Court cuts American Express settlement

Court cuts American Express settlement

Merchants get a new chance to assert claims

Finding “egregious” misconduct by the lead lawyer for a class of American Express merchants, a New York district court rejected a request for final approval of a nationwide antitrust settlement.

The good news? American Express merchants that have not yet sought individual relief likely may do so now despite a probable statute of limitations defense for damages beyond the four-year period under the Sherman Act. The disapproval of the settlement may permit the merchants to get the benefit of American Pipe tolling and, as a result, they could assert damages claims going all the way back to 2000.

The settlement

On February 11, 2014, U.S. District Judge Nicholas G. Garaufis in Brooklyn granted preliminary approval of a mandatory class action settlement on behalf of American Express merchants, who would receive injunctive relief but no money.

The pact tweaked American Express’s rules against merchants’ granting price breaks to customers who pay with (cheaper) debit or proprietary store cards (or cash, check, or ACH transfer) rather than (more expensive) Amex credit and charge cards. Although the deal promised no cash awards to members of the merchant class, it allowed class counsel to ask for up to $75 million in fees and expenses.

Rejection

All that went for naught. In a 44-page opinion, Judge Garaufis denied final approval of the settlement. In re American Express Anti-Steering Rules Antitrust Litig., No. 11-md-2221 (E.D.N.Y. Aug. 4, 2015). He found that the actions of the lead lawyer for the merchant class, Gary B. Friedman had tainted the settlement process. Friedman had done so by sharing confidential information with, and seeking the advice and guidance of, Keila Ravelo, a defense lawyer and long-time Friedman acquaintance who represented MasterCard in a similar antitrust case.

The shenanigans came to light 10 months after the preliminary approval. The disclosure ensued as a result of the MasterCard lawyer’s arrest on December 22, 2014 for defrauding two law firms of several million dollars. She and her husband used fake vendors to send phony bills to the firms, where she worked as a partner. One of the firms turned over (to lawyers representing other parties in the American Express case) documents reflecting communications between her and the lead class counsel in the American Express case.

Judge Garaufis found lead counsel’s behavior “egregious”. He added:

Whatever his reason for doing so, Friedman’s bringing MasterCard’s counsel into the negotiating process created a conflict between class members and Class Counsel, and specifically a risk that Friedman, with Ravelo in his ear, negotiated settlement terms that are worse for class members than the terms he might have negotiated absent that conflict. This risk requires the Court to deny approval of the Settlement.

Id. at 36-37.

Good news for Amex merchants?

The outcome may prove a boon for members of the merchant class. Some class members with large enough claims have already commenced individual lawsuits or arbitrations against American Express, but many have not. The delay normally would doom their claims for damages from 2011 and before under the Sherman Act’s four-year statute of limitations.

But American Pipe tolling — which gets its name from American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) — halts the running of limitations on individual claims for members of a class that loses a fight for class treatment under Rule 23. See Renee Choy Ohlendorf, “Growing Divide over Class Action Tolling under American Pipe“, Feb. 4, 2015, Litigation News.

The first case that makes up the American Express merchants litigation dates to 2004. The Marcus Corp. v. American Express Co., No. 13-CV-7355 (E.D.N.Y.). Similar cases ensued in the following years. Merchants who fit within the class definitions in those cases and have not previously opted out or filed a lawsuit or arbitration should qualify for American Pipe tolling for purposes of bringing individual (non-class) claims). Tolling should therefore entitle class members who now opt out of the class to pursue claims for up to 15 years of damages.

Will the settlement agreement blow?

The Class Settlement Agreement provides that either American Express or “the Class Plaintiffs as a group” may “terminate” it in the event Judge Giraufis declined to grant final approval. Class Settlement Agreement § 61.

Having lost a bench trial on the merits before Judge Giraufis earlier this year, American Express will not likely want to abandon the settlement. See United States v. American Express Co., No. 10-CV-4496 (E.D.N.Y. Feb. 19, 2015). The ruling last week puts Class Counsel in disarray; Judge Giraufis not only removed Friedman as class counsel but also ordered the other lead counsel to show cause why he should not remove them as well. In re American Express Anti-Steering, slip op. at 44.

But the likelihood that replacement class counsel or Judge Giraufis will allow the Class Settlement Agreement, in light of the government’s victory on the merits and the misconduct that led to the agreement in the first place, to stand seems low indeed.

American Express merchants may wish to consult their lawyers.