In a move that could portend trouble for a similar settlement between merchants, Visa and MasterCard, a federal judge has thrown out a proposed settlement of merchant antitrust claims against American Express.
U.S. District Judge Nicholas Garaufis had preliminarily approved a $79 million class action settlement of merchant antitrust claims against American Express in a case that was similar, but not identical, to an antitrust case involving merchants, Visa and MasterCard.
Garaufis threw the proposed settlement out after documents surfaced that reflected improper communication between the merchant's lead attorney in the case, Gary Friedman, and a leading MasterCard attorney, Kiela Ravelo.
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Merchants that were unhappy with the settlement made a motion, which the court accepted, that the communication that took place between Friedman and Ravelo had compromised the settlement negotiations.
"Whether Friedman exchanged confidential and/or privileged materials with Ravelo and consulted with her regarding these actions for financial reasons, out of personal loyalty, due to a misplaced sense that her advice would in fact benefit the merchant class and was not improper, and/or for some other reason(s), is something this court cannot currently, and need not, determine," Garaufis wrote in his decision.
"Whatever his reason for doing so, Friedman's bringing MasterCard's counsel into the negotiating process created a conflict between class members and Class Counsel, and specifically a risk that Friedman, with Ravelo in his ear, negotiated settlement terms that are worse for class members than the terms he might have negotiated absent that conflict. This risk requires the court to deny approval of the settlement," the judge concluded.
Garaufis also removed Friedman as co-lead counsel for the merchants and demanded the remaining counsel demonstrate by Sept. 8 why they should remain assigned to the case and propose someone else as lead counsel.
American Express said in a statement that it was disappointed in the ruling because it considered the settlement agreement fair.
"We believe we have strong defenses against the merchants' claims, and will continue to fight our case in court," the company added in its statement.
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