Judge Rejects AmEx Class Action Settlement Over Attorney Collusion

A proposed antitrust class action settlement with American Express Co. was rejected by a New York federal judge, who said that the sharing of confidential information by one of the lead plaintiff’s attorneys with attorneys for MasterCard Inc. “smacks of blatant collusion.”

That isn’t the only concern of U.S. District Judge Nicholas G. Garaufis, who said that he was also concerned about fairness issues surrounding the class action settlement.

Under the proposed deal, retailers would be allowed to include a surcharge on purchases made with American Express credit cards along with surcharges on other credit cards but without including fees on purchases made with debit cards.

The proposed class action settlement also included up to $75 million in attorneys’ fees plus an addition $4 million in other costs.

However, Judge Garaufis expressed fewer concerns about the value of class action settlement, than he did about the alleged “egregious conduct” of attorney Gary Friedman, who was a lead plaintiff for the attorney. Objections about Friedman were raised by almost 20 percent of the Class Members.

Friedman allegedly gave what was supposed to be protected information to MasterCard attorney Keila Ravelo.

“As a matter of course, Friedman improperly sent emails containing confidential and highly confidential information of American Express that was produced subject to a protective order that prohibited its further dissemination to Ravelo, counsel for MasterCard, American Express’ major competitor and not a party to the protective order(s),” the judge wrote.

“The emails unequivocally reveal that this was not an inadvertent violation: In at least two of them, Friedman writes, ‘Burn after reading,'” he added.

“The court need not, and does not, reach the merits of these aforementioned objections today, because it concludes that the improper and disappointing conduct of co-lead class counsel Gary B. Friedman has fatally tainted the settlement process,” Judge Garaufis wrote.

“The procedural unfairness and failure of adequate representation (as this conduct bears on both inquiries) revealed by the Friedman/Ravelo communications requires disapproval of the settlement; the court cannot thoughtfully assess its substantive fairness without assurance that the class was properly represented in the negotiations thereof,” the New York federal judge added.

Judge Garaufis dismissed the proposed class action settlement and removed Friedman along with his law firm, Friedman Law Group LLP, from serving as lead co-lead counsel for the plaintiffs. He also wants the other members of the plaintiff’s counsel team to also explain why they should continue to be able to represent the class.

In addition, he also wants the parties involved in the class action lawsuit to get a different mediator, who has experience with antitrust class action lawsuits, should they return to mediation. That person will need the federal judge’s approval, he added.

The class action settlement was reached in late 2013 between American Express and a group of merchants, over rules the company had, which kept the retailers from telling its customers that other credit cards were cheaper to use.

Under the deal, retailers would have been able to charge an additional fee for using a credit card, as long as the same surcharge was included with all all credit cards accepted.

When Judge Garaufis originally approved the AmEx class action settlement in February 2014, he did express concerns about the fairness because it wouldn’t benefit merchants in states that blocked surcharging. He also added that it didn’t create or promote competition between the credit card companies.

The class plaintiffs are represented by Gary B. Friedman of Friedman Law Group LLP, Mark Reinhardt of Reinhardt Wendorf & Blanchfield and Read K. McCaffrey.

Visa is represented by Arnold & Porter LLP and Holwell Shuster & Goldberg LLP.

Mastercard is represented by Willkie Farr & Gallagher LLP and Paul Weiss Rifkind Wharton & Garrison LLP.

AmEx is represented by Boies Schiller & Flexner LLP.

The AmEx Merchant Fee Class Action Lawsuit is American Express Anti-Steering Rules Antitrust Litigation, Case No. 1:11-md-02221, in the U.S. District Court for the Eastern District of New York.