Court certifies Interchange Fee equitable-relief class despite major retailer opposition

In the latest chapter of the ongoing, multi-decade saga of the Interchange Fee Antitrust Litigation, Judge Margo K. Brodie of the U.S. District Court for the Eastern District of New York certified an equitable-relief class of merchants under Rule 23(b)(2) on September 27, 2021, despite the vigorous opposition of some of the nation’s largest retailers—including Target, 7-Eleven, Home Depot, and Wal-Mart.[1]

The objecting retailers had argued, among other things, that approving an equitable-relief class without permitting opt-outs could negatively impact the retailers’ damages claims through claim or issue preclusion. Judge Brodie largely rejected the arguments, and certified an equitable-relief class while rejecting two proposed class representatives and slightly modifying the class definition.

Background

The district-court decision followed the Second Circuit’s rejection of a combined damages and equitable-relief class settlement in 2016.[2] The Second Circuit had held that the interests of the damages and equitable-relief classes diverged, and thus the two classes could not be represented by the same counsel.[3]

On remand, Judge Brodie appointed separate interim co-lead counsel for the damages and equitable-relief classes.[4] The equitable-relief plaintiffs filed their amended complaint in March 2017, alleging that Visa and Mastercard’s collusive and anticompetitive practices violated Sections 1 and 2 of the Sherman Act.[5] The equitable-relief plaintiffs sought declaratory and injunctive relief on behalf of a putative class of all merchants accepting Visa and Mastercard credit or debit cards.[6]

In September 2018, the (b)(3) damages class reached a settlement with Visa and Mastercard.[7] The court granted final approval to the damages settlement in December 2019.[8] The settlement is now on appeal in the Second Circuit for issues unrelated to those raised by challengers of the equitable-relief class.

On May 4, 2021, the equitable-relief plaintiffs moved under Rule 23(b)(2) to certify a class composed of all merchants accepting Visa or Mastercard credit or debit cards “between December 18, 2020 and 8 years after the date of entry of Final Judgment in the case.”[9] Although Visa and Mastercard did not oppose the motion for class certification, as already noted, several large retailers opposed certification of the (b)(2) class, along with the National Retail Federation and the Retail Industry Leaders Association (the “Opponents”).[10]

Claim and issue preclusion

The Opponents of class certification argued that certifying a mandatory (b)(2) class would impermissibly alter the rights of merchants seeking money damages via claim or issue preclusion.[11] 

Several argued that an adverse judgment in the equitable-relief case could preclude class members’ damages claims outright, thus depriving them of due process. The court rejected this argument, noting that, as the Ninth Circuit has held, “the general rule is that a class action suit seeking only declaratory and injunctive relief does not bar subsequent individual damage claims by class members, even if based on the same events.”[12]

While the court made short work of the claim-preclusion argument, the Opponents’ issue-preclusion argument—otherwise known as collateral estoppel— proved more challenging. The Opponents argued that unless they could opt out, certification of a (b)(2) equitable-relief class could adversely affect their individual claims for compensatory damages.[13]

In support of their argument, the Opponents relied on Wal-Mart Stores, Inc. v. Dukes, in which the Supreme Court had declared that certifying claims for partial damages and injunctive relief together under Rule 23 (b)(2) “created the possibility . . . that individual class members’ compensatory-damages claims would be precluded by litigation they had no power to hold themselves apart from.”[14] The Court ruled that the possibility that a class member “might be collaterally estopped from independently seeking compensatory damages” based on an adverse ruling in the (b)(2) action “underscores the need for plaintiffs with individual monetary claims to decide for themselves whether to tie their fates to the class representatives’ or go it alone—a choice Rule 23(b)(2) does not ensure that they have.”[15]

The Opponents argued that the language in Dukes reflected the Supreme Court’s judgment that a (b)(2) class that could lead to the preclusion of issues in class members’ damages claims cannot be certified. But as Judge Brody stressed in rejecting this argument, such a rule “would essentially render Rule 23(b)(2) classes impossible to pursue.”[16] Rather, she concluded, the Supreme Court in Dukes had held merely that “claims for monetary relief cannot be certified as part of a mandatory Rule 23(b)(2) class . . . not that (b)(2) classes generally create a collateral estoppel risk as to damages claims.”[17] Thus, the district court held that the risk of issue preclusion did not preclude certification of a (b)(2) class.[18]

Opt-out rights

The district court also declined to grant the Opponents the opportunity to opt out of the equitable-relief class. The Opponents had argued that the court should permit opt outs from the (b)(2) class to cure the adequate-representation and due-process concerns that they had raised. Defendants Visa and Mastercard responded that the court should not permit opt outs and should certify a mandatory class, emphasizing that the “adequate representation that a court finds in certifying a Rule 23(b)(2) class obviates the need for permitting opt-outs from the class; in the absence of adequate representation, certification is simply denied.”[19]

Agreeing with the defendants and the plaintiffs, the court held that because the class satisfied the requirements of Rule 23(a) and 23(b)(2), Rule 23 did not require that merchants be able to opt out of the equitable-relief class. [20] Moreover, Judge Brodie added that granting such an opt-out right could undermine the ability of the class and the defendants to reach a settlement.[21]

Conflicts of interest

While granting the motion for class certification, the district court also held that two of the proposed class representatives—DDMB and DDMB 2—had a conflict of interest due to their business relationships with class counsel. Opponents asserted that all five of the proposed class representatives had personal or business ties to class counsel that rendered them inadequate.[22] Plaintiffs punted and did not address the relationships between class representatives and class counsel in their briefs.[23]

While concluding that most of the class representatives’ relationships with class counsel were not improper, the court found that proposed class representatives DDMB and DDMB 2 both had close business relationships with class counsel that rendered them unsuitable class representatives. The court noted that one of the proposed class co-lead counsel had invested in another business owned by Douglas Marks of DDMB and DDMB 2.[24] The court concluded that because the proposed co-lead counsel had invested in Marks’ company, Marks could “potentially benefit from any attorneys’ fees . . . and could act in his own interest instead of the interest of the class as a whole.”[25] The court noted that, in addition to the several other sufficient named plaintiffs, there are “a wealth of other merchants who can serve as class representatives,” but co-lead counsel’s business relationship prevented DDMB and DDMB 2 from serving as class representatives.[26]

Temporal scope of class definition

The Opponent merchant trade groups (the National Retail Federation and the Retail Industry Leaders Association) also argued that the proposed class definition’s broad temporal scope, covering merchants eight years into the future, rendered the class unascertainable.[27] In response, the plaintiffs contended that the eight-year period matched the anticipated length of “any decree ordered in this case.”[28]

The court found this explanation unconvincing, and concluded that the eight-year period was arbitrary. The court exercised its discretion to narrow the proposed class definition to only those merchants who accepted Visa and Mastercard debit or credit cards in the United States “at any time during the period between December 18, 2020 and the date of entry of Final Judgment.”[29] The court noted that plaintiffs could seek to modify the class definition, but must “substantiate the time period that applies to future merchants.”[30]

Takeaways

The court’s near-complete rejection of the strong objections raised by some of the nation’s largest and most powerful retailers indicates that Rule 23(b)(2) remains a robust avenue for plaintiffs to seek classwide equitable relief.

Certain arguments raised by the Opponents, however, are being put forth with greater frequency by opponents of (b)(2) classes—and if adopted by courts, could imperil the equitable-relief class action device provided by Rule 23 (b)(2). In particular, as the court noted, the Opponents’ argument that “a Rule 23(b)(2) class cannot be certified when it might collaterally estop litigation of issues in damages claims would essentially render Rule 23(b)(2) classes impossible to pursue.”[31] Without clearer guidance from the circuit courts, district courts may continue to struggle to untangle—as the district court did here—the doctrine of equitable estoppel from Rule 23(b)(2). Notably, however, the Opponents have not appealed the district court’s decision to certify the class.

Footnotes

[1] DDMB, Inc. v. Visa, Inc., No. 05-MD-1720 (E.D.N.Y. Sept. 27, 2021), Dkt. No. 8647 (“Op.”).

[2] In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 827 F.3d 223, 231 (2d Cir. 2016).

[3] Id. at 233–35.

[4] Op. at 9.

[5] Id. at 10–11.

[6] Id. at 11–12.

[7] Id. at 9–10 n.15.

[8] Id.

[9] Id. at 12.

[10] Id. at 4–5,

[11] Id. at 42.

[12] Id. at 61–62 (quoting Hiser v. Franklin, 94 F.3d 1287, 1291 (9th Cir. 1996) (noting that “every federal court of appeals that has considered the question has held that a class action seeking only declaratory or injunctive relief does not bar subsequent individual suits for damages”)).

[13] Id. at 65–68.

[14] 564 U.S. 338, 364 (2011),

[15] Id.

[16] Op. at 72.

[17] Id. at 67.

[18] Id. at 73.

[19] Id. at 116.

[20] Id. at 116–120.

[21] Id.

[22] Id. at 84.

[23] Id.

[24] Id. at 87.

[25] Id. at 88.

[26] Id.

[27] Id. at 92.

[28] Id. at 91–92.

[29] Id. at 98–99 (internal quotations omitted).

[30] Id. at 99.

[31] Id. at 72.

*Ian J. Engdahl is an Associate in the Washington, D.C. office.