In a unanimous ruling on Thursday, the US Court of Appeals for the Second Circuit [official website] rejected [opinion, PDF] a settlement agreement between retailers and credit card issuers. Millions of retailers had reached a $7.25 billion antitrust settlement [NYT report] with Visa USA and MasterCard International [corporate websites] in 2013. However, after determining that some of the merchants covered by the pact were inadequately represented, the Second Circuit found that the agreement violated Federal Rules of Civil Procedure Rule 23(a)(4) and the Due Process Clause of the Fourteenth Amendment [text]. The case was filed as an antitrust class action by approximately 12 million merchants in 2006 against Visa, Mastercard, and various issuing and acquiring banks alleging conspiracy in violation of Section 1 of the Sherman Antitrust Act [text]. The dispute mainly arose over the interchange fee, which is ultimately paid by retailers and other merchants to the issuers and banks. Among other deficiencies noted by the court, one class of merchants was eligible to receive money damages, while the other could only receive injunctive relief. There was also an opt-out provision, specifically reserved only for a particular class of merchants. Stating that the Due Process Clause requires the named plaintiff to “adequately represent the interests of all absent class members at all times,” the court stated that the settlement failed to meet this requirement and the procedural requirements of FRCP 23(a)(4) and rejected the settlement as unreasonable and inadequate.

There have been several high-profile cases involving credit card companies in the last several years. In April 2014, Judge William Pauley of the US District Court for the Southern District of New York [official website] dismissed [JURIST report] a class action lawsuit against American Express, Citigroup and Discover Financial Services [corporate websites] that alleged the three credit card issuers violated the Sherman Act by colluding to require that all disputes be settled in arbitration. The plaintiffs in the case were seeking injunctive relief to prohibit these credit card issuers from putting such arbitration clauses in their agreements. In August 2014, a judge for the US District Court for the Southern District of New York approved a settlement [JURIST report] in which Citigroup will pay its investors over $590 million for misrepresenting its assets in securities linked to the sub-prime mortgage crisis [JURIST news archive]. In June 2014, the US Supreme Court ruled [JURIST report] in American Express Co. v. Italian Colors Restaurant that the Federal Arbitration Act (FAA) [text] does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery.