Yesterday the Second Circuit reversed the approval of what was reportedly the largest antitrust class action settlement in history, valued at $7.25 billion. In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 2016 U.S. App. LEXIS 12047 (2d Cir. June 30, 2016). The case was brought by merchants who challenged the fees and rules that Visa and Mastercard imposed. I’ll spare you all of the details on that. The key problem the court found with the settlement was that two different parts of the class would get very different relief. Those merchants that accepted Visa and/or Mastercard up to November 28, 2012 would get monetary payments, while those merchants that accepted the cards after that date would get injunctive relief. Both groups were represented by the same plaintiffs’ lawyers. The second group got a very bad deal, according to the Second Circuit, and should have had separate counsel in the negotiations. The court wrote that “[u]nitary representation of separate classes that claim distinct, competing, and conflicting relief create unacceptable incentives for counsel to trade benefits to one class for benefits to the other in order somehow to reach a settlement.” Id. at *24.
This case and others like it demonstrate how challenging it can be for defendants and their counsel to negotiate a class action settlement. In the course of very difficult and lengthy negotiations, the defense team may need to try to put on three different hats. The first hat is the more customary one of trying to get the very best deal they can for the defendants. The second hat is to try to pretend they are plaintiffs’ lawyers and identify concerns that may require separate representation of different parts of the class (although if you think separate representation might be necessary, it won’t be easy to convince plaintiffs’ lawyers to get separate lawyers for different subclasses). The third hat is to try to play the role of the judge (and appellate judges) that may review the settlement and try to assess whether the best deal you can get is not so good for the defendants that it will not ultimately be approved.