredtheholdersofthoseclaimsto

exclusivelybeartheriskofoversubscription,i.e.,theirrecoveryalonewouldbe

reducedto

bring

the

total

payout

down

to

$18

million.

The

class

representatives

ofthesingleclassincludedindividualswithclaimsineachcategory;nevertheless,

weheldthat(ataminimum)classmemberswithclaimsonlyinthethirdcategory


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21

requiredseparaterepresentationbecausetheirinterestswereantagonistictothe

othersonamatterofcriticalimportancehowthemoneywouldbedistributed.

Id.at

254.

Sincesomenamedrepresentativesheldclaimsacrossallthreecategories,

theclassdidnotencompassmutuallyexclusivegroupsasinAmchem;still,each

impermissiblyservedgenerallyasrepresentativeforthewhole,notfora

separateconstituency. Id.at251(quotingAmchem,521U.S.at627). Class

representativeswithclaimsinallthreecategoriesnaturallywouldwantto

maximizetheiroverallrecoveryregardlessofallotmentacrosscategories,

whereasclassmemberswithclaimsonlyinthethirdcategorywouldwantto

maximizethecompensationforthatcategoryinparticular. Agreatriskthus

arosethatclassrepresentativeswouldselloutthethirdcategoryofclaimsfor

termsthatwouldtilttowardtheothers. Asittranspired,theresultingsettlement

awardedthethirdcategoryless,andtaxedthatlesserrecoverywithalltherisk

thatclaimwouldexceedtheliabilitycap.

Wedid

not

conclude

that

the

third

categorys

inferior

recovery

[w]as

determinativeevidenceofinadequaterepresentation. Id.at253. Theclaimsin

thirdcategorywereobjectivelytheweakest. Theproblem,ofcourse,[wa]sthat


22/46

22

weha[d]nobasisforassessingwhetherthediscountappliedtoCategoryCs

recoveryappropriatelyreflect[ed]thatweakness. Id. Wecouldnotknowthe

rightvalue

of

the

category

C

claims

without

independent

counsel

pressing

its

mostcompellingcase. Id. Whilethesettlementwastheproductofan

intense,protected,adversarialmediation,involvingmultipleparties,including

highlyrespectedandcapablemediatorsandassociationalplaintiffs,these

featuresofthenegotiationcouldnotcompensatefortheabsenceofindependent

representationbecausetherecouldbenoassurancethatanyoneadvancedthe

strongestargumentsinfavorofthedisfavoredclaims. Id.at25253. The

eventualsettlementprovedthat[o]nlythecreationofsubclasses,andthe

advocacyofanattorneyrepresentingeachsubclass,canensurethattheinterests

ofthatparticularsubgroupareinfactadequatelyrepresented. Id.at252.

Dividedloyaltiesarerarelydivideddownthemiddle.

B

LikethesettlementonlyclassesinAmchem,Ortiz,andLiteraryWorks,the

unitaryrepresentation

of

these

plaintiffs

was

inadequate.

Class

representatives

hadinterestsantagonistictothoseofsomeoftheclassmemberstheywere

representing. Thefaultlineswereglaringastomattersoffundamental


23/46

23

importance. Suchconflictsandabsenceofincentiverequiredasufficient

structuralassuranceoffairandadequaterepresentation,Amchem,521U.S.at

627,but

none

was

provided.

Theconflictisclearbetweenmerchantsofthe(b)(3)class,whichare

pursuingsolelymonetaryrelief,andmerchantsinthe(b)(2)class,definedas

thoseseekingonlyinjunctiverelief. Theformerwouldwanttomaximizecash

compensationforpastharm,andthelatterwouldwanttomaximizerestraintson

networkrulestopreventharminthefuture. Amchemtellsusthatsuch

divergentinterestsrequireseparatecounselwhenitimpactstheessential

allocationdecisionsofplaintiffscompensationanddefendantsliability.

Amchem,521U.S.at627. TheSettlementAgreementdoesmanifesttensionon

anessentialallocationdecision:merchantsinthe(b)(3)classwouldshareinup

to$7.25billionofdamages,whilemerchantsinthe(b)(2)classwouldenjoythe

benefitofsometemporarychangestothedefendantsnetworkrules. Thesame

counselrepresentedboththe(b)(3)andthe(b)(2)classes. Theclasscounseland

classrepresentatives

who

negotiated

and

entered

into

the

Settlement

Agreement

wereinthepositiontotradediminutionof(b)(2)reliefforincreaseof(b)(3)relief.

However,itisobviousafterAmchemthataclassdividedbetweenholdersof


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24

presentandfutureclaims...requiresdivisionintohomogenous

subclasses...withseparaterepresentation. Ortiz,527U.S.at856.

Moreover,many

members

of

the

(b)(3)

class

have

little

to

no

interest

in

the

efficacyoftheinjunctivereliefbecausetheynolongeroperate,ornolongeraccept

VisaorMasterCard,orhavedecliningcreditcardsales. Bythesametoken,

manymembersofthe(b)(2)classhavelittletonointerestinthesizeofthe

damagesawardbecausetheydidnotoperateoracceptVisaorMasterCardbefore

November28,2012,orhavegrowingcreditcardsales. Unitaryrepresentationof

separateclassesthatclaimdistinct,competing,andconflictingreliefcreate

unacceptableincentivesforcounseltotradebenefitstooneclassforbenefitsto

theotherinordersomehowtoreachasettlement.

Classcounselstoodtogainenormouslyiftheygotthedealdone. The(up

to)$7.25billioninreliefforthe(b)(3)classwasthelargestevercashsettlementin

anantitrustclassaction. PaymentCardI,986F.Supp.2dat229. Fortheir

services,thedistrictcourtgrantedclasscounsel$544.8millioninfees. Inre

PaymentCard

Interchange

Fee

and

Merchant

Discount

Antitrust

Litig.

(PaymentCardII),991F.Supp.2d437,440(E.D.N.Y.2014). Thedistrictcourt

calculatedthesefeesbasedonagraduatedpercentagecutofthe(b)(3)classs


25/46

25

recovery;thuscounselgotmoremoneyforeachadditionaldollartheysecuredfor

the(b)(3)class. Butthedistrictcourtscalculationoffeesexplicitlydidnotrely

onany

benefit

that

would

accrue

to

the

(b)(2)

class,

id.

at

442

n.4,

and

class

counseldidnotevenasktobecompensatedbasedonthesizeorsignificanceof

theinjunctiverelief. Id. TheresultingdynamicisthesameasinOrtiz. Asthe

SupremeCourtrecognizedinthatcase:whenthepotentialforgiganticfeesis

withincounselsgraspforrepresentationofonegroupofplaintiffs,butonlyif

counselresolvesanothergroupofplaintiffsclaims,acourtcannotassumeclass

counseladequatelyrepresentedthelattergroupsinterests. Ortiz,527U.S.at

852. Weexpresslydonotimpugnthemotivesoractsofclasscounsel.

Nonetheless,classcounselwaschargedwithaninequitabletask.

Thetroublewithunitaryrepresentationhereisexacerbatedbecausethe

membersoftheworseoff(b)(2)classcouldnotoptout. The(b)(2)merchantsare

stuckwiththisdealandthisrepresentation. Wedonotdecidewhether

providingtheseclassmemberswithoptoutrightswouldbeasufficient

structuralassurance

of

fair

and

adequate

representation,

Amchem,

521

U.S.

at

627,toovercomethelackofseparateclasscounselandrepresentative. Cf.Visa


26/46

26

Check,280F.3dat147. ItisenoughtosaythatthisfeatureoftheSettlement

Agreementcompoundedtheproblem.

Oneaspect

of

the

Settlement

Agreement

that

emphatically

cannot

remedy

theinadequaterepresentationistheassistanceofjudgesandmediatorsinthe

bargainingprocess. True,acourtappointedmediatorsinvolvementin

precertificationsettlementnegotiationshelpstoensurethattheproceedings

werefreeofcollusionandunduepressure. DAmatov.DeutscheBank,236

F.3d78,85(2dCir.2001). Butevenanintense,protected,adversarialmediation,

involvingmultipleparties,includinghighlyrespectedandcapablemediators

andassociationalplaintiffs,doesnotcompensatefortheabsenceofindependent

representation. LiteraryWorks,654F.3dat25253. Themissionofmediators

istobringtogetherthepartiesandintereststhatcometothem. Itisnottheirrole

toadvancethestrongestargumentsinfavorofeachsubsetofclassmembers

entitledtoseparaterepresentation,ortovoicetheinterestsofagroupforwhich

nooneelseisspeaking.

Noris

the

problem

cured

by

the

partial

overlap

of

merchants

who

get

cash

asmembersofthe(b)(3)classandbecomemembersofthe(b)(2)classasthey

continuetoacceptVisaorMasterCard. TheforceofAmchemandOrtizdoesnot


27/46

27

dependonthemutuallyexclusivityoftheclasses;itwasenoughthattheclasses

didnotperfectlyoverlap. WeheldasmuchinLiteraryWorks,reasoningthat

namedplaintiffs

with

claims

in

multiple

subgroups

cannot

adequately

represent

theinterestsofanyonesubgroupbecausetheirincentiveistomaximizetheirown

totalrecovery,ratherthantherecoveryforanysinglesubgroup. Amchem

observedthatwheredifferencesamongmembersofaclassaresuchthat

subclassesmustbeestablished,weknowofnoauthoritythatpermitsacourtto

approveasettlement...onthebasisofconsentsbymembersofaunitaryclass,

someofwhomhappentobemembersofthedistinctsubgroups. Amchem,521

U.S.at627(quotingInreJointE.andS.Dist.AsbestosLitig.,982F.2d721,74243

(2dCir.1992),modifiedonrehg,993F.2d7(2dCir.1993)).

Moreover,whateveroverlappresentlyexistsispartialandshrinkingwith

time. AsoftheSeptember12,2013fairnesshearing,classcounselreportedthat

theclasswascomposedofabout12millionmerchants. Thatfigureofcourse

doesnotincludemerchantsthathavecomeintobeingsincethen,orthosethat

willcome

into

being

in

the

future,

all

of

whom

will

be

members

of

only

the

(b)(2)

class. Themembershipofthe(b)(3)class,ontheotherhand,isfixedandfinite.


28/46

28

Overtime,theinitialoverlapwillbereduced,andthegapbetweentheinterestsof

the(b)(3)and(b)(2)classeswillcontinuetowiden.

Noneof

this

is

to

say

that

(b)(3)

and

(b)(2)

classes

cannot

be

combined

in

a

singlecase,orthat(b)(3)and(b)(2)classesnecessarilyandalwaysrequire

separaterepresentation. Problemsarisewhenthe(b)(2)and(b)(3)classesdonot

haveindependentcounsel,seekdistinctrelief,havenonoverlapping

membership,and(importantly)arecertifiedassettlementonly. The

requirementsofRule23(a)areappliedwithaddedsolicitudeinthe

settlementonlyclasscontextbecausethecertificationofamandatorysettlement

classeffectivelyconcludestheproceedingsaveforthefinalfairnesshearing,and

thereisthusaheightenedriskofconflatingthefairnessrequirementsofRule

23(e)withtheindependentrequirementofrigorousadherencetothose

provisionsoftheRuledesignedtoprotectabsentees,suchasRules23(a)and(b).

Charron,731F.3dat250(quotingOrtiz,527U.S.at849). AsinAmchem,Ortiz,

andLiteraryWorks,settlementsthatareapprovedsimultaneouslywithclass

certificationare

especially

vulnerable

to

conflicts

of

interest

because

the

imperativesofthesettlementprocess,whichcometobearonthedefendants,the

classcounsel,andeventhemediatorsandthecourtitself,caninfluencethe


29/46

29

definitionoftheclassesandtheallocationofrelief. Forthisreason,wescrutinize

suchsettlementsmoreclosely.

Ofcourse

we

have

blessed

multi

class

settlements

that

were

the

product

of

unitaryrepresentation,butthosewereenteredintoafterclasscertification. For

example,weapprovedasettlementnegotiatedbyunitarycounselinCharron;but

beforedoingso,wenote[d]thatunlikethesituationinAmchem,Ortiz,and

LiteraryWorks,thesettlementherewasnotbeingapprovedatthesametimethat

theclasswasbeingcertified. Charron,731F.3dat250. Accordingly,wewere

moreskepticalofallegationsthatsubclassconflictsrequiredseparate

representation. Id. True,Charronobserved[a]llclasssettlementsvaluesome

claimsmorehighlythanothers,basedontheirperceivedmerits,andstrike

compromisesbasedonprobabilisticassessments,id.,butthatobservationhas

lessforceinthesettlementonlycontext. Charronalsospokeofcounseltrading

oneclaimforanother(whichmaybepermissible);inthesettlementonlyclass

action,weareconcernedthatcounselwilltradetheinterestsofoneclassfor

another(which

is

not).

Wehavereasontothinkthatthatoccurredhere. Structuraldefectsinthis

classactioncreatedafundamentalconflictbetweenthe(b)(3)and(b)(2)classes


30/46

30

andsappedclasscounseloftheincentivetozealouslyrepresentthelatter.

Apparently,theonlyunifiedinterestsservedbyherdingthesecompetingclaims

intoone

class

are

the

interests

served

by

settlement:

(i)

the

interest

of

class

counsel

infees,and(ii)theinterestofdefendantsinabundledgroupofallpossible

claimantswhocanbeprecludedbyasinglepayment. Thislatterinterest

highlightsthenextproblemwiththeSettlementAgreement.

II

Thisopinionalreadyconcludesthatclassplaintiffswereinadequately

represented. Accordingly,thesettlementandreleasethatresultedfromthis

representationarenullities. SeeStephensonv.DowChem.Co.,273F.3d249,260

(2dCir.2001),affdinpartbyanequallydividedcourtandvacatedinpart,539

U.S.111(2003)(Resjudicatagenerallyappliestobindabsentclassmembers

exceptwheretodosowouldviolatedueprocessand[d]ueprocessrequires

adequaterepresentationatalltimesthroughoutthelitigation.). Thisoutcomeis

confirmedbythesubstanceofthedealthatwasstruck. LiketheSupremeCourt

inAmchem,

we

examine

a

settlements

substance

for

evidence

of

prejudice

to

the

interestsofasubsetofplaintiffswhenassessingtheadequacyof

representation. LiteraryWorks,654F.3dat252. Here,thebargainthatwas


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31

struckbetweenreliefandreleaseonbehalfofabsentclassmembersisso

unreasonablethatitevidencesinadequaterepresentation.

Itis

familiar

doctrine

of

the

federal

courts

that

members

of

a

class

not

presentaspartiestothelitigationmaybeboundbythejudgmentwheretheyare

infactadequatelyrepresentedbypartieswhoarepresentconsistentwiththe

requirementsofdueprocessandfullfaithandcredit. Hansberry,311U.S.at

4243(emphasisadded);seealsoStephenson,273F.3dat261(Partofthedue

processinquiry(andpartoftheRule23(a)classcertificationrequirements)

involvesassessingadequacyofrepresentationandintraclassconflicts.).

Similarly,[p]laintiffsinaclassactionmayreleaseclaimsthatwereorcouldhave

beenpledinexchangeforsettlementrelief;butthisauthorityislimitedbythe

identicalfactualpredicateandadequacyofrepresentationdoctrines.

WalMartStores,396F.3dat106. [W]hereclassplaintiffshavenotadequately

representedtheinterestsofclassmembers,any[c]laimsarisingfromashared

setoffactswillnotbeprecluded. Id.at108.

A

Asdiscussedabove,LiteraryWorksconcludedthatinadequate

representationwasdemonstratedbythereliefaffordedtoasubsetoftheclass.


32/46

32

Similarly,thereleaseinStephensonwasitselfproofofinadequaterepresentation,

wherasthereleaseinWalMartStoresdidnotimpugntheclasssrepresentation.

Consideredtogether,

these

cases

illustrate

when

the

tradeoff

between

relief

and

releaseasappliedtoaclassmembercanviolatedueprocess.

LiteraryWorksheldthatclassmemberswithclaimsinoneofthecategories

wereinadequatelyrepresentednotonlybecausetheydidnotreceiveseparate

representation,butalsobecausetheysolelyboretheriskthatthetotalamount

claimedwouldexceedapresetliabilitycap. Weobservedthatthisfeatureofthe

settlementcouldnotbejustifiedbytherelativeweaknessofthoseclaimsbecause

thatfactwasalreadyaccountedfor. LiteraryWorks,654F.3dat253. Wecould

discernnoreasonforsubjectingthesinglecategoryofclaimstothewholeriskof

oversubscription;norcouldthesettlementsproponents. Id.at254. When

onecategory[ofclassmembersare]targetedfor[worsetreatment]without

crediblejustificationitstronglysuggestsalackofadequaterepresentationfor

thoseclassmemberswhoholdonlyclaimsinthiscategory. Id.

InStephenson,

we

considered

a

collateral

attack

on

a

class

action

that

had

establishedasettlementfundforindividualsinjuredbyexposuretoAgent

Orange. Theunderlyinglitigationprovidedcompensationonlyforthosewho


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33

discoveredtheirinjurybefore1994,yetreleasedallfutureclaims. Two

individualswhofellwithintheclassdefinitionofindividualsinjuredbyAgent

Orange,but

who

learned

of

their

injury

after

1994,

challenged

the

release

as

appliedtothem. AnalogizingthecasetoAmchemandOrtiz,weconcludedthat

thetwoindividualswereinadequatelyrepresentedinthepriorlitigationbecause

thesettlementpurportedtoresolveallfutureclaimsbutthesettlementfundwas

permittedtoterminatein1994and[n]oprovisionwasmadeforpost1994

claimants. Stephenson,273F.3dat26061. Thetwochallengerscouldnothave

beenadequatelyrepresentediftheirclassrepresentativenegotiatedasettlement

andreleasethatextinguishedtheirclaimswithoutaffordingthemanyrecovery.

Theresultviolateddueprocess;theplaintiffscouldnotbeboundbythe

settlementrelease. Id.at261.

AsimilarchallengewasraisedtothesettlementreleaseinWalMartStores,

whichforeclosedallclaimsarisingfromthesamefactualpredicateasthatalleged

inthecomplaint. Objectorsarguedthattheywereinadequatelyrepresented

becauseclass

representatives

did

not

pursue

certain

claims

as

vigorously

as

others. Werejectedthisbasisforobjectionbecauseadequaterepresentationofa

particularclaimisdeterminedbythealignmentofinterestsofclassmembers,not


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34

proofofvigorouspursuitofthatclaim. WalMartStores,396F.3dat113.

StephensonwasnotdirectlyonpointbecauseintheAgentOrangesettlement

(asin

the

Amchem

and

Ortiz

settlements)

future

claims

had

not

been

considered

separatelyfromclaimsinvolvingcurrentinjurydespitethesetwogroupshaving

clearlydivergentinterests. Id.at110. TheobjectorsinWalMartStoresdidnot

allegedivergentinterests;theyhaddisagreementsaboutwhichclaimsweremost

valuableandwhatreliefwasadequate. Moreover,thesettlementinWalMart

Storescoveredonlyapast,finiteperiodanddidnotprecludefuturesuitsover

conductpostdatingthesettlement. Id. Nofutureclaimantsorclaimswere

coveredbytheWalMartStoressettlementorrelease. Finally,everyclaimant

fromtheobjectinggroupsbenefittedfromthesettlement. Id.at112.

B

Merchantsinthe(b)(2)classthatacceptAmericanExpressoroperatein

statesthatprohibitsurcharginggainnoappreciablebenefitfromthesettlement,

andmerchantsthatbeginbusinessafterJuly20,2021gainnobenefitatall. In

exchange,class

counsel

forced

these

merchants

to

release

virtually

any

claims

theywouldeverhaveagainstthedefendants. Thoseclassmembersthat


35/46

35

effectivelycannotsurchargeandthosethatbeginoperationafterJuly20,2021

werethusdenieddueprocess.

Noone

disputes

that

the

most

valuable

relief

the

Settlement

Agreement

securesforthe(b)(2)classistheabilitytosurchargeatthepointofsale. Tothe

extentthattheinjunctivereliefhasanymeaningfulvalue,itcomesfrom

surcharging,notfromthebuyinggroupprovision,orthealloutletsprovision,or

thelockinginoftheDurbinAmendmentandDOJconsentdecree. Forthis

reason,itisimperativethatthe(b)(2)classinfactbenefitfromtherightto

surcharge. ButthatreliefislessvaluableforanymerchantthatoperatesinNew

York,California,orTexas(amongotherstatesthatbansurcharging),oraccepts

AmericanExpress(whosenetworkrulesprohibitsurchargingandincludea

mostfavorednationclause). MerchantsinNewYorkandmerchantsthataccept

AmericanExpresscangetnoadvantagefromtheprincipalrelieftheircounsel

bargainedforthem.

Itmaybearguedthattheclaimsofthe(b)(2)classareweakandcan

commandno

benefit

in

settlement.

However,

that

argument

would

seem

to

be

foreclosedbecauseothermembersofthesameclasswiththesameclaimsthose

thatdonottakeAmericanExpressandoperateinstatesthatpermitsurcharging


36/46

36

deriveapotentiallysubstantialbenefit. Thereisnobasisforthisunequal

intraclasstreatment:themorevaluabletherighttosurcharge(apointtheparties

vigorouslydispute),

the

more

unfair

the

treatment

of

merchants

that

cannot

avail

themselvesofsurcharging.

Thisisnotacaseofsomeplaintiffsforgoingsettlementrelief. A

significantproportionofmerchantsinthe(b)(2)classareeitherlegallyor

commerciallyunabletoobtainincrementalbenefitfromtheprimaryrelief

negotiatedforthembytheircounsel,andclasscounselknewatthetimethe

SettlementAgreementwasenteredintothatthisreliefwasvirtuallyworthlessto

vastnumbersofclassmembers. Alternativeformsofreliefmighthaveconferred

arealandpalpablebenefit,suchasremediesthataffectedthedefaultinterchange

feeorhonorallcardsrule. Thisisnotamatterofcertainmerchants(e.g.,those

basedinNewYorkandthosethatacceptAmericanExpress)arguingthatclass

counseldidnotbargainfortheirpreferredformofrelief,didnotpresscertain

claimsmoreforcefully,ordidnotseekcertainchangestothenetworkrulebooks

morezealously.

This

is

a

matter

of

class

counsel

trading

the

claims

of

many

merchantsforrelieftheycannotuse:theyactuallyreceivednothing.


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37

Anotherfaultlinewithinthe(b)(2)classrunsbetweenmerchantsthatwill

haveacceptedVisaorMasterCardbeforeJuly20,2021,andthosethatwillcome

intobeing

thereafter.

The

former

are

at

least

guaranteed

some

form

of

relief,

whilethelatterareatthemercyofthedefendantstoreceivereliefbecausethe

SettlementAgreementexplicitlystatesthatthedefendantsobligationtoprovide

anyinjunctivereliefterminatesonJuly20,2021. Liketheservicemenwithlatent

injuryinStephenson,thepostJuly20,2021merchantsarefutureclaimantswho

hadtheirclaimssettledfornothing. Thereisnoevidencetosuggestthat

merchantsoperatingafterJuly20,2021wouldhaveweakerclaimsthanthose

operatingbeforeJuly20,2021;yet,theSettlementAgreementconsignstheformer

toanunambiguouslyinferiorposition. AsinLiteraryWorks,weconcludethat

sucharbitraryharshertreatmentofclassmembersisindicativeofinadequate

representation.

Merchantsthatcannotsurcharge,andthosethatopentheirdoorsafterJuly

20,2021,arealsoboundtoanexceptionallybroadrelease. TheSettlement

Agreementreleases

virtually

any

claim

that

(b)(2)

class

members

would

have

had

againstthedefendantsforanyofthedefendantsthousandsofnetworkrules.

Andunliketherelief,whichexpiresonJuly20,2021,thereleaseoperates


38/46

38

indefinitely. Therefore,afterJuly20,2021,the(b)(2)classremainsboundtothe

releasebutisguaranteednothing. Thisreleasepermanentlyimmunizesthe

defendantsfrom

any

claims

that

any

plaintiff

may

have

now,

or

will

have

in

the

future,thatariseoutof,e.g.,thehonorallcardsanddefaultinterchangerules.

EvenifthedefendantsrevertbacktoalltheirpreSettlementAgreementpractices,

thereleasecontinuestoprecludeanyclaimbasedonanyrulethatwasnotaltered

bytheSettlementAgreement. Thedefendantsneverhavetoworryaboutfuture

antitrustlitigationbasedontheirhonorallcardsrulesandtheirdefault

interchangerules.

ThatisbecausetheonlyclaimsthatmerchantspostJuly20,2021mayhave

areonesrelatingtothosenetworkrulesthatareexplicitlychangedbythe

injunctivereliefintheSettlementAgreement. Thoseclaimswillbecome

actionableonlyifthedefendantselecttoreverttotheirpreSettlementAgreement

rules. Ofcourse,itremainstobeseenhowmuchthemandatedruleswillcost

thedefendantsorbenefitthemerchants,buteitherway,thedefendantswin. If

thedefendants

see

that

permitting

surcharging

had

little

effect

on

their

business,

theycandecidetomaintaintheruleschangesprovidedforintheinjunctiverelief

sothatonlymerchantsthatdonotacceptAmericanExpressanddonotoperatein


39/46

39

stateslikeNewYork,California,andTexaswillbeabletoavailthemselvesofthat

limitedrelief. Ontheotherhand,ifthedefendantsobservethatsurcharging

tooka

significant

toll

on

their

business,

they

can

revert

to

prohibiting

surcharging

andexposethemselvestolawsuitsthatarelimitedtochallengingthesurcharging

ban. Inallevents,merchantsthatcannotsurchargereceivevaluelessreliefwhile

releasingahostofclaimsofunknownvalue.

Thisbargainisparticularlyunreasonableformerchantsthatbegin

acceptingVisaorMasterCardafterJuly20,2021. Theywillbedeemedtohave

releasedalloftheirclaimspertainingtoawholebookofrules,including(perhaps

mostimportantly)thehonorallcardsanddefaultinterchangerules,andin

returnhavethechancethatthedefendantswillpermitsurcharging. Insubstance

andeffect,merchantsoperatingafterJuly20,2021giveupclaimsofpotential

valueandreceivenothingthattheywouldnototherwisehavegotten. Since

therewasnoindependentrepresentationvigorouslyassertingthesemerchants

interests,wehavenowaytoascertainthevalueoftheclaimsforgone. See

LiteraryWorks,

654

F.3d

at

253.

Insum,thisreleasehasmuchincommonwiththereleasesinStephenson,

Amchem,andOrtiz. Likethose,thisreleaseappliestofutureclaimsand


40/46

40

claimants,anddisadvantagedclassmembersareboundtoit. TheSettlement

Agreementwaivesanyclaimany(b)(2)merchantwouldhaveagainstany

defendantarising

out

of

any

of

the

current

network

rules,

or

those

imposed

in

the

futurethataresubstantiallysimilarthereto. The(b)(2)classhadnonoticeandno

opportunitytooptoutofthisdeal. (AtleasttheauthorsinLiteraryWorkscould

optoutfromtheirinadequaterepresentation.) ThisSettlementAgreementis

alsodistinguishablefromreleasesthathavepassedmuster. Forexample,the

settlementreleaseinWalMartStores(anothermerchantclassactionagainstVisa

andMasterCard)didnotbindfutureclaimantsanddidnotprecludenewsuitsfor

similarconductinthefuture. WalMartStores,396F.3dat110,113. Andour

approvaloftheCharronsettlementreleaseexplicitlydistinguisheditfromthose

inAmchem,Ortiz,andLiteraryWorksonthegroundthatitdidnotextinguish

claimsotherthanthosethatwerethesubjectofreliefinthesettlement. Charron,

731F.3dat252.

Merchantsthatcannotsurcharge(byreasonofstatelaworrulesof

AmericanExpress)

and

those

that

begin

operating

after

July

20,

2021

suffer

an

unreasonabletradeoffbetweenreliefandreleasethatdemonstratestheir

representationdidnotcomplywithdueprocess. Weofcourseacknowledgethat


41/46

41

[b]roadclassactionsettlementsarecommon,sincedefendantsandtheircohorts

wouldotherwisefacenearlylimitlessliabilityfromrelatedlawsuitsin

jurisdictionsthroughout

the

country.

Wal

Mart

Stores,

396

F.3d

at

106.

And

it

istruethat[p]artiesoftenreachbroadsettlementagreementsencompassing

claimsnotpresentedinthecomplaintinordertoachievecomprehensive

settlementofclassactions,particularlywhenadefendantsabilitytolimithis

futureliabilityisanimportantfactorinhiswillingnesstosettle. Literary

Works,654F.3dat24748. Butthebenefitsoflitigationpeacedonotoutweigh

classmembersdueprocessrighttoadequaterepresentation.

CONCLUSION

Fortheforegoingreasons,wevacatethedistrictcourtscertificationofthe

class,reverseapprovalofthesettlement,andremandforfurtherproceedingsnot

inconsistentwiththisopinion.


42/46

1

LEVAL,CircuitJudge,concurring:

IconcurinJudgeJacobssthoughtfulopinion.Iwriteseparately,however,

tonote

another,

perhaps

deeper,

problem

with

the

settlement.

Under

its

terms,

oneclassofPlaintiffsacceptssubstantialpaymentsfromtheDefendants,inreturn

forwhichtheycompelPlaintiffsinanotherclass,whoreceivenopartofthe

Defendantspayments,togiveupforevertheirpotentiallyvalidclaims,without

everhavinganopportunitytorejectthesettlementbyoptingoutoftheclass.

OpinionsoftheSupremeCourtdirectlyholdthatthisarrangementviolatesthe

dueprocessrightsofthosecompelledtosurrendertheirclaimsformoney

damages.

Representativesbroughtthisclassactiononbehalfofapproximately12

millionmerchantsagainstVisaandMasterCard,allegingthatanumberofthe

Defendantspracticesviolatetheantitrustlaws,andseekingbothdamagesfor

pastinjuryandaninjunctionbarringfutureviolations.Eventually,the

DefendantsreachedaproposedsettlementwiththeRepresentatives.The

settlementprovides

that

the

Defendants

would

pay

approximately

$7.25

billion

tocompensatemerchantsfordamagessuffereduptoNovember28,2012(when

thedistrictcourtgrantedpreliminaryapprovalofthesettlement).Thesettlement


43/46

2

alsoentailsacommitmentbytheDefendants,enforcedbyinjunction,toabandon

some(notall)oftheirchallengedpracticesfornineyearsuntilJuly20,2021.The

Defendantswould

be

free

after

that

date

to

resume

the

practices

they

temporarily

abandonedandwouldalsobefreefromtheoutsettocontinueforeverthe

challengedpracticestheydidnotagreetoabandon.Inreturnforwhatthe

Defendantsgaveup,aclassconsistingofallmerchantsthatwouldeverinthe

futureacceptVisaandMasterCardiscompelledtoreleaseforevertheDefendants

fromanyandallclaimsforpastorfutureconduct(otherthantheconduct

enjoined)thatrelateinanywaytoanyofDefendantspracticesthatareallegedor

couldhavebeenallegedinthesuit.WhileIdonotspeculateonthemeritsofthe

Plaintiffsclaims,thefactthattheDefendantswerewillingtopay$7.25billion,

apparentlythelargestantitrustcashsettlementinhistory,suggeststhattheclaims

werenotentirelydevoidofmerit.

WhatisparticularlytroublesomeisthatthebroadreleaseoftheDefendants

bindsnotonlymembersofthePlaintiffclasswhoreceivecompensationaspartof

thedeal,

but

also

binds

in

perpetuity,

without

opportunity

to

reject

the

settlement,allmerchantswhointhefuturewillacceptVisaandMasterCard,

includingthosenotyetinexistence,whowillneverreceiveanypartofthe


44/46

3

money.Thisisnotasettlement;itisaconfiscation.Nomerchantsoperatingfrom

November28,2012,untiltheendoftimewilleverbeallowedtosuethe

Defendants,either

for

damages

or

for

an

injunction,

complaining

of

any

conduct

(otherthanthatenjoined)thatcouldhavebeenallegedinthepresentsuit.The

futuremerchantsarebarredbythecourtsadoptionofthetermsofthesettlement

fromsuingforrelieffromallegedlyillegalconduct,althoughtheyhavenoability

toelectnottobeboundbyit.OneclassofPlaintiffsreceivesmoneyas

compensationfortheDefendantsarguablepastviolations,andinreturngivesup

thefuturerightsofothers.TheSupremeCourthasaddressedsuchcircumstances

andruledthatanadjudicationcomingtothisresultisimpermissible.

InPhillipsPetroleumCo.v.Shutts,472U.S.797(1985),theSupremeCourt

reasonedthataclaimformoneydamagesachoseinactionisa

constitutionallyrecognizedpropertyinterestpossessedbyeachoftheplaintiffs

whoseclaimsarerepresentedinaclassaction.Id.at807.Inorderforacourtto

bindanabsentplaintiffconcerningaclaimformoneydamagesorsimilarreliefat

law,it

must

provide

minimal

procedural

due

process

protection.

...[D]ue

processrequiresataminimumthatanabsentplaintiffbeprovidedwithan


45/46

4

opportunitytoremovehimselffromtheclass....Id.at81112.Thatopportunity

waslackinghere.

FollowingShutts,

the

Court

unanimously

held

in

Wal

Mart

Stores,

Inc.

v.

Dukes,131S.Ct.2541,2557(2011),thatclaimsformonetaryreliefcannotbe

certifiedunderRule23(b)(2),ashere,becauseofthepossibilitythatindividual

classmemberscompensatorydamagesclaimswouldbeprecludedbylitigation

theyhadnopowertoholdthemselvesapartfrom.Id.at2559(emphasisadded).

Dukesdidnotinvolveasettlementagreement,butthatdoesnotmakeits

precedentanylessapplicabletothiscase. Ifaclassmaynotevenbecertified

becauseoftheriskthatadjudicationofitsrightsmightviolatethedueprocess

rightsofitsmembersbyforciblydeprivingthemofclaims,thennecessarilyan

adjudicationofaclasssrightsthatinfactforciblydeprivesthemembersoftheir

claimsisalsounacceptable.Becausethetermsofthissettlementprecludeall

futuremerchantsthatwillaccepttheDefendantscards(the(b)(2)class)from

bringingclaimswithouttheirhavinghadanopportunitytooptout(oreven

object),the

Supreme

Courts

rulings

in

Shutts

and

Dukes

make

clear

that

acourt

cannotacceptit.


46/46

Thepracticaleffectsofthissettlementunderscorewhythisisso.Although

nocourtwilleverhaveruledthattheDefendantspracticesarelawful,noperson

orentity

will

ever

have

the

legal

right

to

sue

to

challenge

those

practices,

and

no

personorentity,past,present,orfuturehashadorwillhavetheopportunityto

refusetobeapartoftheclasssobound.Forthisreason,aswellasthosenotedin

JudgeJacobssopinion,wemustrejectthesettlement.

mastercard visa settlement overturned 12-4671_complete_opn

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