wednesday, 5 august of 2015

Judge Rejects Settlement in American Express Case

It sounded like an innocuous message: “Amex negotiation has gotten crazy,” Gary Friedman, representing merchants in a lawsuit against American Express, said in a text message to his friend and fellow lawyer Keila Ravelo two years ago. “Gmailed u the issue.”

On Tuesday, a federal judge called the text, as well as emails from Mr. Friedman to Ms. Ravelo, “egregious conduct,” citing them as the basis for rejecting a proposed $75 million class-action settlement between American Express and a group of retailers that have been fighting for the right to charge consumers more for using Amex’s credit cards.

The decision could have ripple effects for another settlement, a nearly $6 billion agreement between many of the same merchants and Visa and MasterCard in 2013.

At the time, Ms. Ravelo was a partner at Willkie Farr & Gallagher, a New York law firm representing MasterCard. In his 44-page decision on Tuesday, Judge Nicholas G. Garaufis of United States District Court in Brooklyn said Mr. Friedman’s communications to Ms. Ravelo included confidential information that could have jeopardized the fairness of the proposed American Express settlement.

“Ravelo was not merely a third party who was unentitled to receive the materials that were sent to her by Friedman,” Judge Garaufis wrote, later adding that “with respect to the settlement of the Amex class actions, Friedman consulted Ravelo at what appears to be every step along the way.”

In at least two emails, Mr. Friedman had written “burn after reading.”

A spokeswoman for American Express, Marina H. Norville, said the company was “disappointed” with the judge’s decision.

“We believe we have strong defenses against the merchants’ claims, and will continue to fight our case in court,” she said.

The merchants are seeking an alternative resolution of the case that will provide greater discretion in passing the fees they pay for accepting American Express cards on to consumers, among other terms.

The judge’s ruling removed Mr. Friedman from the case.

If the relationship between Ms. Ravelo and Mr. Friedman was unusual, so, too, was how it came to light. Ms. Ravelo resigned from Willkie in November, one month before she was arrested and charged with scheming to defraud Willkie and one other law firm of millions of dollars.

Willkie found communications with Mr. Friedman during an internal review of Ms. Ravelo’s conduct, Judge Garaufis wrote.

Jeffrey I. Shinder, a lawyer with Constantine Cannon and one of the attorneys representing merchants including Walmart, 7-Eleven and Starbucks, said that the discovery prompted a “cryptic” email from a Willkie lawyer requesting a conference call.

“It was one of those moments that I’ll probably never forget because I had no idea what it was about,” Mr. Shinder said, adding that he learned details about communications between Mr. Friedman and Ms. Ravelo in a meeting the following week.

In an email on Tuesday in response to a reporter’s query, Mr. Friedman said he was “deeply disappointed” but respected the decision of the court.

“The one thing I do want to emphasize is that I never took any steps that were contrary to the interests of my clients, the merchants,” he wrote.

A lawyer for Ms. Ravelo, Steve Sadow, said he had no comment “at this time.”

Retailers want the ability to add surcharges when customers pay with Visa, MasterCard and American Express, which charge merchants each time one of their cards is used. But credit card companies, concerned that increased fees will discourage customers, have fought back.

The Visa and MasterCard settlement awarded merchants nearly $6 billion, an amount Mr. Shinder called a “drop in the ocean” compared with what those companies earn in fees. What merchants really want, he said, is greater discretion to add surcharges to help make up those costs.

Mr. Shinder hopes that Tuesday’s decision could potentially help his efforts to overturn the Visa and MasterCard agreement.

“In our view, what happened today should be relevant to the inquiry in Visa and MasterCard,” he said in an interview.

A spokeswoman for Visa, Connie Kim, declined to comment. A spokesman for MasterCard, Seth Eisen, said the company believed that its settlement would stand.

(Published by The New York Times - August 4, 2015)

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