United States: Approval Of Huge Class Settlement Reversed Based On Conflict Of Interest Of Class Counsel Representing Subclasses With Diverging Interests

Last Updated: July 29 2016
Article by Todd R. Seelman and Peter T. Shapiro

In In Re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, on June 30, 2016, a three-judge panel of the Second Circuit Court of Appeals issued an important class action ruling in a massive class action that involves 12 million class member merchants who sued Visa, Mastercard and various issuing and acquiring banks, alleging a conspiracy in violation of Section 1 of the Sherman Act (governing unlawful monopolization). The Court overturned the district court's approval of a class settlement on the grounds that the class representatives' counsel were conflicted in that they did not adequately represent the diverging interests of the members of the two settlement classes at issue. The settlement would have provided $7.5 billion to at least some members of the class. As explained below, this ruling underscores the importance of making sure that all class members' interests are adequately considered and represented before effectuating a global class settlement lest that deal be subject to disapproval by the court, or approved but then scuttled by an appellate court.

Plaintiffs' antitrust claims alleged that the defendants adopted rules that allowed the banks issuing credit cards to impose an artificially inflated interchange fee that merchants had little choice but to accept. The litigation commenced in 2006 and was litigated heavily until, with court supervision, a settlement was reached in 2012 and approved in 2013. The settlement divided the plaintiffs into two classes. The first class was certified pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure, and included merchants who accepted Visa or Mastercard from a date in 2004 to a date in 2012 who were entitled to $7.25 billion in monetary relief. The second class was certified pursuant to Rule 23(b)(2) and covered merchants that accepted Visa and Mastercard from the date in 2012 onwards forever, who would receive only injunctive relief in the form of rule changes. Based on the provisions of the rules, members of the first class were permitted to opt out of the settlement, whereas members of the second class had no opt out rights.  In addition, only members of the second class were required to forfeit certain rights to challenge Visa and MasterCard in the future.

The Second Circuit overturned the approval of the settlement based on its conclusion that members of the second class were not adequately represented by counsel, which had acted on behalf of both subclasses. The Court concluded that counsel's conflict violated both Rule 23(b)(4) and the United States Constitution's Due Process Clause. That conclusion was based on analysis of the traditional factors examined under Rule 23(a)(4) to determine the adequacy of representation; viz, that the class representative have an interest in vigorously pursuing the claims of the class and have no interests antagonistic to the interests of other class members. The Court reviewed Supreme Court guidance as to adequate representation in the settlement class context. Essentially, in many circumstances, it is necessary to create subclasses and have different counsel act for each such subclass. In this case, however, the two classes were represented by the same counsel despite the conflicting interests of the class members. Members of the class who sought only monetary relief would want to maximize cash compensation for past harm, while the members who were obtaining only injunctive relief would focus on maximizing the restraints on the network rules to prevent future harm. The Court relied on the Supreme Court's guidance, Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997), and Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999), to conclude that such divergent interests require separate counsel in view of the impact on the essential allocation decisions concerning plaintiffs' compensation and defendants' liability, particularly because members of the second class could not opt out. Meanwhile, the Court pointed out that class counsel had an enormous incentive to conclude this deal, which represented the largest ever cash settlement in an antitrust class action and which was to net counsel $544.8 million in fees. That incentive suggested that counsel may have been motivated by a desire to consummate the deal, with seemingly less concern for the interests of the clients in the second class.

This case provides important lessons for litigants and counsel in the class action context particularly in federal court. It would be a best practice for counsel on either side to  give serious consideration to whether separate counsel is required in any case in which subclasses must be certified in order to achieve a class settlement. This will be a particular concern in cases such as this one, in which some class members eek monetary relief to recover past damages while other class members seek only equitable relief to improve the conditions under which they will continue to operate. Structural protections, such as the formation of subclasses with separate counsel, are necessary to protect all class members' interests.

While class counsel were perhaps the most directly impacted participants as a result of this settlement being scuttled, the failure to consider this issue prejudices all parties which have reached good faith settlements after extensive negotiation and then are faced with the prospect of incurring still more legal fees and facing the considerable risks of future litigation when the court rejects the settlement based on the conflict of interest of class counsel. Since virtually any settlement that involves subclasses where the interests of the class members may diverge could be threatened, counsel for both sides will necessarily have to consider this teaching of this case as a threshold issue before embarking on a path towards settlement. Necessarily, consideration will have to be given to how procedurally to introduce and obtain the court's approval of new counsel for a proposed settlement subclass that has not yet been certified.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions