Second Circuit Upholds $5.6 Billion Settlement Between Mastercard, Visa, Payment-Card-Issuing Banks and U.S. Merchant Class

Paul, Weiss won a major victory for Mastercard in an 18-year-long class action over the fees charged to retailers accepting payment cards from Mastercard and Visa. Nearly a year after Paul, Weiss gave oral arguments on behalf of the settling group of payment card companies and card-issuing banks, the Second Circuit upheld a $5.6 billion settlement approved in 2019 with a nationwide merchant class, allowing the settlement to finally be implemented.

The underlying litigation and resulting settlement were remarkable in scope and complexity, involving 12 million U.S. merchants and a cast of hundreds of lawyers and scores of law firms. Plaintiffs challenged the payment cards’ so-called “interchange” fees and certain rules governing merchants’ acceptance of the cards—core practices of the payment card industry—and sought treble damages related to all Mastercard and Visa payment-card transactions at U.S. merchants since 2004, as well as injunctive relief.

In 2012, a team led by Paul, Weiss litigation partner Ken Gallo struck a $7.25 billion global settlement resolving the retail swipe-fee litigation, but in 2016, the Second Circuit rejected it, forcing the parties to go back to the drawing board. Over the next two-plus years, Mastercard, along with its co-defendants Visa and numerous card-issuing banks, struck a $5.6 billion settlement in 2018 with the nationwide merchant damages class, and in December 2019, a federal judge in the Eastern District of New York granted final approval.

The current appeal arose after that approval. In their 2020 challenge, certain gas station franchisees claiming to represent a franchisee group appealed to the Second Circuit. The objectors argued, among other things, that they were out of the money in the current settlement and the existence of an unresolved conflict between franchisors and franchisees required reversal of the approval. Plaintiffs challenged the settlement on several grounds, including ascertainability, adequacy of representation, claims administration, and notice. A key issue was whether the court could approve a settlement where there remain disputes about which parties own the claims. They also challenged the fees awarded to the plaintiffs firms. Paul, Weiss litigation partner Kannon Shanmugam argued the appeal on March 17, 2022, alongside appellate counsel for the settling merchants class.

In the end, the answer was a resounding “yes.” The court ruled that the still-unresolved questions should be left to a court-appointed special master. “The question of which ones accepted the payment cards was not resolved by the district court but was instead set aside for determination by a special master, subject to de novo review by the district court,” Circuit Judge Dennis Jacobs wrote for the panel. “Appellants contend that this failure of the settlement agreement renders the class unascertainable, with dire consequences for the settlement. This is mistaken.”

The Paul, Weiss team on the appeal was led by litigation partners Kannon Shanmugam and Ken Gallo. Members of the team that worked on the settlement and appeal included litigation partners Brette Tannenbaum, Yahonnes Cleary and Andrew Finch, and counsel Gary Carney, Donna Ioffredo and Daniel Crane.