Lipuma v. American Express Co., 04-20314-CIV.

• Decision Date: 20 December 2005
• Docket Number: No. 04-20314-CIV.,04-20314-CIV.
• Citation: 406 F.Supp.2d 1298
• Court: U.S. District Court — Southern District of Florida
• Parties: Edward LIPUMA, on behalf of himself and all others similarly situated, Plaintiff, v. AMERICAN EXPRESS COMPANY, a New York corporation, et al., Defendants.

406 F.Supp.2d 1298

Edward LIPUMA, on behalf of himself and all others similarly situated, Plaintiff, v. AMERICAN EXPRESS COMPANY, a New York corporation, et al., Defendants.

No. 04-20314-CIV.

United States District Court, S.D. Florida, Miami Division.

December 20, 2005.

James S. Baum, Schrag & Baum, Berkeley, Ca, Michael L. Schrag, Thomas F. Schrag, David S. Stellings, Lieff Cabraser Heimann, Bernstein, New York City, Irving Bizar, Ballon Stoll Bader & Nadler, New York City, Kevin S. Landau, Garwin Bronzaft Gerstein, Fisher Llp, New York City, Bruce E. Gerstein, Joy Ann Bull, Lerach Coughlin Stoia Geller, Rudman & Robbins, San Diego, CA, Adam M. Moskowitz, Kozyak Tropin & Throckmorton, Coral Gables, FL, Thomas A. Tucker Ronzetti, Roy Lewis Weinfeld, Roy L. Weinfeld PA, Miami, FL, Cory S. Fein, Caddell & Chapman, Houston, TX, Michael A. Caddell, Spencer Marc Aronfeld, Coral Gables, FL, Sanjay M. Ranchod, Girard Gibbs & De Bartolomeo, San Francisco, CA, A. J. De Bartolomeo, Daniel C. Girard, Thomas Emerson Scott, Jr., Cole Scott & Kissane, Miami, FL, Cynthia B. Chapman, Spencer Marc Aronfeld, Sanjay M. Ranchod, A. J. De Bartolomeo, Daniel C. Girard, for Plaintiffs.

ORDER APPROVING SETTLEMENT OF CLASS ACTION LAWSUIT

ALTONAGA, District Judge.

THIS CAUSE came before the Court on Monday, March 14, 2005, for an evidentiary hearing, concerning the parties' request that the Court approve the proposed class action settlement, and the intervenors' objections thereto. Earlier, in October 2004, the Court had given preliminary approval of a class action settlement, pursuant to Fed.R.Civ.P. 23(b)(3). [D.E. 153, 155]. The evidentiary hearing was held pursuant to Rule 23(e)(1)(A), Fed.R.Civ.P., which mandates judicial review of any "settlement, voluntary dismissal, or compromise of the claims, issues, or defenses of a certified class." The Court has carefully considered the parties' written submissions, including post-hearing memoranda and exhibits, the evidence and arguments presented, and applicable law. For the reasons, that follow, the proposed class action settlement is approved in full.

I. FACTUAL AND PROCEDURAL BACKGROUND

On August 23, 2003, in the Eleventh Judicial Circuit in and for Miami-Dade County, Florida (hereinafter the "State Action"), Plaintiff, University of Miami professor Edward LiPuma ("LiPuma"), on behalf of himself and others similarly situated, filed this lawsuit challenging Defendants, American Express Company, American Express Travel Related Services, Inc. and American Express Centurion Bank's (hereinafter collectively referred to as "American Express[']"), foreign currency exchange practices. The State Action was removed to this Court on February 10, 2004, Shortly thereafter, on February 10, 2004, the parties presented their Joint Request for Expedited Hearing on Parties' Joint Motion for Preliminary Approval. [D.E. 3]. Needless to say, much preparation, informal and formal discovery, and settlement negotiations had taken place prior to the Joint Motion for Preliminary Approval. American Express' foreign currency conversion practices, the pleadings framing the issues, the history of what preceded this case, the terms of the proposed settlement, matters addressed at the final fairness hearing, and post-hearing submissions are therefore important to consider and understand as they bear upon the assessment of the proposed class action settlement.

A. American Express' Foreign Currency Conversion Practices and Disclosures

When a U.S. American Express card-member uses his or her American Express card to purchase goods or services in a foreign currency, American Express pays the merchant in foreign currency but translates that foreign transaction to U.S. Dollars for billing and payment purposes. During the relevant time period, this conversion was accomplished by American Express using a currency exchange rate, which it unilaterally selected from either an interbank, tourist, or official rate, and then making an adjustment of up to 2% in accordance with its cardmember agreements. Interbank rates, which are used in most countries, are wholesale rates used in large-volume currency trading between major financial institutions. Interbank rates are not available to consumers, and these rates are more favorable than what consumers may obtain through the retail currency trading market.

American Express did not purchase foreign currency every time a cardmember made a foreign currency purchase. Rather, American Express bought and sold currency in the interbank foreign exchange markets, based on American Express' aggregate foreign currency positions.

Between March 1999 and October 2002, American Express made additional adjustments to interbank rates in certain markets. These competitive adjustments were made during discrete time periods in addition to the 2% rate adjustment. All competitive adjustments were eliminated by American Express in October 2002 and are no longer used. American Express has estimated that the revenue received from application of this competitive adjustment to U.S. cardmember transactions was less than $45,000,000.00.

As it pertains to Turkish Lira, in January 2000 American Express began to add 4 to the last digit used by its data processing systems before rounding transactions in Turkish Lira, which had the effect of causing the last digit to round up more often than it rounded down. In the aggregate, this practice resulted in adding approximately 8% to cardmember transactions in Turkey. Because of devaluation of the Lira during the relevant time period, the 2% rate adjustment was not applied in Turkey and the net effect was approximately 6%. In September 2002, the number added to the last decimal place was reduced from 4 to 2, which reduced the impact of rounding up more often than rounding down to approximately 3%, with a net effect of approximately 1% because the 2% rate adjustment was not applied. In December 2004, American Express ceased this practice, which had only been used in Turkey, and resumed normal rounding. The approximate aggregate effect of the earlier practice in Turkey was to increase cardmember transaction amounts by approximately 6.58%, with a net effect of 4.58% for the period between February 1999 and December 2004.

Beginning from at least March 1997, and during the time period relevant to this litigation, American Express' cardmember agreements contained the following provision describing the foreign currency conversion practice of American Express:

CHARGES MADE IN FOREIGN CURRENCIES

If you incur a charge in a foreign currency, it will be converted into U.S. dollars on the date it is processed by us or our agents at a rate set by us based on an interbank, tourist or (where required by law) official rate, increased in each instance by [1-2%].¹ This rate may differ from rates in effect on the date of your charge. Charges converted by establishments (such as airlines) will be billed at the rates such establishments use.

(Declaration of Gillen Clements ("Clements Decl."), ¶ 6, Ex. A (exemplar agreement) [D.E. 266]). This language was modified in September 2003 to read as follows:

Transaction Made in Foreign Currencies

If you incur a Charge in a foreign currency, it will be converted into U.S. dollars on the date it is processed by us or our agents. Unless a particular rate is required by applicable law, you authorize us to choose a conversion rate that is acceptable to us for that date. Currently, the conversion rate we use for a Charge in a foreign currency is no greater than (a) the highest official conversion rate published by a government agency, or (b) the highest interbank conversion rate identified by us from customary banking sources, on the conversion date or the prior business day, in each instance increased by 2%. This conversion rate may differ from rates in effect on the date of your Charge. Charges converted by establishments (such as airlines) will be billed at the rates such establishments use.

(Id., ¶ 7, Ex. B (exemplar agreement) [D.E. 266]).

The existence of the 2% foreign transaction fee was not disclosed in cardmember billing statements or other materials. However, the line item for each foreign charge would indicate the amount of the charge in foreign currency and the amount of the charge as converted by American Express into U.S. Dollars.

B. The Claims Made and Defenses Asserted

Plaintiffs' initial class-action Complaint described the lawsuit as a

civil action seeking restitution, damages, injunctive relief and other relief arising out of the unlawful actions of American Express in imposing a hidden 2% transaction fee on its cardholders for purchases of goods or services which are denominated in non-U.S. currency. Despite the fact that American Express touts the "global acceptance" of its cards that "open[] doors for cardholders at millions of establishments ... around the world," American Express never discloses the existence or amount of this fee (referred to herein as the "foreign currency transaction fee") in cardholder billing statements or its applications or solicitations to prospective cardholders. Indeed, American Express actively conceals the foreign currency transaction fee from its cardholders by embedding the amount of the fee in the transaction amount, which is shown on the cardholder's bill in U.S. dollars. Thus, because the 2% fee and the transaction are combined on the cardholder's bill, there is no indication on the billing statement that American Express imposes the foreign currency transaction fee.

(Complaint ("Comp."), ¶ 2 [D.E. 1]).

Again, in paragraph 15 of the Complaint, Plaintiffs repeat that "American Express imposes a hidden 2% foreign currency transaction fee on its cardmembers for purchases of goods and services which are denominated in non-U.S. currency." (Comp. ¶ 15 [D.E. 1]). In paragraph 17, it is repeated that "[a]fter converting the amount of the foreign charge to U.S. dollars, American...