Wells Fargo Merchant Fee Class Action Lawsuit Struck Down

A federal judge has refused to certify a class action lawsuit filed by a merchant who accuses Wells Fargo Bank NA and First Data Merchant Services Corp. of tacking on unauthorized transaction fees to online credit card purchases, ruling that it failed to prove there were enough other merchants were affected by the processing agreements.

Lead plaintiff Spread Enterprises Inc. alleged in the class action lawsuit that it used First Data Merchant Services to process credit card transactions for its e-commerce platform. Payment processing firms like First Data can tack on charges for various aspects of each purchase. For example, an e-commerce firm can request authorization, indicating that a customer has the money to complete a purchase with others either refunding the amount or moving the funds from the purchaser’s bank to the company’s financial institution, including Wells Fargo.

The class action lawsuit accused the defendants of using an “unlawful practice of overcharging merchants for certain unauthorized and extra-contractual transaction fees in connection with the process of credit card transactions.”

According to the class action lawsuit, First Data Merchant Services used an online gateway that improperly assessed charges of one or more types even when they were not necessary for the transaction. In doing so, First Data allegedly breached its contract with Spread Enterprises, and the company believed that other merchants were similarly affected.

U.S. District Court Judge Arthur D. Spatt disagreed.

“The court finds that the plaintiff has failed to demonstrate that there has been an injury common to all potential class members,” Judge Spatt said in his Feb. 22 order. “While the plaintiff extensively discusses its own injury as a result of [First Data’s] alleged overcharging, it highlights no similar examples with respect to other merchants.”

He cited First Data notes regarding other companies’ complaints regarding credit card transaction fees, of which there were only a few. There were other obstacles to class certification under Rule 23 standards as well.

First Data uses independent sales organizations, outside vendors that work out contracts with merchants like Spread Enterprises. This allows for subtle variations in contracts depending on those agreements. As such, there are not common questions of fact regarding any of the putative sub-classes as they were not governed by the exact same contracts regarding credit card transaction fees..

To that end, Judge Spatt could not find in the amended class action lawsuit any evidence that Spread Enterprises’ fellow merchants suffered from similar injuries so that they could be deemed an adequate class representative or estimate the numerosity of the plaintiffs.

In a minor bit of procedure, the entire class action lawsuit had to be dismissed with prejudice, meaning that it can be filed again. In federal actions, plaintiffs and defendants must reside in separate states. The Class Action Fairness Act allows an exception to this, but with the denial of certification, it left the court “without subject matter jurisdiction” resulting in dismissal.

Spread Enterprises is represented by class action attorneys Frederic S. Fox of Kaplan Fox & Kilsheimer LLP, Marc A. Wites of Wites & Kapetan PA and Lawrence B. Lambert.

The Wells Fargo Transaction Fees Class Action Lawsuit is Spread Enterprises Inc. v. First Data Merchant Services Corp., et al., Case No. 11-cv-04743, U.S. District Court, Eastern District of New York.