AmEx Judge Rejects Merchant Settlement Over Card Fee Rules

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A U.S. judge rejected American Express Co.’s settlement with merchants over credit card fees after finding the plaintiffs’ lawyer tainted the deal by exchanging confidential information with an attorney for MasterCard Inc.

The rejection means that merchants and the card firm may have to renegotiate the deal or possibly go to trial. A conference is scheduled in Brooklyn, New York federal court for Oct. 5 to discuss the next steps.

“We believe we have strong defenses against the merchants’ claims, and will continue to fight our case in court,” Sanette Chao, a spokeswoman for AmEx, said in a statement.

Small merchants support the settlement that required AmEx to change its rules on credit card surcharges, while dozens of large retailers including Wal-Mart Stores Inc., claimed it didn’t go far enough. Those retailers also oppose a separate $5.7 billion swipe fee settlement with MasterCard and Visa Inc., saying it’s not big enough and the terms are too restrictive.

The retailers used an exchange of e-mails between the plaintiffs’ lead lawyer Gary Friedman and Keila Ravelo, who represented MasterCard in a separate case, to support their assertions that the deals were rigged. The retailers sent a notice to Visa and MasterCard lawyers last week that they would seek to throw out that deal as well. No action has been taken on that request.

Lawyer Conflicted

“Friedman’s bringing MasterCard’s counsel into the negotiating process created a conflict between class members and class counsel,” U.S. District Judge Nicholas Garaufis said Tuesday in the ruling, throwing out the settlement. There was a risk “that Friedman, with Ravelo in his ear, negotiated settlement terms that are worse for class members.”

Garaufis also ordered that Friedman be removed as the lead lawyer for the merchants.

Under the settlement announced in 2013, American Express agreed to end a company policy that compelled merchants to charge the same fee regardless of the card that was used. In a separate antitrust dispute, the U.S. Justice Department won a ruling in February requiring the company to drop many of its merchant rules. AmEx has challenged that ruling.

The New York-based card company is “disappointed in the court’s decision to deny final approval of the settlement,” Chao said. “We continue to believe the agreement was fair.”

Friedman said in an e-mail Tuesday that he is “deeply disappointed, but I respect the decision of the court.”

Longtime Friend

“I never took any steps that were contrary to the interest of my clients, the merchants,” he said. “I have always acted to promote their welfare.”

The lawyer’s communications with Ravelo, a longtime friend, came to light after she was arrested on federal criminal charges last year unrelated to the credit card litigation.

The exchanges included more than 18,000 pages of e-mails, personal text messages and other documents sent over the course of more than 15 years, according to the merchants.

Ravelo’s lawyer, Steve Sadow, said he won’t be able to comment publicly on the court’s order regarding the AmEx settlement until there is a ruling on the MasterCard and Visa accords.

The e-mails suggested Friedman’s “duty of loyalty” to merchants in the negotiations “clearly likely was compromised,” Jeffrey Shinder, an attorney for companies challenging the settlements, told a Brooklyn federal judge in May. Shinder said he had indications there was “sharing of strategies” between the lawyers.

The case is American Express Anti-Steering Rules Antitrust Litigation, 1:11-md-2221, U.S. District Court, Eastern District of New York (Brooklyn).

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