A settlement that arose between major card brands Visa and MasterCard and a group of retailers, who claimed that antitrust activity among credit card brands harmed their businesses, may enter into a particularly rough patch in the weeks ahead.

Unhappy with the settlement, the retailers alleged that misconduct took place between key lawyers on each side of the case, preventing them from being fairly represented as a class during the settlement negotiations.

According to a source who spoke on background, court documents and several media sources, Gary Friedman, founder of the New York City-based Friedman Law Group LLP, and Keila Ravelo, a former partner at the Washington-based firm Wilkie, Farr and Gallagher LLP, allegedly engaged in improper communication during the negotiations.

At the time of the negotiations, according to court documents, Friedman served as lead counsel for the merchants in their antitrust case against American Express and as a key counsel in the merchants' litigation against Visa and MasterCard; he also served as lead counsel in the negotiations over the settlement's surcharge provisions, according to a legal source. Ravelo served as a counsel in the case for MasterCard.

At stake was a $6 billion settlement between the major card brands and retailers. Under the terms of the settlement, Visa and MasterCard, along with several major card issuers, would pay retailers a total of roughly $8.25 billion. The settlement also allowed retailers to surcharge, under certain restrictions, consumers who choose to pay with credit cards.

Credit unions were not directly involved in the settlement, but have joined different payment industry coalitions that formed to protect credit and debit card interchange and have given their input on the settlement.

“Astoundingly, while purporting to represent mandatory classes of virtually all of the nation's merchants in this case and in (the Visa/MasterCard litigation), Mr. Friedman was covertly collaborating with Ms. Ravelo, longtime counsel for MasterCard,” the merchants charged in a redacted version of their complaint in the litigation against the American Express case.

“Friedman effectively treated Ravelo as a member of his litigation team, despite the fact that MasterCard shared American Express' interest in reducing merchant bargaining power by limiting differential steering and that Ravelo was actively defending MasterCard against similar claims brought by the merchant class (the other case),” the merchants argued. “Yet, notwithstanding the stark opposition between the interests of MasterCard (and American Express) and those of merchants, Friedman repeatedly sought Ravelo's advice in this case.”

The merchants filed a similar complaint in the Visa and MasterCard litigation, but the court ordered it sealed because it contained information from thousands of emails between Friedman and Ravelo that might have been compromised from other clients, the legal source said.

The merchants also filed an affidavit from Hofstra University School of Law's Distinguished Professor of Legal Ethics Emeritus Roy D. Simon. Simon examined the documents and emails that the merchants passed between Friedman and Ravelo and concluded they both had broken their legal trusts.

“In my three decades studying professional responsibility for lawyers – more than 20 of those years advising class action lawyers – I cannot recall ever seeing such repeated and serious violations of professional duties by an attorney representing a class, or such willing participation in those violations by an attorney for a defendant in a class action,” Simon wrote.

“In my view, Mr. Friedman's disregard of his professional responsibilities was prejudicial to the administration of justice and creates an intolerable appearance of impropriety,” he added.

Neither of the lawyers for Friedman or Ravelo returned CU Times' requests for comment, nor did the Electronic Payments Coalition, the group of card issuers that was formed to represent issuers during disputes related to card interchange.

However, in its filings about the matter, American Express acknowledged that Ravelo and Friedman were friends, but argued that none of the communications they might have shared had an impact on the settlement.

“None of the communications between class co-lead counsel Gary Friedman and former Wilkie Farr & Gallagher LLP partner Keila Ravelo (the 'Communications') detracts from the conclusion that this settlement represents the best feasible settlement for the merchant class, and is fair and adequate by any measure,” American Express wrote.

The company argued that neither Friedman nor Ravelo had any authority to act on their own, and that representatives for merchants in the case had to agree to the Visa and MasterCard settlement as well as the American Express agreement.