Merchants Seek To Restart Interchange Litigation

July 28, 2015 at 9:33 am Leave a comment

Like a bad horror movie where the Villain seemingly reaches from beyond the grave-I’m thinking Glen Close in Fatal Attraction-the antitrust  litigation between merchants and Visa and Master Card could be coming back to life. Merchants have filed a motion in federal district court in New York seeking   to vacate the $7 billion settlement that was reached between merchants and the card payment networks in 2012 that was supposed to put an end to litigation claiming that interchange fees violated the law.

A motion  by the merchants alleges that Gary Friedman, an attorney who represented merchants in a suit against American Express at the same time the Visa/ MasterCard litigation was taking place, passed on confidential information without authorization to an attorney and friend who was representing Visa and MasterCard.  The motion contends that by “illegally” passing on this information Friedman was “helping the enemy.” In doing so merchants claim they were denied adequate representation, they argue that the attorney’s conduct amounts to a conflict of interest that necessitates vacating the settlement. They are also seeking to keep him from collecting the $32 million he earned representing them.   Attorneys representing Visa and MasterCard have until August 18th to respond to the motion.

This allegation is serious.  Clients are entitled to the undivided loyalty of their attorney and if that right is denied them it can lead to lawsuits being reopened.

This litigation has been dragging on since 2005. In addition to the record settlement, Visa and MasterCard agreed to changes to their merchant agreements, For example  merchant contracts no longer prohibit merchants charging more for credit card transactions. According to court records the lawsuit has resulted in a mere 400 depositions and the production of 80 million documents.

Is The CFPB unconstitutional?

Since we are talking about lawsuits  I feel like mentioning one of my favorites. In 2012  State National Bank of Texas challenged the constitutionality of the Dodd Frank Act.   With the backing of several State AGs it argued, among other things, that (1) Dodd-Frank gave the CFPB powers that only Congress   could exercise and (2) that it was unconstitutional to vest all of the Bureau’s powers in a single director.

The suit has always been a longshot and no one was all that surprised when it was dismissed  in  August of 2013 on the grounds that the  bank lacked standing to sue the CFPB.   Last week  the Court of Appeals for  DC  caught more than a few court watchers  by surprise;  The Court held that the bank could bring its lawsuit because it was regulated by the CFPB and impacted by its regulations. State Nat. Bank of Big Spring v. Lew, No. 13-5247, 2015 WL 4489885 (D.C. Cir. July 24, 2015).

As an unabashed constitutional dinosaur when it comes to the ever-expanding powers of regulators, I have a real soft spot for this lawsuit even if it  is the longest of long shots. I’m not saying that the CFPB is going away but what I am saying is that,  since the  1930’s-like I said I’m a dinosaur-Congress has gotten too used to delegating too much power to  agencies. These agencies are ostensibly constrained by Congress, but as  Dodd Frank demonstrates,  so much legislation is so broadly written there are few actual constraints on regulators. By letting this case go forward the courts can begin  reexamining what limits, if any, the constitution places on Congress to delegate de facto legislative power to unelected regulators.

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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