In re Visa Check/Mastermoney Antitrust Litigation

• Decision Date: 19 December 2003
• Docket Number: No. 96 CV 5238(JG).,96 CV 5238(JG).
• Citation: 297 F.Supp.2d 503
• Parties: In re VISA CHECK/MASTERMONEY ANTITRUST LITIGATION This Document Relates to All Actions:
• Court: U.S. District Court — Eastern District of New York

297 F.Supp.2d 503

In re VISA CHECK/MASTERMONEY ANTITRUST LITIGATION

This Document Relates to All Actions:

No. 96 CV 5238(JG).

United States District Court, E.D. New York.

December 19, 2003.

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Lloyd Constantine, Robert L. Begleiter, Constantine & Partners, P.C., New York City, Lead Attorneys for Plaintiff Class.

M. Laurence Popofsky, Stephen V. Bomse, Heller Ehrman White & McAuliffe, LLP, San Francisco, CA, for Defendant Visa U.S.A. Inc.

Kevin J. Arquit, Joseph F. Tringali, Simpson Thacher & Bartlett LLP, New York City, Kenneth A. Gallo, Clifford Chance LLP, Washington, DC, for Defendant MasterCard International Incorporated.

Lawrence W. Schonbrun, Berkeley, CA, for Roman Buholzer d/b/a The Continental Garden Restaurant.

John W. Davis, Steven Helfand, San Francisco, CA, for Rent Tech, Inc. and Rental Solutions, Inc.

John J. Pentz, Class Action Fairness Group, Sudbury, MA, for Round House, Inc. d/b/a Smuggler's Cove.

Richard J. Archer, Archer & Hanson, Occidental, CA, Matthew Floum, Brooklyn, NY, for Reyn's Pasta Bella, LLC, Jeffrey Ledon Deweese, M.D., Barry Leonard d/b/a Critter Fritters, and Hat-in-the-Ring, Inc. d/b/a Eddie Rickenbacker's.

Joshua R. Floum, Holme Roberts & Owen, LLP, San Francisco, CA, for Wells Fargo Bank, N.A.

Stanley M. Grossman, Pomerantz Haudek Black Grossman & Gross LLP, New York, Golomb Honik & Langer, Philadelphia, PA, for Nu-City Publications, Inc.

Fred T. Isquith, Wolf Haldenstein Adler Freeman & Herz LLP, New York, for Plaintiff Class and Class Representative, UCC QuickDocs, Inc.

John W. Rasmussen, Johnson Rasmussen Robinson & Allen PLC, Mesa, AZ, for Armenta's Mexican Food, Inc. and Lupita Llamas Martinez d/b/a Del Yaqui Restaurant.

Edward W. Cochran, Shaker Heights, OH, John F. Duane, New York City, for Leonardo's Pizza By the Slice, Inc. and 710 Corp.

William Kenneth C. Dippel, Dippel & Davis, PLC, Dallas, TX, for Preston Center Personal Training, Inc.

R. Stephen Griffis, Birmingham, AL, for Sound Deals, Inc. and Digital Playroom, Inc.

MEMORANDUM AND ORDER

GLEESON, District Judge.

In this antitrust action, a class of approximately five million merchants (the "Class") alleges that, among other things, defendants Visa U.S.A. Inc. ("Visa") and MasterCard International Incorporated ("MasterCard") have illegally tied their debit products to their credit cards, in violation of the Sherman Act. Just as the trial was about to commence, the parties agreed to settle. Essentially, the defendants promised to untie the two products, and to pay the Class more than $3 billion, in return for the Class' promise to release defendants from the claims in the case and other claims based on the same conduct. Now, lead counsel for the Class, Constantine & Partners, P.C. ("Lead Counsel"), seek approval of these settlements with Visa and MasterCard and of the proposed plan of allocation for distribution of the damages to the Class members. They seek attorneys' fees for their efforts and the efforts of co-counsel¹ in successfully prosecuting the case, and reimbursement of their expenses.

I approve the settlements and the plan of allocation. I also award attorneys' fees in the amount of $220,290,160.44, and authorize reimbursement of costs in the amount of $18,716,511.44.

BACKGROUND

The claims in the case, and the factual basis for those claims, are set forth in some detail in my decision on the parties' motions for summary judgment, In re Visa Check/Mastermoney Antitrust Litig., No. 96-CV-5238, 2003 WL 1712568 (E.D.N.Y. Apr.1, 2003), and my decision certifying the Class, In re Visa Check/MasterMoney Antitrust Litig., 192 F.R.D. 68 (E.D.N.Y. 2000), aff'd, 280 F.3d 124 (2d Cir.2001). Familiarity with those decisions is assumed here. The following is a brief summary of the facts and procedural history relevant to the issue before me.

In a complaint filed on October 25, 1996, the named plaintiffs asserted claims under sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2. They alleged that the defendants' practice of requiring merchants who accepted defendants' credit cards to also accept their debit products (the "Honor All Cards" rule) was an illegal tying arrangement, in violation of section 1. The plaintiffs further alleged that, through these tying arrangements and other anticompetitive conduct, the defendants attempted to monopolize the debit card market, in violation of section 2.

On February 22, 2000, I certified the Class, and the Second Circuit affirmed that order on October 17, 2001. Following the Second Circuit's decision, the parties supplemented their previously filed motions for summary judgment, and oral argument of those motions was held on January 10, 2003. On April 1, 2003, I granted plaintiffs' motions in part and denied them in part. I denied the defendants' motions. The parties then submitted a comprehensive, joint pretrial order. On April 21, 2003, jury selection began.

On April 28, 2003, the day opening statements were to occur, MasterCard agreed to settle with the Class. Because Visa and the plaintiffs were on the precipice of a settlement as well, opening statements in the trial against Visa were postponed for two days. On April 30, 2003, with a jury in the box awaiting opening statements, Visa and the plaintiffs agreed to settle. Thereafter, the parties entered into memoranda of understanding. These memoranda served as blueprints for the final proposed settlement agreements dated June 5, 2003 ("Settlements" or "Settlement Agreements").²

The Settlement Agreements are the proposed culmination of approximately seven years of litigation, and represent the largest antitrust settlement in history. They provide, among other things, for:

(1) the cessation, as of January 1, 2004, of defendants' "Honor All Cards" rules, by which the defendants' debit card services to merchants were tied to their credit card services (Settlements ¶ 4);

(2) the creation of a $3.05 billion settlement fund (id. ¶ 3(a));

(3) the creation of clear, conspicuous and uniform visual identifiers on Visa and MasterCard debit cards by January 1, 2007 (80% by July 1, 2005), so merchants and consumers can distinguish these products from credit cards (id. ¶¶ 5, 7);³

(4) the lowering, by roughly one third, of the interchange rates on debit products for the period from August 1, 2003, through December 31, 2003, (id. ¶ 8);

(5) other injunctive relief, such as the provision of signage from defendants to merchants communicating the merchants' acceptance of defendants' untied debit products; and a prohibition on defendants enacting any rules that prohibit merchants from encouraging or steering customers to use forms of payment other than defendants' debit cards, including by discounting other forms of payment (id. ¶¶ 6, 9);

(6) the Court's continuing jurisdiction to ensure compliance with the Settlement (id. ¶ 41); and

(7) the release of Visa and MasterCard from claims arising out of the conduct at issue in the action prior to January 1, 2004 (Visa Settlement ¶ 28; MasterCard Settlement ¶ 30).

Most of the compensatory relief will take the form of cash payments by Visa totaling $2,025,000,000 and by MasterCard totaling $1,025,000,000, in annual installments over the next 10 years. (Lead Counsel's Fee Pet. at 22 ("Fee Pet.") (citing Settlements ¶ 3).) The relief also includes approximately $846 million—the amount by which the interchange rates for defendants' debit products have been reduced for the period from August 1, 2003 through December 31, 2003. (Fisher Suppl. Dec. ¶¶ 4-6.)⁴ The discounted present value of the total compensatory relief, on which Lead Counsel base their requested fee, amounts to $3,383,400,000 (the "Fund"). (Fee Pet. at 3.)

The general terms of the Settlement Agreements were contained in a notice to the Class in July and August 2003.⁵ Only 18 merchants, out of approximately five million, filed objections to the Settlements and the plan of allocation.⁶ On September 25, 2003, I held a fairness hearing in our ceremonial courtroom to hear argument of those objections and any others that might be raised.

DISCUSSION

A. The Settlement

1. The Standard for Approving a Proposed Settlement

Pursuant to Federal Rule of Civil Procedure 23(e), any settlement of a class action requires court approval. In order to approve such a settlement, the court must assure itself that the settlement is "fair, adequate, and reasonable, and not a product of collusion." Joel A. v. Giuliani, 218 F.3d 132, 138 (2d Cir.2000). The decision to grant or deny such approval lies within the discretion of the trial court, see In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D. 465, 473 (S.D.N.Y.1998), and that discretion should be exercised in light of the general policy favoring settlement, see Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir.1982). In making this determination, a court must neither rubber stamp the settlement nor engage in "the detailed and thorough investigation that it would undertake if it were actually trying the case." City of Detroit v. Grinnell Corp., 495 F.2d 448, 462 (2d Cir.1974) ("Grinnell I"), abrogated on other grounds by Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir.2000).

To evaluate whether or not a class settlement is fair, a district court examines the negotiations that led up to the settlement and the substantive terms of the settlement. See In re Holocaust Victim Assets Litig., 105 F.Supp.2d 139, 145 (E.D.N.Y.2000). As to the first issue, "[t]he [negotiation] process must be examined `in light of the experience of counsel, the vigor with which the case was prosecuted, and the coercion or collusion that may have marred the negotiations themselves.'" Id. at 145-46 (quoting Malchman v. Davis, 706 F.2d 426, 433 (2d Cir.1983)). In this case, there could not be any better evidence of procedural integrity. Experienced and able counsel on all sides fought aggressively (albeit always with professionalism)...