In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig.

• Decision Date: 30 June 2016
• Docket Number: Docket Nos. 12–4671–cvL,13–4719CON,14–497CON,14–331CON,13–4751CON,12–4765CON,14–663CON,14–422CON,14–157CON,14–219CON,14–349CON,12–4708CON,August Term, 2015,14–567CON,14–133CON,14–837CON,14–266CON,14–584CON,13–4752CON,14–119CON,13–4750CON,14–250CON,14–530CON,14–404CON,14–303CON,14–159CON,14–443CON,14–192CON,14–197CON,14–32CON,14–241CON,14–606CON,14–480CON,14–117CON
• Citation: 827 F.3d 223
• Parties: In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.
• Court: U.S. Court of Appeals — Second Circuit

827 F.3d 223

In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.

Docket Nos. 12–4671–cvL

12–4708CON

12–4765CON

13–4719CON

13–4750CON

13–4751CON

13–4752CON

14–32CON

14–117CON

14–119CON

14–133CON

14–157CON

14–159CON

14–192CON

14–197CON

14–219CON

14–241CON

14–250CON

14–266CON

14–303CON

14–331CON

14–349CON

14–404CON

14–422CON

14–443CON

14–480CON

14–497CON

14–530CON

14–567CON

14–584CON

14–606CON

14–663CON

14–837CON

August Term, 2015

United States Court of Appeals, Second Circuit.

Argued: September 28, 2015

Decided: June 30, 2016

Thomas C. Goldstein (Eric F. Citron, on the brief), Goldstein & Russell P.C., Washington, DC; Stephen R. Neuwirth, Sanford I. Weisburst, Steig D. Olson, and Cleland B. Welton II, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY; Jeffrey I. Shinder, Gary J. Malone, and A. Owen Glist, Constantine Cannon LLP, New York, NY; Michael J. Canter, Robert N. Webner, and Kenneth J. Rubin, Vorys, Sater, Seymour and Pease LLP, Columbus OH; Gregory A. Clarick, Clarick Gueron Reisbaum LLP, New York, NY, for Objectors–Appellants and Plaintiffs–Appellants (Merchant Appellants).

Philip C. Korologos, Boies, Schiller & Flexner LLP, New York, NY, for Objectors–Appellants American Express Company, et al.

Jennifer M. Selendy (William H. Pratt, on the brief), Kirkland & Ellis LLP, New York, NY, for Objectors–Appellants Discover Bank, et al.

Jason A. Yurasek (Anahit Samarjian, on the brief), Perkins Coie LLP, San Francisco, CA, for Objectors–Appellants First Data Corporation, et al.

Andrew G. Celli, Jr. and Debra L. Greenberger, Emery Celli Brinckerhoff & Abady LLP, New York, NY, for Objectors–Appellants (Merchant Trade Groups).

Jerrold S. Parker and Jay L.T. Breakstone, Parker Waichman, LLP, Port Washington, NY; Thomas P. Thrash and Marcus N. Bozeman, Thrash Law Firm, P.A., Little Rock, AR; Phillip Duncan and Richard Quintus, Duncan Firm, P.A., Little Rock, AR, for Appellant Retailers and Merchants Objectors.

Elizabeth Wolstein, Schlam Stone & Dolan LLP, New York, NY, for Objectors–Appellants U.S. PIRG and Consumer Reports.

Anthony F. Shelley, Adam P. Feinberg, Laura G. Ferguson, Michael N. Khalil, and Katherine E. Pappas, Miller & Chevalier Chartered, Washington, DC, for Appellants Blue Cross and Blue Shield Entities and Wellpoint Entities.

Steve A. Miller, Denver, CO, for Appellant The Iron Barley Restaurant LLC.

John J. Pentz, Sudbury, MA, for Appellants Unlimited Vacations and Cruises, Inc., et al.

N. Albert Bacharach, Jr., Gainesville, FL, for Appellant Optical Etc. LLC.

Christopher A. Bandas, Corpus Christi, TX, for Objectors–Appellants 1001 Property Solutions, LLC, et al.

Paul D. Clement (Jeffrey M. Harris and Candice C. Wong, on the brief), Bancroft PLLC, Washington, DC; K. Craig, Wildfang, Thomas J. Undlin, Ryan W. Marth, and Bernard Persky, Robins Kaplan, Miller & Ciresi L.L.P., Minneapolis, MN; H. Laddie Montague, Merrill G. Davidoff, and Michael J. Kane, Berger & Montague, P.C., Philadelphia, PA; Bonny E. Sweeney, Joseph D. Daley, and Alexandra S. Bernay, Robbins Geller Rudman & Dowd LLP, San Diego, CA; Joseph Goldberg, Freedman Boyd Goldberg Urias & Ward, P.A., Albuquerque, MN, for Plaintiffs–Appellees.

Carter G. Philips (David F. Graham, Robert N. Hochman, Benjamin R. Nagin, Eamon P. Joyce, and Mark D. Taticchi, on the brief), Sidley Austin LLP, Washington, DC; Robert C. Mason, Arnold & Porter LLP, New York, NY; Robert J. Vizas, Arnold & Porter LLP, San Francisco, CA; Mark R. Merley and Matthew A. Eisenstein, Arnold & Porter LLP, Washington, DC; Richard J. Holwell, Michael S. Shuster, and Demian Ordway, Holwell Shuster & Goldberg LLP, New York, NY; Matthew Freimuth and Wesley R. Powell, Willkie Farr & Gallagher LLP, New York, NY; Kenneth A. Gallo, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Washington, DC; Mark P. Ladner and Michael B. Miller, Morrison & Foerster LLP, New York, NY; Andrew J. Frackman and Abby F. Rudzin, O'Melveny & Myers LLP; James P. Tallon, Shearman & Sterling LLP, New York, NY; Richard L. Creighton and Drew M. Hicks, Keating Muething & Klekamp PLL, Cincinnati, OH; John P. Passarelli and James M. Sulentic, Kutak Rock LLP, Omaha, NE; Peter E. Greene, Boris Bershteyn, and Peter S. Julian, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY; Jonathan S. Massey and Leonard A. Gail, Massey & Gail, Washington, DC; Ali M. Stoeppelweth, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC; John M. Majoras and Joseph W. Clark, Jones Day, Washington, DC; Teresa T. Bonder, Valarie C. Williams, and Kara F. Kennedy, Alston & Bird LLP, Atlanta, GA; Jonathan B. Orleans and Adam S. Mocciolo, Pullman & Comley, LLC, Bridgeport, CT; Robert P. LoBue and William F. Cavanaugh, Patterson Belknap Webb & Tyler LLP, New York, NY, for Defendants–Appellees.

Before: WINTER, JACOBS, and LEVAL, Circuit Judges.

Judge Leval

concurs in a separate opinion.

DENNIS JACOBS

, Circuit Judge:

This antitrust class action was brought on behalf of approximately 12 million merchants against Visa U.S.A. Inc. (“Visa”) and MasterCard International Incorporated (“MasterCard”), which are the two largest credit card issuing networks in the United States, as well as against various issuing and acquiring banks (collectively with Visa and MasterCard, the “defendants”), alleging a conspiracy in violation of Section 1 of the Sherman Act. After nearly ten years of litigation, the parties agreed to a settlement that released all claims in exchange for disparate relief for each of two classes: up to $7.25 billion would go to an opt-out class, and a non-opt-out class would get injunctive relief. The district court certified these two settlement-only classes, and approved the settlement as fair and reasonable. On this appeal, numerous objectors and opt-out plaintiffs argue that this class action was improperly certified and that the settlement was unreasonable and inadequate. We conclude that the class plaintiffs were inadequately represented in violation of Rule 23(a)(4) and the Due Process Clause. Accordingly, we vacate the district court's certification of this class action and reverse the approval of the settlement.

BACKGROUND

Detailed information about how the credit card industry operates is set out in the district court opinion approving the settlement in this case, In re Payment Card Interchange Fee and Merchant Discount Antitrust Litig. (“Payment Card I”) , 986 F.Supp.2d 207, 214–15 (E.D.N.Y. 2013)

, and in our previous opinions dealing with past antitrust lawsuits against Visa and MasterCard, Wal–Mart Stores, Inc. v. Visa U.S.A., Inc. , 396 F.3d 96, 101–02 (2d Cir. 2005) ; United States v. Visa U.S.A., Inc. , 344 F.3d 229, 234–37 (2d Cir. 2003) ; In re Visa Check/MasterMoney Antitrust Litig. (“Visa Check”) , 280 F.3d 124, 129–31 (2d Cir. 2001). This section of the opinion lays out only the facts and procedural history needed to explain our analysis and result.

In general terms, a Visa or MasterCard credit card transaction is processed as follows: the customer presents a credit card to pay for goods or services to the merchant; the merchant relays the transaction information to the acquiring bank; the acquiring bank processes the information and relays it to the network (here, Visa or MasterCard); the network relays the information to the issuing bank; if the issuing bank approves the transaction, that approval is relayed to the acquiring bank, which then relays it to the merchant. If the transaction is approved, the merchant receives the purchase price minus two fees: the “interchange fee” that the issuing bank charged the acquiring bank and the “merchant discount fee” that the acquiring bank charged the merchant.

In a given transaction, the interchange fee that the acquiring bank pays (and is in turn paid by the merchant) varies depending on the credit card network and the type of credit card. Thus, the American Express credit-card network generally charges a higher interchange fee than the Visa or MasterCard networks. And Visa and MasterCard have different product levels within their credit card portfolios, such as cards that give consumers generous rewards, and typically charge a higher interchange fee than cards that offer few rewards or none. The difference in interchange fee between American Express and Visa or MasterCard is one at the brand level, while the difference between, e.g. , a rewards card from Visa and a no-rewards card from Visa is one at the product level.

Plaintiffs are all merchants who accept Visa- and MasterCard-branded credit cards and are therefore bound by the issuers' network rules. Plaintiffs challenge as anti-competitive several of the following network rules (which are effectively identical as between Visa and MasterCard). The “default interchange” fee applies to every transaction on the network (unless the merchant and issuing bank have entered into a separate agreement). The “honor-all-cards” rule requires merchants to accept all Visa or MasterCard credit cards if they accept any of them, regardless of the differences in interchange fees. Multiple rules prohibit merchants from influencing customers to use one type of payment over another, such as cash rather than credit, or a credit card with a lower interchange fee. These “anti-steering” rules include the “no-surcharge” and “no-discount” rules, which prohibit merchants from charging different prices at the point of sale depending on the means of payment.

Plaintiffs allege that these Visa and MasterCard network rules, working in tandem, allow the issuing banks to impose an artificially inflated interchange fee that merchants have little choice but to accept. The argument is that the honor-all-cards rule forces merchants to accept all Visa and MasterCard credit cards (few merchants can afford to accept none of them); the anti-steering rules prohibit them from nudging consumers toward cheaper forms of payment; the issuing banks are thus free to set interchange fees at a supra- competitive rate; and that rate is effectively locked in via the default interchange fee...