In re Mexico Money Transfer Litigation

• Decision Date: 22 December 2000
• Docket Number: No. 98 C 2407.,No. 98 C 2408.,98 C 2407.,98 C 2408.
• Citation: 164 F.Supp.2d 1002
• Parties: In re MEXICO MONEY TRANSFER LITIGATION (WESTERN UNION AND ORLANDI VALUTA) In re Mexico Money Transfer Litigation (Moneygram)
• Court: U.S. District Court — Northern District of Illinois

164 F.Supp.2d 1002

In re MEXICO MONEY TRANSFER LITIGATION (WESTERN UNION AND ORLANDI VALUTA) In re Mexico Money Transfer Litigation (Moneygram)

No. 98 C 2407.

No. 98 C 2408.

United States District Court, N.D. Illinois, Eastern Division.

December 22, 2000.

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Robert L. Graham, Jenner & Block, Chicago, IL, Matthew J. Piers, Jonathan A. Rothstein, Joshua Karsh, Gessler, Hughes & Socol, Ltd., Chicago, IL, Howard

William Foster, Johnson & Bell, Ltd., Chicago, IL, Timothy J. Crowley, Richard E. Norman, Crowley & Douglas, LLP, Houston, TX, Craig M Sico, Harris & Watts, Corpus Christi, TX, Nelson J Roach, Jeffrey John Angelovich, Nix Patterson & Roach LLP, Daingerfield, TX, Gregory Alan Pierce, Stephen E McConnico, Scott Douglass & McConnico LLP, Austin, TX, Maria G. Valdez, Mexican American Legal Defense & Educational Fund, Chicago, IL, for Raul Ross Pineda.

Arturo Jauregui, Jauregui & Cisneros, Chicago, IL, for AMICI

Charles J. Risch, John Scott Monical, Lawrence W. Page, Lawrence, Kamin, Saunders & Uhlenhop, Chicago, IL, for MoneyGram Payment System, Inc.

William F. Conlon, Sidley & Austin, Chicago, IL, for Integrated Payment Systems.

MEMORANDUM OPINION AND ORDER

PALLMEYER, District Judge.

In addition to the fee they charge for wire transfers of funds to Mexico, Defendants in these nationwide class actions collect the difference between the foreign exchange rate they charge their customers and the more favorable rate that Defendants themselves pay for pesos. In these consolidated actions, and a number of cases in other jurisdictions, Plaintiffs challenge Defendants' failure to disclose the exchange rate mark-up to their customers. After months of discovery and negotiation, the parties reached settlements. They now seek this court's final approval of their agreements, under which Plaintiffs' claims are released in return for discount coupons, an injunction, a cy pres fund, and attorneys' fees and costs.

This court had concerns about the wisdom and fairness of the coupon-based settlement proposed by the parties. In response to its own concerns and to objections voiced by individual class members and intervenors represented by counsel, the court conducted an unusually lengthy evidentiary hearing on December 10, 1999, January 18-20, 2000, and August 11, 2000. In addition to the evidence presented at that hearing, the court considered all parties' submissions, affidavits, and expert opinions on the fairness, reasonableness, and adequacy of the settlements. Several class members have objected to the terms of the settlements. The most significant objections were voiced by a group of California residents ("California Objectors" or "Intervenors") who argue that the availability of claims under California law renders the proposed settlements inadequate with respect to California residents. Having considered the record in its entirety, and giving appropriate consideration to the concerns expressed by the Intervenors, the court now grants approval of the proposed settlements, as explained in the findings and conclusions set forth herein.

FACTS

The facts generating these lawsuits are essentially undisputed. Defendants are engaged in the business of providing electronic fund transfers on behalf of clients seeking to transmit money to various locations in Mexico. Defendants include Western Union Financial Services, Inc., Orlandi Valuta, Orlandi Valuta Nacional, First Data Corporation (98 C 2407) and Integrated Payment Systems, Inc. (98 C 2408). As compensation for these services, Defendants charge their customers a transaction fee or service charge. In addition, Defendants recover revenue on the exchange rate. Although they receive dollars from their customers and provide pesos to the recipients at a disclosed rate, Defendants are able to purchase pesos themselves at a more favorable exchange rate. The difference between the exchange rate they make available to their customers and the exchange rate at which they purchase pesos (referred to here sometimes as "FX [foreign exchange] spread") provides Defendants with substantial additional compensation ("FX revenue"). Plaintiffs brought these lawsuits under a variety of theories to challenge Defendants' practice of recovering this additional compensation without disclosing it.

At the time of each transaction, Defendants' customers are given a receipt that discloses the service charge, the exchange rate being offered by the Defendants, and the number of pesos that will be paid in Mexico to the designated recipient. Defendants, who purchase pesos in the "interbank" (or wholesale) market in blocks of $5 million, pay an interbank exchange rate for those pesos. There is no "official" set rate for exchange in this market; instead, the rate is determined by market forces and fluctuates rapidly. Similarly, there is no official exchange rate in the retail market for pesos. For example, a survey performed by Jim Dibe, an international currency market expert, demonstrated that on a date when the interbank market rate for pesos was approximately 9.345 pesos to the dollar, 34 retail companies were selling pesos at prices that ranged from 7.93 pesos to the dollar to as many as 9.30 pesos to the dollar. (Declaration of Jim Dibe, at ¶ 30.) On average, however, the difference between the retail exchange rate and the more favorable wholesale rate has been approximately 10%. (Plaintiffs' Consolidated Memorandum in Support of the Proposed Settlement of Each of the Nationwide Mexico Money Transfer Class Actions ("Plaintiffs' Memo"), at 4.)

In these cases, Plaintiffs alleged that Defendants' failure to disclose the existence of the FX spread to their customers is fraudulent and that the fraud is exacerbated by misleading advertising in which Defendants emphasize the transaction fee in a way that suggests this is the only revenue they receive for each exchange, for example, "Send up to $300 to Mexico for only $15." In fact, according to Plaintiffs, customers are paying not "only $15," but rather $15 plus the amount of the FX spread. (98 C 2407 First Amended Complaint ¶¶ 20-24.) Plaintiffs allege violations of the federal RICO statute, breach of contract, fraud through misrepresentation, fraud through omission, conversion, breach of fiduciary duty, discrimination, and accounting/restitution. The complaints seek compensatory and statutory damages and penalties, prejudgment interest, attorneys' fees and costs and an injunction barring Defendants from collecting any FX revenue without disclosure of such revenue in all advertising.

Litigation History

Seven lawsuits challenging Defendants' practices are pending. Attorney Fred Kumetz filed two class action complaints on November 3, 1997 in federal court in Los Angeles: Garcia v. Western Union Financial Services, Inc., Case No. 97-8118 RSWL (Rcx) and Bueno v. MoneyGram Payment Systems, Inc., Case No. 97-8117 RSWL (Rcx). These lawsuits claimed violation of federal RICO and civil rights laws, among other claims, on behalf of a class of California customers. On August 4, 1998, the court granted a motion to dismiss the federal claims in these actions as inadequately pleaded, but granted leave to amend. Plaintiffs Garcia and Bueno chose not to do so, however, and instead filed complaints in state court alleging only California state law claims. Garcia v. Western Union Fin. Servs., Inc., Los Angeles County Superior Court Case No. BC 197489 and Bueno v. MoneyGram Payment Sys., Inc., Case No. BC 197490. Defendants' demurrers to these complaints were filed in November 1998.

Several additional lawsuits were filed, including the two pending before this court, originally entitled Pelayo v. Western Union Fin. Servs., Inc., No. 98 C 2407 and Ross-Pineda v. MoneyGram Payment Sys., Inc., No. 98 C 2408; two in Texas (Sandoval v. Western Union Financial Servs., Inc., Case No. 20240 and Fernandez v. MoneyGram Payment Systems, Inc. et al., Case No. M-99-005), both on behalf of state-wide classes; and another case in federal court in California, this one on behalf of a nationwide class, Ibarra v. Orlandi Valuta, et al., Case No. SA CV-98-1011 GLT (C.D.Cal.). Yet another case was filed in Texas on behalf of a statewide class but voluntarily dismissed on January 6, 1999. Villalobos v. Western Union Fin. Servs., Inc., et al., Case No. C-5353-98-E. On March 1, 1999, Defendants in the Ibarra case moved to dismiss, and on May 1, 1999 the federal court granted that motion in part, concluding that the RICO claims were insufficient and allowing leave to amend that complaint.

The two lawsuits before this court were initially assigned to Judge Ann C. Williams. At her direction, attorneys in these two cases and in the two Texas actions (hereinafter collectively "National Class Counsel") initiated settlement negotiations which lasted nearly a year and resulted in preliminary agreements which were presented to the court in 1999. Judge Williams suggested, and the parties agreed to, an enhancement to their proposed notice to class members, directing that Defendants post notices at their local agent offices. Defendants and National Class Counsel executed nationwide settlement agreements in May 1999.

National Class Counsel consists of well-respected plaintiffs' attorneys from eight law firms in Illinois (Matthew Piers of Gessler, Hughes & Socol, Ltd. and Robert Graham of Jenner & Block) and Texas (Steve McConnico of Scott, Douglas & McConnico; Nelson Roach of Nix, Patterson & Roach; Timothy Crowley of Crowley & Douglas, LLP; and Craig Sico of Harris & Watts). Attorneys for the proposed class in the Ibarra action in California also agreed to the terms of the proposed settlement, as did Mr. Kumetz initially. In May 1999, National Class Counsel filed amended complaints and the parties filed joint motions for class certification and preliminary approval of their settlement. On May 12, 1999, Judge Williams entered a Preliminary...