Visa, MasterCard antitrust settlement with merchants is voided

A federal appeals court on Thursday threw out a $7.25 billion antitrust settlement that Visa Inc and MasterCard Inc had reached with millions of retailers that accused the card networks of improperly fixing credit and debit card fees.

The 2nd U.S. Circuit Court of Appeals in New York said the accord was unfair to retailers that stood to receive no payments, and in the court's view, little or no benefit at all. It also decertified the case as a class action.​

"This is not a settlement; it is a confiscation," wrote Circuit Judge Pierre Leval, a member of the three-judge panel that unanimously struck down the settlement.

Visa spokeswoman Connie Kim said the Foster City, California-based company is reviewing the decision. MasterCard spokesman Seth Eisen said the company, based in Purchase, New York, is disappointed in the ruling and will review its next steps.

Thursday's decision upends an accord resolving claims that the card networks overcharged merchants on interchange fees, or swipe fees, when shoppers used credit or debit cards, and banned them from nudging customers toward cheaper means of payment.

The settlement had been the largest all-cash antitrust accord in U.S. history. It was intended to end litigation that began in 2005 and covered about 12 million retailers.

Thousands of retailers, including Amazon.com Inc (AMZN.O), Target Corp (TGT.N) and Wal-Mart Stores Inc (WMT.N), objected to the accord.

Some argued that the payout should have been higher, while others said terms limiting the ability of retailers to sue Visa and MasterCard in the future were too broad.

About 8,000 retailers, representing 25 percent of the transactional volume, "opted out," reducing the value of the settlement to roughly $5.7 billion.

Thomas Goldstein, a lawyer for retailers opposing the accord, and Paul Clement, a lawyer for retailers supporting it, did not immediately respond to requests for comment.

Amazon.com declined to comment. Spokesmen for Target and Wal-Mart had no immediate comment.

In late morning trading, Visa shares were down $1.66 at $75.08, and MasterCard shares were down $1.70 at $90.43.

FUNDAMENTAL CONFLICT

The settlement had called for retailers that accepted Visa or MasterCard from January 2004 to November 2012 to share in as much as $7.25 billion.

Retailers that accepted the cards from then on, meanwhile, were to get injunctive relief in the form of rule changes.

Writing for the appeals court, Circuit Judge Dennis Jacobs said the two classes should not have been represented by the same lawyers, who were awarded $544.8 million of fees.

He said the lawyers suffered from a "fundamental conflict" that sapped their incentive to zealously represent retailers obtaining injunctive relief, and resulted in terms that benefited other retailers at their expense.

"This is a matter of class counsel trading the claims of many merchants for relief they cannot use: they actually received nothing," Jacobs wrote.

The 2nd Circuit returned the case to the federal court in Brooklyn, where U.S. District Judge John Gleeson, who has since left the bench, had approved the settlement in 2013.

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